10-Q 1 a2049668z10-q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 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: MARCH 31, 2001 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: TO: ----------------- -------------------- Commission file number: 1-5513 ------------------------------------------------------- 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) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by checkmark 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 PROCEEDINGS DURING THE PAST FIVE YEARS: Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Section 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 ----- ----------- COMMON STOCK, NO PAR VALUE 5,654,000 TRIDEX CORPORATION AND SUBSIDIARY INDEX

~~SEPTEMBER~~PAGE 30, DECEMBER 31, 2000 1999 ASSETS Current assets: Cash and cash equivalents $ 1,734 $ 367 Receivables, net 1,975 5,352 Inventories 1,622 1,945 Investment in net assets of discontinued operations (Note 3) 0 5,881 Other current assets 165 353 ----~~----~~ ~~-------~~PART ~~Total~~I. ~~current~~FINANCIAL ~~assets~~INFORMATION: ~~5,496~~Item ~~13,898~~1. ~~--------~~Financial ~~-------~~Statements ~~Plant and equipment~~ (~~Note 2~~unaudited) ~~2,751~~Consolidated ~~2,663~~Condensed ~~Less~~Balance ~~accumulated~~Sheets ~~depreciation~~March (131,~~752)~~ ~~(1,046)~~2001 ~~-------- ------- 999 1,617 -------- ------- Goodwill~~ and ~~intangible~~December ~~assets~~31, ~~net~~2000........................ (Note 2) 0 10,822 Purchased and internally developed software costs, net (Note 2) 6,004 9,856 Other assets 1,300 703 -------- ------- $ 13,799 $ 36,896 ======== ======= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Bank loan payable $ 3~~,017~~ $Consolidated ~~5,740~~Statements ~~Current portion~~ of ~~long~~Operations ~~term~~for ~~debt~~the ~~(Note~~Quarters 5)Ended ~~13,945~~March 2031,~~691~~ ~~Accounts~~2001 ~~payable~~and ~~3,032~~March 331,~~592~~ ~~Accrued~~2000............ ~~liabilities~~ 4~~,904~~ ~~2,411~~Consolidated ~~Deferred~~Statements ~~revenue~~of ~~238~~Cash ~~199~~Flows ~~--------~~for ~~-------~~the ~~Total~~Quarters ~~current~~Ended ~~liabilities~~March 2531,~~136~~ ~~32,633~~2001 ~~--------~~and ~~-------~~March ~~Shareholders' equity (deficit): Common stock~~31, no2000............ ~~par~~5 ~~value~~Notes ~~1,634~~to ~~1,634~~Consolidated ~~Additional~~Condensed ~~paid-in~~Financial ~~capital~~Statements........ ~~33,928~~6 ~~33,928~~Item ~~Accumulated~~2. ~~deficit~~Management's ~~(45,584)~~Discussion ~~(29,584)~~and ~~Receivable~~Analysis ~~from~~of ~~sale~~Results of ~~stock~~Operations ~~(350)~~and ~~(750)~~Financial ~~Common~~Condition.......................... ~~shares~~8 ~~held~~PART inII. ~~treasury,~~OTHER atINFORMATION: ~~cost~~Item ~~(965)~~6. ~~(965)~~Exhibits.................................................... ~~--------~~10 ~~-------~~Signatures............................................................. (11~~,337)~~ ~~4,263~~Exhibit ~~-------- ------- $ 13,799 $ 36,896 ======== =======~~Index

2 TRIDEX CORPORATION AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)

~~QUARTERS~~MARCH ~~ENDED~~31, ~~NINE~~DECEMBER ~~MONTHS~~31, ~~ENDED~~2001 2000 -------------- --------------~~---~~ ~~SEPT~~ASSETS ~~30,~~Current ~~SEPT~~assets: ~~30,~~Cash ~~SEPT~~and ~~30,~~cash ~~SEPT~~equivalents ~~30,~~$ ~~2000~~736 ~~1999~~$ ~~2000~~397 ~~1999~~Restricted ~~Net~~cash ~~sales~~(Note $2) ~~4,405~~995 ~~$ 7~~1,~~920~~440 $Receivables ~~12,473~~828 ~~$ 24~~1,~~106~~967 ~~Operating~~Inventories ~~costs~~108 ~~and~~393 ~~expenses:~~Other ~~Cost~~current ofassets ~~sales~~372 ~~2,389~~387 ~~5,377~~------------ ~~7,413~~-------------- ~~16,790~~Total ~~Engineering,~~current ~~design~~assets ~~and product development costs 1,011 1,359~~ 3,~~288~~039 24,~~815~~584 ~~Selling,~~------------ ~~administrative~~-------------- Plant and ~~general~~equipment ~~expenses~~(Note ~~1,452~~3) 1,~~967~~417 ~~4,364 5,487 Depreciation and amortization~~ 1,~~019~~385 ~~899~~Less ~~3,087~~accumulated ~~2,607~~depreciation ~~Impairment~~789 ~~charge~~690 ~~(Note 2) 12,300 0 12,300 0~~ ------- ------ ------ -------- ~~18,171~~Total ~~9,602~~plant ~~30,452~~and ~~27,699~~equipment ~~Operating~~628 ~~loss~~695 ~~(13,766)~~Purchased ~~(1,682)~~and ~~(17,979)~~capitalized ~~(3,593)~~software ~~Other charges (credits): Interest expense~~costs, net ~~651~~(Note ~~889~~3) 25,~~247~~169 25,~~454~~587 Other, ~~net~~assets ~~367~~1,345 91,348 ~~536 (51)~~ ------- ------ ------ -------- ~~1,018~~Total ~~898~~assets ~~2,783~~$ 210,~~403~~181 ~~Loss~~$ ~~from~~12,214 ~~continuing~~============ ~~operations~~============== ~~before~~LIABILITIES ~~income~~AND ~~taxes~~SHAREHOLDERS' (~~14,784~~DEFICIT) ~~(2,580)~~EQUITY ~~(20,762)~~Current ~~(5,996)~~liabilities: ~~Benefit~~Bank ~~(provision)~~loan ~~for~~payable ~~income taxes~~ (~~35)~~Note ~~838 (105~~6) ~~2,223~~$ ~~Net loss from continuing operations (14~~3,~~819)~~017 ~~(1,742)~~$ ~~(20,867) (~~3,~~773)~~017 ~~Discontinued~~Long-term ~~operations~~debt (Note 36): ~~Net~~13,654 ~~income~~14,100 ~~(loss)~~Accounts ~~from~~payable ~~discontinued~~1,802 ~~operations~~2,990 0Accrued ~~343~~liabilities ~~(26)~~5,528 14,~~324~~469 ~~Net~~Deferred ~~gain~~revenue on692 ~~sale~~347 of------------ ~~discontinued~~-------------- ~~operations~~Total 0current 0liabilities 524,~~588~~693 024,923 ~~Net~~------------ ~~loss~~-------------- ~~before~~Shareholders' ~~extraordinary item~~ (~~14,819~~deficit) ~~(1,399)~~equity ~~(15,305)~~: (2Common stock,~~449)~~ ~~Extraordinary~~no ~~loss~~par ~~due~~value to1,455 ~~debt~~1,455 ~~modification~~Additional ~~(Note~~paid-in 5)capital ~~0 0 (695) 0 Net loss $ (14~~33,~~819)~~893 ~~$ (1~~33,~~399)~~893 $Accumulated deficit (1648,~~000~~545) $ (246,~~449~~742) ~~Loss~~Receivable ~~per share -- basic and diluted: Loss~~ from ~~continuing~~sale ~~operations~~of $stock (~~2.33~~350) $ (~~.27~~350) $Common ~~(3.28)~~stock $held ~~(.59)~~in ~~Income~~treasury, ~~from~~at ~~discontinued~~cost ~~operations~~(965) ~~0 .05 .87 .21 Extraordinary loss 0 0~~ (~~.10~~965) 0 ------- ------ ------ -------- ~~Net~~Total ~~loss~~shareholders' (~~2.33~~deficit) ~~(.22)~~equity (~~2.51~~14,512) (~~.38~~12,709) ~~Weighted~~------------ ~~average~~-------------- ~~shares~~Total ~~outstanding~~liabilities ~~Basic~~ and ~~diluted~~shareholders' ~~6,368,289~~deficit ~~6,368,289~~$ 610,~~368,289~~181 6$ 12,~~368,289~~214 ========= ===~~======~~ ========= =====~~====~~

See notes to consolidated condensed financial statements. 3 TRIDEX CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

~~NINE~~QUARTERS ~~MONTHS~~ ENDED MARCH 31, MARCH 31, 2001 2000 -------------- --------------~~----------------~~ ~~SEPTEMBER 30, SEPTEMBER 30, 2000 1999 Cash flows from operating activities:~~ Net ~~loss~~sales $ ~~(16~~1,~~000)~~605 $ (23,~~449)~~952 ~~Adjustments~~Operating tocosts ~~reconcile~~and ~~net~~expenses: ~~loss~~Cost toof ~~net~~sales ~~cash~~666 ~~used~~3,076 inEngineering, ~~operating~~design ~~activities:~~and ~~Depreciation~~product ~~419~~development ~~289~~costs ~~Amortization~~491 of1,273 ~~goodwill~~Selling, ~~intangible~~administrative ~~assets~~ and ~~purchased~~general ~~and~~expenses ~~internally developed software 2~~1,~~668~~223 21,~~552~~354 ~~Debt~~Depreciation ~~discount~~and amortization ~~559~~509 ~~217~~1,053 ~~Gain~~-------------- on-------------- ~~sale~~2,889 of6,756 ~~assets~~Operating ~~(8)~~loss (~~178~~1,284) ~~Gain on sale of discontinued operations~~ (52,~~588~~804) 0Other ~~Loss~~charges ~~from discontinued operations 26~~ (~~1,324~~income): ~~Extraordinary~~Interest ~~loss~~expense, ~~due~~net to488 ~~debt~~945 ~~modification~~Other, ~~695~~net 023 ~~Impairment~~(8) ~~charge~~-------------- ~~on long~~-~~lived~~------------- ~~assets~~511 ~~12,300~~937 0Loss ~~Changes~~from incontinuing ~~operating~~operations ~~assets~~before ~~and~~income ~~liabilities:~~taxes ~~Receivables 3,377~~ (21,~~026~~795) ~~Inventory 323~~ (~~836~~3,741) ~~Other~~Benefit ~~current~~for ~~assets 188 40 Other assets (597) (8) Accounts payable, accrued liabilities, deferred revenue and~~ income taxes ~~payable~~0 ~~1,972~~0 ~~793~~ -------------- -------------- Net ~~cash~~loss ~~provided~~from ~~by (used in) operating activities of~~ continuing operations ~~344~~(1,795) (23,~~930~~741) ~~Cash~~Discontinued ~~flows~~operations ~~from~~(Note ~~investing activities~~4): ~~Purchases~~Net ~~of plant and equipment~~ income/(95loss) ~~(100)~~from ~~Capitalized~~discontinued ~~software~~operations ~~development costs~~ 0 (~~725~~26) ~~Proceeds~~Net ~~from~~gain ~~sale~~on ~~of assets 8 295 Proceeds from~~ sale of discontinued operations, ~~net~~0 ~~of transaction expenses 11~~5,~~443~~588 0 -------------- -------------- Net ~~cash provided by~~ income/(~~used in~~loss) ~~investing~~before ~~activities~~extraordinary ofitem ~~continuing operations 11,356~~ (~~530~~1,795) ~~Cash~~1,821 ~~flows~~Extraordinary ~~from~~loss ~~financing~~due ~~activities:~~to ~~Net~~debt ~~change~~modification ~~in borrowings under line of credit~~ (~~2,723~~Note 6) ~~644~~0 ~~Net change in borrowings of long term debt~~ (~~8,000~~695) ~~0 Net cash flow of discontinued operations 0 3,173 Collection of stock sale receivable 400 0 Purchase of treasury shares 0 51~~ -------------- -------------- Net ~~cash~~ income/(~~used in~~loss) ~~provided~~$ by(1,795) ~~financing~~$ ~~activities~~1,126 Earnings (~~10,323~~loss) ~~3,868~~per ~~Increase~~share in- ~~cash~~basic and ~~cash~~diluted: ~~equivalents~~Loss ~~1,367~~from ~~408~~continuing ~~Cash~~operations ~~and~~$ ~~cash~~(0.32) ~~equivalents~~$ at(0.58) ~~beginning~~Income offrom ~~period~~discontinued ~~367~~operations 180 0.87 Extraordinary loss 0 (0.11) -------------- -------------- ~~Cash~~Net ~~and~~income/(loss) ~~cash equivalents at end of period~~ $ ~~1,734~~(0.32) $ ~~426~~0.18 ============== ============== Weighted average shares outstanding: Basic and diluted 5,654,000 6,368,000

See notes to consolidated condensed financial statements. 4 TRIDEX CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)

~~SEPTEMBER~~QUARTERS 30ENDED MARCH 31, ~~DECEMBER~~MARCH 31, 2001 2000 ~~1999~~ ---------------- ---------------- ~~(Dollars~~Cash inflows ~~thousands)~~from ~~Term~~operating ~~loan~~activities: ~~payable~~Net income (loss) $ 3(1,~~100~~795) $ 111,~~100~~126 ~~Senior~~Adjustments ~~subordinated~~to ~~notes,~~reconcile net income (loss) to net cash used in operating activities: Depreciation 98 164 Amortization of goodwill and intangible assets and purchased and internally developed software 418 889 Debt discount 10amortization 0 249 Gain on sale of assets (7) (8) Gain on sale of discontinued operations 0 (5,~~845~~588) 9Loss/(gain) from discontinued operations 0 26 Extraordinary loss due to debt modification 0 695 Changes in operating assets and liabilities: Receivables 1,~~591~~139 2,659 Inventory 285 216 Other current assets 12 (133) Other assets 3 (249) Accounts payable, accrued liabilities, deferred revenue and income taxes payable 215 (222) ---------------- ---------------- 13Net cash used in operating activities of continuing operations 368 (176) Cash flows from investing activities: Purchases of plant and equipment (32) (42) Capitalized software development costs 0 0 Proceeds from sale of assets 3 8 Proceeds from sale of discontinued operations,~~945~~ 20net of transaction expenses 0 11,~~691~~443 ~~Current~~---------------- ~~portion~~---------------- 13Net cash provided by investing activities of continuing operations (29) 11,~~945~~409 20Cash flows from financing activities: Net change in borrowings under line of credit 0 (2,~~691~~723) Withdrawal from restricted cash 446 0 Net change in borrowings of long term debt (446) (8,000) Net cash flow of discontinued operations 0 0 ---------------- ---------------- ~~Long~~Net cash (used in)/provided by financing activities (446) (10,723) Increase in cash and cash equivalents 339 510 Cash and cash equivalents at beginning of period 397 367 -~~term~~--------------- ~~portion~~---------------- Cash and cash equivalents at end of period $ 0736 $ 0877 ================ ================ Supplemental cash flow information: Interest paid $ 196 $ 153 Income taxes paid 0 38

SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 5 TRIDEX CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. GENERAL Business: Tridex Corporation (the "Company"), through its wholly owned operating subsidiary, Progressive Software, Inc. ("Progressive"), is a leading designer, developer, and marketer of specialized point-of-sale, back office and enterprise technology for the food service industry. As more fully discussed in the Company's Annual Report on From 10-K for the year ended December 31, 2000, the Company has experienced net losses from continuing operations of approximately $22.0 million and $16.3 million in each of the years ended December 31, 2000 and 1999, respectively. In addition, all of the Company's debt matured on December 31, 2000 and no agreements with respect to extension or terms under which any extensions may be offered has been reached with the holders of the matured debt. These matters and their effect on the Company's liquidity raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from this uncertainty. 2. RESTRICTED CASH Restricted cash represents the proceeds received under the terms of the settlement with the former owner of Progressive. The debtholder requires the value of the proceeds to be applied against its outstanding debt. The proceeds have also been attached by the plaintiffs in the Foley matter (see Note 7). 3. IMPAIRMENT OF LONG-LIVED ASSETS. The Company periodically reviews goodwill, intangibles and other long-term assets to assess recoverability based upon expectations of non-discounted cash flows from operations. The operating results of Progressive during fiscal 2000 were below management's expectations and as a result, in August 2000, management instituted a reduction-in-force at Progressive, revised its operating forecasts and initiated an evaluation of the carrying value of long-lived assets. The evaluation commenced with estimates of the future cash flows, on an undiscounted basis, expected to result from the assets and their eventual disposition. Based on this evaluation, management concluded that an impairment of the acquired assets had occurred and recorded a write down of such assets to fair value. In accordance with the provisions of the Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company recorded an impairment charge of $12,300,000, consisting of $9,847,000 of goodwill, $2,159,000 of purchased technology and internally developed software costs and $294,000 of plant and equipment. Following the impairment charge, the carrying value of goodwill is zero. Considerable management judgment was involved in estimating fair value and, therefore, operating results could vary significantly from management's estimates. 4. DISCONTINUED OPERATIONS: On February 18, 2000, the Company sold Ultimate to UTC Holding Company, Inc., an affiliate of CFG Management II, L.P. for approximately $12,544,000 in cash. The gain on the sale was $5,588,000. As described in Note 5, the Company used $8,000,000 of the sale proceeds to repay a portion of the Fleet Term Loan and $3,000,000 to repay a portion of the Working Capital Facility. 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 (loss) per common share assumes the exercise of options and warrants and the conversion of dilutive securities, when the result is dilutive. 6 6. BANK CREDIT AGREEMENT AND SUBORDINATED DEBT: The components of debt are:

In April 1998, the Company entered into a credit Agreement with Fleet National Bank which provided a $12.0 million Senior Term Loan (the "Term Loan") with a maturity of March 31, 2003 and an $8.0 million Working Capital Facility (the "WCF"). At the same time, the Company sold Senior Subordinated Notes due April 17, 2005 (the "Notes") in the principal amount of $11.0 million to Massachusetts Mutual Life Insurance Company and affiliates (collectively, the "Mass Mutual Investors"). The proceeds of the Senior Term Loan and the Senior Subordinated Notes were used in the acquisition of Progressive. The Term Loan and the WCF are secured by a first priority security interest in substantially all of the Company's assets. In February 2000, the Company used a portion of the proceeds from the sale of Ultimate to retire $8.0 million principal amount of the Term Loan and $3.0 million to repay a portion of the WCF. At March 31, 2001, the interest rates were 10.5%, 10.5% and 12.0% on the Term Loan, the WCF and Notes, respectively. The Company issued to the MassMutual Investors on May 27, 1998 warrants to purchase 350,931 shares of the Company's common stock at $7.00 per share. The estimated fair market value of the warrants of $1,228,000 was recorded as a discount to the principal amount of the outstanding Notes and was being amortized to interest expense over the term of the Notes using the interest rate method. In consideration for a March 26, 1999 amendment to the Notes and in exchange for the warrant issued in 1998, the Company issued new stock purchase warrants to the MassMutual Investors to purchase 800,000 shares of common stock at $2.03 per share. The incremental estimated fair value of the new warrants over the estimated fair value of the old warrants, $600,000, was recorded as additional debt discount. On February 18, 2000, the MassMutual Investors agreed to certain modifications of the Notes, including the acceleration of their maturity to December 31, 2000. That acceleration of the maturity of the Notes constituted a substantial debt modification, which under EITF 96-19 "Debtor's Accounting for a Modification or Exchange of Debt Instruments", requires the Notes to be adjusted to their fair value as of the date of the February 18, 2000 amendment. The Company calculated the present value of the principal and interest due December 31, 2000 using the remaining maturity period of the Notes and an estimated fair value interest rate at the modification date. As a result of this modification, the Company recognized a debt extinguishment loss of $695,000 which was recorded as an extraordinary item in the quarter ending March 31, 2000. As reported previously, the Company, at various times, has been in violation of the covenants of both the Term Loan, the Notes and the WCF, resulting in several modifications of the terms of each, including an acceleration of the maturities of both loans to December 31, 2000. The Company does not have the capability to repay or replace either the Term Loan or the Notes. As a result, both credit facilities are due upon demand and that fact raises substantial doubt about the Company's ability to continue as a going concern. The Term Loan, the WCF and Notes are reflected as current liabilities in the Company's financial statements. The Company has been advised that, in December 2000, Fleet National Bank sold its interest in the Term Loan and the WCF to ARK CLO 2000-1, Limited. Inasmuch as the Company, at present, still lacks the capability to repay or replace its existing credit facilities, it intends to seek accommodation with its lenders which will allow it to continue operating while seeking either a modification to, or replacement of, the facilities. However, there can be no assurance that the Company will be successful in such efforts or as to what form such modification or replacement might be. 7. COMMITMENTS AND CONTINGENCIES: Allu Realty ("Allu"), a Massachusetts business trust owned by the Company, is the former owner of land located at 100 Foley Street, Somerville, Massachusetts (the "Site"). Allu sold the Site to 100 Foley Street Incorporated ("Foley"), an unrelated entity. In 1984, Allu and the Company disclosed to the Massachusetts Department of the Attorney General the existence of chromium, oil and grease at the Site. As a result, the Environmental Protection Division of the Department of the Attorney General and the Massachusetts Department of Environmental Protection conducted an investigation of the Site. In 1993, the Company entered into an agreement with Foley pursuant to which the Company and Foley agreed to pay 75% and 25%, respectively, of the costs incurred after January 1, 1992 7 in connection with the investigation and remediation of the Site (the "Site Participation Agreement"). The Site Participation Agreement also provided that, to the extent there are available proceeds from the sale of the Site, the Company would be reimbursed approximately $200,000 of the $250,000 it expended in connection with the Site prior to January 1, 1992. As of March 31, 2001, the Company had spent approximately $810,000 in connection with the Site. In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc. ("Stop & Shop"). As part of the sale transaction, Foley was required to place approximately $875,000 in escrow (the "Stop & Shop Escrow") to cover the costs of remediation, which was completed in 1999. In 1997, Foley brought suit in the United States District Court, District of Massachusetts, against the Company claiming that the Company failed to contribute its shares of the remediation costs pursuant to the Site Participation Agreement. Foley asserted that Allu and the Company remain liable for payment of certain costs associated with the remediation of the Site after its sale to Stop & Shop, and claimed that it is entitled to reimbursement from the Company of a portion of the Stop & Shop Escrow. The Company filed a counterclaim, and sought reimbursement of funds previously expended in accordance with the Site Participation Agreement. Mediation between the parties was not successful and in July 2000, after trial of the case, the jury made certain factual findings upholding the parties' obligations under the Site Participation Agreement, including the Company's obligation to pay 75% of the remediation costs and the obligation of Foley to reimburse the Company out of sale proceeds. On October 16, 2000, the United States District Court for Massachusetts entered judgment against the Company in the amount of approximately $791,000, of which approximately $156,000 represented legal fees awarded to the opposing party and approximately $108,000 represented interest. The Company has filed various post-trial motions seeking to vacate the judgment or to have it modified. If these motions are unsuccessful, the Company intends to appeal the judgment. Subsequently, Foley attached $791,000 in cash being held for the account of the Company by a third party. The Company has moved to discharge the attachment, which motion has not yet been heard. As of December 31, 2000, the Company had accrued $791,000 with respect to its potential liability under this judgment. The Company is unable to forecast when this litigation will finally be resolved or the amount of its ultimate exposure with respect thereto. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE STATEMENTS CONTAINED HEREIN NOT BASED ON HISTORIC FACTS ARE FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE RISKS AND UNCERTAINTIES. PAST PERFORMANCE IS NOT NECESSARILY A STRONG OR RELIABLE INDICATOR OF FUTURE PERFORMANCE. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM PAST RESULTS, ESTIMATES, PROJECTIONS, OR FORWARD LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE COMPANY, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S EXPECTATIONS REGARDING NET SALES, GROSS PROFIT, OPERATING INCOME AND FINANCIAL CONDITION. RESULTS OF OPERATIONS As discussed more fully below, the Company has experienced recurring net losses and negative cash flow, and is currently in default under its credit agreements with its lenders. These matters raise substantial doubt about the Company's ability to continue as a going concern. QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000 Consolidated net sales for the quarter ended March 31, 2001 decreased $2.4 million (60%) to $1.6 million from $4.0 million in the comparable 1999 period. Of this reduction, approximately $2.2 (92%) million results from decreased hardware sales reflecting the fact that the Company is de-emphasizing its participation as principal in transactions involving hardware used in conjunction with Progressive's software. Gross margins associated with such transactions are substantially less than those generated by sale of software. Given the financial resources currently available to the Company, management believes that the gross margins generated from such sales do not warrant the investment in inventories and accounts receivable required to support such sales. Management also believes that events leading to the reorganization of its sales organization have resulted in decreased sales activities and a resulting decrease in recorded sales levels during the period. Finally, management believes that the decrease in technology investment in the aftermath of investments made to insure against problems associated with Year 2000 issues may have affected sales levels. However, it is not possible to quantify such impact, if any. Consolidated gross profit increased $63,000 (7%) to $939,000 from $876,000 in the prior year. The increase resulted principally from the fact that gross margins associated with the sales of software and services are substantially greater than those related to hardware sales. Sales of software and services contributed 56% of total revenues in 2001 compared to 27% in 2000. 8 Consolidated engineering, design and product development costs decreased $782,000 during the current quarter to $491,000 from $1.3 million in the same period a year ago. In the first quarter of 2000, these expenses reflected the efforts directed toward final enhancements of the new version of the Company's IRIS software product as well as contract work for a third party. These efforts were completed in the second quarter of the year. As a result, in August of last year the Company effected a reduction in engineering personnel substantially reducing the level of these expenses, including those resulting from the use of contract personnel, in the final months of 2000 as well as in the first quarter of the current year. Consolidated selling, administrative and general expenses decreased $131,000 (10%) to $1.2 million from $1.4 million a year ago. The overall decrease results from reductions in staff and related expenses both at corporate headquarters and at Progressive. Consolidated depreciation and amortization for the current period was $509,000, a decrease of $544,000 (52%) from the same period a year ago. As noted in Note 2 above and more fully described in the Company's Quarterly Report on Form 10-Q and Annual Report on Form 10-K for the periods ended September 30 and December 31, 2000, last year the Company recorded an impairment charge of $12,300,000, reducing the value of goodwill, purchased and internally developed software and plant and equipment. As a result, during the current period the amounts provided for depreciation and amortization of the remaining asset values have been substantially reduced. Consolidated continuing operating losses for the period were $1.8 million compared to losses of $3.7 million in the comparable period last year. As discussed above, decreased losses in the current period were primarily the result of the reduction in expenses and improved gross margins resulting from a change in product mix partially offset by reduced revenues. Net interest expense for the current period was $488,000 compared to $945,000 a year ago. The decrease is principally the result a reduction in the amount of outstanding bank debt through the use of a portion of the proceeds from the Ultimate sale, as described in Note 3. Interest expense is net of interest income of $27,000 this year and $32,000 in 2000. Net earnings related to discontinued operations in 2000 reflect the gain on the sale of Ultimate in February 2000 of $5.6 million, offset by an operating loss of $26,000 incurred prior to the sale. LIQUIDITY AND CAPITAL RESOURCES The Company's negative working capital (current assets less current liabilities) at March 31, 2001 was $21.7 million compared with negative working capital of $20.3 million at December 31, 2000. At March 31, 2001, the Company had no material commitments for capital expenditures. The Company's negative working capital in both periods results primarily from net losses and the maturity on December 31, 2000 of the Company's existing debt. As reported in Note 5 above, the Company, at various times, had been in violation of the provisions of its several loan agreements resulting in modifications of the terms of each including an acceleration of the maturities of the Term Loan and the Notes to December, 31, 2000. Currently, the Company does not have the capability to repay or replace any of the obligations which are currently due upon demand and that fact raises substantial doubt about the Company's ability to continue as a going concern. The Company has been advised that, in December 2000, Fleet National Bank sold its interest in the Term Loan and Working Capital Facility to ARK CLO 2000-1, Limited. Inasmuch as the Company, at present, still lacks the capability to repay or replace these credit facilities, it intends to seek accommodation with its lenders that will allow it to continue operating while seeking either modification to, or replacement of, the facilities. However, there can be no assurance that the Company will be successful in such efforts or as to what form such modification or replacement might be. In early January, the Company accepted the resignation of Progressive's President and Vice President of Sales and Marketing and has since replaced them with individuals who possess substantial experience in the food service industry. In addition, the direct sales force has been increased and the Chairman of the Company has assumed the position of Chief Executive Officer of Progressive. The Company believes these changes will assist materially in the efforts to increase revenues and related gross profits. NASDAQ LISTING The Company does not meet the net tangible asset or price per share requirements for listing on the Nasdaq Stock Market(R) ("Nasdaq"). Accordingly, during 2000, the Company's common stock was delisted from Nasdaq. As a result of delisting, current information regarding bid and asked prices for the common stock may become less readily available to brokers, dealers, and/or their customers which may reduce the liquidity of the market for the common stock which, in turn, could result in decreased demand for the common stock, a decrease in the stock price, and an increase in the spread between the bid and asked prices for the common stock. 9 PART II. OTHER INFORMATION 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 no Reports on Form 8-K during the period being reported. 10 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) May 14, 2001 /S/ SETH M. LUKASH ---------------------------------------- Seth M. Lukash Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer May 14, 2001 /S/ WILLIAM A. BEEBE ---------------------------------------- William A. Beebe Vice President and Chief Financial Officer 11 EXHIBIT INDEX Exhibit 11 Computation of Per Share Earnings

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