CENTENNIAL TECHNOLOGIES INC, 10-K, 1998-06-29

CENTENNIAL TECHNOLOGIES INC
10-K, 1998-06-29
COMPUTER PERIPHERAL EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 1-12912

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CENTENNIAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

DELAWARE 04-2978400
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

7 LOPEZ ROAD, WILMINGTON, MASSACHUSETTS 01887
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(978) 988-8848
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 par value Not Applicable

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

None
(Title of Class)

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

Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on June 8, 1998 was $29,391,070. The fair market value of the
Company's Common Stock on June 8, 1998 was $1.625 per share, based on
information reported by certain internet-based bulletin board services
purporting to monitor trading activities. The Company is unable to verify the
accuracy or completeness of such information. As of June 8, 1998, there were
18,496,362 shares of Common Stock, $0.01 par value per share (the "Common
Stock"), of the registrant outstanding.

Certain items in Part III of this Form 10-K incorporate by reference
certain portions of the registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission in connection with the registrant's 1998
Annual Meeting of Stockholders.

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<PAGE> 2

PART I

CAUTIONARY STATEMENTS

Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding possible price competition
and erosion, expansion into new markets, future sales mix, future supply of raw
materials, gross margins, raw material inventory procurement practices, the
Company's customer base, future developments involving certain investments,
assessments regarding systems required to address Year 2000 issues, and future
availability of financing. Such statements involve a number of risks and
uncertainties, including, but not limited to, those (i) discussed below, (ii)
discussed under the heading "Risk Factors," and (iii) identified from time to
time in the Company's filings with the Securities and Exchange Commission. These
risks and uncertainties could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company assumes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
hereof.

ITEM 1. BUSINESS

For purposes of this Annual Report on Form 10-K, all references to "fiscal
1998" relate to the fiscal year consisting of the twelve-month period of
Centennial Technologies, Inc. and Subsidiaries ("Centennial" or the "Company")
ending March 31, 1998. All references to "fiscal 1997" relate to the fiscal year
consisting of the Company's nine-month period ended March 31, 1997. All
references to "fiscal 1996", "fiscal 1995" and "fiscal 1994" relate to the
Company's twelve month fiscal year ended June 30, 1996, June 30, 1995 and June
30, 1994, respectively.

RECENT DEVELOPMENTS

The operations and prospects of the Company have been significantly
affected by the recent developments described below.

Management Changes

On February 10, 1997, after receipt of information regarding various
financial and accounting irregularities in the Company's prior reported
financial results, the Board of Directors fired the Company's former Chief
Executive Officer, Emanuel Pinez ("Mr. Pinez"), and relieved the Company's
former Chief Financial Officer, James M. Murphy, of his duties. On February 17,
1997, the Company hired Interim Chief Executive Officer Lawrence J. Ramaekers
and Interim Chief Financial Officer Eugene M. Bullis.

On August 19, 1997, the Company hired L. Michael Hone as its new President
and Chief Executive Officer. On September 15, 1997, the Company announced that
John J. McDonald, the Company's former President and Vice President of Sales and
Marketing was leaving the Company, that Richard N. Stathes was joining the
Company as its new Senior Vice President of Sales and Marketing, and that Dr.
Jacques Assour was joining the Company as its new Senior Vice President of
Operations.

Legal Proceedings

Class Action Litigation. Since the Company's announcement following the
February 10, 1997 Board meeting that it was undertaking an inquiry into the
accuracy of its prior reported financial results, and that preliminary
information had raised significant questions as to whether reported results
contained material misstatements, approximately 35 purported class action
lawsuits have been filed in the United States District Court for the District of
Massachusetts against the Company, its directors, certain of its officers, its
independent accountants, Coopers & Lybrand L.L.P., and others, asserting claims
under Federal securities laws and related state law claims. See "Item 3 -- Legal
Proceedings."

In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's Common Stock seeking recovery for certain
alleged breach of fiduciary duties, alleged gross negligence, alleged breach of
contract and alleged insider trading by members of the Company's Board of
Directors between August 21, 1996 and February 10, 1997. See "Item 3 -- Legal
Proceedings."

<PAGE> 3

On April 29, 1998, the United States District Court for the District of
Massachusetts granted final approval of the Company's proposed settlement of the
class action and derivative claims described above. See "Item 3 -- Legal
Proceedings."

Department of Justice. On February 20, 1997, the Company received a
subpoena from the United States Department of Justice ("DOJ") to produce
documents in connection with a grand jury investigation regarding various
irregularities in the Company's previous press releases and financial
statements. The DOJ also requested certain information regarding some of the
Company's former officers, certain stock transactions by Mr. Pinez, and
correspondence with the Company's auditors. The Company has received and
responded to additional subpoenas, and is continuing to cooperate with the DOJ.
The Company has not been notified by the DOJ that it is a target or subject of
this investigation.

New York Stock Exchange Proceedings. On February 21, 1997, the New York
Stock Exchange ("NYSE") announced that trading in the Company's Common Stock
would be suspended before the opening of trading on March 3, 1997, and that
following suspension, the NYSE would apply to the Securities and Exchange
Commission ("SEC") to de-list the issue. On March 10, 1997, the NYSE confirmed
that trading in the Company's Common Stock was suspended prior to the opening of
the market on March 3, 1997. On April 10, 1997, the NYSE, pursuant to Section
12(d) of the Securities Exchange Act of 1934 (the "1934 Act") and Rule 12d2-2
promulgated thereunder, applied to the SEC to strike the Company's Common Stock
from listing and registration on the NYSE at the opening of the market on April
25, 1997 because, in the opinion of the NYSE, the Company's Common Stock was no
longer suitable for continued listing and trading on the NYSE. By its order
dated April 24, 1997, the SEC granted the NYSE application for removal of the
Company's Common Stock from listing, which became effective at the opening of
trading on April 25, 1997.

The Company's Common Stock is not currently listed on any organized stock
exchange.

SEC Investigation. In mid-February 1997, the Company was notified that the
Boston District Office of the SEC was conducting an investigation of the
Company. The SEC has requested that the Company provide the SEC with certain
documents concerning the Company's public reports and financial statements. The
SEC indicated that its inquiry should not be construed as an indication by the
SEC or its staff that any violations have occurred, or as a reflection upon the
merits of the securities involved or upon any person who effected transactions
in such securities. The Company is cooperating with the SEC in connection with
this investigation and its outcome cannot yet be determined.

RESTATEMENT OF FINANCIAL STATEMENTS

On February 10, 1997, the Company's Board of Directors reviewed information
that raised significant questions as to whether previously reported financial
results contained material misstatements. A special committee consisting of
outside members of the Company's Board of Directors, with the assistance of
outside counsel and the Company's independent accountants, conducted an
investigation regarding the financial statements and business affairs of the
Company. On June 12, 1997, the Company announced that it had completed the
financial review.

Cumulative adjustments to the Company's previously reported results of
operations through December 31, 1996 consist of reductions of sales totaling
$21.2 million, increases to cost of goods sold associated with inventory
adjustments totaling $8.8 million, and write-offs of investments in and advances
to several companies totaling $15.8 million. Additional increases in costs and
expenses include adjustments to plant and equipment, miscellaneous assets,
investment in Century Electronics Manufacturing, Inc., accrued liabilities and
warranty reserves for a net aggregate amount of $2.4 million. Netted against
these adjustments is an aggregate amount of $8.1 million in reductions to income
taxes, representing reversals of previously reported tax provisions.

<PAGE> 4

The following table sets forth the summary of restatement adjustments (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 31, ------------------------------------
1996 1996 1995 1994
---------- -------- -------- --------

<S> <C> <C> <C> <C>
Adjustments attributable to Centennial
Technologies, Inc.:
Reversal of invalid sales transactions .......... $( 5,283) $ (3,714) $ (3,455) $ (413)
Reversal of bill and hold sales transactions .... ( 6,432) -- -- --
Reclassification of purchasing agency
arrangement ................................... (968) (585) -- --
Additional accounts receivable adjustments ...... (239) (136) (9) --
-------- -------- -------- --------
Total adjustments to sales ...................... (12,922) (4,435) (3,464) (413)
Corrections to inventory pricing and physical
counts ........................................ (1,336) (2,202) (4,560) (1,410)
Restoration of inventory related to bill and hold
sales transactions ............................ 3,435 -- -- --
Additional provisions for inventory
obsolescence .................................. (925) (1,351) (78) (381)
Reversal of certain additions to capital
equipment, net of related depreciation,

which were not bona fide ...................... (72) (2,266) (223) (177)
Provision for losses on investment activities ... (10,811) (1,496) -- --
Pre-acquisition advances to subsidiary .......... (2,385) (1,101) -- --
Other adjustments, net .......................... (568) 399 1,043 (211)
Reversal of provisions for income taxes ......... 3,788 3,268 556 455
-------- -------- -------- --------
Total adjustments to net income (loss) .......... (21,796) $ (9,184) $ (6,726) $ (2,137)
======== ======== ========
Adjustments attributable to Century Electronics
Manufacturing, Inc. ........................... (358)
---------
Total adjustments to net income (loss) .......... $(22,154)
=========
</TABLE>

As outlined in the criminal indictment of Mr. Pinez, the Company's sales
figures were inflated in previous periods. This inflation was achieved by
various means, including shipping empty PC card housings; billing customers for
non-existent products; using the delivery of non-product materials to generate
shipping documents, which were then used to create fictitious invoices; and the
payment of these invoices with funds apparently provided by Mr. Pinez.

Reported revenue figures have also been corrected to exclude bill and hold
transactions which did not meet revenue recognition criteria for the periods in
which they were recorded, and to reclassify transactions related to a purchasing
agency contract with an affiliated company.

Adjustments to the Company's physical inventory balances are attributable
to prior manipulation of physical counts, the inclusion of empty PC card
housings in the Company's finished goods balances, various pricing errors and
manipulations, and the Company's prior failure to reflect adequately actual
inventory usage information in providing for reserves for inventory
obsolescence.

In order to correct previously reported amounts for inventory and cost of
goods sold, the Company conducted a physical inventory in February 1997 and
performed rollback and analytic procedures. The rollback procedures included a
determination of purchases, cost of goods sold and other adjustments appropriate
for prior periods. The analytic procedures included gross margin analyses as
well as a review of inventory schedules prepared in prior periods.

The Company has also reduced or written off the carrying value of several
of its investments in and advances to related technology companies. With regard
to the Company's advances to its subsidiaries, Intelligent Truck Project, Inc.
and Fleet.Net, Inc., the Company has recorded a charge of $3.5 million, equal to
advances to these companies between April 1996 and December 31, 1996 previously
characterized as prepaid technology license fees, as costs and expenses in the
periods in which those advances were made. The Company has also recorded
valuation reserves and related accruals amounting to $5.8 million related to
several of its loans to and/or investments in technology companies. In addition,
the Company has reached agreements to settle claims related to its investments
in Infos International, Inc. and P.G. Technologies, Inc. and has recorded a full
write-off of its investments in these entities of $6.0 million and $0.5 million,
respectively.

<PAGE> 5

GENERAL

The Company was incorporated in 1994 in Delaware as the successor by merger
to C. Centennial, Inc., a Massachusetts corporation. The Company's principal
executive offices are located at 7 Lopez Road, Wilmington, Massachusetts, and
its telephone number is (978) 988-8848.

The Company designs, manufactures and markets an extensive line of PC
card-based solutions to OEMs. The Company focuses on OEM applications and sells
into a broad range of markets, including: Communications (routers, wireless
telephones, and local area networks); Transportation (navigation, vehicle
diagnostics); Mobile Computing (hand-held data collection terminals, notebook
computers, personal digital assistants); and Medical (blood gas analysis
systems, defibrillators, hand-held glucometers). The Company has sold its
products and services to over 250 OEMs, including 3Com Corporation ("3Com"), Bay
Networks, Inc. ("Bay Networks"), Lucent Technologies, Inc. ("Lucent
Technologies"), Philips Electronics N.V. ("Philips"), and Trimble Navigation
Limited ("Trimble Navigation").

The Company was incorporated and began operation in 1987 to develop and
commercialize font cartridges for laser printers. Beginning in 1992, the Company
began designing, manufacturing and marketing cards which conformed to the
specifications agreed upon by the Personal Computer Memory Card International
Association ("PCMCIA") and became known as "PC cards," and gradually
de-emphasized the marketing and sales of font cartridges in order to focus on
the rapidly growing PC card market.

Industry Overview

In recent years, digital computing and processing have expanded beyond the
boundaries of desktop computer systems to include a broader array of electronic
systems, such as mobile communication systems, network switches, medical
devices, navigation systems, cellular telephones, portable computers, digital
cameras and portable data collection terminals. PC cards, with characteristics
such as high shock and vibration tolerance, low power consumption, small size
and higher access speed, better meet the requirements of these emerging
applications than do traditional hard drive and floppy disk storage solutions.
The Company believes that demand for PC cards will increase from increased
adoption of PCMCIA standards by electronic equipment manufacturers, the
inclusion of PC card slots on next generation electronic devices and the
development of PC cards offering new applications. In addition, the Company
believes that widening acceptance of Microsoft Corporation's hand-held and
mobile computer operating system, Windows CE, may stimulate demand for certain
hand-held computers and personal digital assistants ("PDAs") that use PC cards
for storage and other applications.

Products

The Company's PC cards may contain memory chips (such as flash, static
random access memory ("SRAM") or one time programmable ("OTP") memory) for
storage capacity, input/output chips for transmitting and receiving data, and
memory chips with programmed software and other devices for specific
applications. Application-specific PC cards are generally designed by the
Company in cooperation with an OEM for a specific industry or commercial
application. The following are some of the applications in which the Company's
PC cards are used:

PC CARD PRODUCTS

TARGET INDUSTRY APPLICATIONS
--------------- ------------

Communications............................ PC cards are used for storage in
certain wireless telephones and
other personal communication
devices such as screen phones. PC
cards are also used in other
communication devices, such as PBX
switches and network routers. The
Company also markets network
interface cards, which are used to
connect computing devices to local
and wide area networks.

Transportation............................ The Company markets PC cards for
navigation systems, such as Global
Positioning Satellite ("GPS")
equipment used in rental cars,
fleet vehicles, emergency and
rescue vehicles, airplanes, ships
and military vehicles. GPS systems
interpret signals from a dedicated
network of satellites that circle
the earth, providing data on the
position, direction, altitude and
speed of an object. The Company
also develops PC cards used to
interact with on-board information
systems embedded in air, marine and
land based vehicles.

<PAGE> 6

Mobile Computing and
Office Automation........................ PC cards with memory chips are used
for storage capacity in portable
consumer electronics devices, such
as notebooks, handheld computers
and PDAs, and in office automation
products, such as laser printers,
facsimile machines and desktop
computers. PC cards are also used
for data acquisition and data
conversion. The Company's ATA card
offerings may be used to display
images recorded by a digital camera
on a personal computer. Other data
acquisition and conversion cards
are used by field personnel to
gather information, which can then
be transmitted and downloaded to
computing devices in remote
offices.

Medical ............................... The Company sells PC cards for use
in medical monitoring and
diagnostic equipment. Applications
include blood gas analysis systems,
defibrillators and hand-held
glucometers. PC cards are used for
recording patient data and storing
system program information.

The Company provides other non-PC card products based on flash memory
technology. Flash memory requires no power to retain data and is electronically
programmable and re-programmable, characteristics that are not present together
in other memory chips. Based on these advantages and recent decreases in the
cost of flash memory, the Company believes the use of flash memory will become
more prevalent in industrial and commercial equipment. Management believes that
its flash SIMMs (defined below) and miniature cards complement the Company's PC
card product offerings and provide the Company's OEM customers with alternative
solutions to address data storage and processing needs.

Small form factor flash cards are removable flash memory devices that fit
into small electronic devices, such as compact digital cameras, through slots
that are smaller than those designed for PC cards. Small form factor flash cards
increase memory capacity and functionality and are similar to PC cards in that
they are made with existing flash memory technology in a modified mechanical
package with modified electrical connections. The Company offers three types of
standardized small form factor flash cards, in addition to custom form factors
tailored to particular OEM requirements:

* The CompactFlash(TM) (a trademark of SanDisk Corporation) is based on
the standard endorsed by the CompactFlash Association, an industry
organization established to promote uniform standards for compact
flash cards, of which the Company is a member. The CompactFlash uses a
design that relies on an on-board microcontroller and NAND flash
technology.

* The MiniatureCard(TM) (a trademark of Intel Corporation ("Intel")) is
based upon a design promoted by Intel. The MiniatureCard is based on
linear flash devices, NOR flash technology, uses a linear design, as
opposed to the design of the CompactFlash, and requires no on-board
microcontroller.

* The Half Card is based upon a proprietary design developed by the
Company utilizing linear flash technology and requires no on-board
microcontroller or PCMCIA interface logic devices.

Flash Single In-line Memory Modules ("SIMMs") are a type of compact circuit
board assembly consisting of flash memory devices and related circuitry.
Electronic systems increasingly employ SIMMs as building blocks in system
design. SIMMs allow OEMs to configure a system with a variety of different
levels of memory, thus enabling OEMs to address cost-effectively multiple price
points or applications with a single base system that is easily upgradable.

Business Strategy

The Company's goal is to become a leading worldwide provider of PC
card-based solutions to OEMs in the communications, transportation, mobile
computing and medical industries. Key elements of the Company's business
strategy include the following:

Offer Comprehensive PC Card-Based Solutions. The Company offers an
extensive PC card product line as well as related value-added services, such as
(i) in-house design expertise, (ii) flexible manufacturing, including the
ability to make short production runs with minimum down time, (iii) private
labeling, (iv) programming and testing capabilities, (v) rapid order turnaround,
and (vi) just-in-time delivery programs. By offering comprehensive solutions for
OEM PC card requirements, from design to shipment, the Company believes it has a
competitive advantage in the PC card market.

Focus on OEM Customers. The Company markets its products and services to
OEMs that sell products for applications within the Company's target industries.
The Company believes that it can achieve higher gross margins and

6
<PAGE> 7

customer loyalty by serving the OEM market rather than consumer markets due to
the OEM market's requirements for value-added services, such as design
expertise, programming and prototype development. In addition, the Company
believes that serving OEMs gives it exposure to new technologies and emerging
applications, which helps the Company respond to technological advances and
anticipate changes in market conditions.

Provide Flexible, High Quality Manufacturing Solutions. The Company has
periodically upgraded and automated its manufacturing facilities to expand
production capacity. By manufacturing its PC cards in-house, the Company can
offer more flexible production schedules to accommodate OEMs that require the
delivery of a number of different products within a short time frame. The
Company's PC card manufacturing facility in Wilmington, Massachusetts is a
certified ISO 9001 manufacturer. ISO certification is based on numerous aspects
of the Company's business, including manufacturing, purchasing, human resources,
engineering and research.

Sales and Marketing

The Company targets industrial and commercial applications for PC cards
primarily in the communications, transportation, mobile computing and medical
industries. The Company markets its products primarily through direct sales
people, independent manufacturer representatives and distributors. The Company's
sales staff operates primarily from the Company's main office in Wilmington,
Massachusetts. Field sales representatives operate from remote offices. The
Company recently closed foreign sales branches in Montreal, Canada and St.
Albans, England and opened a foreign sales branch in Cheshire, England.

The Company generally markets its products and capabilities directly to
OEMs. The Company's sales staff and engineers work with OEM engineers to design
and engineer PC cards to OEM requirements, which often leads to the Company
providing custom-designed PC cards for specific applications. The Company
believes its interaction with OEM customers provides exposure to emerging
technologies and applications, facilitating a proactive approach to product
design. The Company's sales to its OEM customers are generally made pursuant to
purchase orders rather than long-term sales agreements. The Company has sold its
products and services to more than 250 OEMs, including 3Com, Bay Networks,
Lucent Technologies, Philips, and Trimble Navigation. The Company also pursues
sales to the military sector, and to corporate end-users.

During fiscal 1998, Bay Networks accounted for approximately 29% of the
Company's sales. During fiscal 1997, Bay Networks and Philips accounted for
approximately 32% and 22%, respectively, of the Company's sales. During fiscal
1996, Bay Networks and Philips accounted for approximately 16% and 12%,
respectively, of the Company's sales. During fiscal 1998, 1997, and 1996,
approximately 14%, 8%, and 12% of the Company's sales were outside of the United
States. See "Risk Factors -- Dependence on Major Customers; Concentration of
Credit Risk" and " -- Risks of International Operations."

Engineering and Product Development

The Company directs its engineering and design efforts towards products for
which the Company believes there is a growing and profitable market. In
particular, the Company seeks to meet the requirements of its OEM customers for
products aimed at emerging applications in the communications, transportation,
mobile computing and medical industries by applying the latest available
technology and the PC card design and engineering know-how gained from the
Company's focus on these markets. The Company provides engineering and design
support to many of its OEM customers in order to help integrate the Company's
products into OEM equipment. OEMs often require PC cards for new applications
within the Company's target markets. The Company has developed a library of
several hundred designs through its work with OEMs. By working with these OEMs,
the Company is exposed to new market opportunities for the Company's PC
card-based solutions.

Employees

As of March 31, 1998, the Company had 119 full-time employees, of whom 5
were executive officers, 15 were involved in sales and marketing functions, 15
were involved with engineering and product development, 16 were involved with
administration, and 68 were involved in manufacturing.

None of the Company's employees are represented by a labor union, and the
Company is not aware of any activities seeking such organization. The Company
considers its relationships with its employees to be satisfactory.

<PAGE> 8

Investment in Contract Manufacturing Operations

During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.

In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").

Pursuant to a joint venture agreement executed in May 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital into its 51%
owned contract manufacturing joint venture in Thailand. The Company's joint
venture partner's initial capital contribution was $3.7 million.

On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.

On March 14, 1997, Century entered into an agreement in principal with the
Company, whereby Century agreed to redeem a portion of its shares in exchange
for $1.3 million in cash and a $6.0 million subordinated debenture, reducing the
Company's equity ownership position to 45%. The debentures bore interest at a
rate of 6% and were to mature in ten years. Under certain conditions, the
debentures would be convertible into the capital stock of an entity with which
Century might merge. In addition, the Company agreed to contribute to Century
its interest in the Thailand joint venture. Century also agreed to repay an 8.5%
note payable to Centennial in the amount of $4.1 million and to take the
necessary steps to remove all outstanding guarantees of third-party
indebtedness.

On July 1, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to approximately $2.4 million and sold the underlying
equipment to Century for cash and a $1.9 million 9% promissory note due December
1998.

On February 4, 1998, the Company entered into a transaction with Century
whereby Century redeemed the Company's remaining holdings of Century common
stock, repurchased its $1.9 million 9% promissory note due December 1998, and
satisfied its $6.0 million 6% Convertible Subordinated Debenture due June 2007,
in exchange for $9.7 million in cash and $4.0 million of Century Series B
Convertible Preferred Stock. The Company recorded a loss on investment
activities of $5.1 million during fiscal 1998 to reflect the difference between
the fair value of the consideration received from Century and the carrying value
of the Company's investment in Century. See Note 7 of Notes to Consolidated
Financial Statements.

ITEM 2. PROPERTIES

The Company maintains its principal executive offices and manufacturing
operations in a 34,000 square foot leased facility in Wilmington, Massachusetts.
The Company currently pays rent in the amount of approximately $23,000 per
month, pursuant to a lease that expires on April 30, 2002. The lease contains an
option to renew for an additional five-year period. The lease provides for
annual rent increases of 4% and provides that the Company will pay to its
landlord as additional rent its pro rata share of certain operational and
maintenance costs at the facility during the term of the lease.

In March 1998, the Company's U.K. subsidiary leased an office located in
Cheshire, England for a term of six months. The Company currently pays rent in
the amount of approximately $825 per month, pursuant to a lease that expires in
September 1998. The lease also provides for the payment of any V.A.T. by the
Company's subsidiary, as well as a reasonable proportion of certain operational
and maintenance costs of the sales office during the term of the lease.

The Company conducts business with its domestic field sales representatives
using local in-home offices.

The Company believes that its facilities are adequate for its current needs
and that adequate facilities for expansion, if required, are available at
competitive rates.

<PAGE> 9

ITEM 3. LEGAL PROCEEDINGS

CLASS ACTION LITIGATION

Since the Company's announcement on February 11, 1997 that it was
undertaking an inquiry into the accuracy of its prior reported financial
results, and that preliminary information had raised questions as to whether
reported results contained material misstatements, approximately 35 purported
class action lawsuits have been filed in or transferred to the United States
District Court for the District of Massachusetts. These complaints assert claims
against the Company under Section 10(b) of the Securities Exchange Act of 1934
(the "1934 Act") and Rule 10b-5 promulgated thereunder, and related state law
claims of fraud, deceit and negligent misrepresentation. The complaints also
assert claims against some or all of the Company's Board of Directors, and some
complaints assert claims against certain of the Company's nondirector officers,
under Section 20(a) of the 1934 Act, as well as the same state law claims
asserted against the Company. The Company's independent accountants, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), the Company's lead underwriter for its
March 1996 subsequent public offering, Needham & Company, Inc., and a financial
advisory subscription company, Cabot Heritage Corporation, have also been named
in some of the suits. These class action lawsuits were purportedly brought by
and on behalf of purchasers of the Company's Common Stock between the Company's
initial public offering on April 12, 1994 and February 10, 1997 (the "Centennial
Securities Litigation").

On February 20, 1997, the Company received a subpoena from the United
States Department of Justice ("DOJ") to produce documents in connection with a
grand jury investigation regarding various irregularities in the Company's
previous press releases and financial statements. The DOJ also requested certain
information regarding some of the Company's former officers, certain stock
transactions by Mr. Pinez, and correspondence with the Company's auditors. The
DOJ has subsequently subpoenaed additional Company records and files. The
Company has not been notified by the DOJ that it is a target or subject of this
investigation.

On and after February 26, 1997, four complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased the Company's Common Stock on
February 25, 1997. The complaint also names the Company's Interim Chief
Executive Officer, Lawrence J. Ramaekers, and alleges violations of Sections
10(b) and 20(a) of the 1934 Act (the "February 25 Securities Litigation").

In mid-February 1997, the Company was notified that the Boston District
Office of the Securities and Exchange Commission ("SEC") was conducting an
investigation of the Company. The SEC has requested that the Company provide the
SEC with certain documents concerning the Company's public reports and financial
statements. The SEC indicated that its inquiry should not be construed as an
indication by the SEC or its staff that any violations have occurred, or as a
reflection upon the merits of the securities involved or upon any person who
effected transactions in such securities. The Company is cooperating with the
SEC in connection with this investigation, the outcome of which cannot yet be
determined.

On and after March 26, 1997, several complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased stock of WebSecure, Inc.
("WebSecure") between December 5, 1996 and February 27, 1997 (the "WebSecure
Complaints"). The WebSecure Complaints assert claims against WebSecure, certain
officers, directors and underwriters of WebSecure, and the Company. Claims
against the Company include alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "1933 Act") (the "WebSecure Securities Litigation").

On January 13, 1998, a plaintiff purporting to represent classes of
shareholders who purchased the Company's Common Stock on February 27, 1997 filed
a complaint in the United States District Court for the District of
Massachusetts. The Complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and Mr. Ramaekers' employer, Jay Alix
& Co., and alleges violations of Sections 10(b) and 20(a) of the 1934 Act (the
"February 27 Securities Litigation").

<PAGE> 10

"Settlement Agreement"), whereby the Company and certain of its officers and
directors would be released from liability arising from the allegations included
in the Consolidated Litigation. In return, the Company agreed to pay the
plaintiffs in the Consolidated Litigation $1.475 million in cash and to issue to
these plaintiffs 37% of the Company's Common Stock. The Company also agreed to
adopt certain corporate governance policies and procedures.

The plaintiffs in the Consolidated Litigation have not yet reached an
agreement with the Company's former Interim Chief Executive Officer, Lawrence J.
Ramaekers, regarding their alleged claims against him. The plaintiffs have
agreed to release the Company from any direct liability related to those alleged
claims. In the agreement under which Mr. Ramaekers provided services to the
Company, the Company agreed to provide Mr. Ramaekers with the same
indemnification as is applicable to other officers of the Company pursuant to
the Company's By-Laws. The Company has agreed to indemnify, hold harmless, and
defend Mr. Ramaekers from and against certain claims arising out of his
engagement with the Company.

The plaintiffs have also retained their claims against Mr. Pinez; the
Company's former Chief Financial Officer, James M. Murphy; the Company's
independent accountants, Coopers & Lybrand L.L.P.; and others.

The Court granted final approval of the Settlement Agreement of the
Consolidated Litigation on April 29, 1998.

As of March 31, 1997, the Company recorded a provision for the settlement
of the Consolidated Litigation of $20.0 million, representing the cash portion
of the Settlement Agreement, together with an amount equal to 37% of the
estimated market capitalization of the Company. The cash portion ($1,475,000) of
the Settlement Agreement is included in accounts payable and accrued expenses
and the Common Stock portion ($18,525,000) is included in additional paid-in
capital as of March 31, 1997. The Company satisfied its obligation to remit the
cash portion into a settlement fund during fiscal 1998.

A significant number of class members opted not to participate in the
Settlement Agreement. No assurance can be given that claims by class members who
declined to participate in the Settlement Agreement will not have a material
adverse effect on the Company's business, financial condition and results of
operations.

On June 19, 1997, the Company announced that it had reached an agreement in
principle to settle the WebSecure Securities Litigation. The agreement in
principle contemplates that the Company and certain of its officers and
directors would be released from any and all liability arising from the
allegations included in the WebSecure Securities Litigation in return for the
issuance to the WebSecure Securities Litigation class of 345,000 shares of the
Company's Common Stock and the payment to the class of up to $50,000 for notice
and administrative costs. A binding commitment to these terms must await the
execution of a final settlement agreement. Furthermore, any settlement agreement
must be submitted to the Court for review and approval and, thereafter,
presented to class members for consideration. If a sufficiently large number of
class members opt not to participate in the settlement agreement, the agreement
may by withdrawn. No assurance can be given that the parties will be able to
reach such a final settlement agreement, that any such agreement, if reached,
will be approved by the Court, or that, if such approval is obtained, that a
material number of class members will not decline to participate in the
settlement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of fiscal 1998, the Company did not submit any
matter to a vote of its security holders, through a solicitation of proxies or
otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock was traded on the American Stock Exchange
("AMEX") from April 12, 1994 through November 25, 1996. The Common Stock was
traded on the NYSE from November 26, 1996 until the opening of the market on
March 3, 1997, at which time the Common Stock was suspended from trading on
NYSE. See "Item 3 -- Legal Proceedings". Since March 3, 1997, the Common Stock
has not been traded on an organized stock exchange.

For the periods indicated, the following table sets forth the range of high
and low sale prices for the Common Stock as reported by AMEX and NYSE to March
3, 1997 and based on information reported by certain internet-based bulletin
board services purporting to monitor trading activities for the period beginning
March 3, 1997. The Company is unable to verify the accuracy or completeness of
the internet-based bulletin board information. All high and low sale prices for
the

<PAGE> 11

Common Stock have been adjusted to reflect a three-for-two stock split effected
on August 30, 1995 and a two-for-one stock split effected on November 18, 1996.
All sale prices have been rounded to the nearest one-sixteenth.

HIGH LOW
---- ---
FISCAL 1997
July 1, 1996 through September 30, 1996............... 21 7/16 12 7/16
October 1, 1996 through December 31, 1996............. 58 1/4 21 7/8
January 1, 1997 through March 3, 1997................. 50 1 5/8
March 4, 1997 through March 31, 1997.................. 4 1/4 1 3/4

FISCAL 1998
April 1, 1997 through June 30, 1997................... 3 9/16 2 5/16
July 1, 1997 through September 27, 1997............... 5 1/8 1
September 28, 1997 through December 27, 1997.......... 4 7/8 1 3/16
December 28, 1997 through March 31, 1998.............. 3 3/4 1

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in
conjunction with the Company's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The selected consolidated
financial data as of June 30, 1996, 1995 and 1994 and for the years ended June
30, 1995 and 1994 have been derived from financial statements not included
herein.

As set forth in Note 2 of the accompanying Consolidated Financial
Statements, during fiscal 1998 the Company completed a restatement of its
financial results previously reported for the first six months of fiscal 1997
and fiscal years 1996, 1995 and 1994. The financial statements set forth below
give effect to the adjustments arising from the financial review.

On March 24, 1997 the Company's Board of Directors voted to change the
fiscal year end from June 30 to March 31. See Note 2 of the Consolidated
Financial Statements. All references to fiscal 1998 in the accompanying
financial statements relate to the twelve months ended March 31, 1998. All
references to fiscal 1997 relate to the nine months ended March 31, 1997.
References to fiscal 1996, 1995 and 1994 relate to the respective years ended
June 30.

CONSOLIDATED INCOME STATEMENT DATA (in thousands of dollars, except per share
data):
<TABLE>
<CAPTION>

TWELVE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, FISCAL YEAR ENDED JUNE 30,
-------------------- -------------------- --------------------------------
1998 1997 1997 1996 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (RESTATED AND (RESTATED) (RESTATED) (RESTATED)
UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales .............................. $ 28,263 $ 39,907 $ 28,263 $ 21,768 $ 33,412 $ 8,982 $ 7,801
Costs and expenses:
Cost of goods sold ............... 22,041 33,213 24,453 21,018 29,778 11,575 6,508
Engineering costs ................ 1,302 1,369 1,061 1,126 1,434 753 567
Selling, general and
administrative expenses ....... 11,135 8,416 7,318 2,705 3,803 2,442 2,083
Provision for loss on inventory
subject to customer dispute ... 1,841 -- -- -- -- -- --
Lease cancellation charge ........ 258 -- -- -- -- -- --
Loss on investment activities .... 8,923 16,689 14,096 69 2,662 -- --
Special investigation costs ...... 597 3,673 3,673 -- -- -- --
Provision for settlement
of shareholder litigation ..... -- 20,000 20,000 -- -- -- --
Net interest expense ............. 56 234 391 174 17 64 486
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses ........... 46,153 83,594 70,992 25,092 37,694 14,834 9,644
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and equity in

earnings of affiliate ............ (17,890) (43,687) (42,729) (3,324) (4,282) (5,852) (1,843)
Equity in earnings of affiliate .... 423 959 959 -- -- -- --
Provision for loss on sale of
investment in affiliate ......... (5,142) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes .. (22,609) (42,728) (41,770) (3,324) (4,282) (5,852) (1,843)
Provision (benefit) for income taxes -- -- -- -- -- -- (171)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .................. $(22,609) $(42,728) $(41,770) $ (3,324) $ (4,282) $ (5,852) $ (1,672)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share - basic and diluted ........ $ (1.22) $ (2.49) $ (2.41) $ (.26) $ (.31) $ (.63) $ (.19)
Weighted average shares
outstanding ...................... 18,460 17,174 17,367 12,678 13,632 9,363 9,027
</TABLE>

<PAGE> 12

CONSOLIDATED BALANCE SHEET DATA (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
---------------------------- ----------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ------------- ------------- -----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Current assets............................ $ 11,497 $ 27,213 $ 37,017 $ 8,237 $ 4,265
Total assets.............................. 17,078 52,090 41,132 9,550 5,203
Current liabilities....................... 8,140 22,644 8,856 5,121 889
Working capital........................... 3,357 4,569 28,161 3,116 3,376
Stockholders' equity...................... 8,902 29,446 31,909 4,267 4,315
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. By way of
example, the discussions include statements regarding price competition and
erosion, expansion into new markets, future sales mix, future supply of raw
materials, gross margins, raw materials inventory procurement practices, the
Company's customer base, future developments involving certain investments,
assessments regarding systems required to address Year 2000 issues, and future
availability of financing. Such statements involve a number of risks and
uncertainties, including, but not limited to, those (i) discussed below, (ii)
discussed under the heading "Risk Factors," and (iii) identified from time to
time in the Company's filings with the Securities and Exchange Commission. These
risks and uncertainties could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company assumes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
hereof.

INTRODUCTION

On February 11, 1997 the Company announced that it had commenced a special
investigation into certain apparent financial and management irregularities and
that its previously published financial statements and related financial
disclosures could no longer be relied upon. On June 12, 1997, the Company
announced the completion of the financial review associated with the special
investigation, including condensed restated financial information, as well as
the financial results for the periods ended March 31, 1997. The Company had
previously changed its fiscal year end to March 31, in order to accelerate the
receipt of certain tax refunds and in order to complete audited financial
statements for the entire periods under review as quickly as possible. The
accompanying financial statements give effect to the adjustments arising from
the financial review.

During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities and formed an entity, Century
Electronics Manufacturing, Inc. ("Century") of which Centennial held a 67%
equity ownership position for the purpose of conducting this business. On March
14, 1997, the Company agreed to reduce its equity ownership position to 45% in a
transaction which was completed July 1, 1997. Accordingly, the accompanying
financial statements include the results of operations of Century from the dates
of acquisition on the equity method of accounting.

OVERVIEW

The Company designs, manufacturers and markets an extensive line of PC
cards used primarily by OEMs in industrial and commercial applications. The
Company's PC cards provide added functionality to devices containing
microprocessors by supplying increased storage capacity, communications
capabilities and programmed software for specialized applications.

The Company was incorporated and began operation in 1987 to develop and
commercialize font cartridges for laser printers. Beginning in 1992, when the
Company began designing, manufacturing and marketing PC cards, the Company
gradually de-emphasized the marketing and sales of font cartridges in order to
focus on the rapidly growing PC card market. As the Company effected this shift
in focus, the Company's sales increased from $7.8 million in fiscal 1994 to
$39.9 million in the twelve month period ended March 31, 1997.

The Company incurred losses during each of these periods. See "Results of
Operations" appearing hereinafter for further discussion of losses.

<PAGE> 13

During fiscal 1996, the Company began a strategy of making investments,
financed through a combination of cash and common stock, in technology companies
for the expressed purpose of market development for its PC card business as well
as investment gain. In late fiscal 1997, management decided to focus its
financial resources on its core business, and to suspend its investment
activities. The Company has fully reserved the carrying value of its investments
in these development stage companies.

On December 13, 1996, the Company completed merger agreements with
Intelligent Truck Project, Inc., Fleet.Net, Inc., and Smart Traveler Plazas,
Inc. (collectively, "ITP/Fleet.Net"), agreeing to exchange 792,960 shares of
Centennial Common Stock for all the outstanding common stock of the acquired
businesses. Subsequent to the Company's announcement of financial
irregularities, the principal shareholder of ITP/Fleet.Net filed suit, alleging,
among other things, breach of representations and warranties regarding the
Company's prior reported financial results. On March 4, 1997, the Company and
the principal shareholder of ITP/Fleet.Net entered into a memorandum of
understanding pursuant to which the parties would unwind the merger agreements.
The parties were unable to reach mutually satisfactory terms to complete the
unwinding and on May 15, 1997, agreed to complete the merger and exchange mutual
releases of certain claims. Based on the material uncertainties surrounding the
value of consideration on the original merger date, which uncertainties were not
resolved until the execution of a settlement and mutual release agreement, the
Company has recorded the merger and corresponding issuance of Common Stock as of
May 15, 1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997,
certain of which were previously characterized as advance payments for
technology license arrangements, have been included in loss on investment
activities in the periods the advances were made.

The following table sets forth certain statements of operations data as a
percentage of sales for the periods presented:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS FISCAL YEAR
ENDED MARCH 31, ENDED MARCH 31, ENDED JUNE 30,
------------------ ------------------ ------------------
1998 1997 1997 1996 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sales ........................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of goods sold ......................... 78.0 83.2 86.5 96.6 89.1 128.9
Engineering costs .......................... 4.6 3.5 3.7 5.2 4.3 8.3
Selling, general and administrative expenses 39.4 21.1 25.9 12.4 11.4 27.2
Loss on investment activities .............. 31.6 41.8 49.9 .3 8.0 --
Special investigation costs ................ 2.1 9.2 13.0 -- -- --
Provision for settlement of shareholder
litigation .............................. -- 50.1 70.8 -- -- --
Provision for loss on inventory subject to
customer dispute ........................ 6.5 -- -- -- -- --
Lease cancellation charge .................. 0.9 -- -- -- -- --
Net interest expense ....................... 0.2 0.6 1.4 .8 .1 .8
----- ------ ------ ----- ----- -----
Loss before equity in earnings of affiliate .. (63.3) (109.5) (151.2) (15.3) (12.9) (65.2)
Equity in earnings of affiliate .............. 1.5 2.4 3.4 -- -- --
Provision for loss on sale of investment in

affiliate ................................. (18.2) -- -- -- -- --
----- ----- ----- ----- ----- -----
Net loss ............................... (80.0)% (107.1)% (147.8)% (15.3)% (12.9)% (65.2)%
===== ====== ====== ===== ===== =====
</TABLE>

YEAR 2000 DISCLOSURE

The Company is aware of problems associated with computer systems as the
year 2000 approaches. "Year 2000" problems are the result of common computer
programming techniques that result in systems and/or applications that do not
function properly when manipulating dates later than December 31, 1999. The
issues are complex and wide-ranging. The problem may affect transaction
processing computer applications used by the Company for accounting,
distribution, manufacturing, planning and other applications. Problems may also
affect embedded systems such as building security systems, machine controllers
and production test equipment. Year 2000 problems with any or all of these
systems may affect the effectiveness or efficiency with which the Company can
perform many significant functions, including but not limited to: order
processing, material planning, product assembly, product test, invoicing,
payroll and financial reporting. In addition, the problem may affect the
computer systems of vendors and customers, disrupting their operations and
possibly impairing the Company's sources of supply and demand.

<PAGE> 14

Year 2000 issues with respect to internal budgeting, financial planning,
material planning, sales order processing, accounting, inventory control, shop
floor control, and purchasing. The cost of this management information system
upgrade is estimated to be approximately $400,000. Of this, approximately
$382,000 is attributable to the purchase of new software, which has been and
will be capitalized; the balance has been or will be expensed as incurred. The
aggregate costs associated with the other Year 2000 risks have not been
quantified.

The cost and time schedule for the Year 2000 problem abatement are based
upon management's best estimates for the implementation of its new management
system. These estimates were derived utilizing numerous assumptions, including
that the most significant Year 2000 risks have already been identified, that
certain resources will continue to be available, that third-party plans will be
fulfilled, and other factors. However, there can be no assurances that these
estimates will be achieved or that the anticipated time schedule will be met,
and actual results could differ materially from those anticipated. Any Year 2000
compliance problem of either the Company or its suppliers or customers could
materially adversely affect the Company's business, results of operations,
financial condition, and prospects. See "Risk Factors -- Year 2000 Compliance."

NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." These pronouncements are effective for financial statement
periods beginning after December 15, 1997. The Company does not believe that
these new pronouncements will have a material effect on its future financial
statements.

In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, accounting for the costs of computer software
developed or obtained for internal use. The Company does not believe that this
pronouncement will have a material impact on its business or results of
operations.

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997

Sales. Sales decreased 29% to approximately $28.3 million in the 1998
period compared to $39.9 million in the 1997 period. The average selling price
for the Company's products fell approximately 40% during fiscal 1998, which was
partially offset by an increase in the volume of PC cards sold of approximately
15%. The Company expects that further reductions in the average selling price of
its products will continue into fiscal 1999, and no assurances can be given that
the Company will be successful in its efforts to offset this trend with
increases in the volume of PC cards sold during fiscal 1999.

Sales outside of the United States represented 14% of sales in the 1998
period compared to 8% of sales for the 1997 period. At the end of fiscal 1998,
the Company opened a new sales office in Cheshire, England. The Company expects
that sales outside the United States will continue to represent a percentage of
the Company's sales consistent with that of fiscal 1998.

Sales to one of the Company's customers represented 29% of total sales in
both the 1998 and 1997 periods. If this customer were to reduce significantly
the amount of business they conduct with the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations. No other customer or group of related customers accounted for more
than 10% of the Company's sales.

Cost of goods sold. Cost of goods sold decreased 34% to $22.0 million for
the 1998 period compared to $33.2 million for the 1997 period. Gross margins
were 22.0% for the 1998 period compared to 16.8% for the 1997 period. Costs of
goods sold include provisions for inventory obsolescence of $886,000 in the 1998
period and $1,263,000 in the 1997 period, representing 3.1% of sales in the 1998
period and 3.2% in the 1997 period, reflecting a strategy of prior management to
build inventory in anticipation of customer orders, a portion of which did not
materialize. In February 1997, the Company instituted policies that have
resulted in significantly decreasing the amount of inventory purchased in
advance of receipt of customer orders. The Company's gross margins have also
been impacted by declining memory chip prices, which reduced PC card selling
prices in certain situations where the Company had already purchased memory
chips at higher prices. During fiscal 1998, the Company instituted new
procurement practices reflecting increased emphasis on

<PAGE> 15

reducing inventory levels, and has established on-site stores of raw materials
consigned by several of the Company's major vendors.

Engineering Costs. Engineering costs were $1.3 million in the 1998 period
and $1.4 million for the 1997 period.

Selling, General and Administrative Expense. Selling, general and
administrative expenses increased to $11.1 million in the 1998 period compared
to $8.4 million in the 1997 period. The Company incurred increased legal
expenses during fiscal 1998 as it negotiated and finalized the settlement of the
class action litigation against the Company, and settled several other legal
claims against the Company. The Company also paid retention bonuses during
fiscal 1998 to several key employees following the announcement of the special
investigation into the Company's prior reported financial results. The Company
also incurred costs in hiring a new senior management team, and paid severance
benefits to certain of the Company's former officers and employees. The Company
also incurred costs in closing its Canadian and UK offices and establishing a
new sales office in Cheshire, England.

Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses on disposition of a
series of investments made during the 1997 period and prior. The following table
describes the elements and the amounts reflected in this category (in
thousands):
<TABLE>
<CAPTION>

1998 1997
------- --------
<S> <C> <C>
Costs incurred in connection with ITP/Fleet.Net ...................... $ 3,869 $ 4,761
Provision for loss on investment in Infos International .............. -- 6,024
Provision for loss on investment in Industrial Imaging ............... -- 2,283
Provision for loss on investment in WebSecure ........................ -- 1,765
Less gain on sale of investment in WebSecure ......................... -- (1,200)
Provision for loss on investment in Advent Technology
Management, Inc...................................................... -- 1,000
Provision for loss on investment in P.G. Technologies, Inc. .......... -- 497
Amortization of goodwill and equity in losses of ViA ................. -- 585
Provision for loss on investment in ViA .............................. 4,415 --
Other losses ......................................................... 639 974
------- --------
$ 8,923 $ 16,689
======= ========
</TABLE>

ITP/Fleet.Net

On December 13, 1996, the Company completed merger agreements regarding
ITP/Fleet.Net agreeing to exchange 792,960 shares of Common Stock of the Company
for all of the outstanding common stock of the acquired businesses. Subsequent
to the Company's February 1997 announcement of financial irregularities, the
principal shareholder of ITP/Fleet.Net filed suit, alleging, among other things,
breach of representations and warranties regarding the Company's prior reported
financial statements. On March 4, 1997, the Company and the principal
shareholder of ITP/Fleet.Net entered into a memorandum of understanding pursuant
to which the companies would unwind the merger agreement. The parties were
unable to reach mutually satisfactory terms to complete the unwinding and on May
15, 1997 agreed to complete the merger and exchange mutual releases of certain
claims. Based on the material uncertainties surrounding the value of
consideration on the original merger date, which uncertainties were not resolved
until the execution of the Settlement and Mutual Release, the Company has
recorded the merger and corresponding issuance of Common Stock as of May 15,
1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997, certain
of which were previously characterized as advance payments for technology
license arrangements, have been included in loss on investment activities in the
periods the advances were made. The merger has been recorded using purchase
accounting, and the excess of the purchase price over the fair value of assets
acquired (approximately $3.0 million) was written off as of May 15, 1997, the
settlement agreement date, because of the uncertainties related to the future
operations of lTP/Fleet.Net.

ViA, Inc.

In December 1996, the Company acquired a 12% interest in ViA, Inc., a
development stage privately held technology company that designs, develops, and
markets miniature communication and computing products. Due to the significance
of the Company's investment to ViA's total capitalization and on the basis of
the complementary nature of the companies' products and related development
plans, Centennial accounted for this investment using the equity method, and
amortized the purchase price in excess of its interest in the investee's
underlying net assets, which excess amounted to $5.0 million, over 60 months.
The Company has recorded this amortization, as well as its share of the
investee's losses since the date of the investment through March 31, 1997, for
an aggregate amount of $585,000, as loss on investment activities. During fiscal
1998, the Company reserved the remaining carrying value of its investment, and
recorded a loss on investment activities during fiscal 1998 related thereto of
approximately $4.4 million.

<PAGE> 16

The Company has continued to monitor the financial performance of several
development stage businesses in which the Company invested during fiscal 1997
and 1996, and to assess their future viability. The Company's analysis of
financial information from these investee companies, combined with the Company's
decision to continue to focus its financial resources on its core business, led
the Company to reserve fully the carrying value of its investments in these
development stage companies. As of March 31, 1998, the only remaining investment
with a carrying value greater than zero is the Company's remaining investment in
the Series B Preferred Stock of its former affiliate, Century Electronics
Manufacturing, Inc., valued at approximately $2.4 million.

Special Investigation Costs. The following table describes the elements and
the amounts reflected in this category for the 1998 and 1997 periods (in
thousands):
<TABLE>
<CAPTION>

1998 1997
------ ------
<S> <C> <C>
Fees for services provided by the Company's Independent
Accountants .....................................................$ -- $ 933
Fees for services provided by the Company's Special Litigation Legal
Counsel .......................................................... -- 942
Fees for services provided by the Company's Interim Chief Executive
Officer and Interim Chief Financial Officer ...................... 520 1,195
Fees for services provided by Counsel to the Special Committee of
the Board of Directors ........................................... -- 541
Other .............................................................. 77 62
------ ------
$ 597 $3,673
====== ======
</TABLE>

These expenses reflect fees in connection with the completion of the
special investigation, certain refinancing activities, and costs of legal
defense associated with shareholder litigation.

Provision for Settlement of Shareholder Litigation. As of March 31, 1997,
the Company has recorded a provision for the settlement of the Consolidated
Securities Litigation of $20.0 million, representing the cash portion of the
settlement, together with an amount equal to 37% of the estimated market
capitalization of the Company. The Company satisfied its obligation to remit the
cash portion ($1,475,000) into a settlement fund during fiscal 1998. The Common
Stock portion ($18,525,000) is included in additional paid-in capital as of
March 31, 1998 and 1997.

Provision for Loss on Inventory Subject to Customer Dispute. The Company is
presently in a dispute with Philips Home Services, Inc., a subsidiary of Philips
Electronics, N.V. ("Philips") regarding inventory specifically purchased and
manufactured pursuant to a purchase order from Philips (the "Philips
Inventory"). Philips later attempted to cancel a portion of the purchase order.
The Company disputes the claim that the purchase order cancellation was
effective.

During fiscal 1998, the Company filed suit against Philips, and included
claims of breach of contract and violations of Massachusetts state law
prohibitions against unfair and deceptive acts or practices. Thereafter, Philips
filed an answer denying several of the allegations of the complaint.

The Company continues to pursue recovery of its inventory costs. However,
due to the legal costs and inherent uncertainties involved in litigation, the
Company reserved the cost of the Philips Inventory of approximately $1.8 million
during fiscal 1998.

Lease Cancellation Charge. During fiscal 1998, the Company paid in full its
line of credit and lease financing obligations with the bank that was previously
providing the Company with its credit facilities. That bank required the Company
to pay lease cancellation charges of approximately $258,000 in order to release
its lien on the equipment being financed pursuant to those leases.

Net Interest Expense. Net interest expense decreased to $56,000 in the 1998
period from $234,000 in the 1997 period, reflecting a decreased level of
borrowing under the Company's revolving credit agreements.

Equity Interest in Earnings of Affiliate. The equity interest in earnings
of affiliate reflects the Company's net interest in earnings of Century.

Provision for Loss on Sale of Investment in Affiliate. On February 4, 1998,
the Company entered into a transaction with Century whereby Century redeemed the
Company's remaining holdings of Century common stock, repurchased its $1.9
million 9% promissory note due December 1998, recovered a warrant for the
purchase of 250,000 shares of Century

<PAGE> 17

common stock, and satisfied its $6.0 million 6% Convertible Subordinated
Debenture due June 2007, in exchange for $9.7 million in cash and $4.0 million
of Century Series B Convertible Preferred Stock and the forgiveness of interest
due on the note and debenture. The Series B Convertible Preferred Stock is
equivalent upon conversion to approximately 7%, non-diluted, of Century's
outstanding shares, is non-voting, has no dividend, and has a liquidation
preference of $4.0 million senior to the common shareholders and subordinate to
the holders of Century Series A Convertible Preferred Stock. The Company
recorded a loss on investment activities of $5.1 million during fiscal 1998 to
reflect the difference between the fair value of the consideration received from
Century and the carrying value of the Company's investment in Century.

NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996

Sales. Sales increased 30% to approximately $28.3 million in the 1997
period compared to $21.8 million in the 1996 period, primarily as a result of
increased volume of sales of PC cards. Such increase resulted primarily from
expansion of the PC card market, increased sales and marketing efforts by the
Company and the broadening of the Company's product line.

Sales outside of the United States represented 8% of sales in the 1997
period compared to 12% of sales in the 1996 period.

Sales to one of the Company's customers represented 22% of total sales in
the 1997 period and 12% of sales in the 1996 period. The Company expects a
significant decline in orders from this customer due to the completion of the
program under which the product was originally shipped. In addition, the Company
is in dispute with the customer regarding certain unshipped orders that have not
been included in sales.

Another significant customer represented 32% of total sales in the 1997
period and 16% of total sales in the 1996 period. If these customers were to
reduce significantly the amount of business they conduct with the Company, it
could have a material adverse effect on the Company's business, financial
condition and results of operations. No other customer or group of related
customers accounted for more than 10% of the Company's sales.

Costs of Goods Sold. Cost of goods sold increased 16% to $24.5 million for
the 1997 period compared to $21.0 million for the 1996 period. Gross margins
were 13.5% for the 1997 period compared to 3.5% for the 1996 period. Costs of
goods sold include provisions for inventory obsolescence of $925,000 in the 1997
period and $1,351,000 in the 1996 period, representing 3.3% of sales in the 1997
period and 6.2% in the 1996 period, reflecting a strategy of prior management to
build inventory in anticipation of customer orders, a portion of which did not
materialize. The decline in obsolescence as a percentage of sales reflects, in
part, a change in the practice in February 1997, which change significantly
decreased the amount of inventory purchased in advance of receipt of customer
orders. The Company's gross margins have also been impacted by declining memory
chip prices, which reduced PC card selling prices in certain situations where
the Company had already purchased memory chips at higher prices.

During the 1997 and 1996 periods, the Company recorded sales of $5.3
million and $3.7 million, respectively, which were subsequently deemed to be
invalid and reversed in the process of restating the Company's financial
statements. These transactions had the effect of overstating the Company's gross
margins and contributed to inappropriate pricing decisions and selling
practices.

Engineering Costs. Engineering costs were $1.1 million in both periods.

Selling, General and Administrative Expense. Selling, general and
administrative expenses increased to $7.3 million in the 1997 period compared to
$2.7 million in the 1996 period. Sales compensation and related travel costs for
domestic operations increased from $872,000 to $1,604,000, reflecting increased
investment in sales personnel. Legal, accounting and other professional fees
were approximately $1.8 million in the 1997 period compared to $90,000 in the
1996 period, reflecting increased costs associated with Company's investment
activities as well as costs associated with a public offering for convertible
debentures which was cancelled in December 1996.

Depreciation expense increased to $702,000 in the 1997 period compared to
$336,000 in the 1996 period, reflecting increased capital equipment expenditures
to increase production capacity and improve productivity.

The Company's Canadian and U.K. sales subsidiaries incurred $590,000 of
selling, general and administrative expenses in the 1997 period compared to
$464,000 in the 1996 period. These operations were both shut down in April 1997
and support for all international sales activities was consolidated at the
Company's headquarters.

<PAGE> 18

During the 1997 period, the Company revised its method of allocating
overhead costs to cost of goods sold, which revision reduced the allocation for
this period by approximately $360,000.

Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses on disposition of a
series of investments made during the 1997 and 1996 periods. The following table
describes the elements and the amounts reflected in this category for fiscal
1997 (in thousands):

Costs incurred in connection with ITP/Fleet.Net................... $ 3,729
Provision for loss on investment in Infos International........... 6,024
Provision for loss on investment in Industrial Imaging............ 2,283
Provision for loss on investment in WebSecure..................... 1,765
Less gain on sale of investment in WebSecure...................... (1,200)
Amortization of goodwill and equity in losses of ViA.............. 585
Other losses...................................................... 910
-------
$14,096
=======

See discussion of 1998 results concerning loss on investment activities
related to ITP/Fleet.Net and ViA.

Infos International, Inc.

During fiscal 1997, the Company acquired a 38% interest in Infos
International, Inc., a supplier of intelligent hand-held data collection
equipment for route and shop floor accounting. The purchase price amounted to
approximately $3.0 million in cash and 230,000 shares of Centennial Common Stock
having a market value of $3.9 million at date of acquisition. On February 6,
1998, the Company, Infos and the shareholders of Infos entered into a
transaction whereby the Company agreed to return its shares of Infos in exchange
for an agreement to sell Infos inventory and equipment arising from the contract
manufacturing relationship between Infos and Century, which relationship was
terminated. The parties have also agreed to exchange mutual releases of any
claims arising from the original acquisition agreement. The full amount of the
investment cost ($7.0 million) has been written off. The recorded loss of $6.0
million reflects the use by Infos of $1.0 million of the original cash proceeds
to repay an obligation of that amount due to Centennial from an Infos
subsidiary, Information Capture Corporation ("ICC"). This obligation originally
arose in fiscal 1995, prior to Infos acquiring ICC, in connection with a sales
transaction that was determined in the Company's financial review not to be bona
fide. The effect of the adjustment is to reflect $1.0 million of the investment
cost as a reduction of sales and net income in fiscal 1995 and the remainder as
loss on investment activities in fiscal 1997.

Industrial Imaging, Inc.

For $730,000 in cash and the conversion of $200,000 of notes, the Company
purchased a minority interest in a corporation now known as Industrial Imaging,
Inc., which designs, manufactures and markets automated optical vision and
individual imaging systems for inspection and identification of defects in
printed circuit boards. In addition, effective April 1, 1996 and expiring June
30, 1997, the Company agreed to provide procurement services and purchase
material using the Company's credit arrangements for a service fee of $200,000.
The Company completed purchases aggregating $1.4 million on behalf of the
investee and initially reflected by the Company as sales with the equivalent
amount of cost of goods sold. Such sales have been reversed in connection with
the Company's financial review. During fiscal 1997, the Company determined that
the investee was unable to repay the Company for the material purchased, and
also determined that the value of the equity investment was permanently
impaired. The Company has agreed to convert its account receivable into common
stock of the investee and has recorded a valuation reserve equal to the carrying
value of the investment.

Web Secure, Inc.

During fiscal 1996, the Company purchased for $569,000 a minority interest
in WebSecure, Inc. ("WebSecure"), a corporation that provided Internet services.
The former president and a shareholder of WebSecure was a Director of the
Company from February 1994 through November 1995. In connection with WebSecure's
initial public offering, the Company realized a gain of $1.2 million from the
sale of a portion of its investment. The remaining investment, having a cost of
$560,000, was fully reserved as of March 31, 1997 on the basis that its value
appeared to have been permanently impaired. During fiscal 1998, the Company sold
this remaining investment for $125,000. In addition, the Company has deferred
recognition of the gain pending final resolution of certain litigation described
in Note 16 of Notes to Consolidated Financial Statements.

<PAGE> 19

Other Investments

During fiscal 1997 and 1996, the Company made investments aggregating
$860,000 in development stage businesses that have not yet reached commercial
viability. Such investments have been fully reserved as of March 31, 1997 (net
of certain offsets included in accounts payable and accrued expenses).

Special Investigation Costs. The following table describes the elements and
the amounts reflected in this category for fiscal 1997 (in thousands):

Fees for services provided by the Company's Independent
Accountants ...................................................... $ 933
Fees for services provided by the Company's Special Litigation Legal
Counsel .......................................................... 942
Fees for services provided by the Company's Interim Chief Executive
Officer and Interim Chief Financial Officer ...................... 1,195
Fees for services provided by Counsel to the Special Committee of
the Board of Directors ........................................... 541
Other .............................................................. 62
------
$3,673
======
As of March 31, 1997, $1.6 million of these fees had been paid and $2.0
million are included in accounts payable and accrued expenses. Such accruals
include estimates of fees in connection with the completion of the special
investigation, certain refinancing activities, and costs of legal defense
associated with shareholder litigation.

Provision for Settlement of Shareholder Litigation. As of March 31, 1997,
the Company has recorded a provision for the settlement of the Consolidated
Securities Litigation of $20.0 million, representing the cash portion of the
settlement, together with an amount equal to 37% of the estimated market
capitalization of the Company. The cash portion ($1,475,000) of the settlement
is included in accounts payable and accrued expenses and the Common Stock
portion ($18,525,000) is included in additional paid-in capital as of March 31,
1997.

Net Interest Expense. Net interest expense increased from $174,000 in
fiscal 1996 to $391,000 in fiscal 1997, reflecting increased borrowings under
the Company's revolving credit agreement.

Equity Interest in Earnings of Affiliate. The equity interest in earnings
of affiliate reflects the Company's net interest in earnings of Century.

YEARS ENDED JUNE 30, 1996 AND 1995

Sales. Sales increased 272% to approximately $33.4 million in fiscal 1996
from approximately $9.0 million in fiscal 1995, primarily as a result of
increased volume of sales of PC cards. Sales of PC cards as a percentage of
total sales increased to approximately 98% in fiscal 1996 from approximately 81%
in fiscal 1995. The growth in the Company's PC card sales resulted primarily
from expansion of the PC card market generally, increased sales and marketing
efforts by the Company and the broadening of the Company's PC card product line.
The increase in the Company's PC card sales was partially offset by a decrease
in sales of font cartridges. This decrease was attributed to weakening demand
for font cartridges as laser printer fonts are increasingly being delivered
through PC cards rather than font cartridges, and the gradual shift in the
Company's focus commenced in 1992, away from font cartridges and toward the PC
card market. See "Risk Factors -- Historical Single Product Concentration."

Cost of Goods Sold. Cost of goods sold increased 157% resulting in gross
margin of $3.6 million in 1996 compared to negative gross margin of $2.6 million
in fiscal 1995. As a percentage of sales, gross margin was 10.9% in fiscal 1996
and (28.9)% in fiscal 1995. Gross margins reflect inventory adjustments
associated with the financial review of $3.6 million in fiscal 1996 and $4.6
million in fiscal 1995, based on roll-back analyses of adjusted sales activity
and review of available physical inventory records for recurring errors
misstating quantities and pricing, as well as provisions for inventory
obsolescence.

During fiscal 1996 and fiscal 1995, the Company recorded sales of $3.7
million and $3.5 million, respectively, which sales were subsequently deemed to
be invalid and reversed in the process of restating the Company's financial
statements. These transactions had the effect of overstating the Company's gross
margins and contributed to inappropriate pricing decisions and selling
practices.

<PAGE> 20

Engineering Costs. Engineering costs increased 91% to approximately $1.4
million in fiscal 1996 from approximately $753,000 in fiscal 1995 as a result of
increased engineering resources required by the Company's increased emphasis on
the PC card marketplace. As a percentage of sales, engineering costs were 4% in
fiscal 1996 as compared to 8% in fiscal 1995 due primarily to the higher sales
level.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 56% to approximately $3.8 million in fiscal
1996 from approximately $2.4 million in fiscal 1995. The increase was due
principally to expanded sales and marketing efforts, to increased depreciation
expense resulting primarily from the acquisition of additional manufacturing
equipment and to the cost associated with additional personnel. As a percentage
of sales, selling, general and administrative expenses decreased to 11% in
fiscal 1996 from 27% in fiscal 1995 due primarily to higher sales levels.

Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses on disposition of a
series of investments. The following table describes the elements and the
amounts reflected in this category for the year ended June 30, 1996 (in
thousands):

Costs incurred in connection with ITP/Fleet.Net ........ $1,101
Loss on investment in Advent Technology Management,
Inc.................................................... 1,000
Loss on investment in P.G. Technologies, Inc. .......... 497
Other .................................................. 64
------
$2,662
======
The costs incurred in connection with ITP/Fleet.Net are pre-acquisition
advances for marketing and prototype development in connection with the NOMAD
program.

During fiscal 1996, the Company purchased a minority interest in Advent
Technology Management, Inc. ("Advent"), a holding company of various
technology-related corporations for $250,000, and loaned to Advent an additional
$1.0 million. The Company believes that the initial investment objectives were
not bona fide, and that the value of this investment has been permanently
impaired. Accordingly, these investments have been reflected in loss on
investment activities in fiscal 1996, excluding $250,000 that was repaid by
Advent in January 1997.

During fiscal 1996, the Company purchased a minority interest in P.G.
Technologies, Inc. ("PGTI"), a corporation that develops, manufactures and
markets products for vehicle and fleet management, for $396,500. In addition,
the Company loaned $100,000 to PGTI. The carrying cost of this investment and
loan was written off in fiscal 1996 and the shares were returned to PGTI in May
1997 pursuant to a settlement and mutual release agreement.

Net Interest Expense. Net interest expense was approximately $17,000 in
fiscal 1996 compared to $64,000 in fiscal 1995. Interest expense increased by
approximately $296,000 due principally to increased borrowing under the
Company's credit arrangements. This increase was offset by a rise in interest
income of approximately $343,000 due to the investment of excess cash.

LIQUIDITY AND CAPITAL RESOURCES

Since the Company's inception, it has financed its operating activities
primarily from public and private offerings of equity securities and loans from
financial institutions.

1999 Liquidity Outlook

The Company has experienced significant losses from operations and has
taken measures to reduce those losses, including reducing various expenses and
implementing new cost controls. The Company believes that its present cash
balances, financing from its secured lender, and anticipated future cash flows
will be sufficient to fund anticipated future liquidity requirements.

Operating Activities

At March 31, 1998, working capital declined to approximately $3.4 million,
compared to working capital of $4.6 million at March 31, 1997, due principally
to operating losses, partially offset by funds generated from the Company's sale
of its Century-related assets. In fiscal 1998, the Company experienced cash flow
provided by operations of approximately $8.0 million, compared to cash flow used
in operations of $15.3 million for the twelve month period ended March 31, 1997.
Days of sales outstanding in accounts receivable amounted to 35 days at March
31, 1998 compared to 46

<PAGE> 21

days at March 31, 1997, reflecting improved collection activities. The Company's
inventories represent approximately 6 weeks of manufacturing output at March 31,
1998, compared to 12 weeks at March 31, 1997. Management has implemented new
procurement practices reflecting increased emphasis on reducing inventory
levels, and has established on-site stores of raw materials consigned by several
of the Company's major vendors.

Investing Transactions

Capital expenditures amounted to $1.7 million in fiscal 1998, $2.3 million
for the twelve month period ended March 31, 1997, and $1.3 million in fiscal
1996; such expenditures having been financed, in part, through leasing
arrangements amounting to $0, $250,000, and $702,000, respectively. As of March
31, 1998, the Company had remaining obligations of $106,000 on these equipment
financing leases.

The Company has no commitments for future capital equipment expenditures.

Financing Transactions

On August 14, 1997, the Company entered into a new credit agreement with
Congress Financial Corp. ("Congress Financial") for a revolving credit facility
and term loan facility of up to $4.1 million and $0.9 million, respectively, and
a $2.0 million capital equipment acquisition facility, based on certain
limitations and covenants. Allowable borrowings are based on available accounts
receivable and the cost of equipment, and are collateralized by all of the
Company's assets.

Investment in Century Electronics Manufacturing, Inc.

During the twelve months ended March 31, 1997, the Company completed three
separate business acquisitions of contract manufacturing activities. On July 10,
1996, the Company acquired a majority equity position in Design Circuits, Inc.
("DCI") for approximately $3.2 million in cash, 250,000 shares of the Company's
Common Stock and assumption of certain liabilities.

In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").

Pursuant to a joint venture agreement executed in May 1996, the Company
invested $1.3 million during the twelve months ended March 31, 1997 as its
initial capital into its 51% owned contract manufacturing joint venture in
Thailand. The Company's joint venture partner's initial capital contribution was
$3.7 million.

On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash, and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.

On July 1, 1997, the transaction agreed upon on March 14, 1997 was
completed. In order to remove certain guarantees of equipment subleased to DCI,
Centennial executed lease buyouts amounting to approximately $2.4 million and
sold the underlying equipment to Century for cash and a $1.9 million 9%
promissory note due December 1998.

On February 4, 1998, the Company entered into a transaction with Century
whereby Century redeemed the Company's remaining holdings of Century common
stock, repurchased its $1.9 million 9% promissory note due December 1998, and
satisfied its $6.0 million 6% Convertible Subordinated Debenture due June 2007,
in exchange for $9.7 million in cash and $4.0 million of Century Series B
Convertible Preferred Stock. The Company recorded a loss on investment
activities of $5.1 million during fiscal 1998 to reflect the difference between
the fair value of the consideration received from Century and the carrying value
of the Company's investment. See Note 7 of Notes to Consolidated Financial
Statements.

<PAGE> 22

Contingencies

The Company is a defendant in numerous lawsuits alleging violations of
securities and other laws in connection with the Company's prior reported
financial results and certain other related matters. See "Item 3 -- Legal
Proceedings." The Company has been granted final approval of its proposed
settlement of these suits, and believes that such lawsuits will be settled
substantially in accordance with the description contained in "Item 3 -- Legal
Proceedings." The Company believes that such settlements will not have a
material adverse impact on its liquidity. As of March 31, 1997, the Company
recorded a provision for the settlement of the Consolidated Securities
Litigation of $20.0 million, representing the cash portion of the settlement,
together with an amount equal to 37% of the estimated market capitalization of
the Company. The Company satisfied its obligations regarding the cash portion
($1,475,000) of the Settlement Agreement by remitting that amount into a
settlement fund during fiscal 1998. The Common Stock portion ($18,525,000) is
included in additional paid-in capital.

There can be no assurance that claims by shareholders who opted not to
participate in the class action settlement will not be material, or that the
claims against Lawrence J. Ramaekers, the Company's former interim Chief
Executive Officer, in connection with the February 25 Securities Litigation and
the February 27 Securities Litigation, as to which the Company may have
indemnification obligations will be settled, and such inability to settle
pending litigation could have a material adverse affect on the Company's
liquidity, business, financial condition and results of operations.

IMPACT OF INFLATION

The Company believes that the impact of inflation on its operations is not
significant.

SEASONALITY

The Company generally does not experience seasonality with respect to the
sale of its products; however, the Company has experienced reduced sales to
certain customers in European countries during the months of July and August.

DIVIDENDS

The Company has never paid cash dividends. The Company currently intends to
retain all future earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's credit agreement with its bank prohibits the payment of cash dividends
without the bank's consent.

RISK FACTORS

Losses in Prior Periods; Liquidity and Financing Risks. The Company has
experienced significant losses from operations during fiscal 1995, fiscal 1996,
fiscal 1997 and fiscal 1998. The Company has taken measures since the firing of
Mr. Pinez in February 1997 to reduce those losses, including appointing a
turnaround specialist, hiring new senior management, reducing various expenses
and implementing new cost controls. The Company believes that its present cash
balances, financing from Congress Financial, and anticipated future cash flows
will be sufficient to fund anticipated future liquidity requirements. The
Company can make no assurances that measures taken to date or to be taken in the
future will be sufficient to stem losses or that future financing will be
available to the Company or, if available, on terms that will be satisfactory to
the Company.

Dependence on Major Customers; Concentration of Credit Risk. Bay Networks
accounted for approximately 29% of the Company's sales for fiscal 1998. Bay
Networks and a subsidiary of Philips accounted for approximately 32% and 22%,
respectively, of the Company's sales for fiscal 1997. Bay Networks and Philips
accounted for 16% and 12%, respectively, of the Company's sales for the fiscal
1996. The loss of, or a significant curtailment of purchases by these customers,
or any other significant customer of the Company, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Substantially all of the Company's sales to Philips have been in connection with
Philips' sales of screen phones to a single customer. Except for certain orders
presently in dispute, the Company has fulfilled all purchase orders with
Philips, and the Company believes that it will not receive additional orders
from Philips pursuant to the screen phone program. The industries served by the
Company are characterized by frequent mergers, consolidations, acquisitions,
corporate restructuring and changes in management, and the Company has from time
to time experienced reductions in purchase orders from customers as a result of
such events. There can be no assurance that such events involving customers of
the Company will not result in a significant reduction in the level of sales by
the Company to such customers or the termination of the Company's relationship
with such customers. In addition, the percentage of the Company's sales to
individual customers may fluctuate from period to period. Customer orders can be
canceled and volume levels can be changed or delayed. The timely replacement of
canceled, delayed, or reduced orders with new customers cannot be assured. These
risks are exacerbated because a majority of the Company's sales are to customers
in

<PAGE> 23
the electronics industry, which is subject to rapid technological change and
product obsolescence. The electronics industry is also subject to economic
cycles and has in the past experienced, and is likely in the future to
experience, fluctuations in demand. The Company anticipates that a significant
portion of its sales will continue for the foreseeable future to be concentrated
in a small number of customers in the electronics industry.

Need to Respond to Rapid Technological Change; Historical Single Product
Concentration. The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and rapid product
obsolescence. Rapid technological development substantially shortens product
life cycles, and the Company's growth and future success will depend upon its
ability, on a timely basis, to develop and introduce new products, to enhance
existing products and to adapt products for various industrial applications and
equipment platforms, as well as upon customer acceptance of these products,
enhancements and adaptations. The Company, having more limited resources than
many of its competitors, focuses its development efforts at any given time to a
relatively narrow scope of development projects. There can be no assurance that
the Company will select the correct projects for development or that the
Company's development efforts will be successful. In addition, no assurance can
be given that the Company will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products,
that new products and product enhancements will meet the requirements of the
marketplace and achieve market acceptance, or that the Company's current or
future products will conform to applicable industry standards. Any inability of
the Company to introduce on a timely basis new products or enhancements that
contribute to profitable sales would have a material adverse effect on the
Company's business, financial condition and results of operations.

PC cards and related services constitute approximately 100%, 100% and 98%
of the Company's sales for fiscal 1998, 1997 and 1996, respectively. The market
for PC cards is still developing and there can be no assurance that computing
and electronic equipment that utilize PC cards will not be modified to render
the Company's PC cards obsolete or otherwise have the effect of reducing demand
for the Company's PC cards. In addition, the Company faces intense competition
from competitors that have greater financial, marketing and technological
resources than the Company, which competition may reduce demand for the
Company's PC cards. Decreased demand for the Company's PC cards as a result of
technological change, competition or other factors would have a material adverse
effect on the Company's business, financial condition and results of operations.

Competition. Each of the markets in which the Company competes is intensely
competitive. The Company competes with manufacturers of PC cards and related
products, including SanDisk Corporation and Smart Modular Technologies, Inc., as
well as with electronic component manufacturers who also manufacture PC cards,
including Advanced Micro Devices, Inc., Epson America, Inc., Intel Corporation
and Mitsubishi Electric Corporation. Certain of these competitors supply the
Company with raw materials, including electronic components, which are
occasionally subject to industry wide allocation. These competitors may have the
ability to manufacture products at lower costs than the Company as a result of
their higher levels of integration. In addition, many of the Company's
competitors or potential competitors have greater name recognition, a larger
installed base of customers, more extensive engineering, manufacturing,
marketing, distribution and support capabilities and greater financial,
technological and personnel resources than the Company. The Company expects
competition to increase in the future from existing competitors and from other
companies that may enter the Company's existing or future markets with similar
or alternative products that may be less costly or provide additional features.
The Company believes that its ability to compete successfully depends on a
number of factors, including product quality and performance, order turnaround,
the provision of competitive design capabilities, timely response to advances in
technology, adequate manufacturing capacity, production efficiency, timing of
new product introductions by the Company, its customers and its competitors, the
number and nature of the Company's competitors in a given market, price and
general market and economic conditions. In addition, market conditions are
expected to lead to intensified price competition for the Company's products and
services, resulting in lower prices and gross margins, which could materially
and adversely affect the Company's business, financial condition and results of
operations. There can be no assurance that the Company will compete successfully
in the future.

Fluctuations in Quarterly Results. The Company's results of operations may
be subject to quarterly fluctuations due to a number of factors, including the
timing of receipt and delivery of significant orders for the Company's products,
competitive pricing pressures, increases in raw material costs, costs associated
with the expansion of operations, changes in customer and product mix,
production difficulties, quality of the Company's products, write-downs or
write-offs of investments in other companies, exchange rate fluctuations and
market acceptance of new or enhanced versions of the Company's products, as well
as other factors, some of which are beyond the Company's control. Additionally,
as is the case with many high technology companies, a significant portion of the
Company's orders and shipments typically occurs in the last few weeks of a
quarter. As a result, revenues for a quarter are not predictable, and the
Company's revenues may shift from one quarter to the next, having a significant
effect on reported results.

<PAGE> 24

The trading price of the Company's Common Stock may fluctuate widely in
response to, among other things, quarter- to-quarter operating results, industry
conditions, awards of orders to the Company or its competitors, new product or
product development announcements by the Company or its competitors and changes
in earnings estimates by analysts. There can be no assurance that the Company's
future performance will meet the expectations of analysts or investors. In
addition, the volatility of the stock markets may cause wide fluctuations in
trading prices of securities of high technology companies.

Raw Material Shortages and Dependence on Single Source Suppliers. The
Company has from time to time experienced shortages in the supply of computer
memory chips and other electronic components used to manufacture PC cards. The
Company expects that such supply shortages may continue, particularly with
respect to computer memory chips and other electronic components used in
products targeted at high-growth market segments. Occasionally, certain memory
chips important to the Company's products are on industry-wide allocation by
suppliers. Any such shortages could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company purchases certain key components from single source vendors for
which alternative sources are not currently available. The Company does not
maintain long-term supply agreements with any of its vendors. The inability to
develop alternative sources for these single source components or to obtain
sufficient quantities of components could result in delays or reductions in
product shipments, or higher prices for these components, or both, any of which
could materially and adversely affect the Company's business, financial
condition and results of operations. No assurance can be given that one or more
of the Company's vendors will not reduce supplies to the Company.

Dependence on Key Personnel. The Company's success depends to a significant
degree upon the efforts and abilities of members of its senior management and
other key personnel, including technical personnel. The loss of any of these
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's business also
depends upon its ability to continue to attract and retain senior managers and
skilled technical employees. Failure to attract and retain such senior personnel
could materially and adversely affect the Company's business, financial
condition and results of operations.

Need to Maintain Quality Control Standards and Deliver Products on a Timely
Basis. Many of the Company's products and services must meet exacting OEM
specifications. As a result, the Company must adopt and adhere to stringent
quality control standards for its products and manufacturing processes. There
can be no assurance that the quality of the Company's products and services will
meet customer requirements in the future. If quality problems occur, the Company
could experience increased costs, rescheduling or cancellations of orders and
shipments, delays in collecting accounts receivable, increases in product
returns and reductions in new purchase orders, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company believes its ability to deliver product orders rapidly
represents an important competitive advantage. However, there can be no
assurance that future delays or interruptions in production caused by problems
with product quality, supply shortages, facilities expansion, equipment failure,
the subcontracting of a portion of production, availability of trade credit,
human error or other factors, some of which may be beyond the control of the
Company, will not result in the failure to meet delivery schedules. Any such
failure could harm the Company's reputation in the marketplace and have a
material adverse effect on the Company's business, financial condition and
results of operations.

Protection of Proprietary Information. The Company's products require
technical know-how to engineer and manufacture. To the extent proprietary
technology is involved, the Company relies on trade secrets that it seeks to
protect, in part, through confidentiality agreements with certain employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to,
or independently developed by, existing or potential competitors of the Company.
The Company generally does not seek to protect its proprietary information
through patents or registered trademarks, although it may seek to do so in the
future. There can be no assurance that the Company's products will not infringe
on patents held by others. The Company may be involved from time to time in
litigation to determine the enforceability, scope and validity of its rights.
Litigation could result in substantial cost to the Company and could divert the
attention and time of the Company's management and technical personnel from the
operations of the Company.

The Company currently licenses certain proprietary and patented technology
from third parties. There can be no assurance that the Company will be able to
continue to license such technology, that such licenses will be or remain
exclusive or that any patented technology licensed by the Company will provide
meaningful protection from competitors. In the event that a competitor's
products were to infringe on patents licensed by the Company, it would be costly
for the

<PAGE> 25

Company to enforce its rights in an infringement action and such an action would
divert funds and management resources from the Company's operations.

Risks of Acquisitions and Investments in Other Companies. The Company has
terminated its earlier program of acquiring interests in companies and related
technologies, and has written-off or provided valuation reserves for many such
investments. However, the Company may determine that it is in the best interests
to acquire or invest in other companies in the future. There can be no assurance
that the companies in which the Company has invested or may invest will develop
successful products or technologies beneficial to the Company or that such
investments will be economically justified.

Risks of International Operations. During fiscal 1998 and 1997, the Company
derived approximately 14% and 8%, respectively, of its sales from outside the
United States. The Company's international operations subject the Company to the
risks of doing business abroad, including currency fluctuations, export duties,
import controls and trade barriers, restrictions on the transfer of funds,
greater difficulty in accounts receivable collection, burdens of complying with
a wide variety of foreign laws and, in certain parts of the world, political
instability.

Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Certain of the Company's
internal computer systems are not Year 2000 compliant, and the Company utilizes
third-party equipment and software that may not be Year 2000 compliant. The
Company is in the process of completing a Year 2000 compliant upgrade to its
core management information systems that are known not to be Year 2000
compliant. Most of the modules of this new system are currently operational, and
the Company believes that these upgrades will be completed before the end of
calendar 1998. Failure of the Company's internal computer systems or of such
third-party equipment or software, or of systems maintained by the Company's
suppliers, to operate properly with regard to the Year 2000 and thereafter could
require the Company to incur unanticipated expenses to remedy any problems,
which could have a material adverse effect on the Company's business, operating
results and financial condition. Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for Year
2000 compliance. These expenditures may result in reduced funds available to
purchase the Company's products, which could have a material adverse effect on
the Company's business, operating results and financial condition.

Environmental Compliance. The Company is subject to a variety of
environmental regulations relating to the use, storage and disposal of hazardous
chemicals used during its manufacturing processes. Any failure by the Company to
comply with present and future regulations could subject the Company to
significant liabilities. In addition, such regulations could restrict the
Company's ability to expand its facilities or could require the Company to
acquire costly equipment or to incur other significant expenses in order to
comply with environmental regulations.

25
<PAGE> 26

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Centennial Technologies, Inc.:

We have audited the consolidated financial statements and financial
statement schedule of Centennial Technologies, Inc. and Subsidiaries listed in
the index on page 48 of this Form 10-K as of March 31, 1998 and 1997, and the
related consolidated statements of operations, retained earnings, and cash flows
for the twelve months ended March 31, 1998, the nine months ended March 31, 1997
and the twelve months ended June 30, 1996. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the accompanying consolidated financial
statements, the Company has restated its financial statements as of June 30,
1996 and the year then ended.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Centennial
Technologies, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the
results of its operations and its cash flows for the twelve months ended March
31, 1998, the nine months ended March 31, 1997 and the twelve months ended June
30, 1996 in conformity with generally accepted accounting principles.

In our opinion, the financial statement schedule for the twelve months
ended March 31, 1998, the nine months ended March 31, 1997 and the twelve months
ended June 30, 1996, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

/s/ Coopers & Lybrand L.L.P.

Boston, Massachusetts
May 15, 1998

26
<PAGE> 27

CENTENNIAL TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents ................................. $ 5,358 $ 57
Trade accounts receivable ................................. 3,677 6,263
Less allowances ................................... (868) (692)
-------- --------
2,809 5,571
Accounts receivable from affiliates ....................... -- 676
Recoverable income taxes .................................. 337 7,356
Inventories ............................................... 2,309 7,794
Notes receivable from affiliate ........................... -- 4,129
Other current assets ...................................... 684 1,630
-------- --------
Total current assets ........................................ 11,497 27,213

Equipment and leasehold improvements ........................ 3,973 4,023
Less accumulated depreciation and amortization ............ (1,242) (936)
-------- --------
2,731 3,087
Investments ................................................. -- 5,089
Other assets ................................................ 417 566
Investment in affiliate ..................................... 2,433 16,135
-------- --------
Total assets ................................................ $ 17,078 $ 52,090
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Revolving credit notes .................................... $ -- $ 10,090
Obligations under capital leases .......................... 70 671
Accounts payable and accrued expenses ..................... 8,070 11,883
-------- --------
Total current liabilities ................................... 8,140 22,644

Long-term obligations under capital leases .................. 36 --

Commitments and contingencies (Notes 9 and 16)

Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized, none issued .................................. -- --
Common Stock, $.01 par value; 50,000,000 shares authorized,
18,499,000 issued and outstanding at March 31, 1998 and
17,745,000 issued and outstanding at March 31, 1997 ...... 185 177
Additional paid-in capital .................................. 84,220 82,240
Accumulated deficit ......................................... (75,503) (52,738)
Foreign currency translation of equity investment ........... -- (233)
-------- --------
Total stockholders' equity .................................. 8,902 29,446
-------- --------
Total liabilities and stockholders' equity .................. $ 17,078 $ 52,090
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

27
<PAGE> 28

CENTENNIAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, FISCAL YEAR ENDED
-------------------------- ------------------------- JUNE 30,
1998 1997 1997 1996 1996
-------- -------- -------- ------- -----------------
(UNAUDITED) (RESTATED AND (RESTATED)
UNAUDITED)

<S> <C> <C> <C> <C> <C>
Sales .................................... $ 28,263 $ 39,907 $ 28,263 $21,768 $33,412
Costs and expenses:
Cost of goods sold ..................... 22,041 33,213 24,453 21,018 29,778
Engineering costs ...................... 1,302 1,369 1,061 1,126 1,434
Selling, general and
administrative expenses ............. 11,135 8,416 7,318 2,705 3,803
Loss on investment activities .......... 8,923 16,689 14,096 69 2,662
Special investigation costs ............ 597 3,673 3,673 -- --
Provision for settlement of
shareholder litigation .............. -- 20,000 20,000 -- --
Provision for loss on inventory
subject to customer dispute ......... 1,841 -- -- -- --
Lease cancellation charge .............. 258 -- -- -- --
Net interest expense ................... 56 234 391 174 17
-------- -------- -------- ------- -------
Total costs and expenses .......... 46,153 83,594 70,992 25,092 37,694
-------- -------- -------- ------- -------
Loss before equity in earnings of
affiliate ............................. (17,890) (43,687) (42,729) (3,324) (4,282)
Equity in earnings of affiliate .......... 423 959 959 -- --
Provision for loss on sale of
investment in affiliate ............... (5,142) -- -- -- --
-------- -------- -------- ------- -------
Net loss .......................... $(22,609) $(42,728) $(41,770) $(3,324) $(4,282)
======== ======== ======== ======= =======
Net loss per share
- basic and diluted ................... $ (1.22) $ (2.49) $ (2.41) $ (.26) $ (.31)
Weighted average shares
outstanding ............................ 18,460 17,174 17,367 12,678 13,632
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 29

CENTENNIAL TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996 (RESTATED), THE NINE MONTHS ENDED
MARCH 31, 1997 AND THE TWELVE MONTHS ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
CURRENCY
COMMON STOCK ADDITIONAL TRANSLATION TOTAL
-------------------- PAID-IN ACCUMULATED OF EQUITY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INVESTMENT EQUITY
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995............. 11,182 $110 $10,843 $ (6,686) $ 4,267
Proceeds from certain related party
transactions....................... 3,091 3,091
Exercise of options.................. 382 4 695 699
Exercise of warrants................. 2,217 22 5,172 5,194
Compensation from option grants...... 20 20
Proceeds from public offering, net
of issuance costs of $2,730........ 2,850 29 22,891 22,920
Net loss............................. (4,282) (4,282)
------ ---- ------- -------- --------
Balance at June 30, 1996............. 16,631 165 42,712 (10,968) 31,909
Proceeds from certain related party
transactions....................... 2,254 2,254
Exercise of options.................. 281 3 3,539 3,542
Exercise of warrants................. 172 2 516 518
Compensation from option grants...... 34 34
Issuance of Common Stock in
connection with acquisition of
affiliates........................ 275 3 4,822 4,825
Issuance of Common Stock in
connection with investments...... 386 4 9,838 9,842
Foreign currency translation of
equity in investment................. $(233) (233)
Estimated fair market value of
shares to be issued in connection
with shareholder litigation....... 18,525 18,525
Net loss............................. (41,770) (41,770)
------ ---- ------- -------- ----- --------
Balance at March 31, 1997............ 17,745 177 82,240 (52,738) (233) 29,446
Exercise of options.................. 117 1 206 207
Issuance of Common Stock in
connection with acquisition of 793 8 2,173 2,181
affiliates.........................
Retirement of shares repurchased..... (156) (1) 1 0
Settlement of claims related to
ViA investment..................... (400) (400)
Foreign currency translation of
equity in investment................. (156) 233 77

Net loss............................. (22,609) (22,609)
------ ---- ------- -------- ----- --------
Balance at March 31, 1998............ 18,499 $185 $84,220 $(75,503) $ -- $ 8,902
====== ==== ======= ======== ===== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

29
<PAGE> 30

CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, FISCAL YEAR ENDED
----------------------- ------------------------ JUNE 30,
1998 1997 1997 1996 1996
-------- -------- -------- -------- -----------------
(UNAUDITED) (RESTATED AND (RESTATED)
UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................ $(22,609) $(42,728) $(41,770) $ (3,324) $ (4,282)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for settlement of shareholder litigation .. -- 20,000 20,000 -- --
Depreciation and amortization ....................... 1,035 956 831 346 471
Equity in earnings of affiliate ..................... (423) (959) (959) -- --
Provision for loss on accounts receivable ........... 177 516 400 309 425
Provision for losses on sale of equipment ........... (480) 318 318 -- --
Provision for loss on note receivable ............... -- 100 100 271 871
Provision for loss on investments ................... 7,019 9,317 8,027 -- 690
Provision for loss on investment in affiliates ...... 5,142 -- -- -- --
Disposal of capital equipment ....................... 1,315 -- -- -- --
Other non-cash items ................................ -- 102 34 (49) 19
Change in operating assets and liabilities:
Accounts receivable ............................... 2,631 1,833 5,289 (5,427) (8,883)
Accounts receivable from affiliate ................ 676 (676) (676) -- --
Inventories ....................................... 5,485 (613) 454 (5,000) (6,067)
Notes receivable .................................. -- 875 1,509 (1,406) (2,040)
Notes receivable from affiliate ................... 4,129 (4,129) (4,129) -- --
Recoverable income taxes .......................... 7,019 (6,746) (4,214) 166 (2,366)
Other assets ...................................... 695 (1,172) (582) (217) (807)
Accounts payable and accrued expenses ............. (3,884) 7,668 6,572 (1,125) (9)
Income taxes payable .............................. 27 -- -- -- (20)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities .................................. 7,954 (15,338) (8,796) (15,456) (21,998)

Cash flows from investing activities:
Capital expenditures ................................ (1,265) (2,257) (2,074) (1,276) (1,459)
Purchase of available-for-sale securities ........... -- (36,164) (27,250) -- (8,914)
Proceeds from sale of available-for-sale securities.. -- 36,163 32,182 -- 3,981
Purchase of investments ............................. -- (2,801) (1,291) (762) (2,272)
Purchase of investment in affiliates ................ -- (10,351) (10,351) -- --
Proceeds from sale of investment in affiliates ...... 8,983 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities .................................. 7,718 (15,410) (8,784) (2,038) (8,664)

Cash flows from financing activities:
Net borrowings (repayments) under line of credit .... (10,090) 10,090 5,406 (1,153) 3,531
Borrowings from term loans .......................... 938 -- -- -- --
Repayments on term loans ............................ (938) -- -- -- --
Proceeds from equipment lease financing ............. -- 250 250 702 691
Payments on equipment lease financing ............... (566) (370) (282) (175) (252)
Proceeds from exercise of stock options ............. 208 3,544 3,542 697 699
Proceeds from exercise of warrants .................. -- 633 518 5,079 5,194
Net proceeds from public offerings of Common Stock .. -- 1,221 -- 21,699 22,920
Proceeds from certain related party transactions .... -- 3,389 2,254 1,956 3,091
Foreign currency translation of equity investment ... 77 (233) (233) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities .................................. (10,371) 18,524 11,455 28,805 35,874
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .. 5,301 (12,224) (6,125) 11,311 5,212
Cash and cash equivalents at beginning of period ...... 57 12,281 6,182 970 970
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period ............ $ 5,358 $ 57 $ 57 $ 12,281 $ 6,182
======== ======== ======== ======== ========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .......................................... $ 452 $ 604 $ 535 $ 273 $ 342
======== ======== ======== ======== ========
Income taxes ...................................... $ 18 $ 6,154 $ 4,151 $ 598 $ 2,601
======== ======== ======== ======== ========

Non-cash transactions:
Issuance of Common Stock in connection with
acquisition of affiliates ...................... $ -- $ 4,825 $ 4,825 $ -- $ --
======== ======== ======== ======== ========
Issuance of Common Stock in connection with
purchase of investments ........................ $ 2,181 $ 9,842 $ 9,842 $ -- $ --
======== ======== ======== ======== ========
Settlement of claim related to ViA investment ..... $ 400 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 31

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND CHANGE IN FISCAL YEAR

Basis of Presentation

The consolidated financial statements of Centennial Technologies, Inc. (the
"Company") include the accounts of the Company and all wholly owned
subsidiaries. Investments in companies in which ownership interests range from
20 to 50 percent and the Company exercises significant influence over operating
and financial policies are accounted for using the equity method. The Company's
investment in Century Electronics Manufacturing, Inc. ("Century"), of which it
had a 67% equity ownership position at March 31, 1997, has been accounted for
using the equity method for fiscal 1997 because the Company had a plan of
disposition of a portion of the investment in place prior to March 31, 1997 and
the transaction closed on July 1, 1997. During fiscal 1998, the Company further
reduced its equity ownership position in Century, and thereafter has accounted
for its remaining investment using the cost method. See Note 7. Other
investments are accounted for using the cost method. See Note 8. All significant
intercompany balances and transactions have been eliminated.

The Company has experienced significant losses from operations during
fiscal 1995, fiscal 1996, fiscal 1997 and fiscal 1998. The Company believes that
its present cash balances, financing from Congress Financial, and anticipated
future cash flows will be sufficient to fund anticipated future liquidity
requirements. The Company can make no assurances that measures taken to date or
to be taken in the future will be sufficient to stem losses or that future
financing will be available to the Company or, if available, on terms that will
be satisfactory to the Company.

Change in Fiscal Year

On March 24, 1997, the Company's Board of Directors voted to change the
fiscal year end from June 30 to March 31. See Note 2. All references to fiscal
1998 in the accompanying financial statements relate to the twelve months ended
March 31, 1998. All references to fiscal 1997 relate to the nine months ended
March 31, 1997. References to fiscal 1996 relate to the year ended June 30,
1996.

2. RESTATEMENT OF FINANCIAL STATEMENTS

On February 11, 1997, the Company announced that it had commenced a special
investigation into certain apparent financial and management irregularities and
that its previously published financial statements and related financial
disclosures could no longer be relied upon. On June 12, 1997, the Company
announced the completion of the financial review associated with the special
investigation, including condensed restated financial information, as well as
the financial results for the periods ended March 31, 1997. The Company had
previously changed its fiscal year end to March 31, in order to accelerate the
receipt of certain tax refunds and in order to complete audited financial
statements for the entire periods under review as quickly as possible. The
accompanying financial statements give effect to the adjustments arising from
the special investigation.

Cumulative adjustments to the Company's previously reported results of
operations through December 31, 1996 consist of reductions of sales totaling
$21.2 million, increases to cost of goods sold associated with inventory
adjustments totaling $8.8 million, and write-offs of investments in and advances
to several companies totaling $15.8 million. Additional increases in costs and
expenses include adjustments to plant and equipment, miscellaneous assets,
investment in Century, accrued liabilities and warranty reserves for a net
aggregate amount of $2.4 million. Netted against these adjustments is an
aggregate amount of $8.1 million in reductions to income taxes, representing
reversals of previously reported tax provisions.

31
<PAGE> 32

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table sets forth the effects of these adjustments on the
Company's financial position and results of operations (in thousands except per
share data):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
SIX MONTHS ENDED ------------------------------------
DEC. 31, 1996 1996 1995 1994
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales:
As previously reported ............. $ 30,192 $37,848 $12,445 $ 8,213
As adjusted ........................ 17,370 33,412 8,982 7,801
Cost of goods sold:
As previously reported ............. 17,978 23,636 6,833 4,523
As adjusted ........................ 15,582 29,778 11,575 6,508
Net income (loss):
As previously reported ............. 5,805 4,902 874 464
As adjusted ........................ (16,221) (4,282) (5,852) (1,672)
Net income (loss) per share:
As previously reported ............. .33 .34 .08 .07
As adjusted ........................ (.94) (.31) (.63) (.19)
Total assets:
As previously reported ............. 89,952 55,782 18,199 7,553
As adjusted ........................ 58,320 41,132 9,550 5,203
Total stockholders' equity:
As previously reported ............. 70,874 46,045 12,445 6,419
As adjusted ........................ 36,611 31,909 4,267 4,315
</TABLE>

The following table sets forth the summary of restatement adjustments (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
SIX MONTHS ENDED ------------------------------------
DEC. 31, 1996 1996 1995 1994
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
Adjustments attributable to Centennial
Technologies, Inc.:
Reversal of invalid sales transactions ................. $ (5,283) $(3,714) $(3,455) $ (413)
Reversal of bill and hold sales transactions ........... (6,432) -- -- --
Reclassification of purchasing agency
arrangement .......................................... (968) (585) -- --
Additional accounts receivable adjustments ............. (239) (136) (9) --
-------- ------- ------- -------
Total adjustments to sales ............................. (12,922) (4,435) (3,464) (413)
Corrections to inventory pricing and physical
counts ............................................... (1,336) (2,202) (4,560) (1,410)
Restoration of inventory related to bill and hold
sales transactions ................................... 3,435 -- -- --
Additional provisions for inventory
obsolescence ......................................... (925) (1,351) (78) (381)
Reversal of certain additions to capital
equipment, net of related depreciation,
which were not bona fide ............................. (72) (2,266) (223) (177)
Provision for losses on investment activities .......... (10,811) (1,496) -- --
Pre-acquisition advances to subsidiary ................. (2,385) (1,101) -- --
Other adjustments, net ................................. (568) 399 1,043 (211)
Reversal of provisions for income taxes ................ 3,788 3,268 556 455
-------- ------- ------- -------
Total adjustments to net income (loss) ................. (21,796) $(9,184) $(6,726) $(2,137)
======= ======= =======
Adjustments attributable to Century Electronics
Manufacturing, Inc. .................................. (358)
--------
Total adjustments to net income (loss) ................. $(22,154)
========
</TABLE>

32
<PAGE> 33

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

As outlined in the criminal indictment of Centennial's former Chief
Executive Officer, the Company's sales figures were inflated in previous
periods. This inflation was achieved by various means, including shipping empty
PC card housings; billing customers for non-existent products; using the
delivery of non-product materials to generate shipping documents, which were
then used to create fictitious invoices; and the payment of these invoices with
funds apparently provided by the Company's former Chief Executive Officer.

Adjustments to the Company's physical inventory balances are attributable
to prior manipulation of physical counts, the inclusion of empty PC card
housings in the Company's finished goods balances, various pricing errors and
manipulations, and the Company's prior failure to reflect adequately actual
usage information in providing reserves for inventory obsolescence.

In order to correct reported amounts for inventory and cost of goods sold,
the Company conducted a physical inventory in February 1997 and performed
rollback and analytic procedures. The rollback procedures included a
determination of purchases, cost of goods sold and other adjustments appropriate
for prior periods. The analytic procedures included gross margin analyses as
well as a review of inventory schedules prepared in prior periods.

The Company has also reduced or written off the carrying value of several
of its investments in and advances to related technology companies. With regard
to the Company's advances to its subsidiaries, Intelligent Truck Project, Inc.
and Fleet.Net, Inc., the Company has recorded a charge of $3.5 million, equal to
advances to these companies between April 1996 and December 31, 1996 previously
characterized as prepaid technology license fees, as costs and expenses in the
periods in which those advances were made. The Company has also recorded
valuation reserves and related accruals amounting to $5.8 million related to
several of its loans to and/or investments in technology companies. See Note 8.
In addition, the Company has reached agreements to settle claims related to its
investments in Infos International, Inc. and P.G. Technologies, Inc. and has
recorded a full write-off of its investments in these entities of $6.0 million
and $0.5 million, respectively.

3. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES

Industry Segment

The Company operates in a single industry segment: the design and
manufacture of high-technology memory chip based products used in industrial and
commercial applications.

Revenue Recognition

Revenue from product sales is recognized at time of shipment.

Warranty Costs

The Company offers a limited warranty, ranging from one to two years, on
materials and workmanship for certain of its products. Costs relating to product
warranty are generally accrued at time of shipment. In addition, on sales to
certain wholesalers, the Company offers a stock rotation policy under which the
Company accepts returns on certain merchandise within two months of shipping for
merchandise or credit toward future orders, and accepts returns after two months
but within six months of shipping for merchandise credit minus a 15% restocking
charge. The Company has not experienced material costs associated with its
warranty and restocking policy.

Research and Development Costs

Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.

33
<PAGE> 34

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
has no requirements for compensating balances. All of the Company's cash is
presently on account with the Company's secured lender.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade receivables. The
Company attempts to mitigate this risk by subjecting new and existing customers
to a credit review. If any of the Company's major customers fail to pay the
Company on a timely basis, it could have a material adverse effect on the
Company's business, financial condition and results of operations.

For fiscal 1998, one customer accounted for approximately 29% of the
Company's sales. At March 31, 1998, this customer accounted for approximately
$1.1 million, or 40% of the Company's net accounts receivable balance.

For fiscal 1997, two customers accounted for approximately 54% of the
Company's sales. At March 31, 1997, these customers accounted for approximately
$3.0 million, or 54% of the Company's net accounts receivable balance.

For fiscal 1996, two customers accounted for approximately 28% of the
Company's sales. At June 30, 1996, these customers accounted for approximately
$4.7 million, or 42% of the Company's accounts receivable balance.

Approximately 14%, 8% and 12% of the Company's sales in fiscal 1998, 1997,
and 1996, respectively, were outside the United States, primarily in several
Western European countries, Israel and Canada. No one area comprised more than
10% of the Company's sales.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable and other
accrued expenses, the carrying amounts approximate fair value due to their short
maturities. Long-term notes receivable, investments and notes payable are
carried at amounts that approximate fair value.

Inventories

Inventories are stated on a first-in, first-out basis at the lower of cost
or market.

Equipment and Leasehold Improvements

Equipment is stated at cost. Major renewals and improvements are
capitalized while repair and maintenance charges are expensed when incurred.
Depreciation is provided over the estimated useful life of the respective
assets, ranging from three to seven years, on a straight-line basis. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the related assets. When assets are sold or retired,
their cost and related accumulated depreciation are removed from the accounts.
Any gain or loss is included in the determination of net income.

Income Taxes

The Company accounts for income taxes by the liability method. Under the
liability method, deferred taxes are determined based on the difference between
the financial statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.

34
<PAGE> 35

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Earnings (Loss) Per Share

The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per
Share," which the Company adopted as of March 31, 1998. Basic earnings per share
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. The computation of
diluted earnings per share is similar to the computation of basic earnings per
share except that the denominator is generally increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. Common equivalent shares result from
the assumed exercise of outstanding stock options and warrants, the proceeds of
which are then assumed to have been used to repurchase outstanding common stock
using the treasury stock method. The following table reconciles the numerator
and denominator of the basic and diluted earnings per share computations shown
on the Consolidated Statements of Operations:

<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS NINE MONTHS FISCAL YEAR
ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31, ENDED JUNE 30,
1998 1997 1997 1996
--------------- --------------- --------------- --------------
BASIC EARNINGS PER SHARE (UNAUDITED)
<S> <C> <C> <C> <C>
Numerator
Net loss ............................ $(22,609) $(42,728) $(41,770) $ (4,282)
Denominator
Common shares outstanding ........... 18,460 17,174 17,367 13,632
-------- -------- -------- --------
Basic earnings (loss) per share ........ $ (1.22) $ (2.49) $ (2.41) $ (0.31)
======== ======== ======== ========

DILUTED EARNINGS PER SHARE
Numerator
Net loss ............................ $(22,609) $(42,728) $(41,770) $ (4,282)
Denominator
Common shares outstanding ........... 18,460 17,174 17,367 13,632
-------- -------- -------- --------
Diluted earnings (loss) per share ...... $ (1.22) $ (2.49) $ (2.41) $ (0.31)
======== ======== ======== ========
</TABLE>

Options to purchase 2,932,000, 1,779,600 and 986,200 shares of Common Stock
on March 31, 1998, March 31, 1997 and June 30, 1996, respectively, were excluded
from the period-to-date calculations of diluted net loss per share as the effect
of their inclusion would have been anti-dilutive. Earnings per share data have
been restated for all periods presented to reflect the adoption of SFAS 128.

Stock Split

The Company effected a two-for-one stock split of its outstanding shares of
Common Stock in the form of a stock dividend in November 1996. All references in
the accompanying consolidated financial statements to number of shares, weighted
average number of shares outstanding and related prices, per share amounts, and
stock plan data reflect this split on a retroactive basis.

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.

New Accounting Pronouncements

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." These pronouncements are
effective for financial statement periods beginning after December 15, 1997. The
Company does not believe that these new pronouncements will have a material
effect on its future financial statements.

35
<PAGE> 36

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4. INVENTORIES

Inventories consisted of (in thousands):

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
--------- ---------

<S> <C> <C>
Raw materials, primarily electronic components......... $1,239 $3,995
Work in process........................................ 620 1,387
Finished goods......................................... 450 2,412
------ ------
$2,309 $7,794
====== ======
</TABLE>

The Company maintains levels of inventories that it believes are necessary
based upon assumptions concerning its growth, mix of sales and availability of
raw materials. Changes in those underlying assumptions could affect management's
estimates of inventory valuation.

The Company is presently in a dispute with Philips Home Services, Inc., a
subsidiary of Philips Electronics, N.V. ("Philips") regarding inventory
specifically purchased and manufactured pursuant to a purchase order from
Philips (the "Philips Inventory"). Philips later attempted to cancel a portion
of the purchase order. The Company disputes the claim that the purchase order
cancellation was effective.

5. NOTES RECEIVABLE

During fiscal 1996, the Company advanced funds to affiliated and
unaffiliated companies, which generally develop technologies complimentary to
that of the Company. At June 30, 1996, the notes receivable balance due from
these companies was approximately $2,680,000. At June 30, 1996, the Company had
a $871,000 reserve against the outstanding notes receivable balance. During
fiscal 1997, loans for $2,295,000 were made, loans of $3,689,000 were repaid,
$115,000 was written off and $200,000 was converted into the common stock of an
investee. During fiscal 1997, the Company provided for an additional $100,000
reserve, such that all notes receivable are fully reserved. There were no
additional loans or repayments during fiscal 1998.

6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following (in
thousands):

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
--------- ---------

<S> <C> <C>
Equipment...................................... $ 3,743 $2,809
Equipment under capital leases................. 106 1,214
Leasehold improvements......................... 124 --
------- ------
3,973 4,023
Accumulated depreciation and amortization...... (1,242) (936)
------- ------
$ 2,731 $3,087
======= ======
</TABLE>

<PAGE> 37

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During fiscal 1997, the Company wrote off $80,000 of net book value of
leasehold improvements in connection with its move to new facilities. During
fiscal 1998, the Company paid in full its lease obligations to the bank that had
been providing the Company with its line of credit (See Note 9), and disposed of
equipment having an original cost and accumulated depreciation of approximately
$691,000.

Depreciation expense for fiscal 1998, 1997 and 1996 was approximately
$1,036,000, $702,000, and $348,000, respectively. Depreciation expense for the
twelve months ended March 31, 1997 was approximately $827,000.

7. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.

In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").

On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial common stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.

On February 4, 1998, the Company entered into a transaction with Century
whereby Century redeemed the Company's remaining holdings of Century common
stock, repurchased its $1.9 million 9% promissory note due December 1998,
recovered a warrant for the purchase of 250,000 shares of Century common stock,
and satisfied its $6.0 million 6% Convertible Subordinated Debenture due June
2007, in exchange for $9.7 million in cash and $4.0 million of Century Series B
Convertible Preferred Stock and the forgiveness of interest due on the note and
debenture. The Series B Convertible Preferred Stock is equivalent upon
conversion to approximately 7%, non-diluted, of Century's outstanding shares, is
non-voting, has no dividend, and has a liquidation preference of $4.0 million
senior to the common shareholders and subordinate to the holders of Century
Series A Convertible Preferred Stock. The Company recorded a loss on investment
activities of $5.1 million during fiscal 1998 to reflect the difference between
the fair value of the consideration received from Century and the carrying value
of the Company's investment in Century. The Company has accounted for its
investment in Century Series B Convertible Preferred Stock using the cost method
and, accordingly, carries that investment at March 31, 1998 at its fair market
value on the date of acquisition of approximately $2.4 million.

37
<PAGE> 38

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table presents summary financial information for Century (in
thousands):

BALANCE SHEET DATA
MARCH 31, 1997

Current assets...........................................$35,547
Goodwill..................................................15,735
Total assets..............................................63,745
Current liabilities.......................................32,159
Working capital............................................3,388
Stockholders' equity......................................23,366

STATEMENT OF OPERATIONS DATA
FROM DATES OF ACQUISITION TO MARCH 31, 1997

Sales....................................................$44,346
Gross margin...............................................5,769
Net income.................................................1,555

The Company had sales to Century of $0 and $120,000 during fiscal 1998 and
1997, respectively.

8. OTHER INVESTMENTS

ViA, Inc.

In December 1996, the Company issued 156,000 unregistered shares of its Common
Stock in exchange for a 12% interest in ViA, Inc., a development stage privately
held technology company that designs, develops, and markets miniature
communication and computing products. Due to the significance of the Company's
investment to ViA's total capitalization and on the basis of the complementary
nature of the companies' products and related development plans, Centennial
accounted for this investment during fiscal 1997 using the equity method, and
amortized the purchase price in excess of its interest in the investee's
underlying net assets, which excess amounted to $5.0 million, over 60 months.
The Company recorded this amortization, as well as its share of the investee's
losses from the date of the investment through March 31, 1997, for an aggregate
amount of $585,000, as loss on investment activities. During fiscal 1998, the
Company reserved the remaining carrying value of its investment, and recorded a
loss on investment activities during fiscal 1998 related thereto of
approximately $4.4 million.

Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas,
Inc.

On December 13, 1996, the Company completed merger agreements with
Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas, Inc.
(collectively, "ITP/Fleet.Net") agreeing to exchange 792,960 shares of Common
Stock of the Company for all of the outstanding common stock of the acquired
businesses. Subsequent to the Company's February 1997 announcement of financial
irregularities, the principal shareholder of ITP/Fleet.Net filed suit, alleging,
among other things, breach of representations and warranties as to the financial
statements of Centennial. On March 4, 1997, the Company and the principal
shareholder of ITP/Fleet.Net entered into a memorandum of understanding pursuant
to which the companies would unwind the merger agreements. The parties were
unable to reach mutually satisfactory terms to complete the unwinding and on May
15, 1997 agreed to complete the merger and exchange mutual releases of certain
claims. Based on the material uncertainties surrounding the value of
consideration on the original merger date, which uncertainties were not resolved
until the execution of a settlement and mutual release agreement, the Company
has recorded the merger and corresponding issuance of Common Stock as of May 15,
1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997, certain
of which were previously characterized as advance payments for technology
license arrangements, have been included in loss on investment activities in the
periods the advances were made. The merger has been recorded using purchase
accounting, and the excess (approximately $3.0 million) of the purchase price
over the fair value of assets acquired was written off as of the agreement date
(May 15, 1997) because of the uncertainties related to the future operations of
ITP/Fleet.Net.

38
<PAGE> 39

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Infos International, Inc.

During fiscal 1997, the Company acquired a 38% interest in Infos
International, Inc., a supplier of intelligent hand held data collection
equipment for route and shop floor accounting. The purchase price amounted to
approximately $3.0 million in cash and 230,000 shares of Centennial Common Stock
having a fair market value of $3.9 million at date of acquisition. On February
6, 1998, the Company, Infos and shareholders of Infos entered into a transaction
whereby the Company agreed to return its shares of Infos in exchange for an
agreement to sell Infos inventory and equipment arising from the contract
manufacturing relationship between Infos and Century, which relationship was
terminated. The parties also agreed to exchange mutual releases of any claims
arising from the original acquisition agreement. Accordingly, the full amount of
the investment cost ($7.0 million) has been written off. The recorded loss of
$6.0 million reflects the use by Infos of $1.0 million of the original cash
proceeds to repay an obligation of that amount due to Centennial from an Infos
subsidiary, Information Capture Corporation ("ICC"). This obligation originally
arose in fiscal 1995, prior to Infos acquiring ICC, in connection with a sales
transaction that was determined in the Company's special investigation not to be
bona fide. The effect of the adjustment is to reflect $1.0 million of the
investment cost as a reduction of sales and net income in fiscal 1995 and the
remainder as loss on investment activities in fiscal 1997.

Industrial Imaging, Inc.

The Company purchased for $730,000 in cash and conversion of $200,000 of
notes a minority interest in a corporation now known as Industrial Imaging, Inc.
which designs, manufactures and markets automated optical vision and individual
imaging systems for inspection and identification of defects in printed circuit
boards. In addition, effective April 1, 1996 and expiring June 30, 1997, the
Company agreed to provide procurement services and buy material using the
Company's credit arrangements for a service fee of $200,000. Purchases
aggregating $1.4 million were made on behalf of the investee and were initially
reflected by the Company as sales with an equivalent amount of cost of goods
sold. Such sales have been reversed in connection with the Company's financial
review. During fiscal 1997, the Company determined that the investee was unable
to repay the Company for the material purchased, and also determined that the
value of the equity investment was permanently impaired. The Company has agreed
to convert its accounts receivable into common stock of the investee and has
recorded a valuation reserve equal to the carrying value of the investment.
During fiscal 1998, the Company sold its investment in Industrial Imaging, Inc.
for $550,000.

WebSecure, Inc.

During fiscal 1996 the Company purchased for $569,000 a minority interest
in WebSecure, Inc. ("WebSecure"), a corporation that provided Internet services.
The former president and a shareholder of WebSecure was a Director of the
Company from February 1994 through November 1995. In connection with WebSecure's
initial public offering, the Company realized a gain of $1.2 million from the
sale of a portion of its investment. The remaining investment, having a cost of
$560,000, was fully reserved as of March 31, 1997 on the basis that its value
appeared to have been permanently impaired. During fiscal 1998, the Company sold
this remaining investment for $125,000. In addition, the Company has deferred
recognition of the gain pending final resolution of certain litigation described
in Note 16.

Other Investments

The Company has continued to monitor the financial performance of several
development stage businesses in which the Company invested during fiscal 1998,
1997 and 1996, and to assess their future viability. The Company's analysis of
financial information from these investee companies, combined with the Company's
decision to continue to focus its financial resources on its core business, led
the Company to reserve the carrying value of its investments in these
development stage companies of approximately $0.6 million during fiscal 1998.

During fiscal 1996, the Company purchased for $250,000 a minority interest
in a corporation which designs, manufactures and markets small form factor
computer hard drives. This technology, when and if implemented, could be used to
increase the speed and processing capabilities of PC cards. During fiscal 1998
and 1997, the Company increased its investment by $96,000 and $164,000,
respectively.

39
<PAGE> 40

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

During fiscal 1996, the Company purchased for $250,000 a minority interest
in a holding company of various technology-related corporations and loaned to
the investee an additional $1.0 million. The Company believes that the initial
investment objectives were not bona fide, and that the investment has been
permanently impaired. Accordingly, these investments have been reflected in loss
on investment activities in fiscal 1996, excluding $250,000 that was repaid by
the investee in January 1997. The shares and notes related to this investment
were returned to the investee in October 1997 pursuant to a settlement and
mutual release agreement.

During fiscal 1996, the Company purchased a minority interest for $396,500
in a corporation that develops, manufactures and markets products for vehicle
and fleet management. In addition, the Company loaned $100,000 to the investee.
The carrying cost of this investment and loan was written off in fiscal 1996 and
the shares were returned to the investee in May 1997 pursuant to a settlement
and mutual release agreement.

9. DEBT

Notes Payable

The Company had a revolving line of credit agreement with a bank that
limited borrowings to a percentage of receivables and inventories and contained
certain covenants relating to the Company's net worth and indebtedness, among
others. This credit agreement was collateralized by substantially all the assets
of the Company. On February 14, 1997, the Company received a notice of default
and on March 18, 1997 entered into a forbearance agreement whereby the bank
agreed to continue to extend credit under certain conditions. The forbearance
agreement was subsequently extended to August 15, 1997. The defaulted credit
agreement bore interest at the bank's prime interest rate (8.25% at June 30,
1996). The forbearance agreement set the interest rate at 9.5%. On August 15,
1997, the Company paid in full its line of credit and lease financing
obligations with the bank that was providing the Company with these credit
facilities.

Credit Agreements with Congress Financial

On August 14, 1997, the Company entered into a new credit agreement with
Congress Financial Corporation ("Congress Financial") for a revolving credit
facility and term loan facility of up to $4.1 million and $0.9 million,
respectively, and a $2.0 million capital equipment acquisition facility, based
on certain limitations and covenants, the most restrictive of which is a minimum
net worth requirement. Allowable borrowings are based on available accounts
receivable and the cost of equipment, and are collateralized by all of the
Company's assets. At March 31, 1998, the Company had no outstanding borrowings
under these credit facilities.

Capital Leases

The Company leased certain equipment under three year lease financing
agreements with the bank that was providing the Company with its line of credit
prior to August 14, 1997. These lease arrangements have been accounted for as
financing transactions. The subject equipment is recorded as an asset for
financial statement purposes, and is being depreciated accordingly. On August
15, 1997, the Company paid in full its lease obligations to the bank that had
been providing the Company with its line of credit.

The Company leases its facilities under operating leases with renewal
options, which expire at various dates through fiscal 2003. Under certain
leases, the Company is obligated to pay its pro-rata share of operational and
maintenance costs.

<PAGE> 41

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

At March 31, 1998, the minimum annual rental commitments under
non-cancelable lease obligations are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES Leases
------- ---------
<S> <C> <C>
Year ending March 31,
1999 ................................................ $110 $242
2000 ................................................ -- 230
2001 ................................................ -- 233
2002 ................................................ -- 238
2003 ................................................ -- 20
---- ----
Total minimum lease payments ........................ 110 $963
====
Less amounts representing interest .................. (4)
----
Present value of future minimum lease payments ...... 106
Less current portion ................................ (70)
----
$ 36
====
</TABLE>

Rental expense under operating leases totaled approximately $427,000,
$312,000, and $396,000 in fiscal 1998, 1997 and 1996, respectively.

10. INCOME TAXES

The income/(loss) before income taxes consisted of the following (in
thousands):

YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
--------- ----------- --------
U.S..................... $(22,609) $(42,104) $(4,052)
Foreign................. -- 334 (230)
-------- -------- -------
$(22,609) $(41,770) $(4,282)
======== ======== =======

The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to loss before income taxes as follows:

<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
--------- ----------- --------

<S> <C> <C> <C>
Tax benefit at U.S. statutory rates ........................ (34.0)% (34.0)% (34.0)%
State taxes net of federal benefit ......................... (3.4) (6.1) (6.1)
Change in valuation allowance .............................. 37.5 39.8 57.2
Valuation allowance related to stock options ............... -- -- (18.1)
Other ...................................................... (0.1) 0.3 1.0
----- ----- -----
--% --% --%
===== ===== =====
</TABLE>

<PAGE> 42

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The components of deferred income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 30,
1998 1997 1996
--------- --------- --------

<S> <C> <C> <C>
Allowance for doubtful accounts ................... $ 230 $ 95 $ 92
Notes receivable reserve .......................... 349 391 351
Inventory reserve and capitalization .............. 1,557 1,065 982
Investment reserve ................................ 5,355 5,235 503
Accrued expenses .................................. 1,378 139 42
Equipment, net .................................... 211 276 209
Net operating losses .............................. 20,633 15,497 3,438
Capital loss carryforward ......................... 1,473 -- --
-------- -------- -------
31,186 22,698 5,617
Less valuation allowance .......................... (31,186) (22,698) (5,617)
-------- -------- -------
Net deferred taxes ................................ $ -- $ -- $ --
======== ======== =======
</TABLE>

Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are comprised
principally of net operating losses and reserves. Management has considered the
Company's history of losses and concluded that there is insufficient evidence
that it is more likely than not that the Company will generate future taxable
income prior to the expiration of these net operating losses in 2013.
Accordingly, the deferred tax assets have been fully reserved.

At March 31, 1998, the company had federal net operating loss carryforwards
of approximately $52.2 million available to offset future taxable income
expiring in 2009 through 2013, and federal capital loss carryforwards of
approximately $4.3 million, which will expire in 2013. Approximately $2.1
million of the Company's net operating loss is attributable to the exercise of
stock options which, when utilized, will be credited as additional paid-in
capital. Additionally, the Company has a net operating loss of approximately
$1.3 million available to offset future taxable income in foreign jurisdictions.

11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (in
thousands):

MARCH 31, MARCH 31,
1998 1997
--------- ---------
Trade accounts payable................................ $2,004 $ 4,766
Deferred gain on sale of securities 1,200 1,200
Accrued special investigation costs 1,554 2,033
Cash portion of settlement of shareholder litigation -- 1,475
Other accrued expenses................................ 3,312 2,409
------ -------
Total accounts payable and accrued expenses $8,070 $11,883
====== =======

Accrued special investigation costs represent professional and legal fees
in connection with the completion of the Company's special investigation,
certain refinancing activities, and legal fees associated with the shareholder
litigation. See Note 16. The Company satisfied its obligation to remit the cash
portion of the settlement of the shareholder litigation into a settlement fund
during fiscal 1998.

12. STOCKHOLDERS' EQUITY

In March 1996, the Company conducted a public offering of 2,700,000 shares
of its Common Stock resulting in net proceeds to the Company of approximately
$20.9 million. In April 1996, the underwriters exercised their option to
purchase 150,000 shares of Common Stock to cover over-allotments, resulting in
net proceeds to the Company of approximately $1.2 million.

The Company is authorized to issue up to 1,000,000 shares of $0.01 par
value preferred stock without further stockholder approval with such additional
designations, powers, preferences, rights, qualifications, limitations and
restrictions as may be designated by the Company's Board of Directors from time
to time.

42
<PAGE> 43
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

13. STOCK OPTION PLANS

Under the Company's 1994 Stock Option Plan (the "Plan"), incentive and
non-qualified stock options may be granted to employees, officers, directors and
consultants of the Company. The Company initially reserved 900,000 shares of
Common Stock for issuance under the Plan. During fiscal 1996, the amount
reserved for issuance was increased to 1,500,000 shares and during fiscal 1997,
the amount reserved for issuance was increased to 3,000,000 shares. These
options generally vest over a three-year period and expire after 10 years.

On December 6, 1994, the Company's stockholders adopted a formula stock
option plan (the "Formula Plan"), which is designed to provide certain
incentives to non-employee directors. Under the Formula Plan, options will be
granted pursuant to a formula that determines the timing, pricing and amount of
the option awards using objective criteria. The Company has reserved 180,000
shares of Common Stock for issuance under the Formula Plan. The exercise price
of the options granted to a non-employee director upon election as a director
was 85% of the fair market value of the shares of Common Stock on the date of
the grant. During fiscal 1997, the Formula Plan was amended to provide that
options are granted at fair market value. These options vest and are exercisable
on the date of grant and expire after 5 years. All other options granted under
the Formula Plan vest and are exercisable one year from the date of the grant.
During fiscal 1997, non-employee directors were granted options to purchase
21,000 shares at prices ranging from $12.89 to $29.38. During fiscal 1998, a
non-employee director was granted options to purchase 15,000 shares at $3.50 per
share.

In addition, during fiscal 1998, the Company granted options to acquire
1,045,000 shares outside of the Company's stock option plans, exercisable at
prices ranging from $1.625 to $3.50 per share, of which 200,000 options were
granted to four non-employee directors and the balance to employees of the
Company; the vesting period for these options range from immediately upon grant
to three years, and the options expire in ten years.

In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in fiscal 1997 and has applied APB Opinion 25 and related
Interpretations in accounting for its plans. Compensation costs of $0, $34,000
and $20,000 were recognized for fiscal 1998, 1997 and 1996, respectively. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net loss and net loss per share for the
twelve months ended March 31, 1998, the nine months ended March 31, 1997 and the
twelve months ended June 30, 1996 would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
NET LOSS NET LOSS NET LOSS NET LOSS NET LOSS NET LOSS
(IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE
-------------- --------- -------------- --------- -------------- ---------

<S> <C> <C> <C> <C> <C> <C>
As Reported ...... $(22,609) $(1.22) $(41,770) $(2.41) $(4,282) $(.31)
Pro forma ........ $(29,869) $(1.62) $(47,699) $(2.75) $(5,014) $(.37)
</TABLE>

The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 5 years, expected volatility of 55% for grants
prior to April 1, 1997 and 100% thereafter, no dividends and a risk-free
interest rate of 6.0%, 6.2% and 5.9% for the twelve months ended March 31, 1998,
the nine months ended March 31, 1997 and the twelve months ended June 30, 1996,
respectively.

A summary of the status of the Company's stock option plans as of March 31,
1998, March 31, 1997 and June 30, 1996 and changes during the years ending on
those dates is presented below:

<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997 JUNE 30, 1996
------------------------- ------------------------ -----------------------
AVERAGE PRICE AVERAGE PRICE AVERAGE PRICE
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
---------- ------------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of period....................... 1,779,600 986,200 848,800
Granted........................... 2,581,000 $ 2.08 1,075,100 $21.78 659,800 $7.77
Exercised......................... (112,400) $ 1.75 (281,100) $12.60 (382,400) $1.85
Cancelled......................... (1,316,200) $16.42 (600) $ 2.77 (140,000) $3.85
---------- ------ --------- ------ -------- -----
Outstanding at period end 2,932,000 $ 3.04 1,779,600 $14.26 986,200 $5.59
Options exercisable at period end 352,012 569,330 152,500
Fair value of options granted
during the year................. $ 1.61 $11.79 $4.21
</TABLE>

43
<PAGE> 44

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table summarizes information about stock options outstanding
at March 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ---------------------------------
WEIGHTED-
AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ----------- ---------------- ----------- ----------------

<S> <C> <C> <C> <C> <C>
$ 1.30-$ 2.00 1,333,900 9.2 years $ 1.46 47,400 $ 1.75
$ 2.01-$ 3.00 933,300 9.3 years $ 2.43 23,000 $ 2.39
$ 3.50-$ 4.00 300,000 9.6 years $ 3.50 15,000 $ 3.50
$ 6.00-$ 14.00 308,800 7.8 years $ 7.93 243,946 $ 7.74
$20.00-$ 30.00 56,000 8.5 years $21.48 22,666 $22.87
$ 1.30-$ 30.00 2,932,000 9.1 years $ 3.04 352,012 $ 7.27
</TABLE>

During fiscal 1998, the exercise price of options granted on October 1,
1996 to purchase approximately 488,000 shares of Common Stock were repriced from
$20.53 to $2.30, and the vesting period for exercise of such options was
extended.

14. RELATED PARTY TRANSACTIONS

During fiscal 1997, 1996, 1995 and 1994, the Company rendered invoices for
non-existent products to certain businesses which appear to have been under the
control or influence of Centennial's former Chief Executive Officer. These sales
transactions have been reversed in connection with the restatement of the
Company's financial statements. See Note 2. In certain instances, these invoices
were paid with funds that appear to have originated from the former Chief
Executive Officer. The proceeds to the Company related to these transactions,
which amounted to $2,254,000 in fiscal 1997, $3,091,000 in fiscal 1996, $653,000
in fiscal 1995 and $31,000 in fiscal 1994, have been reflected in the
accompanying financial statements as additional paid-in-capital.

During fiscal 1998, the Company agreed to forgive the remaining balance of
a loan initially made to an executive officer during fiscal 1996. The remaining
loan balance was approximately $32,000.

15. SAVINGS PLAN

In fiscal 1994, the Company established a 401(k) Savings Plan under which
substantially all U.S. employees may voluntarily defer a portion of their
compensation and the Company may elect to match a portion of the employee
deferral. The Company has made no contributions to this plan.

16. CONTINGENCIES

Class Action Litigation. Since the Company's announcement on February 11,
1997 that it was undertaking an inquiry into the accuracy of its prior reported
financial results, and that preliminary information had raised questions as to
whether reported results contained material misstatements, approximately 35
purported class action lawsuits have been filed in or transferred to the United
States District Court for the District of Massachusetts. These complaints assert
claims against the Company under Section 10(b) of the Securities Exchange Act of
1934 (the "1934 Act") and Rule 10b-5 promulgated thereunder, and related state
law claims of fraud, deceit and negligent misrepresentation. The complaints also
assert claims against some or all of the Company's Board of Directors, and some
complaints assert claims against certain of the Company's nondirector officers,
under Section 20(a) of the 1934 Act, as well as the same state law claims
asserted against the Company. The Company's independent accountants, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), the Company's lead underwriter for its
March 1996 subsequent public offering, Needham & Company, Inc., and a financial
advisory subscription company, Cabot Heritage Corporation, have also been named
in some of the suits. These class action lawsuits were purportedly brought by
and on behalf of purchasers of the Company's Common Stock between the Company's
initial public offering on April 12, 1994 and February 10, 1997 (the "Centennial
Securities Litigation").

<PAGE> 45

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On February 20, 1997, the Company received a subpoena from the United
States Department of Justice ("DOJ") to produce documents in connection with a
grand jury investigation regarding various irregularities in the Company's
previous press releases and financial statements. The DOJ also requested certain
information regarding some of the Company's former officers, certain stock
transactions by the Company's former Chief Executive Officer, and correspondence
with the Company's auditors. The DOJ has subsequently subpoenaed additional
Company records and files. The Company has not been notified by the DOJ that it
is a target or subject of this investigation.

On January 13, 1998, a plaintiff purporting to represent classes of
shareholders who purchased the Company's Common Stock on February 27, 1997 filed
a complaint in the United States District Court for the District of
Massachusetts. The complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and Mr. Ramaekers' employer, Jay Alix
& Co., and alleges violations of Sections 10(b) and 20(a) of the 1934 Act (the
"February 27 Securities Litigation").

On February 9, 1998, a consolidated amended complaint combining the
Centennial Securities Litigation, the February 25 Securities Litigation, the
February 27 Securities Litigation and the Derivative Litigation was filed in the
United States District Court for the District of Massachusetts (the
"Consolidated Litigation"). Also on February 9, 1998, the Company and lead
counsel representing the plaintiffs in the Consolidated Litigation filed a
Stipulation of Settlement (the "Settlement Agreement"), whereby the Company and
certain of its officers and directors would be released from liability arising
from the allegations included in the Consolidated Litigation. In return, the
Company agreed to pay the plaintiffs in the Consolidated Litigation $1.475
million in cash and to issue to these plaintiffs 37% of the Company's Common
Stock. The Company also agreed to adopt certain corporate governance policies
and procedures.

<PAGE> 46

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The plaintiffs have also retained their claims against the Company's former
Chief Executive Officer, Emanuel Pinez, the Company's former Chief Financial
Officer, James M. Murphy, the Company's independent accountants, Coopers &
Lybrand L.L.P., and others.

The Court granted final approval of the Settlement Agreement of the
Consolidated Litigation on April 29, 1998.

As of March 31, 1997, the Company recorded a provision for the settlement
of the Consolidated Litigation of $20.0 million, representing the cash portion
of the Settlement Agreement, together with an amount equal to 37% of the
estimated market capitalization of the Company. The Company satisfied its
obligations regarding the cash portion ($1,475,000) of the Settlement Agreement
by remitting that amount into a settlement fund during fiscal 1998. The Common
Stock portion ($18,525,000) is included in additional paid-in capital and has
not yet been distributed.

Year 2000 Disclosure. The Company is aware of problems associated with
computer systems as the year 2000 approaches. "Year 2000" problems are the
result of common computer programming techniques that result in systems that do
not function properly when manipulating dates later than December 31, 1999. The
issue are complex and wide-ranging. The problem may affect transaction
processing computer applications used by the Company for accounting,
distribution, manufacturing, planning and other applications. The problems may
also affect embedded systems such as building security systems, machine
controllers and production test equipment. Year 2000 problems with any or all of
these systems may affect the effectiveness or efficiency with which the Company
can perform many significant functions, including but not limited to: order
processing, material planning, product assembly, product test, invoicing,
payroll, and financial reporting. In addition, the problem may affect the
computer systems of vendors and customers, disrupting their operations and
possibly impairing the Company's sources of supply and demand.

The Company is in the process of completing an upgrade to its core
management information systems that were known not to be Year 2000 compliant.
Most of the modules of this new system are currently operational, and the
Company believes that these upgrades will be completed before the end of
calendar 1998. These upgrades are intended to address the Year 2000 issues with
respect to internal budgeting, financial planning, material planning, sales
order processing, accounting, inventory control, shop floor control, and
purchasing. The cost of this management information system upgrade is estimated
to be approximately $400,000. Of this, approximately $382,000 is attributable to
the purchase of new software, which has been and will be capitalized; the
balance has been or will be expensed as incurred. The aggregate costs associated
with the other Year 2000 risks have not been quantified.

46
<PAGE> 47

CENTENNIAL TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998, THE NINE MONTHS ENDED MARCH 31, 1997
AND THE TWELVE MONTHS ENDED JUNE 30, 1996

SCHEDULE II

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ------------ ---------- ---------- ---------- --------------

<S> <C> <C> <C> <C> <C>
Accounts receivable allowance
Fiscal 1998 ............................ $ 692 $ 588 $ 412 $ 868

Nine months ended March 31, 1997 ....... 375 400 83 692

Fiscal 1996 ........................... 131 425 181 375

Fiscal 1995 ........................... 100 171 140 131
Notes receivable reserve
Fiscal 1998 ............................ $ 971 $ 0 $ 971

Nine months ended March 31, 1997 ....... 871 100 971

Fiscal 1996 ........................... 0 871 871

Fiscal 1995 ........................... 0 0 0
Investment reserve
Fiscal 1998............................... $8,669 $4,426 $13,095

Nine months ended March 31, 1997 ....... 646 8,023 8,669

Fiscal 1996 ........................... 0 646 646

Fiscal 1995.............................. 0 0 0
Inventory reserve
Fiscal 1998............................... $2,083 $ 2,676 1,274 $ 3,485

Nine months ended March 31, 1997 ....... 2,040 1,202 1,159 2,083

Fiscal 1996 ........................... 459 1,581 2,040

Fiscal 1995.............................. 381 78 459
</TABLE>

47
<PAGE> 48

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

Not applicable.

PART III

Items 10 to 13 are incorporated herein by reference to the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission.

ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)(1) Financial Statement. The financial statements required to be filed by
Item 8 are as follows:

<TABLE>
<CAPTION>
Centennial Technologies, Inc. PAGE
----

<S> <C>
Report of Independent Accountants.............................................................................26

Consolidated Balance Sheets as of March 31, 1998 and 1997.....................................................27

Consolidated Statements of Operations for the twelve months ended March 31, 1998,
the nine months ended March 31, 1997 and the twelve months ended June 30, 1996 ............................28

Consolidated Statements of Stockholders' Equity for the twelve months ended March 31, 1998,
the nine months ended March 31, 1997 and the twelve months ended June 30, 1996 ............................29

Consolidated Statements of Cash Flows for the twelve months ended March 31, 1998,
the nine months ended March 31, 1997 and the twelve months ended June 30, 1996 ............................30

Notes to Consolidated Financial Statements....................................................................31
</TABLE>

(a)(2) Financial Statement Schedules. The financial statement schedule
required to be filed herewith is included in Item 8 of this report.

(a)(3) Exhibits.

ITEM LOCATION
NO. DESCRIPTION SEE NOTE:
- ---- ---------

3.1 -- Certificate of Amendment to the Certificate of Incorporation ....(3)
3.2 -- By-Laws .........................................................(9)
3.3 -- Shareholder Voting Agreement between Centennial Technologies,
Inc. and the Shareholders who are a party thereto, dated
November 27, 1996 ...............................................(3)
4.1 -- Specimen Stock Certificate ......................................(2)
4.2 -- Form of Warrant Agreement between the Company and American
Securities Transfer, Incorporated (includes Specimen Warrant
Certificate) ....................................................(9)
10.1 -- Forbearance Agreement and Amendment by and between The First
National Bank of Boston, BancBoston Leasing Inc., Centennial
Technologies, Inc., NCT, Inc., Century Electronics
Manufacturing, Inc., and Design Circuits, Inc., dated as of
March 18, 1997 (originally filed as Exhibit 10.6) ...............(3)
10.2 -- Form of the Company's Domestic Distributor Agreement between
the Company and its domestic distributors (originally filed
as Exhibit 10.10) ...............................................(9)
10.3 -- Form of the Company's Agreement with its Manufacturer's
Representatives (originally filed as Exhibit 10.11) .............(9)
10.4 -- Investment and Stockholders Agreement by and between
Centennial Technologies, Inc. and ViA, Inc., dated
November 27, 1996 (originally filed as Exhibit 10.13) ...........(3)
10.5 -- 1994 Stock Option Plan, as amended (originally filed as
Exhibit 10.14) ..................................................(5)
10.6 -- 1994 Formula Stock Option Plan, as amended (originally filed
as Exhibit 10.15) ...............................................(5)
10.7 -- Key Employee Agreement between Centennial Technologies, Inc.
and Donald R. Peck, dated February 1, 1997 (originally filed
as Exhibit 10.18) ...............................................(3)

<PAGE> 49

10.8 -- Agreement to Provide Interim Management and Consulting
Services Between Centennial Technologies, Inc. and Jay Alix &
Associates, dated February 17, 1997 (originally filed as
Exhibit 10.19) ..................................................(3)
10.9 -- First Amendment to Forbearance Agreement by and between The
First National Bank of Boston, BancBoston Leasing Inc.,
Centennial Technologies, Inc., NCT, Inc., Century Electronics
Manufacturing, Inc. and Design Circuits, Inc., dated as of
April 18, 1997 (originally filed as Exhibit 10.22) ..............(2)
10.10 -- Second Amendment to Forbearance Agreement and Amendment by
and Between The First National Bank of Boston, BancBoston
Leasing Inc., Centennial Technologies, Inc., NCT, Inc.,
Century Electronics Manufacturing, Inc. and Design Circuits,
Inc., dated as of June 4, 1997 (originally filed as
Exhibit 10.23) ..................................................(2)
10.11 -- Third Amendment to Forbearance Agreement and Amendment by and
Between The First National Bank of Boston, BancBoston Leasing
Inc., Centennial Technologies, Inc., NCT, Inc., Century
Electronics Manufacturing, Inc. and Design Circuits, Inc.,
dated as of June 26, 1997 (originally filed as Exhibit 10.24) ...(2)
10.12 -- Consulting Agreement by and between Centennial Technologies,
Inc. and William M. Kinch dated as of March 1, 1997
(originally filed as Exhibit 10.25) .............................(2)
10.13 -- Agreement for Consulting Services between The Boston Agent
and Centennial Technologies, Inc., dated January 20, 1997
(originally filed as Exhibit 10.26) .............................(2)
10.14 -- Lease Agreement by and between Centennial Technologies, Inc.
and Michael A. Howland, as Trustee of the Hownat Trust, dated
April 17, 1997 (originally filed as Exhibit 10.27) ..............(2)
10.15 -- Settlement Agreement by and among Centennial Technologies,
Inc., H. Hamby Hutcheson and Mary Lou Hutcheson, dated as of
May 15, 1997 (originally filed as Exhibit 10.28) ................(2)
10.16 -- Fourth Amendment to Forbearance Agreement and Amendment by
and Between The First National Bank of Boston, BancBoston
Leasing Inc., Centennial Technologies, Inc., NCT, Inc.,
Century Electronics Manufacturing, Inc. and Design Circuits,
Inc., dated as of June 26, 1997 (originally filed as
Exhibit 10.29) ..................................................(1)
10.17 -- Loan and Security Agreement by and between Congress Financial
Corporation (New England) as Lender and Centennial
Technologies, Inc. as Borrower, dated August 14, 1997
(originally filed as Exhibit 10.30) .............................(1)
10.18 -- Employment Agreement between Centennial Technologies, Inc.
and L. Michael Hone, effective August 19, 1997 (originally
filed as Exhibit 10.31) .........................................(1)
10.19 -- Key Employee Agreement between Centennial Technologies, Inc.
and Richard N. Stathes dated September 15, 1997 (originally
filed as Exhibit 10.32) .........................................(1)
10.20 -- Key Employee Agreement between Centennial Technologies, Inc.
and Jacques Assour dated September 15, 1997 (originally filed
as Exhibit 10.33) ...............................................(1)
10.21 -- Letter Agreement between Centennial Technologies, Inc. and
John J. McDonald dated January 20, 1998 ..............Filed Herewith
21 -- Schedule of Subsidiaries ........................................(3)
27 -- Financial Data Schedule ..............................Filed Herewith

(1) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission (the "Commission") on February 10, 1997.

(2) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission (the "Commission") on August 14, 1997.

(3) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K/A filed with the Commission on April 28,
1998.

(4) Incorporated by reference to the similarly numbered exhibit to the
Company's Form S-3 Registration Statement (No. 33-1008) declared effective by
the Commission on March 19, 1996.

(5) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-KSB filed with the Commission on October 13,
1995.

(6) Incorporated by reference to the similarly numbered exhibit to the
Company's Post-Effective Amendment No. 2 to its Form SB-2 Registration Statement
(No. 33-74862-NY) filed with the Commission on February 1, 1995.

<PAGE> 50

(7) Incorporated by reference to the similarly numbered exhibit to the
Company's Post-Effective Amendment No. 1 to its Form SB-2 Registration Statement
(No. 33-74862-NY) filed with the Commission on December 22, 1994.

(8) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-KSB filed with the Commission on September
25, 1994.

(9) Incorporated by reference to the similarly numbered exhibit to the
Company's Form SB-2 Registration Statement (No. 33-74862-NY) declared effective
by the Commission on April 12, 1994.

(b) Reports on Form 8-K. None.

SIGNATURES

IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

CENTENNIAL TECHNOLOGIES, INC.

Dated: June 29, 1998 By: /s/ L. MICHAEL HONE
-------------------------------------
L. Michael Hone
President and Chief Executive Officer

IN ACCORDANCE WITH THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----

<S> <C> <C>
/s/ L. MICHAEL HONE President, Chief Executive Officer June 29, 1998
- ---------------------------------------- and Director
L. Michael Hone

/s/ WILLIAM J. SHEA Chairman of the Board June 29, 1998
- ----------------------------------------
William J. Shea

/s/ JOHN J. SHIELDS Vice Chairman of the Board June 29, 1998
- ----------------------------------------
John J. Shields

/s/ J.P. LUC BEAUBIEN Director June 29, 1998
- ----------------------------------------
J.P. Luc Beaubien

/s/ JAY M. EASTMAN Director June 29, 1998
- ----------------------------------------
Jay M. Eastman

/s/ WILLIAM M. KINCH Director June 29, 1998
- ----------------------------------------
William M. Kinch

/s/ EUGENE M. BULLIS Interim Chief Financial Officer June 29, 1998
- ---------------------------------------- (Principal financial and
Eugene M. Bullis accounting officer)
</TABLE>

<PAGE> 1

EXHIBIT 10.21

January 20, 1998

John J. McDonald
17 Smith Farm Trail
Lynnfield, MA 01940

Dear Jack:

The purpose of this letter agreement is to set forth our mutual
understanding and agreement with respect to: (i) your separation from the
Company; and (ii) the establishment of the terms of your severance and
separation from employment. We have agreed as follows:

1. SEPARATION FROM EMPLOYMENT. Effective as of the close of business on
Friday, September 12, 1997 (your "separation date"), you are no longer a
full-time employee of the Company, as the Company terminated your
employment without cause, and you relinquished as of that date any
positions that you held with the Company. By signing this letter
agreement, you hereby waive the ten day written notice requirement
provided in Paragraph 2.2 of the Employment Agreement between you and
the Company, dated April 1, 1997 (the "Employment Agreement").

2. SEVERANCE PAYMENT. The Company shall provide you with severance pay
equivalent to your regular base salary (less all applicable federal,
state, or local tax withholding, F.I.C.A., and any other applicable
payroll deductions) through March 31, 1998, in accordance with the
Company's regular pay practices. Such payments shall be made in
installments corresponding to the regular pay periods of the Company and
shall be mailed to you at 17 Smith Farm Trail, Lynnfield, MA 01940.

3. MONETARY CONSIDERATION. In consideration of this letter agreement and
your General Release, the Company has offered and you have accepted to
act as a part-time employee of the Company, commencing April 1, 1998 and
terminating at the close of business on October 1, 1999. In this
position, you shall provide advice and assistance to the Company from
time to time, as directed by management, for which you shall be paid at
a rate of three hundred fifty dollars ($350) per month (less all
applicable federal, state or local tax withholding, F.I.C.A., and any
other applicable payroll deductions), but for which you shall receive no
other benefits, except that your rights to participate in the Company's
1994 Stock Option Plan shall continue throughout the period of your
part-time employment and except those benefits provided for below and/or
are required by law. You acknowledge that you are not otherwise entitled
to the benefits described in this paragraph pursuant to the Employment
Agreement or any other agreement or understanding. The parties
understand and agree that your role as a part-time employee of the

<PAGE> 2

John J. McDonald
January 20, 1998
Page 2

Company as provided under this paragraph does not preclude you from
seeking or securing any full-time or other part-time employment after
your separation date, provided you agree that any such full-time or
part-time employment shall be consistent with your post-employment
obligations described in paragraph 9 below.

4. COMPENSATION RECEIVED TO DATE. You agree that you have received all
compensation to which you are entitled for services rendered to the
Company through your separation date and agree to make no claims for
further compensation from the Company of any type, including bonus
payments, commission payments, and vacation pay, except such sums as are
provided for in this letter agreement.

5. TRANSFER OF RESPONSIBILITIES AND CONTINUING Cooperation. You shall
cooperate fully with the Company and its personnel on an as needed and
as required basis to provide an orderly transfer of your duties and
responsibilities and to provide continuing assistance in connection with
on-going litigation and investigation matters. This cooperation includes
timely compliance with all reasonable requests for information and other
materials. This cooperation also includes timely compliance with all
reasonable requests for information and assistance in connection with
any and all on-going Company litigation, investigations, and legal
inquiries. The Company agrees to reimburse you for any reasonable travel
costs and expenses, including meals and lodging, incurred by you in
connection with such compliance, and to make available to you upon
reasonable request and notice pertinent records and documents related to
such litigation, investigations and legal inquiries, which you agree
will be used solely in relation thereto and for no other purpose.

6. CONFIDENTIALITY. You agree that you will not, without the Company's
prior written consent, reveal or disclose to any person or entity
outside of the Company or use for your own benefit or for the benefit of
any other person or entity, any confidential information concerning the
business or affairs of the Company, or concerning the Company's
customers, clients, or employees ("Confidential Information"). You
further agree that until July 31, 1998, you will refer all requests by
any third party or the media regarding the Company, your employment, or
your termination to the Company's General Counsel.

7. RETURN OF PROPERTY. You acknowledge that you have returned to the
Company all property of the Company that is in your possession or under
your control, including, without limitation, any and all files,
documents and other information with respect to the Company's
management, operations or customers, including all files, documents, or
other information containing Confidential Information.

<PAGE> 3

John J. McDonald
January 20, 1998
Page 3

8. NON-DISPARAGEMENT. You further agree that you will not, at any time
after the date hereof, make any remarks or comments, orally or in
writing, to customers, potential customers, regulators or others, which
or who have, or could reasonably be anticipated to have, business
dealings with the Company, which remarks or comments reasonably could be
construed to be derogatory or disparaging to the Company or any of its
shareholders, officers, directors, employees, attorneys or agents, or
which reasonably could be anticipated to be damaging or injurious to the
Company's reputation or good will or to the reputation or good will of
any person associated with the Company.

9. NON-COMPETITION, RELATED AGREEMENTS. You shall continue to be bound by
and to observe the terms and provisions set forth in Paragraphs 6, 7, 8,
10 and Exhibit C of the Employment Agreement, and you hereby agree that
these obligations, terms and provisions shall be extended through and
until the close of business on August 1, 1999, at which time all such
obligations shall cease. Furthermore, you agree that the Company's
obligation, if any, to pay you a "Special Benefit" pursuant to paragraph
7.4.2 of your Employment Agreement shall be effective, if at all, only
from April 1, 1998 through July 31, 1998.

10. REMEDIES OF THE COMPANY. You acknowledge that the restrictions
contained in paragraphs 6, 8, and 9 of this letter agreement are
reasonable and necessary for the protection of the legitimate interests
of the Company, that any violation of those restrictions would cause
substantial injury to the Company, and that the Company would not have
entered into this letter agreement without your agreement to be bound by
those restrictions. In addition, you recognize and agree that the
Company's remedy at law for material breaches of those restrictions is
inadequate, that the damages for any material breach thereof would be
irreparable, and that the Company shall be entitled to preliminary and
permanent injunctive relief and specific performance thereof, in
addition to any remedies it may have for monetary damages or other
relief. You further recognize and agree that the covenants contained in
paragraphs 6, 8, and 9 shall be construed as independent of any other
provision of this letter agreement and that the existence of any claim
or cause of action by you against the Company shall not constitute a
defense to the enforcement by the Company of said covenants.

11. BREACH OF AGREEMENT. You understand and agree that any material breach
of your obligations under this letter agreement will immediately render
the Company's obligations and agreements hereunder null and void, and
all payments pursuant to paragraph 3 hereof shall immediately cease and
you shall repay to the Company forthwith all sums you have been paid or
sums paid on your behalf pursuant to paragraph 3.

<PAGE> 4

John J. McDonald
January 20, 1998
Page 4

12. REFERENCES. In response to inquiries from your prospective employers,
the Company shall state that it is the policy of the Company to verify
only dates of employment and titles. Upon receipt from you or your
counsel of a proposed letter of reference, the Company agrees to execute
and deliver such a letter to you, so long as such letter is acceptable
to the Company in its exercise of reasonable judgment.

13. GENERAL RELEASE. In consideration of the good and valuable
consideration set forth in this letter agreement, the receipt and
sufficiency of which consideration you hereby acknowledge, and except
for any indemnification rights that you may have pursuant to the By-Laws
of the Company and as provided by law, which rights, if any, are
specifically excepted from the scope of this release, you, for yourself
and your heirs, legal representatives, beneficiaries, assigns and
successors in interest, hereby knowingly and voluntarily release, remise
and forever discharge the Company and its successors, assigns, former,
current or future shareholders, officers, directors, employees, agents,
attorneys and representatives, whether in their individual or official
capacities, from any and all actions or causes of action, suits, debts,
claims, complaints, contracts, controversies, agreements, promises,
damages, claims for attorneys' fees, punitive damages or reinstatement,
judgments and demands whatsoever, in law or equity, you ever had from
the beginning of the world to this date, including, without limitation,
any claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
ss.2000e et seq.; the Employee Retirement Income Security Act of 1974,
as amended, 29 U.S.C. ss.1000 et seq., Massachusetts General Laws,
Chapter 151B; the Americans with Disabilities Act, 42 U.S.C. ss.12101 et
seq.; claims for breach of contract or based on tort; and any other
statutory, regulatory or common law causes of action. You hereby
acknowledge and understand that this is a General Release.

14. ACKNOWLEDGMENT. You acknowledge and agree that you understand the
meaning of this letter agreement, that you freely and voluntarily enter
into it and the General Release contained herein, and that the Company
has advised you to consult an attorney of your choosing prior to signing
this letter agreement. You agree that no fact, evidence, event, or
transaction occurring before the execution of this letter agreement,
which is currently unknown to you, but which may hereafter become known
to you, shall affect in any manner the final and unconditional nature of
the agreements and releases set forth herein.

15. MISCELLANEOUS. This letter agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts. A waiver of any
breach of or failure

<PAGE> 5

John J. McDonald
January 20, 1998
Page 5

to comply fully with any provision of this letter agreement by either
party shall not operate or be construed as a waiver of any subsequent
breach thereof or failure to comply. If any portion or provision of this
letter agreement shall to any extent be deemed invalid or unenforceable,
the remainder of this letter agreement, or the application of such
portion or provision in circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and each
portion and provision of this letter agreement shall be valid and
enforceable to the fullest extent permitted.

To avoid any possible misunderstanding, the Company intends this letter
agreement to be a comprehensive statement of the terms of your separation from
employment. This letter agreement supersedes any prior understanding or
statement made to you by the Company regarding your positions with the Company
or your arrangements with the Company for the period after your separation from
employment. For the same reason, any modifications of the terms set forth in
this letter agreement must be in writing and signed by you and by me on behalf
of the Company.

Please indicate your agreement to the terms of this letter agreement by
signing and dating the last page of the enclosed copy of this letter agreement,
and return it to me.

Sincerely,

L. Michael Hone
President and Chief Executive Officer

AGREED TO AND EXECUTED UNDER SEAL THIS ___ day of January, 1998.

--------------------------------------
John J. McDonald

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