UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549

                          -----------------------------
                                    FORM 10-K
                          -----------------------------

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 

      For the fiscal year ended: December 31, 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: 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)

       Registrant's telephone number, including area code: (203) 226-1144

          Securities registered pursuant to Section 12 (b) of the Act:

                                             Name of each exchange on which
       Title of each class                             registered
-----------------------------------      ---------------------------------------
  Common Stock, Without Par Value                        NASDAQ

Securities registered pursuant to Section 12 (g) of the Act: None

--------------------------------------------------------------------------------

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 |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. |_|

As of March 12, 1999 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$12,417,000.

As of March 12, 1999 the registrant had outstanding 6,368,289 shares of common
stock, without par value.
<PAGE>

                        Exhibit Index appears on page 35
<PAGE>

PART I

ITEM 1. BUSINESS

General

Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned
subsidiaries Ultimate Technology Corporation ("Ultimate") and Progressive
Software, Inc. ("Progressive") and its Tridex Ribbons Division is a leading
designer, developer, manufacturer, marketer and integrator of high quality,
specialized software and hardware systems and components for the point-of-sale
("POS") industry. See Note 3 to the Company's 1998 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, 1997 

      On April 17, 1998 Tridex acquired all of the outstanding common stock of
      Progressive from Paul J. Smith, for a total purchase price of $47,594,000
      consisting of 714,000 shares of Tridex common stock valued at $4,998,000
      and the balance in cash. Tridex has raised claims seeking a purchase price
      reduction based on information learned in the third and fourth quarters of
      1998. Tridex and Mr. Smith are now in litigation. See "Legal Proceedings".

(B)   Financial Information about Industry Segments 

      The Company manages two operating subsidiaries as separate reportable
      business segments. Each segment offers different products to different
      classes of customers in the POS market. Ultimate is primarily focused on
      providing hardware solutions to the retail sector of the market, while
      Progressive is primarily focused on providing software solutions to the
      food service and specialty retail sectors of the market.

(C)   Narrative Description of Business

      (i)   Principal Products and Services

            Ultimate designs, manufactures and sells customer displays,
            keyboards and terminal devices for POS applications. Its products,
            based on "Open Systems" design, are used in Twinax, Unix/Aix and
            PC-based POS applications. Ultimate's newest product, the fully
            integrated Model 40 POS system, combines a monitor, receipt printer,
            cash drawer and a hardware platform which can be selected by the
            customer. Platform options include PC, net PC, thin client, ASCII
            terminal and TWINAX. Ultimate's other terminal products are the
            Model 1, 2/2B and 3. The Model 1, an on-line TWINAX terminal made
            for use with the IBM AS400/System 3X, is the only POS specific,
            fully integrated TWINAX terminal available on the market. The Model
            2/2B is a serial POS terminal for RS232 connection to any multi-user
            host system. The Model 3, a PC-based front-end platform for
            connection to a PC via the keyboard port, provides full POS
            peripheral functionality while retaining the flexibly and
            serviceability of a separate dedicated PC. Ultimate also offers the
            Series 500, an advanced POS keyboard for use with PC or ASCII
            terminals. Ultimate's terminals and other peripheral products are
            sold to system integrators, original equipment manufacturers and
            directly to end users by a direct sales force along with selected
            strategic relationships with distributors, dealers and VARS located
            in New York, New Hampshire, Illinois, California, Georgia and Texas.

            Progressive offers three lines of high quality POS and back office
            software systems for the restaurant industry: IRIS Quick Serve and
            IRIS Full Serve, both Windows(R) NT(R)-based applications, and SMART
            2, a DOS-based application on a Windows(R) NT(R) platform.

            Progressive Software's integrated restaurant information system,
            IRIS, is a 32-bit Microsoft Windows(R) NT(R)-based system for quick
            service and table service operators that combines advanced front of
            the house POS capabilities and powerful Back Office resource
            planning services to manage every aspect of store operations. This
            includes an intuitive touchscreen POS for order entry, drive-thru
            and kitchen display management, cost and general accounting, time
            and attendance, purchasing and inventory control, and demand
            forecasting.

            IRIS Quick Serve, currently installed in Japan, Taiwan and the
            United Kingdom is year 2000, Euro compliant and Unicode-enabled.
            Building on its legacy DOS product, Progressive also offers SMART 2
            for customers who want to continue to use Progressive's legacy DOS
            systems on a Windows(R) NT(R) 
<PAGE>

            platform. SMART 2 employs object oriented component technology and
            helps manage the transition from legacy DOS systems to current
            technology. Progressive currently has more than 10,000 installations
            of its legacy DOS and Windows(R) NT(R) solutions in North America,
            Asia and Europe. Progressive was awarded the 1996 Microsoft Retail
            Application Developer award for its back office food service
            software.

            Progressive sells its software systems through direct and indirect
            sales forces and, when requested by customers, provides hardware and
            system integration services in connection with software sales. In
            addition, Progressive also offers help desk, on-site technical and
            consulting support, and project management services.

      (ii)  Sources and Availability of Raw Materials

            The principal raw materials used by Ultimate 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
            Ultimate 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 its software designs and code and portions of
            the hardware designs incorporated into its products as proprietary
            and protects 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 technologically 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

            The Company has certain customers, the loss of which, if not
            replaced by sales to other customers, could have an adverse effect
            on the Company. In any single year or series of consecutive years,
            sales by each of Ultimate and Progressive to a single customer may
            exceed 10% of their respective annual net sales. As customers
            complete the installation of new POS systems, sales to these
            customers decline, so that the identity of Ultimate's and
            Progressive's largest customers changes in the ordinary business. In
            the year ended December 31, 1998, Starbucks Coffee Company, Steak `n
            Shake, Inc., and Frisch's Restaurants, Inc. accounted for
            approximately 25%, 14% and 9%, respectively, of Progressive's net
            sales, and Lowes Companies, Inc., Ace Hardware Corporation, and
            Advance Stores Company, Inc., accounted for approximately 20%, 9%
            and 7%, respectively, of Ultimate's net sales.

      (vi)  Backlog

            The Company's backlog of firm orders was approximately $12,700,000
            as of March 12, 1999 and $2,750,000 as of March 13, 1998. Tridex
            expects to fill all of its backlog within the current fiscal year.

      (vii) Competition

            The Company faces aggressive competition in all of its markets. Many
            of the Company's current and potential competitors are large
            multi-national enterprises with extensive experience and resources
            in designing, manufacturing and marketing POS software and hardware.
            Progressive competes with 
<PAGE>

            Radiant Systems, Inc., Micros Systems, Inc., PAR Technology
            Corporation, Ibertech, Inc. and GEAC Computer Corporation Limited.
            Ultimate competes with other POS systems integrators, including NCR
            Corporation and IBM Corporation and with manufacturers of terminals,
            keyboards and 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 $4,552,000 in 1998, $693,000 in 1997
            and $447,000 in 1996 on engineering, design and product development
            efforts in connection with software and development and specialized
            engineering and design to introduce a number of new products and to
            customize products for the Company's customers. Expenditures in 1998
            include $1,731,000 of capitalized software development costs.

      (ix)  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 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, 1998, the Company had spent approximately
            $728,000 in connection with the Site.

            In 1997, Foley sold the Site to an affiliate of 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 was stayed until
            February 1999 and discovery has commenced. The implementation of
            clean-up measures was commenced in 1998 and is anticipated to be
            completed in 1999. As of December 31, 1998, the Company had accrued
            $258,000 for the Site, which represents the currently estimated
            minimum cost of remediation, after considering the Site
            Participation Agreement. The Company estimates that it may 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.
<PAGE>

      (x)   Employees

            As of March 12, 1999, Tridex and its subsidiaries employed
            approximately 229 persons, of whom 211 were full time and 18 were
            temporary employees. Progressive employed approximately 123 persons
            and Ultimate employed approximately 90 persons.

(D)   Financial Information About Foreign and Domestic Operations and Export
      Sales

      In December 1998, the Company opened a wholly owned subsidiary, Retail
      Resource Solutions Limited, in the United Kingdom. The subsidiary is a
      sales and distribution office of Progressive's products. There were no
      material transactions in 1998. From June 1994 through May 1997, the
      Company owned Cash Bases GB Limited ("Cash Bases"), 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 $166,000 in 1998, $879,000
      in 1997 and $130,000 in 1996.

(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    52   Chairman of      Tridex           Developer and  
                             the Board,       Corporation      manufacturer of
                             President,                        computer       
                             Chief                             software and   
                             Executive                         hardware       
                             Officer and                       systems and    
                             Chief                             components for 
                             Operating                         POS            
                             Officer                           applications.  
      
      Paul J. Dunphy     79  Management       Self-employed    Management 
                             Consultant                        consulting.
      
      Dennis J. Lewis    44  Management       Self-employed    Management  
                             Consultant                        consulting. 
      
      Thomas R. Schwar   62  Retired          None             Personal    
                                                               investments.
      
      Graham Y. Tanaka   51  President        Tanaka           Investment 
                                              Capital          advising.  
                                              Management,      
                                              Inc.       

      (ii)  Executive Officers of the Registrant

      Name                  Age   Position
      --------------------------------------------------------------------------

      Seth M. Lukash         52   Chairman of the Board of Directors, President,
                                  Chief Executive Officer, Chief Operating 
                                  Officer and Director                         

      Daniel A. Bergeron     39   Vice President and Chief Financial Officer

      John MacWillie         50   Vice President of Technology and Strategic 
                                  Business Development                       

      George T. Crandall     52   Vice President, Treasurer, Controller and
                                  Secretary

      Thomas F. Curtin, Jr.  41   Vice President of Human Resources

      Samuel J. Villanti     34   President, Ultimate Technology Corporation, a
                                  wholly-owned subsidiary of the Company

      Raymond J. Mueller     39   President, Progressive Software, Inc., 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 and Chief Financial Officer since April 1, 1998.
            Prior to joining Tridex, Mr. Bergeron served as Vice President 
<PAGE>

            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.

            John MacWillie joined Tridex in May 1998 as Vice President of
            Technology and Strategic Business Development. Prior to joining
            Tridex, Mr. MacWillie was a Vice President of the Gartner Group from
            March 1996 to May 1998 and was Director of Strategic Business
            Development at Symantec Corporation from 1993 to 1996. Previously,
            he was Vice President of Marketing at JYACC, Inc. and Chief
            Technology Officer at Telemetrics, Inc.

            George T. Crandall has been a Vice President of the Company since
            1992, Treasurer since 1990 and Corporate Controller since 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 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.

            Samuel J. Villanti was appointed President of Ultimate on October
            12, 1998. Prior to joining Ultimate, Mr. Villanti was General
            Manager of Axiohm IPB's engineering and manufacturing facility in
            Ithaca, NY from March 1998 to October 1998. Previously, Mr. Villanti
            was employed in the management consulting practice of Price
            Waterhouse LLP from 1990 to 1995. Previously, he held various
            management positions with NCR Corporation.

            Raymond J. Mueller was appointed President of Progressive on April
            17, 1998 upon its acquisition by Tridex. He joined Progressive in
            1996 as manager of the Denver branch office and was Executive Vice
            President since October 1997. Prior to joining Progressive, Mr.
            Mueller was Vice President and Chief Information Officer of
            Richfield Hospitality Services, Inc. from 1994 to 1996 and was
            President of Tradeware Technologies, Inc. from 1980 to 1994.

ITEM 2. PROPERTIES

The Company's operations are currently conducted at the six facilities described
below:

<TABLE>
<CAPTION>
                                                Size -      Owned
                                             Approx. Sq.      or           Lease
Location             Operations Conducted        Ft.        Leased    Expiration Date
----------------------------------------------------------------------------------------

<S>                  <C>                       <C>          <C>        <C>
Westport,            Principal executive        5,000       Leased     July 31, 2001
Connecticut          offices            

Victor, New York     Manufacturing             80,000       Leased     January 31, 2002
                     facility       

Charlotte, North     Product Development       37,600       Leased     December 31, 2000
Carolina         

Denver, Colorado     Product Development        2,800       Leased     October 31, 1999

Seattle, Washington  Product Development          800       Leased     July 31, 1999

Bloomfield,          Non-operating             23,000        Owned     N/A
Connecticut          facility held for
                     sale                      
</TABLE>

The Company believes that its facilities generally are in good condition,
adequately maintained and suitable for their present and contemplated uses.

ITEM 3. LEGAL PROCEEDINGS

See Item 1(C)(ix) "Environment" set forth above and Note 9 of the Notes to
Consolidated Financial Statements included in this report.

When Tridex acquired Progressive in April 1998, it granted Mr. Smith
registration rights for his 714,000 shares of Tridex common stock issued as part
of the purchase price. At the same closing, Mr. Smith agreed to deliver a tax
<PAGE>

form needed by Tridex to obtain favorable tax treatment of the purchase. Tridex
made repeated requests for the tax form but it was not delivered until January
1999. Mr. Smith requested registration of his shares, and Tridex commenced
preparation of a registration statement, but postponed its completion while
waiting for Mr. Smith to deliver the tax form.

During the last three months of 1998, counsel for Tridex met with and
corresponded with counsel for Mr. Smith, stating that Tridex was preparing to
pursue arbitration and other legal remedies against him. On January 5, 1999,
Tridex received the executed tax form. On January 4, 1999, Mr. Smith filed a
suit against Tridex and Progressive in the Federal District Court in North
Carolina and served the papers at a later date. The suit seeks damages of up to
$5.0 million plus a court order requiring Tridex to register the shares of its
common stock issued to Mr. Smith as part of the purchase price. The suit also
seeks a declaratory judgment to prevent Tridex from pursuing other claims which
it has asserted against Mr. Smith in post-closing negotiations. Tridex has
denied the substantive allegations in Mr. Smith's complaint. Tridex has made
claims against Mr. Smith for breach of federal and state securities laws, fraud
and misrepresentation. Tridex is seeking damages in an unspecified amount which
is estimated to exceed Mr. Smith's claims against Tridex. At this phase of the
litigation, the parties have not begun discovery. Although it is not possible to
predict the outcome, Tridex believes it has valid defenses to Smith's claim and
that the claims of Tridex and Progressive against Smith are meritorious. Tridex
will aggressively defend against the claim made by Smith and aggressively pursue
its own claims against him.

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. 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 12, 1999
there were 1,183 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, 1998, and 1997.

                                    Year Ended December 31,
                   -------------------------------------------------------------
                              1998                          1997
                   -------------------------------------------------------------
                        High         Low            High             Low
                   -------------------------------------------------------------
                                                 
January - March        8 1/8       4 11/16     18 1/4 (3 3/4)    12 1/2 (2 1/2)
April - June           7 7/8        6 1/8          3 1/16           2 1/2
July - September       7 1/2        3 1/2            7              3 1/4
October - December     4 1/2        2 1/4          6 7/8              4

Amounts shown in parenthesis for the first quarter of 1997 are the 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 spin-off of
TransAct Technologies Incorporated ("TransAct") by the Company had occurred
prior to January 1, 1997.

No dividends or other distributions on the common stock (other than the
distribution of TransAct stock to Tridex shareholders in 1997) have 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.
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                  Year Ended                    Nine Months Ended
                                -------------------------------------------------------------------
                                 December   December    December   December    December   December
                                 31, 1998   31, 1997    31, 1996   31, 1995    31, 1995   31, 1994
                               --------------------------------------------------------------------
                                         (Dollars in thousands, except per share amounts)
<S>                             <C>         <C>         <C>        <C>         <C>         <C>     
Statement of Operations Data:
  Net sales from
    continuing operations       $ 43,504    $ 25,833    $ 22,325   $ 18,854    $ 14,393    $  9,010
                                ===================================================================

  Income (loss) from
    continuing operations       $(14,146)   $   (568)   $  5,646   $   (670)   $ (1,407)   $   (786)
                                ===================================================================

  Income (loss) from
    continuing  operations
     per common- basic          $  (2.33)   $  (0.11)   $   1.44   $  (0.18)   $  (0.38)   $  (0.22)
                                ===================================================================

  Cash dividends per
    common share                    None        None        None       None        None        None
                                ===================================================================
</TABLE>

                                                    As of
                            ----------------------------------------------------
                              December  December  December  December  December
                              31, 1998  31, 1997  31, 1996  31, 1995  31, 1994
                            ----------------------------------------------------
Balance Sheet Data:
    Total assets              $52,953   $28,003   $33,972   $29,006   $26,949
                            ====================================================

    Long term debt            $19,341      None      None   $ 8,171   $ 6,443
                            ====================================================

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 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 and the Company's evaluation of the Year 2000 issue.

(A)   Results of Operations

      As described in Note 3 of the Notes to Consolidated Financial Statements
      included in Item 8 of this report, in 1997 the Company completed the
      spin-off of TransAct and the sale of Cash Bases. The Selected Financial
      Data are derived from the Company's Consolidated Financial Statements,
      which have been restated from historical financial statements to present
      the results of operations of TransAct and Cash Bases as discontinued
      operations for all periods presented. 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 are based upon continuing
      operations only.

      (i)   Year ended December 31, 1998 compared to year ended December 31,
            1997

            Consolidated net sales for the year ended December 31, 1998
            increased $17,671,000 (68%) to $43,504,000 from $25,833,000 for the
            prior year. The increase reflects sales of Progressive (which
            include software and hardware) 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 $5,630,000 (91%) to $11,834,000
            from $6,204,000 in the prior year, primarily as a result of the
            contribution of Progressive and greater volume of shipments by
            Ultimate. Consolidated gross profit margin increased to 27.2% of
            sales from 24.0% of sales in the 
<PAGE>

            prior year 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
            (exclusive of capitalized software development costs), increased
            $2,128,000 to $2,821,000 from $693,000 in the prior year. The
            increase is primarily the result of the inclusion of such costs for
            Progressive. As a percentage of revenue, engineering, design and
            product development costs (exclusive of capitalized software
            development costs) increased to 6.5% in 1998 compared to 2.7% for
            1997. Actual engineering, design and product development costs,
            including capitalized software costs of $1,731,000 increased to
            10.5% in 1998 compared to 2.7% for 1997. The increase in absolute
            dollars is primarily due to expenditures for Progressive's IRIS
            Windows(R) NT(R) retail management software products for the quick
            serve, full serve, and casual dining market segments and new
            software products for the industry. Other software development
            initiatives include; enhancement of Progressive's release and
            version management capabilities, internationalization and
            translation of software products for specific foreign markets, and
            porting existing applications to new database systems. The Company
            intends to continue investing significant resources in new releases
            and products in the future.

            Consolidated selling, administrative and general expenses for the
            current year increased $3,052,000 (54%) to $8,713,000 from
            $5,661,000 in the prior year. The increase in selling,
            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 $310,000 associated with the
            due diligence review for a transaction that was not completed. Prior
            year administrative and general expenses include a non-cash expense
            of $1,225,000 related to a stock incentive compensation agreement
            with the principal executive officers of Ultimate. Operating
            expenses in the current year include the $17,600,000 write-off of
            in-process software technology acquired as part of the purchase of
            Progressive.

            Depreciation and amortization for the current year increased
            $2,382,000 to $3,246,000 from $864,000 in the prior year. The
            increase in amortization is primarily the result of amortizing
            goodwill, intangibles and existing and core technologies acquired
            with Progressive.

            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.
            In response to the new SEC guidance, the company has voluntarily
            recalculated the fair value of the purchased in-process software
            technology in accordance with the SEC staff's view.

            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.

            The Company recorded a one time charge of $26.3 million 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 
<PAGE>

            Company began 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 $23.5 million.

            Through the second quarter of 1998, the Company expected Progressive
            to be accretive to earnings. For reasons which are now the subject
            of litigation with its former owner, Progressive had a segment
            operating loss of $2,111,000 for the current year. See "Legal
            Proceedings" and Note 12 of the notes to consolidated financial
            statements included in this report.

            Consolidated operating income (loss) for the current year was a loss
            of $2,964,000 (exclusive of the write-off of in-process software
            technology) compared to a loss of $1,014,000 in the prior year. The
            loss in the current year was primarily the result of the increase in
            selling, administrative and general expenses. Consolidated operating
            income (loss) as a percentage of sales was a 6.8% loss compared to a
            3.9% loss in the prior year.

            Net interest expense for the current year was $1,735,000 compared to
            net interest income of $603,000 in the prior year. Interest expense
            for the period primarily consists of interest on debt incurred to
            acquire Progressive. Interest income for the prior year primarily
            consisted of interest earned on temporary cash investments and
            interest earned on receivables from the sales of stock.

            Other non-operating expense of $22,000 for the current year
            represents costs associated with non-operating properties held for
            sale. Other non-operating expenses in the prior year's period
            include a provision of $196,000 to write-down the value of real
            estate held for sale.

            Provision (benefit) for income taxes in the current year reflects an
            effective tax rate of 36.6% compared to 7.2% in the prior year. The
            benefit recorded in the current year 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 year was $14,146,000 (or $2.33 per share)
            as compared to net loss of $35,000 (or $.01 per share) for the prior
            year. The average number of common shares outstanding increased to
            6,077,000 shares from 5,157,000 shares in the prior year.

      (ii)  Year ended December 31, 1997 compared to year ended December 31,
            1996

            Consolidated net sales for the year ended December 31, 1997
            increased $3,508,000 (16%) to $25,833,000 from $22,325,000 for the
            prior year. The increase reflects greater volume of shipments of
            certain POS terminals, custom manufactured keyboards and customer
            displays.

            Consolidated gross profit increased $250,000 (4%) to $6,204,000 from
            $5,954,000 in the prior year, primarily due to the increase in the
            volume of shipments of POS terminal systems. The gross margin
            declined to 24.0% from 26.7% in the prior year as a result of a
            change in sales mix to a higher proportion of distributed products
            and a lower proportion of manufactured products, particularly custom
            keyboards and pole displays.
<PAGE>

            Consolidated engineering, design and product development costs
            increased $246,000 (55%) to $693,000 from $447,000 in the prior
            year. The increase reflects the ongoing cost of enhancing existing
            products and developing new products, such as Ultimate's Series 600
            POS Keyboard and Series 7000 and 8000 Compact PC's / Network
            Computers.

            Consolidated selling, administrative and general expenses increased
            $1,516,000 (37%) to $5,661,000 from $4,145,000 in the prior year.
            Administrative and general expense in 1997 include a non-cash
            expense of $1,225,000 related to a stock incentive compensation
            agreement with the principal executive officers of Ultimate. General
            expenses in 1996 included a charge of $320,000 to amend an unfunded
            pension arrangement established in 1995. Selling expenses increased
            $260,000 in 1997 primarily as the result of more intensive efforts
            in the selling of POS terminal systems including increased
            advertising and sales support personnel.

            The operating loss was $1,014,000 compared to an operating income of
            $306,000 in the prior year. The operating loss as a percent of
            revenue was 3.9% in 1997 compared to operating income of 1.4% of
            revenue in the prior year. The loss in 1997 was primarily the result
            of the increase in selling, administrative and general expenses,
            particularly the expense of the stock incentive compensation
            agreement discussed above.

            Net interest income was $603,000 compared to net interest expense of
            $827,000 in the prior year. Interest income for 1997 primarily
            consists of interest earned on temporary cash investments. The
            Company had no debt outstanding at the end of 1997.

            Other non-operating expense, (net) includes a provision of $196,000
            to write-down the value of real estate held for sale, based upon the
            declining market value of the property. The prior year includes an
            additional provision of $163,000 for loss on the anticipated
            disposal of real estate held for sale. Non-operating income for the
            prior year includes the non-taxable gain of $6,200,000 from the
            initial public offering of TransAct (the "TransAct Offering").

            The income tax benefit is $44,000 compared to $112,000 in 1996. The
            effective tax rate is related to state income taxes and
            non-deductible amortization of goodwill. The 1996 provision was
            benefited by the $6,200,000 non-taxable gain recognized from the
            TransAct Offering.

            The loss from continuing operations was $568,000 (or $0.11 per share
            basic) compared to income of $5,646,000 (or $1.44 per share - basic)
            in the prior year. Exclusive of the one-time gain from the TransAct
            Offering, the loss from continuing operations was $554,000 (or $0.14
            per share - basic) in 1996.

            Discontinued operations reflect the equity in the income of TransAct
            and Cash Bases. Spin-off related expenses consist of professional
            services and other costs related to the spin-off of TransAct.

            Net loss was $35,000 (or $0.01 per share - basic and diluted) as
            compared to net income of $8,848,000 (or $2.26 per share - basic,
            $2.00 per share -diluted) for the prior year. The average number of
            common shares - basic outstanding was 5,157,000 during 1997 compared
            to 3,913,000 during 1996.

      (iii) Liquidity and Capital Resources

            At December 31, 1998, the Company had availability of $1,244,000
            under the Company's working capital revolving credit facility. The
            Company's working capital at December 31, 1998 was $1,900,000
            compared with $19,490,000 at December 31, 1997. The current ratio
            was 1.1 : 1.0 at December 31, 1998 and 6.2 : 1.0 at December 31,
            1997.

            The decrease in working capital is primarily the result of use of
            funds to finance the current operations of Progressive from the date
            of purchase and the purchase of Progressive. The purchase price of
            Progressive was $47,594,000 including acquisition costs. The
            consideration paid for Progressive was comprised of 714,000 shares
            of Tridex common stock valued at $4,998,000 and the balance in cash,
            including payment of Progressive's line of credit of $9,632,000. The
            cash portion of the purchase 
<PAGE>

            price was financed by: (a) $12,000,000 borrowed under a senior term
            loan from Fleet, (b) $1,736,000 borrowed under a working capital
            facility with Fleet, (c) $11,000,000 proceeds from the sale of notes
            to Massachusetts Mutual Life Insurance Company and related investors
            ("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. The Company also issued
            to the MassMutual Investors stock purchase warrants for 350,931
            shares of common stock, no par value, at an exercise price of $7.00
            per share. The value of the warrants, $1,228,000, has been recorded
            as a discount to the principal amount of the outstanding notes and
            is being amortized to interest expense over the term of the notes
            using the interest rate method. See Note 7 to the Company's
            financial statements of this Form 10-K for a description of the
            Fleet credit agreement and the notes sold to the MassMutual
            Investors.

            As of December 31, 1998, the Company was not in compliance with the
            covenants under its loans from Fleet. Those covenants related to the
            ratio of senior funded debt to EBITDA, the ratio of total
            consolidated funded debt to EBITDA, the interest coverage ratio and
            the fixed charge coverage ratio. On March 30, 1999, Fleet agreed to
            waive the non-compliance as of December 31, 1998 and to amend the
            covenants. In addition, Fleet imposed a temporary reduction of
            $2,000,000 in the availability under the Working Capital Facility.
            The Company paid a fee to Fleet of $70,000 for similar amendments as
            of September 30, 1998, which is being amortized over the remaining
            term of the Credit Agreement. The current amendment increases the
            interest rate on Credit Agreement obligations by 1% and requires the
            Company to maintain a minimum interest coverage ratio and a minimum
            net worth. The current amendment to the Credit Facility allows the
            Company to defer its March 31, 1999 debt payment of $300,000 to June
            30, 1999. The Company will pay a fee to Fleet of $50,000 on June 30,
            1999 for this amendment. On June 30, 1999, the working capital
            facility with Fleet matures. The Company is in discussions with
            Fleet to continue the facility and with other financial institutions
            to replace the facility.

            The notes issued to the MassMutual Investors impose certain
            financial covenants, including minimum consolidated net worth,
            minimum fixed charge coverage ratio and maximum leverage ratio. As
            of December 31, 1998, the Company was not in compliance with the
            covenants related to the fixed charge coverage ratio and the
            leverage ratio. On March 26, 1999, the MassMutual Investors agreed
            to waive the non-compliance as of December 31, 1998 and to amend the
            financial covenants. The Company paid a fee to the MassMutual
            Investors of $39,600 for similar amendments as of September 30,
            1998, which is being amortized over the remaining term of the Notes.
            The current amendment allows the Company to defer its April 17, 1999
            interest payment of $330,000 to July 17, 1999. The amended covenants
            require the Company to maintain a minimum interest coverage ratio
            and a minimum net worth. In consideration for the amendment to the
            notes and in exchange for surrender of the warrant issued in 1998
            for 350,931 shares of common stock, no par value, with an exercise
            price of $7.00 per share, the Company has issued a new warrant for
            800,000 shares of common stock, no par value, at an exercise price
            at market value of date of issuance per share, which was $2.03125.

            At December 31, 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 Facility
            of the Credit Agreement, as necessary, will continue to satisfy its
            working capital needs.

      (iv)  The Year 2000

            The Year 2000 issue is the result of computer programs being written
            using two digits rather than four to represent the year. Computer
            programs that have a time-sensitive program may recognize a date
            using "00" as the year 1900 rather than the year 2000. This could
            result in system failures, miscalculations, temporary inability to
            process transactions or engage in other normal business activities.

            The Company has identified the following areas which could be
            affected by the Year 2000 issue: Company products, internally used
            systems and software, products and/or services provided by key third
            parties and business partners, and internal systems used by key
            customers. The Company 
<PAGE>

            created a Year 2000 project team to address each area and report
            their findings to the Board of Directors on a quarterly basis. The
            team's assignment is to first identify possible areas of
            non-compliance, second develop a fix or solution to the
            non-compliance, and third to implement and test the fix and/or
            solution.

            The Company has been performing extensive testing on software
            products and third party components used in products sold or
            licensed by the Company to its customers. The Company has tested and
            continues to test its current DOS and Windows(R) NT(R) software
            releases. Testing is not being performed with respect to legacy
            products that the Company no longer sells or supports. When testing
            determines that a product is not Year 2000 compliant, the Company
            has developed or will develop a fix or a migration path to a product
            that is Year 2000 compliant. As of this date no significant issues
            have been identified. The expense to upgrade product applications to
            be Year 2000 compliant has been expensed as incurred.

            Part of the Company's Year 2000 initiative is to verify, to the best
            of the Company's ability, that the internal systems of key vendors
            and suppliers are Year 2000 compliant. The Company has sent
            questionnaires to and has received assurances from key vendors and
            suppliers that any Year 2000 issues that they suffer will not have a
            material adverse effect on the Company. However, there can be no
            absolute assurance that key vendors and suppliers will convert their
            systems in a timely manner to avoid an adverse material effect on
            the Company. The Company believes that its current and future
            communication and actions with key vendors and suppliers will
            minimize these risks.

            The Company currently uses three internal information systems. Each
            system has been updated with new releases from its vendor to bring
            the system into Year 2000 compliance. Two of the three systems have
            been installed and tested for compliance. The third system has been
            installed and is in the process of being tested for Year 2000
            compliance. The expense incurred to date, as of December 31, 1998,
            was approximately $200,000. The cost to finish the testing will be
            expensed as incurred and is not expected to be material.

            The Company has other internal systems that are used in the
            development of products and services. Each of these systems has been
            tested for Year 2000 compliance. The Company has received compliance
            certificates from these systems' vendors. The Company is continuing
            to test these systems and expects to finish such testing by the
            second quarter of 1999. All costs will be expensed as incurred and
            are not expected to be material.

            Part of the Company's Year 2000 initiative is to verify, to the best
            of the Company's ability, that the internal processing systems of
            the Company's customers are Year 2000 compliant. The Company has
            sent questionnaires to all of its current customers asking for
            verification that their systems are Year 2000 compliant and, if not,
            to identify those open issues that may have a material adverse
            effect on the Company. As of December 31, 1998, the Company has
            received responses from 60% of its customer base. The Company will
            continue to follow-up with the remaining 40% and hopes to have a 90%
            response by the end of the third quarter 1999. However, there can be
            no absolute assurance that customers will convert their internal
            systems in a timely manner to avoid a material adverse effect on the
            Company. The Company believes that its current and future
            communication and actions with customers will minimize these risks.

            The Company has expensed costs as incurred related to the Year 2000
            analysis and remediation process. The majority of the costs incurred
            to date were internal labor costs associated to analyzing existing
            systems and implementing remediation, including testing. Costs were
            incurred for software upgrades for internal business systems and
            replacement of software tools used in product development. All costs
            to finish the Year 2000 effort will be expensed as incurred and are
            not expected to have an adverse material effect on the Company.

            The Company believes its efforts have identified and corrected the
            crucial Year 2000 compliance issues. The Company expects to complete
            the Year 2000 project by the end of the third quarter and the
            Company will continue to test through the remainder of 1999 and the
            Year 2000. If the Company, its large customers, its key vendors, and
            significant suppliers are unable to resolve Year 2000 
<PAGE>

            processing issues in a timely manner, it could have a material
            adverse effect on the operations, liquidity, and capital resources
            of the Company.

(B)   Impact of Inflation

      Tridex believes that its business has not been affected to a significant
      degree by inflationary trends because of the low rate of inflation during
      the past three years and cost reduction programs at each of its
      operations. Tridex believes that any increase in cost due to inflation can
      be recovered by price increases or offset by cost reductions and
      productivity improvements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                           Page
                                                                          Number
                                                                          ------

      Report of Independent Accountants                                     15

      Tridex Corporation and Subsidiaries consolidated financial 
      statements:

         Consolidated balance sheets as of December 31, 1998 and
         1997.                                                              16

         Consolidated statements of operations for the years
         ended December 31, 1998, 1997 and 1996.                            17

         Consolidated statements of shareholders' equity for the
         years ended December 31, 1998 and 1997.                            18

         Consolidated statements of cash flows for the years
         ended December 31, 1998, 1997 and 1996.                            19

         Notes to consolidated financial statements.                        20

      Financial Statement Schedules - All schedules are omitted since the
      required information is either (a) not present or not present in amounts
      sufficient to require submission of the schedule or (b) included in the
      financial statements or notes thereto.
<PAGE>

                        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 cash flows
present fairly, in all material respects, the financial position of Tridex
Corporation and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, 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.

PricewaterhouseCoopers LLP
Hartford, Connecticut

March 30, 1999
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                             (Dollars in thousands)

                                                          December 31,         
                                             ----------------------------------
                                                    1998               1997    
                                             ----------------------------------
ASSETS                                                                         
Current Assets:                                                                
  Cash and cash equivalents                     $     18           $ 11,839    
  Short term investments                                              4,403
  Receivables (Note 4)                             7,806              3,043    
  Inventories (Note 5)                             7,941              2,987    
  Deferred tax assets (Note 11)                    1,092                659    
  Other current assets                               278                343    
                                             ----------------------------------
    Total current assets                          17,135             23,274    
                                             ----------------------------------
                                                                               
Plant and equipment:                                                           
  Machinery, furniture and equipment               3,775              2,138    
  Leasehold improvements                             476                298    
                                             ----------------------------------
                                                   4,251              2,436    
  Less accumulated depreciation                   (1,806)            (1,195)
                                             ----------------------------------
                                                   2,445              1,241    
                                             ----------------------------------
                                                                               
Goodwill and intangible assets, net of                                         
  accumulated amortization of                                                  
  $3,893 in 1998 and $2,460 in 1997               13,803              2,517    
Purchased and internally developed software                                    
  costs, net of accumulated                                                    
  amortization of $1,212                          11,319                       
Deferred tax assets                                8,000                206    
Other assets                                         251                765    
                                             ----------------------------------
                                                $ 52,953           $ 28,003    
                                             ----------------------------------
                                                                               
LIABILITIES AND SHAREHOLDERS' EQUITY                                           
Current liabilities:                                                           
  Bank loan payable                             $  4,756                       
  Current portion of long term debt                1,650                       
  Accounts payable                                 5,875           $  1,820    
  Accrued liabilities                              1,931              1,806    
  Deferred revenue                                   933                       
  Income taxes payable                                90                158    
                                             ----------------------------------
    Total current liabilities                     15,235              3,784    
                                             ----------------------------------
                                                                               
Long term debt, less current portion              19,341                       
                                                                               
Commitments and contingencies (Note 9)                                         
                                                                               
Shareholders' equity (Notes 1 and 10):                                         
  Preferred stock, $1 par value; authorized                                    
    2,000,000 shares; Issued none                                              
  Common stock, no par value, stated value                                     
    $.25; authorized 10,000,000 shares;                                        
    issued 6,526,187 and 5,497,808 shares          1,634              1,377    
  Additional paid-in capital                      33,328             25,273    
  Accumulated deficit                            (14,819)              (673)
  Receivable from sale of stock                     (801)              (816)
  Common stock held in treasury, at cost,                                      
    157,898 and 146,398 shares                      (965)              (942)
                                             ----------------------------------
                                                  18,377             24,219    
                                             ----------------------------------
                                                $ 52,953           $ 28,003    
                                             ==================================

                  See notes to consolidated financial statements.          
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                  Year Ended December 31,          
                                    ----------------------------------------------
                                              1998           1997           1996  
                                    ----------------------------------------------
                                                                                  
<S>                                    <C>            <C>            <C>          
Net sales                              $    43,504    $    25,833    $    22,325  
                                    ----------------------------------------------
                                                                                  
Operating costs and expenses:                                                     
  Cost of sales                             31,670         19,629         16,371  
  Engineering, design and product                                                 
    development costs                        2,821            693            447  
  Selling, administrative and general                                             
    expenses                                 8,713          5,661          4,145  
  Depreciation and amortization              3,264            864          1,056  
  Purchased  in-process software                                                  
    technology (Note 2)                     17,600                                
                                    ----------------------------------------------
                                            64,068         26,847         22,019  
                                    ----------------------------------------------
                                                                                  
Operating income (loss)                    (20,564)        (1,014)           306  
                                                                                  
Other charges (income):                                                           
  Gain on sale of subsidiary stock                                                
    (Note 3)                                                              (6,200)
  Interest (income) expense, net             1,735           (603)           827  
  Other, net                                    22            201            145  
                                    ----------------------------------------------
                                             1,757           (402)        (5,228)
                                    ----------------------------------------------
                                                                                  
Income (loss) from continuing                                                     
  operations before income taxes           (22,321)          (612)         5,534  
                                                                                  
Benefit for income taxes                    (8,175)           (44)          (112)
                                    ----------------------------------------------
                                                                                  
Income (loss) from continuing                                                     
  operations                               (14,146)          (568)         5,646  
                                                                                  
Discontinued operations (Note 3):                                                 
  Equity in subsidiary's income from                                              
    discontinued operations                                   533          3,454  
  Spin-off related expenses, net of                                               
    taxes of $68                                                             252  
                                    ----------------------------------------------
Net income (loss)                      $   (14,146)   $       (35)   $     8,848  
                                    ==============================================
                                                                                  
Earnings (loss) per  share - basic:                                               
   Income (loss) from continuing                                                  
     operations                        $     (2.33)   $      (.11)   $      1.44  
   Income from discontinued 
     operations                                               .10           0.82  
                                    ----------------------------------------------
   Net income (loss)                   $     (2.33)   $      (.01)   $      2.26  
                                    ==============================================
                                                                                  
Earnings (loss) per  share - diluted:                                             
   Income (loss) from continuing                                                  
     operations                        $     (2.33)   $      (.11)   $      1.30  
   Income from discontinued 
     operations                                               .10           0.70  
                                    ----------------------------------------------
   Net income (loss)                   $     (2.33)   $      (.01)   $      2.00  
                                    ==============================================
                                                                                  
Weighted average shares outstanding:                                              
   Basic                                 6,077,000      5,157,000      3,913,000  
                                    ==============================================
   Diluted                               6,077,000      5,331,000      4,599,000  
                                    ==============================================
</TABLE>

                 See notes to consolidated financial statements.
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                          Common Stock Held  Additional            Receivable
                         Common Stock        In Treasury      Paid-In   Accumulate  From Sale
                      Shares     Amount   Shares    Amount    Capital    Deficit    Of Stock
                     ------------------------------------------------------------------------

<S>                  <C>         <C>      <C>       <C>        <C>       <C>         <C>
Balance, December
  31, 1995           3,900,807   $  978   119,996   $ (828)    $21,939   $(6,609)   
                                                                                   
Exercise of                                                                        
  warrants and                                                                     
  stock options        147,414       37                            482              
                                                                                   
Purchase of                                                                        
  treasury shares                           4,502      (45)                        
                                                                                   
Conversion of                                                                      
  debentures           112,210       28                            940              
                                                                                   
Net Income                                                                 8,848     
                     ------------------------------------------------------------------------
                                                                                   
Balance, December                                                                  
  31, 1996           4,160,431    1,043   124,498     (873)     23,361     2,239     
                                                                                   
Exercise of                                                                        
  warrants and                                                                     
  stock options        859,932      215                          6,181               $ (816)
                                                                                   
Conversion of notes                                                                
  and debentures       377,445       94                          3,492              
                                                                                   
Distribution of                                                                    
  TransAct shares                                               (9,584)   (2,877)    
                                                                                   
Issuance of stock                                                                  
  incentive                                                                        
  compensation                                                                     
  shares               100,000       25                          1,618              
                                                                                   
Purchase of                                                                        
  treasury shares                          21,900      (69)                        
                                                                                   
Tax benefit related                                                                
  to employee stock                                                                
  sales                                                            205              
                                                                                   
Net loss                                                                     (35)    
                     ------------------------------------------------------------------------
                                                                                   
Balance, December                                                                  
  31,1997            5,497,808    1,377   146,398     (942)     25,273      (673)      (816)
                                                                                   
Exercise of stock                                                                  
  options               28,665        7                             74                   15
                                                                                   
Issuance of                                                                        
  acquisition shares   714,000      179                          4,819              
                                                                                   
Sale of shares         285,714       71                          1,929              
                                                                                   
Forfeiture of stock                                                                
  incentive                                                                        
  compensation                                                                     
  shares                                   11,500      (23)                        
                                                                                   
Tax benefit related                                                                
  to employee stock                                                                
  sales                                                              5              
                                                                                   
Warrants issued                                                  1,228              
                                                                                   
Net loss                                                                 (14,146)   
                     ------------------------------------------------------------------------
                                                                                   
Balance, December                                                                  
31, 1998             6,526,187   $1,634   157,898   $ (965)    $33,328  $(14,819)    $ (801)
                     ========================================================================
</TABLE>

                 See notes to consolidated financial statements.
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                           Year Ended December 31,      
                                                ----------------------------------------
                                                        1998        1997        1996    
                                                ----------------------------------------
<S>                                                 <C>         <C>         <C>         
Cash flows from operating activities:                                                   
  Net income (loss)                                 $(14,146)   $    (35)   $  8,848    
    Adjustments to reconcile net income to                                              
      net cash provided by (used in)                                                    
      operating activities:                                                             
        Depreciation and amortization                  3,264         864       1,056    
        Debt discount amortization                       119                            
        Charge for purchased in-process                                                 
          software technology                         17,600                            
        Deferred income taxes                         (8,227)       (114)        537    
        Stock incentive compensation expense             (23)      1,225                
        Loss on disposal of assets                                   194          27                
        Equity used in subsidiary's income from                                         
          discontinued operations                                   (533)     (3,454)               
        Gain on sale of subsidiary stock                                      (6,200)                           
                                                                                        
        Changes in operating assets and liabilities:                                    
          Receivables                                   (620)       (260)       (656)   
          Inventory                                     (601)      1,271      (2,377)   
          Other current assets                          (157)         53          36    
          Other assets                                   (91)         46        (131)   
          Accounts payable, accrued liabilities,                                        
            deferred revenue and income taxes                                           
            payable                                    1,940        (526)        788    
                                                ----------------------------------------
            Net cash provided by (used in)                                              
              operating activities                      (942)      2,185      (1,526)   
                                                ----------------------------------------
                                                                                        
Cash flows from investing activities:                                                   
  Purchases of plant and equipment                      (767)       (546)       (250)   
  Capitalized software development costs              (1,731)                           
  Net cash paid for acquisition                      (42,596)                           
  Proceeds from sale of assets                           855                            
  Proceeds from sale of discontinued operations                    5,200                            
  Receipt of principal of note receivable                                               
    from TransAct                                                  1,000                            
                                                ----------------------------------------
            Net cash provided by (used in)                                                
              investing activities                   (44,239)      5,654        (250)   
                                                ----------------------------------------
                                                                                        
Cash flows from financing activities:                                                   
  Net change in borrowings under line of                                                
    credit                                             4,756                            
  Net proceeds from issuance of long                                                    
    term debt                                         23,000                            
  Principal payments on long term                                                       
    borrowings                                          (900)                 (5,850)               
  Net decrease (increase) in short term                                                 
    investments                                        4,403      (4,403)               
  Proceeds from issuance of shares and exercise                                         
    of stock options and warrants                      2,101       5,580         474    
  Net transactions with discontinued                                                    
    operations                                                       105       1,319       
  Proceeds from repayment of TransAct                                                   
    intercompany debt                                                          7,500    
  Purchase of treasury shares                                        (69)               
                                                ----------------------------------------
            Net cash provided by financing                                                
              activities                              33,360       1,213       3,443    
                                                ----------------------------------------
                                                                                        
Increase (decrease) in cash and cash                                                    
  equivalents                                        (11,821)      9,052       1,667    
Cash and cash equivalents at beginning                                                  
  of period                                           11,839       2,787         822    
                                                ----------------------------------------
Cash and cash equivalents at end of                                                     
  period                                            $     18    $ 11,839    $  2,489    
                                                ========================================
                                                                                        
Supplemental cash flow information:                                                     
  Interest paid                                     $  1,649    $     96    $    843    
  Income taxes paid                                 $    115    $    197    $    972    
                                                                                        
Supplemental non-cash investing and financing                                           
  activities:                                                                           
    Stock issued for acquisition                    $  4,998                            
     Conversion of convertible debt to                                                  
       common stock                                             $  3,710    $  1,010   
</TABLE>

                 See notes to consolidated financial statements.
<PAGE>

                       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
      subsidiaries Ultimate Technology Corporation ("Ultimate"), Progressive
      Software, Inc. ("Progressive"), and its Tridex Ribbons Division, is a
      leading designer, developer, manufacturer, marketer and integrator of high
      quality software and hardware systems and components for the point-of-sale
      ("POS") industry 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 3 for treatment
      of discontinued operations.

      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.

      Goodwill and intangible assets: Goodwill and intangible assets were
      $13,803,000 and $2,517,000 at December 31, 1998 and 1997, respectively.
      The amounts are the result of the acquisition of Progressive in 1998 and
      of Ultimate in 1993 and are being amortized on the straight-line method
      over ten years. 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, 1998.

      Purchased and internally developed software costs: 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). 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. As of
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Business and summary of significant accounting policies: (continued)

      December 31, 1998 and 1997, capitalized software development costs were
      $1,731,000 and zero, respectively. There was no amortization expense
      related to the capitalized software development costs for the year ended
      December 31, 1998. As of December 31, 1998 and 1997, purchased software
      costs associated with the acquisition of Progressive were $9,588,000 and
      zero, respectively. There was $1,212,000 of amortization expense related
      to the purchase software costs for the year ended December 31, 1998.

      All other research and development expenditures are charged to research
      and development expense in the period incurred.

      Other assets: Included in other assets at December 31, 1998 and 1997 is a
      note receivable from a corporate officer of $125,000, which bears interest
      at 8.5%. Also included in other assets at December 31, 1997 is the
      investment in Cash Bases of $605,000.

      Receivable from sale of stock: In connection with the exercise of options
      in 1997, 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. At December 31, 1998, one such
      loan was outstanding in the amount of $801,000. The loan is a full
      recourse loan due in June, 1999, bears interest at the rate of 7.577% and
      is secured by a pledge of the shares acquired by the employee through the
      exercise of the options.

      Revenue recognition: Revenue is generated from sales of hardware systems
      and components and from licensing software systems under noncancelable
      license agreements through direct and indirect channels. The Company also
      generates revenues from customer support and maintenance, and from
      implementation and training services provided to customers.

      Revenue on software sales is recognized in accordance with Statement of
      Position SOP 97-2, "Software Revenue Recognition" (SOP 97-2). Under SOP
      97-2, software license revenues through the Company's direct sales
      channels are recognized when a noncancelable license agreement has been
      executed, fees are fixed and determinable, the software has been
      delivered, accepted by the customer if acceptance is required by the
      contract and other than perfunctory, and collection is considered
      probable. Software license revenues through the Company's indirect sales
      channel are recognized as such fees are reported to the Company or when
      minimum license payments are stated in the contract.

      Maintenance revenues are recognized ratably over the maintenance period,
      generally one year. Revenues from implementation and training services are
      recognized as services are performed. The Company may enter into contracts
      which provide hardware, software license, and service elements. As such
      service elements are not essential to functionality of the software, in
      accordance with SOP 97-2, the hardware and license fees are generally
      recognized upon delivery of the respective elements and the service
      revenues are recognized when performed.

      Deferred revenue is comprised of payments received in advance of product
      delivery, maintenance and other services which have been paid by customers
      prior to services being performed.

      Sales to Lowe's Companies, Inc. accounted for approximately 12%, 10% and
      22% of consolidated net sales for the years ended December 31, 1998,
      December 31, 1997 and December 31, 1996, respectively. Sales to Starbucks
      Coffee Company ("Starbucks") accounted for approximately 10% of
      consolidated net sales for the year ended December 31, 1998.

      Stock based compensation:

      The Company applies APB Opinion 25 and related interpretations in
      accounting for its stock option plan. Under APB 25, compensation expense
      is recognized to the extent that the fair market value of the underlying
      stock on the date of grant exceeds the exercise price of the employee
      stock option. Additional 
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Business and summary of significant accounting policies: (continued)

      disclosures required under Financial Accounting Standards Board Statement
      No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), are included
      in Note 10, Stock Options and Warrants.

      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 11 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 years ending December 31, 1998 and 1997, the basic and diluted per
      share amounts were the same. The following is a reconciliation of the
      earnings per share for the year ended December 31, 1996:

                                  Net Income  Average Shares  Per Share Amount
                               ------------------------------------------------
   Basic earnings per share          $8,848        3,913          $  2.26
   Diluted effect of options,
      warrants and assumed
      conversion of
      convertible debt                               686
   Income impact from assumed
   conversions                          341
                               ------------------------------------------------
   Diluted earnings per share        $9,189        4,599          $  2.00
                               ================================================

2.    Acquisition of Progressive Software, Inc.:

      On April 17, 1998, the Company purchased all of the issued and outstanding
      shares of privately held Progressive, a 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 consolidation financial statements from the date of
      acquisition.

      The purchase price of Progressive was $47,594,000 including acquisition
      costs. The consideration paid for Progressive was comprised of 714,000
      shares of Tridex common stock valued at $4,998,000 and the balance in
      cash, 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 a senior term loan from Fleet National Bank ("Fleet"), (b)
      $11,000,000 proceeds from the sale of senior subordinated notes to
      Massachusetts Mutual Life Insurance Company, 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 a working capital
      facility with Fleet, and (e) the balance from the Company's cash and short
      tem investments. The Company also issued to the MassMutual Investors stock
      purchase warrants for 350,931 shares of common stock at an exercise price
      of $7.00 per share. The value of the warrants of $1,228,000 was recorded
      as a discount to the principal amount of the outstanding notes and is
      being amortized to interest expense over the term of the notes using the
      interest rate method.

      The purchase price was allocated to the assets acquired and liabilities
      assumed based on their estimated fair values. The tangible net assets
      consist primarily of accounts receivable of $4,143,000, inventory of
      $4,353,000, equipment and leasehold improvements of $1,056,000, other
      assets of $28,000 and liabilities 
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      assumed of $3,105,000. On April 17, 1998 a valuation of all intangible
      assets of Progressive was performed by an independent appraisal firm in
      conformity with the Uniform Standards of Professional Appraisal Practice
      of the Appraisal Foundation. The intangible assets included in-process
      software technology projects, among other assets, which were related to
      research and development that had not reached technological feasibility
      and for which there was no alternative future use. The value of the
      purchased in-process software technology was charged to expense in
      accordance with applicable accounting rules during the quarter ended June
      30, 1998.

      On September 9, 1998, the SEC staff notified the American Institute of
      Certified Public Accountants ("AICPA") that it had concerns with respect
      to the common methodologies used to calculate the fair market value of
      purchased in-process software technology. The Company has voluntarily
      recalculated the fair market value of the purchased in-process software
      technology in accordance with the SEC staff's new view. As a result, the
      Company has increased the allocation of the purchase price to goodwill,
      other intangibles and purchased existing and core technology and has
      decreased the allocation to purchased in-process software technology. The
      amount of the purchase price allocated to in-process research and
      development was determined by estimating that the stage of completion at
      the date of acquisition was 89%, estimating cash flows resulting from the
      expected revenues generated from the project, and discounting the net cash
      flows back to their present value using a discount rate of 23%, which
      represents an appropriate risk premium to the Company's weighted average
      cost of capital. In process technology under development at the date of
      acquisition that had not established technological feasibility and for
      which no alternative use was identified were written off in accordance
      with generally accepted accounting principles. If this project is not
      successfully developed, the Company may not realize the value assigned to
      the in-process research and development projects. The goodwill and other
      intangibles and purchased existing and core technology are being amortized
      over five to seven years. The allocation of the purchase price was as
      follows:

                                               As Reported           As Restated
                                               -----------           -----------
      Tangible net assets                        $  6,475              $  6,475
      Purchased in-process software
        technology                                 26,300                17,600
      Purchased existing and core
        technology                                  6,900                10,800
      Estimated goodwill and other
        intangibles                                 7,919                12,719
                                              -----------           -----------
                                                 $ 47,594              $ 47,594
                                              ===========           ===========

      The following unaudited pro forma data reflect the acquisition of
      Progressive as if the acquisition had occurred at the beginning of 1998
      and 1997, but exclude the one-time charge for in-process software
      technology, discussed above. The pro forma financial information is not
      necessarily indicative of the combined results that would have occurred
      had the acquisition taken place at the beginning of the period, nor is it
      necessarily indicative of the results that may occur in the future.

                                             Year Ended December 31,
                                ------------------------------------------------
                                          1998                       1997
                                          ----                       ----
                                (Dollars in thousands, except per share amounts)
      Net sales                       $    49,970                $   59,651
      Operating loss                  $    (4,468)               $   (2,225)
      Net loss                        $    (4,093)               $   (3,394)
      Loss per share - basic          $     (0.64)               $    (0.55)

3.    Discontinued Operations:

      On March 31, 1997 the Company effected the distribution of its 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 
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      $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 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 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. 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.

                                      Year Ended December 31,
                                 -----------------------------------
                                       1997              1996
                                 -----------------------------------
                                 (Dollars in thousands, except per
                                           share amounts)
      Net sales                      $20,317           $56,862
      Operating income                 2,029             6,295
      Net income                         533             3,202
      Earnings per share basic          0.10              0.82

4.    Receivables:

      Receivables are net of the allowance for doubtful accounts. The
      reconciliation of the allowance for doubtful accounts is as follows:

                                             Year Ended December 31,
                                 ----------------------------------------------
                                       1998           1997          1996
                                 ----------------------------------------------
                                             (Dollars in thousands)      
      Balance at beginning of      
        year                          $   20         $   70        $   31
        Provision for doubtful     
          accounts                       300             80            44
        Accounts written off,      
          net of recoveries               (1)          (130)           (5)
                                 ----------------------------------------------
      Balance at end of year          $  319         $   20        $   70
                                 ==============================================
                                 
5.    Inventories:

      The components of inventories are:

                                            December 31,
                                 -----------------------------------
                                       1998              1997
                                 -----------------------------------
                                       (Dollars in thousands)
      Raw materials and
      component parts                 $3,011            $2,097
      Work-in-process                     37                75
      Finished goods                   4,893               815
                                 -----------------------------------
                                      $7,941            $2,987
                                 ===================================

6.    Accrued liabilities:

      The components of accrued liabilities are:

                                            December 31,
                                 -----------------------------------
                                       1998              1997
                                 -----------------------------------
                                       (Dollars in thousands)
      Payroll, fringe benefits
      and commissions                 $  278            $  402
      Unfunded pension
      obligation                         530               555
      Environmental matters              258               262
      Interest                           298
      Other                              567               587
                                 -----------------------------------
                                      $1,931            $1,806
                                 ===================================
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    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 through termination on March 31, 2003. 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 LIBOR measuring period. At
      December 31, 1998 the interest rate on outstanding Credit Agreement debt
      was approximately 7.8%.

      The Credit Agreement is secured by a first priority security interest in
      substantially all of the Company's assets, imposes certain financial
      covenants (including minimum tangible capital base, maximum ratio of
      senior funded debt to EBITDA, maximum ratio of total consolidated funded
      debt to EBITDA, minimum interest coverage ratio and minimum fixed charge
      coverage ratio) and restricts the amount available for payment of cash
      dividends and capital stock distributions.

      As of December 31, 1998, the Company was not in compliance with the
      covenants under its loans from Fleet. Those covenants related to the ratio
      of senior funded debt to EBITDA, the ratio of total consolidated funded
      debt to EBITDA, the interest coverage ratio and the fixed charge coverage
      ratio. On March 30, 1999, Fleet agreed to waive the non-compliance as of
      December 31, 1998 and to amend the covenants. In addition, Fleet imposed a
      temporary reduction of $2,000,000 in the availability under the Working
      Capital Facility. The Company paid a fee to Fleet of $70,000 for similar
      amendments as of September 30, 1998, which is being amortized over the
      remaining term of the Credit Agreement. The current amendment increases
      the interest rate on Credit Agreement obligations by 1% and requires the
      Company to maintain a minimum interest coverage ratio and a minimum net
      worth. The current amendment to the Credit Facility allows the Company to
      defer its March 31, 1999 debt payment of $300,000 to June 30, 1999. The
      Company will pay a fee to Fleet of $50,000 on June 30, 1999 for this
      amendment. On June 30, 1999, the working capital facility with Fleet
      matures. The Company is in discussions with Fleet to continue the facility
      and with other financial institutions to replace the facility.

      On April 17, 1998, the Company sold to the MassMutual Investors $11
      million of the Company's senior subordinated notes due April 17, 2005 (the
      "Notes"). 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 Notes was reduced to 12% from 19%.
      The estimated fair market value of the warrants of $1,228,000 was recorded
      as a discount to the principal amount of the outstanding Notes and is
      being amortized to interest expense over the term of the Notes using the
      interest rate method. The 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 Notes issued to the MassMutual Investors impose certain financial
      covenants, including minimum consolidated net worth, minimum fixed charge
      coverage ratio and maximum leverage ratio. As of December 31, 1998, the
      Company was not in compliance with the covenants related to the fixed
      charge coverage ratio and the leverage ratio. On March 26, 1999, the
      MassMutual Investors agreed to waive the non-compliance as of December 31,
      1998 and to amend the financial covenants. The Company paid a fee to the
      MassMutual Investors of $39,600 for similar amendments as of September 30,
      1998, which is being amortized over the remaining term of the Notes. The
      current amendment allows the Company to defer its April 17, 1999 interest
      payment of $330,000 to July 17, 1999. The amended covenants require the
      Company to maintain a minimum interest coverage ratio and a minimum net
      worth. In consideration for the 
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.    Bank credit agreement and long term debt: (continued)

      amendment to the Notes and in exchange for surrender of the warrant issued
      in 1998 for 350,931 shares of common stock, no par value, with an exercise
      price of $7.00 per share the Company, on March 29, 1999, the Company
      issued a new stock purchase warrant for 800,000 shares of common stock, no
      par value, with an exercise price at market value of date of issuance per
      share, which was $2.03125.

      The components of long term debt are:

                                                          December 31, 1998
                                                          -----------------
                                                        (Dollars in thousands)
      Term loan payable                                       $   11,100
      Senior subordinated notes, net of discount                   9,891
                                                              ----------
                                                                  20,991
      Current portion                                              1,650
                                                              ----------
                                                              $   19,341
                                                              ==========

      During 1997, the holders of $2,460,000 principal amount of the Company's
      10.5% senior subordinated convertible debentures due 1997 (the
      "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 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) 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.

      Also during 1997, the holders of $1,250,000 principal amount of the
      Company's 8% subordinated convertible term promissory notes converted
      their holdings into 104,127 shares of Tridex common stock at $12.00 per
      share.

      Interest expense is stated net of interest income of $348,000 in 1998 and
      $77,000 in 1996. Interest income in 1997 is stated net of interest expense
      of $95,000.

8.    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 Emeritus. The pension arrangement 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, 1998 of $530,000 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 $75,000 in 1998 and $78,000 in 1997.

9.    Commitments and contingencies:

      (a)   Lease obligations:

            At December 31, 1998, 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 $664,000 in 1998, $300,000 in 1997 and
            $315,000 in 1996. 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, 1998 are as follows:
            $775,000 in 1999, $714,000 in 2000; $308,000 in 2001; $35,000 in
            2002; and $11,000 in 2003.

      (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 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, depending on the outcome of pending litigation.
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            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 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, 1998, the Company had spent approximately
            $728,000 in connection with the Site.

            In 1997, Foley sold the Site to an affiliate of 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 was stayed until
            February, 1999 and discovery has commenced. The implementation of
            clean-up measures was commenced in 1998 and is anticipated to be
            concluded in 1999. As of December 31, 1998, the Company had accrued
            $258,000 for the Site, which represents the currently estimated
            minimum cost of remediation, after considering the Site
            Participation Agreement. The Company estimates that it may 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.

      (c)   Legal proceedings

            When Tridex acquired Progressive in April 1998, it granted Mr. Smith
            registration rights for his 714,000 shares of Tridex common stock
            issued as part of the purchase price. At the same closing, Mr. Smith
            agreed to deliver a tax form needed by Tridex to obtain favorable
            tax treatment of the purchase. Tridex made repeated requests for the
            tax form but it was not delivered until January 1999. Mr. Smith
            requested registration of his shares, and Tridex commenced
            preparation of a registration statement, but postponed its
            completion while waiting for Mr. Smith to deliver the tax form.

            During the last three months of 1998, counsel for Tridex met with
            and corresponded with counsel for Mr. Smith, stating that Tridex was
            preparing to pursue arbitration and other legal remedies against
            him. On January 5, 1999, Tridex received the executed tax form. On
            January 4, 1999, Mr. Smith filed a suit against Tridex and
            Progressive in the Federal District Court in North Carolina and
            served the papers at a later date. The suit seeks damages of up to
            $5.0 million plus a court order requiring Tridex to register the
            shares of its common stock issued to Mr. Smith as part of the
            purchase price. The suit also seeks a declaratory judgment to
            prevent Tridex from pursuing other claims which it has asserted
            against Mr. Smith in post-closing negotiations. Tridex has denied
            the substantive allegations in Mr. Smith's complaint. Tridex has
            made claims against Mr. Smith for breach of federal and state
            securities laws, fraud and misrepresentation. Tridex is seeking
            damages in an unspecified amount which is estimated to exceed Mr.
            Smith's claims against Tridex. At this phase of the litigation, the
            parties have not begun discovery. Although it is not possible to
            predict the outcome, Tridex believes it 
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            has valid defenses to Smith's claim and that the claims of Tridex
            and Progressive against Smith are meritorious. Tridex will
            aggressively defend against the claim made by Smith and aggressively
            pursue its own claims against him.

10.   Stock options and warrants:

      The Company presently maintains three stock option plans for employees and
      non-employee directors as follows:

      1998 Non-Executive Long Term Incentive Plan

      The 1998 Long Term Incentive Plan (the "1998 Non-Executive Plan") was
      approved by the shareholders of the Company at the Annual Meeting held on
      May 27, 1998. The 1998 Non-Executive 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 1998
      Non-Executive Plan, up to 600,000 shares of common stock may be
      distributed to key non-executive 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, 1998 the Company had reserved 600,000 shares of common stock for
      issuance upon the exercise of options granted under the 1998 Non-Executive
      Plan. At December 31, 1998, options for 240,000 shares were outstanding
      under the 1998 Non-Executive Plan at exercise prices ranging from $2.625
      to $7.00 per share. These options, none of which were exercisable, have a
      weighted average exercise price of $5.99 per share and a weighted average
      remaining contractual life of 9.5 years.

      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 and
      amended at the Annual Meeting on May 27, 1998 to increase the number of
      authorized shares. 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,
      as amended, up to 1,000,000 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 of the Board, 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, 1998 the Company had reserved 971,335 shares of common stock for
      issuance upon the exercise of options granted under the 1997 Plan. At
      December 31, 1998, options for 507,999 shares were outstanding under the
      1997 Plan at exercise prices ranging from $2.81 to $7.50 per share. These
      options, of which 107,982 were exercisable, have a weighted average
      exercise price of $4.09 per share and a weighted average remaining
      contractual life of 8 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 permits the issuance to non-employee
      directors of the Company of options for up to 100,000 shares of the
      Company's common stock. 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
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   Stock options and warrants: (continued)

      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 ten years of the
      date of the grant. At December 31, 1998 the Company had reserved 100,000
      shares of common stock for issuance upon the exercise of options granted
      under the Directors' Plan. At December 31, 1998, options for 39,000 shares
      were outstanding under the Directors Plan at exercise prices ranging from
      $2.81 to $6.75 per share. These options, of which 9,999 were exercisable,
      have a weighted average exercise price of $2.81 per share and a weighted
      average remaining contractual life of 8.6 years.

      1989 Long Term Incentive Plan

      The 1989 Long Term Incentive Plan ("the 1989 Plan"), which was terminated
      upon the approval of the 1997 Plan, permitted 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 could have been distributed to
      officers, key employees and non-employee directors of the Company. Options
      granted were 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 were 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 were canceled. During 1997, the Company
      accelerated the vesting of all outstanding options in conjunction with the
      distribution of the TransAct shares.

      Warrants:

      As of December 31, 1998, the Company had outstanding stock purchase
      warrants for 350,931 shares of common stock issued to the MassMutual
      Investors in conjunction with the issuance of the Notes discussed in Note
      7. These warrants are exercisable at $7.00 per share from April 19, 1999
      through April 17, 2008. In consideration for the amendment to the Notes
      and in exchange for the warrant issued for 350,931 shares of common stock,
      no par value, at an exercise price of $7.00 per share the Company, on
      March 26, 1999, issued a stock purchase warrant to the MassMutual
      Investors for 800,000 shares of common stock, no par value, at an exercise
      price at market value on the date of issuance, $2.03125 per share. During
      1997, stock purchase warrants were exercised for an aggregate of 230,632
      shares of common stock, consisting of warrants for 117,550 shares held by
      directors of the Company and 113,082 shares issued to the purchasers of
      the 10.5% Debentures and the placement agent for the 10.5% Debentures.

      The following summarizes the combined activity of all stock option plans
      and outstanding warrants during the three-year period ended December 31,
      1998:

<TABLE>
<CAPTION>
                                                 Weighted-                 Weighted-
                                      Stock       Average    Options and    Average
                                   Options and    Exercise     Warrants     Exercise
                                     Warrants      Price     Exercisable     Price
                                  ----------------------------------------------------

      <S>                         <C>             <C>           <C>         <C>    
      Balance, December 31, 1995    953,362       $  6.72

      Granted                        99,000          8.08
      Exercised                    (147,414)         3.52
      Canceled                      (42,206)         6.24
                                  -----------

      Balance, December 31, 1996    862,742          7.45       445,994     $   7.50

      Granted                       471,000          2.96
      Exercised                    (859,932)         7.44
      Canceled                      (23,810)         9.16
                                  -----------

      Balance, December 31, 1997    450,000          2.97             0
</TABLE>
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   Stock options and warrants: (continued)

<TABLE>
<CAPTION>
      <S>                         <C>             <C>           <C>         <C>    
      Granted                       860,431          6.43
      Exercised                     (28,665)         2.81
      Canceled                     (143,836)         4.63
                                  -----------

      Balance, December 31, 1998  1,137,930          4.65       117,981         3.00
                                  ====================================================
</TABLE>

      The following summarizes additional information about stock options and
      warrants outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                                                 Options and Warrants
                           Options and Warrants Outstanding          Exercisable
                         ------------------------------------  -----------------------
                            Number                                Number
                          Outstanding  Weighted-   Weighted-    Exercisable Weighted-
            Range of      at December   Average     Average         at       Average
            Exercise          31,      Exercise    Remaining   December 31,  Exercise
             Prices          1998        Price       Life          1998       Price
      -------------------------------------------------------  -----------------------
      <S>                 <C>          <C>            <C>        <C>         <C>
      $2.6250 $2.8125       251,999    $  2.81        8.42        83,983     $ 2.81
      $3.0938 $3.8750       172,500    $  3.26        6.76        29,999     $ 3.18
      $4.1250 $6.7500        86,500    $  5.11        9.49         3,999     $ 5.50
      $7.0000 $7.5000       626,931    $  7.03        9.35             0
                         ----------                              -------
                          1,137,930    $  5.38        8.76       117,981     $ 3.00
                         ==========                              =======
</TABLE>

      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:

                                              Year Ended December 31,
                                ------------------------------------------------
                                     1998              1997              1996
                                ------------------------------------------------
                                 (Dollars in thousands except per share amounts)
      Net income (loss):
        As reported                $(14,146)          $  (35)           $8,848
        Pro forma under FAS 123    $(14,513)          $ (301)           $8,673

      Pro forma earnings per share 
        (basic and diluted:
        As reported                $  (2.33)          $(0.01)           $ 2.26
        Pro forma under FAS 123    $  (2.41)          $(0.06)           $ 2.22

      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:

                                   1998              1997              1996
                              --------------------------------------------------
      Dividend yield                0%                0%                0%
      Risk-free interest
      rates                    4.08% - 5.61%     5.72% - 6.22%     5.04% - 5.07%
      Expected volatility      36.7% - 43.7%     37.6% - 38.6%     57.0% - 57.6%
      Expected option term        3 years           3 years        5 - 10 years

11.   Income taxes:

      The components of the income tax benefit are as follows:

                                             Year Ended December 31,
                              --------------------------------------------------
                                    1998              1997              1996
                              --------------------------------------------------
                                             (Dollars in thousands)
      Current:
         Federal                  $   69            $   88            $ (743)
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   Stock options and warrants: (continued)

         State                       (17)              (18)               94
                              --------------------------------------------------
                                  $   52            $   70            $ (649)
                              --------------------------------------------------

                                             Year Ended December 31,
                              --------------------------------------------------
                                    1998              1997              1996
                              --------------------------------------------------
                                             (Dollars in thousands)

      Deferred:
         Federal                  $(7,498)          $ (107)           $  553
         State                       (729)              (7)              (16)
                              --------------------------------------------------
                                    (8,227)           (114)              537
                              --------------------------------------------------
      Benefit for income
        taxes                     $ (8,175)         $  (44)           $ (112)
                              --------------------------------------------------

      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:

                                            December 31, 1998  December 31, 1997
                                            ------------------------------------
                                                    (Dollars in thousands)
      Gross deferred tax assets:
        In-process research and development          $6,188
        Future deductible liabilities and
          reserves                                      955             $1,342
        Net operating loss carryforwards              2,487                463
        Federal minimum tax credit
          carryforwards                                 169                 46
        Federal business and other tax credit
          carryforwards                                 149
                                             -----------------------------------
                                                     $9,948             $1,851
                                             -----------------------------------

      Gross deferred tax liabilities:
                                             -----------------------------------
        Depreciation                                 $   25             $   69
                                             ===================================

      At December 31, 1998 and 1997, valuation allowances of $831,000 and
      $917,000, respectively, have been recorded which relate primarily to net
      operating loss carryforwards and certain state deferred tax deductions for
      which a tax benefit will not likely be realized. The net change since
      December 31, 1997 in the valuation allowance for deferred tax assets was a
      decrease of $86,000 related primarily to a decrease in deferred state tax
      benefits.

      At December 31, 1998, the Company had federal net operating loss
      carryforwards of $5,763,000 that expire in 2018 and state net operating
      loss carryforwards of $10,190,000 that expire principally in 1999 through
      2003. The Company also had federal minimum tax credit carryforwards of
      $169,000 which may be carried forward indefinitely as a credit against
      regular federal tax liability in future years and other tax credit
      carryforwards of $149,000 consisting primarily of research and development
      tax credits that expire in 2018.

      Differences between the U.S. statutory federal income tax rate and the
      Company's effective income tax rate are analyzed below:

                                                Year Ended December 31,
                                        ----------------------------------------
                                           1998           1997           1996
                                        ----------------------------------------
      Federal statutory tax rate         (34.0%)        (34.0%)         34.0%
      Nondeductible purchase
        accounting                         0.7%          27.7%           3.1%
      State income taxes, net of
        federal income taxes              (3.3%)         (3.1%)          0.8%
<PAGE>

                       TRIDEX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Gain on sale of subsidiary stock                                 (38.1%)
      Valuation allowance                                               (0.8%)
      Other                                               2.2%          (1.0%)
                                        ----------------------------------------
      Effective tax rate                 (36.6%)         (7.2%)         (2.0%)
                                        ========================================

12.   Segments:

      Prior to the acquisition of Progressive, the Company operated in only one
      segment. Presently, the Company manages each of its two operating
      subsidiaries as a separate reportable business segment. Each segment
      offers different products to different classes of customers in the POS
      market. Ultimate is primarily focused on providing hardware solutions to
      the retail sector of the market, while Progressive is primarily focused on
      providing software solutions to the food service and specialty retail
      sector of the market. Intersegment sales are not material. The Company
      evaluates the performance of each segment based on operating profit,
      exclusive of corporate expense, interest, taxes and nonrecurring gains and
      losses. Each segment follows the Company's significant accounting
      policies. Following is a table of selected financial data concerning the
      Company's reportable segments.

                                       For the Year Ended December 31, 1998
                                ------------------------------------------------
                                              (Dollars in thousands)
                                ------------------------------------------------
                                  Ultimate    Progressive    Other       Total
                                ------------------------------------------------
                                                
      Sales to external
        customers                 $25,608      $17,468       $ 428     $ 43,504
      Depreciation and 
         amortization                 862        2,282         120        3,264
      Segment operating income
        (loss)                    $ 1,671      $(2,111)      $   8         (432)
                                  =======      =======      ======
      Purchased in-process
         software technology                                             17,600
      Other corporate expense                                             2,532
                                                                       --------
      Consolidated operating
        income (loss)                                                  $(20,564)
                                                                       ========

      Segment assets               $10,752      $32,249      $ 133     $ 43,134
                                   =======      =======     ======
      Corporate assets                                                    9,819
                                                                       --------
      Consolidated assets                                              $ 52,953
                                                                       ========
      Capital expenditures for
        segment assets             $   212      $   536                $    748
                                   =======      =======
      Corporate capital 
        expenditures                                                         19
                                                                       --------
      Consolidated capital
        expenditures                                                   $    767
                                                                       ========

13.   Disclosure Regarding Fair Value of Financial Instruments:

      The estimated fair value amounts of the Company's financial instruments
      was made in accordance with the requirements of SFAS No. 107. The
      estimated fair value amounts have been determined by the Company using
      available market information and appropriate valuation methodologies.
      Considerable judgement is required to develop the estimates of fair value,
      thus, the estimates provided herein are not necessarily indicative of the
      amounts that could be realized in a current market exchange.

                                                      December 31, 1998
                                             -----------------------------------
                                                   (Dollars in thousands)
                                               Carrying Amount       Fair Value
      Financial Assets:
        Cash and cash equivalents                  $    18             $   18
        Accounts receivable                          7,806              7,806
      Liabilities:
        Accounts payable                             5,875              5,875
        Bank loan payable                            4,756              4,756
        Term loan payable                           11,100             10,900
        Senior subordinated notes                    9,891              9,591

14.   Other Significant Transactions:

      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
<PAGE>

      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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE 

        None.

PART III

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 19, 1999 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 incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in "Compensation of Directors and Executive Officers"
of the Proxy Statement is incorporated herein by reference.

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 incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

The information contained in "Certain Relationships and Related Transactions" of
the Proxy Statement is incorporated herein by reference.

PART IV

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 14.

      (ii)  Financial statement schedules

            See Item 8 on page 14. 

      (iii) List of Exhibits.

            See Exhibit Index on page 35.

(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.
<PAGE>

                                   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 30, 1999

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.

Signature                                Title                          Date
---------                                -----                          ----


  /s/ Seth M. Lukash           Chairman of the Board, President,  March 30, 1999
-----------------------------  Chief Executive Officer, Chief 
Seth M. Lukash                 Operating Officer and Director
(Principal Executive Officer)  


  /s/ Daniel A. Bergeron       Vice President and                 March 30, 1999
-----------------------------  Chief Financial Officer
Daniel A. Bergeron             
(Principal Financial Officer)


  /s/ George T. Crandall       Vice President, Treasurer,         March 30, 1999
-----------------------------  Controller and Secretary
George T. Crandall             
(Principal Accounting Officer)


  /s/ Graham Y. Tanaka         Director                           March 30, 1999
-----------------------------
Graham Y. Tanaka


  /s/ Paul J. Dunphy           Director                           March 30, 1999
-----------------------------
Paul J. Dunphy


  /s/ Thomas R. Schwarz        Director                           March 30, 1999
-----------------------------
Thomas R. Schwarz


  /s/ Dennis J. Lewis          Director                           March 30, 1999
-----------------------------
Dennis J. Lewis
<PAGE>

                                  Exhibit Index
                                                                           Page
                                                                          Number
                                                                          ------

2.1   Stock Purchase Agreement dated as of February 24, 1998, by and
      among Paul J. Smith, Progressive Software, Inc., Tridex Corporation
      ("Tridex" or the "Company"), and Tridex NC, Inc., with index of
      Schedules and Exhibits thereto filed as Exhibit 2.1 to the
      Company's Current Report of Form 8-K filed April 30, 1998 is hereby
      incorporated herein by reference.

3.1   Certificate of Incorporation of Tridex, as amended, filed on June
      28, 1985 as Exhibit 3.1 to the Company's Annual Report on Form 10-K
      for the fiscal year ended March 30, 1985, is hereby incorporated
      herein by reference.

3.2   Certificate of Amendment of Incorporation of Tridex, dated October
      1, 1987, filed on July 18, 1988 as Exhibit 3.2 to the Company's
      Annual Report on Form 10-K for the fiscal year ended April 2, 1988
      is hereby incorporated herein by reference.

3.3   Certificate of Amendment of Incorporation of Tridex, dated August
      15, 1988, filed on June 29, 1989 as Exhibit 3.3 to the Company's
      Annual Report on Form 10-K for the fiscal year ended April 1, 1989
      is hereby incorporated herein by reference.

3.4   Certificate of Amendment of Incorporation of Tridex, dated March
      31,1989 filed on June 29, 1989 as Exhibit 3.4 to the Company's
      Annual Report on Form 10-K for the fiscal year ended April 1, 1989
      is hereby incorporated herein by reference.

3.5   Bylaws of Tridex, as amended and restated as of January 22, 1996,
      filed on March 26, 1996 as Exhibit 3.5 to the Company's Transition
      Report on Form 10-K for the transition year ended December 31, 1995
      is hereby incorporated herein by reference.

4.1   Description of the Company's common stock set forth in the
      Company's Registration Statement on Form 8-A filed July 14, 1986,
      is hereby incorporated herein by reference.

4.2   Tridex Corporation 1997 Long Term Incentive Plan (as amended and
      restated), filed as Exhibit A to the Company's Proxy Statement for
      the Annual Meeting of Shareholders filed April 17, 1997 is hereby
      incorporated herein by reference.

4.3   Tridex Corporation Non-Employee Directors' Stock Plan filed as
      Exhibit B to the Company's Proxy Statement for the Annual Meeting
      of Shareholders filed April 17, 1997 is hereby incorporated herein
      by reference.

4.4   Tridex Corporation 1998 Non-Executive Long Term Incentive Plan
      filed as Exhibit A to the Company's Proxy Statement for the Annual
      Meeting of Shareholders filed May 8, 1998 is hereby incorporated
      herein by reference.

4.5   Registration Rights Agreement by and between Paul J. Smith and
      Tridex dated as of April 17, 1998 filed as Exhibit 4.1 to the
      Company's Current Report on Form 8-K filed April 30, 1998 is hereby
      incorporated herein by reference.

4.6   Securities Purchase Agreements dated as of April 17, 1998, by and
      among Massachusetts Mutual Life Insurance Company and certain of
      its affiliates and Tridex filed as Exhibit 4.2 to the Company's
      Current Report on Form 8-K filed April 30, 1998 is hereby
      incorporated herein by reference.

4.7   Form of 19% senior subordinated notes due April 17, 2005 filed as
      Exhibit 4.3 to the Company's Current Report on Form 8-K filed April
      30, 1998 is hereby incorporated herein by reference.

4.8   Form of Letter of Waiver and Limited Amendment dated November 12,
      1998 by and among Massachusetts Mutual Life Insurance Company and
      certain of its affiliates and Tridex filed as Exhibit 4.1 to the
      Company's Quarterly Report on Form 10-Q for the quarter ended
      September 30, 1998 is hereby incorporated herein by reference.

4.9   Second Amendment to Securities Purchase Agreements dated March          37
      26, 1999 by and among Massachussets Mutual Life Insurance
      Company and certain of its affiliates and Tridex.

10.1  Credit Agreement dated as of April 17, 1998, by and between Fleet
      National Bank, Tridex, Progressive Software, Inc., Ultimate
      Technology Corporation, and Tridex NC, Inc., with index of
      Schedules and Exhibits thereto filed as Exhibit 10.1 to the
      Company's Current Report on Form 8-K filed April 30, 1998 is hereby
      incorporated herein by reference.

10.2  Term Note in the amount of $12,000,000, due March 31, 2003, payable
      by Tridex and its affiliates to Fleet National Bank ("Fleet") filed
      as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
      April 30, 1998 is hereby incorporated herein by 2 reference.

10.3  Working Capital Note in the amount of $8,000,000 due June 30, 1999,
      payable by Tridex and its affiliates to Fleet National Bank filed
      as Exhibit 10.3 to the Company's Current Report on Form 8-K filed
      April 30, 1998 is hereby incorporated herein by reference.

10.4  Amendment No. 1 to Credit Agreement dated as of November 1, 1998,
      to Credit Agreement dated as of April 17, 1998, by and between
      Fleet, Tridex, Progressive Software, Inc. and Ultimate Technology
      Corporation filed as Exhibit 10.1 to the Company's Quarterly Report
      on Form 10-Q for the quarter ended September 30, 1998 is hereby
      incorporated herein by reference.
<PAGE>

10.5  Manufacturing Support Services Agreement dated as of September 28,
      1996 between Magnetec Corporation and Tridex filed as Exhibit 10.5
      to the Company's Quarterly Report on Form 10-Q for the quarter
      ended September 28, 1996, is hereby incorporated herein by
      reference.

10.6  Printer Supply Agreement dated as of July 30, 1996 between Magnetec
      Corporation and Ultimate Technology Corporation, filed as Exhibit
      10.7 to the Company's Quarterly Report on Form 10-Q for the quarter
      ended September 28, 1996, is hereby incorporated herein by
      reference.

10.7  Tax Sharing Agreement dated as of July 31, 1996 between Tridex and
      TransAct Technologies Incorporated filed as Exhibit 10.8 to the
      Company's Quarterly Report on Form 10-Q for the quarter ended
      September 28, 1996 is hereby incorporated herein by reference.

10.8  Retirement Agreement, dated as of December 31, 1995, between Tridex
      and Alvin Lukash, filed on March 29, 1996 as Exhibit 10.15 to the
      Company's Transition Report on Form 10-K for the transition year
      ended December 31, 1995 is hereby incorporated herein by reference.

10.9  First Amendment to Retirement Agreement dated December 31, 1996
      between Tridex and Alvin Lukash, filed on March 31, 1997 as Exhibit
      10.9 to the Company's Annual Report on Form 10-K for the year ended
      December 31, 1996, is hereby incorporated herein by reference.

10.10 Employment Agreement dated December 2, 1996 between Tridex and Seth
      M. Lukash filed on March 31, 1997 as Exhibit 10.10 to the Company's
      Annual Report on Form 10-K for the year ended December 31, 1996, is
      hereby incorporated herein by reference.

10.11 Employment Agreement dated August 7, 1996 between Tridex and George
      T. Crandall filed on March 31, 1997 as Exhibit 10.11 to the
      Company's Annual Report on Form 10-K for the year ended December
      31, 1996, is hereby incorporated herein by reference.

10.12 Employment Agreement dated February 21, 1997 between Ultimate
      Technology Corporation and Dennis Lewis filed on March 31, 1997 as
      Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1996, is hereby incorporated herein by
      reference.

10.13 Employment Agreement dated February 21, 1997 between Ultimate
      Technology Corporation and Gary German filed on March 31, 1997 as
      Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1996, is hereby incorporated herein by
      reference.

10.14 Employment Agreement dated February 21, 1997 between Ultimate
      Technology Corporation and Paul Wolf filed on March 31, 1997 as
      Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1996, is hereby incorporated herein by
      reference.

10.15 Employment Agreement dated August 7, 1996 between Tridex and Thomas
      F. Curtin, Jr. filed as Exhibit 10.20 to the Company's Annual
      Report on Form 10-K for the year ended December 31, 1997, is hereby
      incorporated herein by reference.

10.16 Employment Agreement dated April 9, 1998 between Tridex and Daniel
      A. Bergeron filed as Exhibit 10.2 to the Company's Quarterly Report
      on Form 10-Q for the quarter ended September 30, 1998 is hereby
      incorporated herein by reference.

10.17 Employment Agreement dated May 11, 1998 between Tridex and John
      MacWillie filed as Exhibit 10.3 to the Company's Quarterly Report
      on Form 10-Q for the quarter ended September 30, 1998 is hereby
      incorporated herein by reference.

10.18 Employment Agreement dated April 21, 1998 between Tridex and
      Raymond J. Mueller filed as Exhibit 10.4 to the Company's Quarterly
      Report on Form 10-Q for the quarter ended September 30, 1998 is
      hereby incorporated herein by reference.

10.19 Amended and Restated Employment Agreement dated March 26, 1999
      between Tridex and Samuel J. Villanti.                                  44

10.20 Amendment No. 2 to Credit Agreement dated as of March 30, 1999, to
      Credit Agreement dated as of April 17, 1998, by and between Fleet,
      Tridex, Progressive Software, Inc. and Ultimate Technology
      Corporation.                                                            49

11.1  Statement re: computation of per share earnings.                        56

21.1  List of Subsidiaries of Tridex.                                         57

23.1  Consent of Independent Accountant                                       58

27.1  Financial Data Schedule.