CENTENNIAL TECHNOLOGIES INC, 10-Q, 1998-08-10

CENTENNIAL TECHNOLOGIES INC
10-Q, 1998-08-10
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-Q

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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 27, 1998

COMMISSION FILE NUMBER 1-12912

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

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)

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

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 [ ]

As of July 13, 1998, there were 18,496,362 shares of Common Stock, $.01 par
value per share (the "Common Stock"), of the registrant outstanding.

<PAGE> 2

CENTENNIAL TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NUMBER
-----------

Item 1. Financial Statements 3

Consolidated Balance Sheets at June 27, 1998 and March 31,
1998 3

Consolidated Statements of Operations for three months ended 4
June 27, 1998 and June 30, 1997

Consolidated Statements of Cash Flows for three months ended 5
June 27, 1998 and June 30, 1997

Notes to Consolidated Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 14
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16

<PAGE> 3

PART I

ITEM 1. FINANCIAL STATEMENTS

CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 27, MARCH 31,
1998 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 5,026 $ 5,358
Trade accounts receivable ....................................... 3,840 3,677
Less allowances ............................................ (846) (868)
-------- --------
2,994 2,809
Recoverable income taxes ........................................ 337 337
Inventories ..................................................... 1,706 2,309
Other current assets ............................................ 220 684
-------- --------
Total current assets ................................................. 10,283 11,497

Equipment and leasehold improvements ................................. 4,080 3,973
Less accumulated depreciation and amortization .................. (1,507) (1,242)
-------- --------
2,573 2,731
Other assets ......................................................... 374 417
Investment in affiliate .............................................. 2,433 2,433
-------- --------
Total assets ......................................................... $ 15,663 $ 17,078
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Obligations under capital leases ................................ $ 70 $ 70
Accounts payable and accrued expenses ........................... 6,576 8,070
-------- --------
Total current liabilities ............................................ 6,646 8,140

Long-term obligations under capital leases ........................... 16 36
Contingencies (Note 8)
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 June 30, 1998 and March 31, 1998 ......... 185 185
Additional paid-in capital ........................................... 84,220 84,220
Accumulated deficit .................................................. (75,404) (75,503)
-------- --------
Total stockholders' equity ........................................... 9,001 8,902
-------- --------
Total liabilities and stockholders' equity ........................... $ 15,663 $ 17,078
======== ========
</TABLE>

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

<PAGE> 4

CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>

THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Sales ................................................ $ 6,235 $ 6,573
Costs and expenses:
Cost of goods sold .............................. 4,480 6,142
Engineering costs ............................... 312 356
Selling, general and administrative expenses .... 1,408 1,889
Loss on investment activities ................... -- 3,485
Special investigation costs ..................... -- 597
Net interest (income)/expense ................... (64) 78
-------- --------
Total costs and expenses ................... 6,136 12,547
-------- --------
Earnings (loss) before equity in earnings of affiliate 99 (5,974)
Equity in earnings of affiliate ...................... -- 500
-------- --------
Net income (loss) .......................... $ 99 $ (5,474)
======== ========

Net loss per share - basic ........................... $ .01 $ (.30)
Net loss per share - fully diluted ................... $ .01 $ (.30)
Weighted average shares outstanding - basic .......... 18,496 18,176
Weighted average shares outstanding - fully diluted .. 19,567 18,176
</TABLE>

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

<PAGE> 5

CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................... $ 99 $(5,474)
Adjustments to reconcile net income (loss) to net cash from
(used in) operating activities:
Depreciation and amortization ............................. 264 400
Equity in earnings of affiliate ........................... -- (500)
Provision for loss on accounts receivable ................. (39) 41
Provision for loss on inventory ........................... (279) --
Provision for loss on investments ......................... -- 2,180
Change in operating assets and liabilities:
Accounts receivable .................................. (152) 1,898
Inventories .......................................... 882 2,335
Notes receivable from affiliate ...................... -- 4,129
Recoverable income taxes ............................. -- 6,042
Other assets ......................................... 508 945
Accounts payable and accrued expenses ................ (1,488) (2,565)
------- -------
Net cash from (used in) operating activities ......... (205) 9,431
Cash flows from investing activities:
Capital expenditures ...................................... (113) (117)
Disposal of capital equipment ............................. 6 328
Investment in affiliates .................................. -- (1,165)
------- -------
Net cash used in investing activities ................ (107) (954)
Cash flows from financing activities:
Net borrowings (repayments) under line of credit .......... -- (8,447)
Payments on equipment lease financing ..................... (20) (149)
Proceeds from exercise of stock options ................... -- 157
------- -------
Net cash provided by (used in) financing activities .. (20) (8,439)
------- -------
Net increase (decrease) in cash and cash equivalents ........... (332) 38
Cash and cash equivalents at beginning of period ............... 5,358 57
------- -------
Cash and cash equivalents at end of period ..................... $ 5,026 $ 95
======= =======
</TABLE>

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

<PAGE> 6

CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED 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. Other
investments are accounted for using the cost method. All significant
intercompany balances and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial statements
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results of operations for the interim periods
reported and of the financial condition of the Company as of the date of the
interim balance sheet. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the Company's
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal period ended March 31, 1998.

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. All references to fiscal 1999 and
fiscal 1998 in the accompanying financial statements relate to the twelve months
ended March 31, 1999 and 1998, respectively. All references to fiscal 1997 in
the accompanying financial statements relate to the nine months ended March 31,
1997. References to fiscal 1996, 1995 and 1994 relate to the respective years
ended June 30.

2. CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade receivables. 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 the three months ended June 27, 1998, one customer accounted for
approximately 32% of the Company's sales. At June 27, 1998, this customer
accounted for approximately $1.0 million, or 33% of the Company's net accounts
receivable balance.

For the three months ended June 30, 1997, two customers accounted for
approximately 40% of the Company's sales. At June 30, 1997, these customers
accounted for approximately $1.9 million, or 52% of the Company's net accounts
receivable balance.

Approximately 9% and 11% of the Company's sales for the three months ended
June 27, 1998 and June 30, 1997, 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.

<PAGE> 7

3. INVENTORIES

Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
JUNE 27, MARCH 31,
1998 1998
------ ------
<S> <C> <C>
Raw material, primarily electronic components $1,008 $1,239
Work in process ............................. 333 620
Finished goods .............................. 365 450
------ ------
$1,706 $2,309
====== ======
</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.

4. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.

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 contribution
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 bear interest at a
rate of 6% and mature in ten years. Under certain conditions, the debentures
will be convertible into the capital stock of an entity with which Century may
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 $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,
recovered a warrant for the purchase of 250,000 shares of Century common stock,
and satisfied its $6 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 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 in the third quarter of 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.

<PAGE> 8

5. OTHER INVESTMENTS

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. Management has decided to focus its financial resources on
its core business, and to suspend new investment activities. The Company fully
reserved the carrying value of its investments in these development stage
companies during fiscal 1997 and 1998.

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 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
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, were included in loss on investment activities in the
periods the advances were made. The merger was recorded using purchase
accounting, and the excess (approximately $3.2 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.

6. DEBT

Notes Payable

On August 14, 1997, the Company entered into a credit agreement with
Congress Financial Corp. ("Congress Financial"), a commercial credit
institution, 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 accounts receivable and the cost of equipment, and are
collateralized by all of the Company's assets. At June 27, 1998 and March 31,
1998, the Company had no outstanding borrowings under these credit facilities.

7. 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").

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.

<PAGE> 9

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").

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 (the "Derivative
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").

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.

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 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.

<PAGE> 10

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.

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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS

CAUTIONARY STATEMENT

Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. 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 including those set forth in the Company's Annual Report
on Form 10-K for the fiscal period ended March 31, 1998 under the heading "Risk
Factors" 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.

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 27, 1998 AND JUNE 30, 1997

Sales. Sales decreased 5% to approximately $6.2 million in the 1998 period
compared to $6.6 million in the 1997 period. The average selling price of the
Company's products fell in the 1998 period from the 1997 period, which was
partially offset by an increase in the volume of PC cards sold between the
periods. 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 the remainder of fiscal
1999.

A significant customer represented 32% of total sales in the 1998 period
and 28% of total sales in the 1997 period. Another customer represented 6% of
total sales in the 1998 period and 12% of total sales in the 1997 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

<PAGE> 11

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.

Sales outside of the United States represented 9% of sales in the 1998
period compared to 11% of sales in the 1997 period.

Costs of Goods Sold. Cost of goods sold decreased 26% to $4.5 million for
the 1998 period compared to $6.1 million for the 1997 period. Gross margins were
7% for the 1997 period compared to 28% for the 1998 period. In fiscal 1998, the
Company instituted policies that have resulted in significantly decreasing the
amount of inventory purchased in advance of receipt of customer orders. In
addition, during fiscal 1998 the Company instituted 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. The Company has also instituted several policies which have resulted in
increased production efficiencies. Costs of goods sold for the 1997 period
includes a provision for inventory obsolescence of $.4 million, representing
6.1% of sales in the 1997 period. Cost of sales in the 1997 period was also
negatively impacted by inventory revaluation adjustments of $.9 million or 13.6%
of sales, primarily due to declining electronic component prices and changes in
overhead absorption rates. No similar adjustments were recorded in the 1998
period.

Engineering Costs. Engineering costs were $312,000 in the 1998 period and
$356,000 in the 1997 period.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $1,408,000 in the 1998 period compared to
$1,889,000 in the 1997 period. In the 1998 period the Company received
approximately $500,000 in directors and officers liability insurance premiums on
policies that had been rescinded covering periods prior to the Company's special
investigation. In addition, legal expenses increased $440,000 between periods as
the Company received final approval of its settlement of the class action
litigation and settled certain indemnification claims brought by the Company's
former Interim Chief Executive Officer. Consulting expenses and salary expenses
decreased a total of $290,000 between periods as a result of a decreased use of
consultants between periods and a reduction in the number of administrative
employees.

Net Interest Income/Expense. Net interest income was $64,000 in the 1998
period compared to net interest expense of $78,000 in the 1997 period,
reflecting cash available for investment in the 1998 period and outstanding
borrowings during the 1997 period.

Loss on Investment Activities. Loss on investment activities consists of
write-downs, valuation adjustments and accruals for losses associated with
certain investments. The following table describes the elements and the amounts
reflected in this category for the 1997 period (in thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Costs incurred in connection with ITP/Fleet.Net $3,235
Loss on investment in ViA ..................... 250
------
TOTAL ......................................... $3,485
======
</TABLE>

Equity Interest in Earnings of Affiliate. The equity interest in earnings
of affiliate of $.5 million reflects the Company's net interest in earnings of
Century during the 1997 period.

Special Investigation Costs. Due to incremental costs it was necessary to
increase the accrual for Special Investigation Costs by $597,000 in the 1997
period.

LIQUIDITY AND CAPITAL RESOURCES

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

Fiscal 1999 Liquidity Outlook

The Company has experienced significant losses from operations prior to
fiscal 1999 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, bank financing, and anticipated future cash flows
will be sufficient to fund operations for the foreseeable future.

<PAGE> 12

Operating Activities

At June 27, 1998, working capital increased to approximately $3.6 million,
compared to working capital of $3.4 million at March 31, 1998. In the 1998
period the Company experienced cash flow used in operations of approximately
$205,000, compared to cash flow provided by operations of approximately $9.4
million for the comparable period last year. Days of sales outstanding in
accounts receivable amounted to 44 days at June 27, 1998 compared to 35 days at
March 31, 1998. The Company's inventories represent approximately 5 weeks of
manufacturing output at June 27, 1997, compared to 6 weeks at March 31, 1998.

Investing Transactions

Net capital expenditures amounted to $107,000 in the 1998 period and
$117,000 in the 1997 period. As of June 27, 1998, the Company had remaining
obligations of $88,000 on equipment financing leases.

As of June 27, 1998, the Company had commitments for future capital
equipment expenditures in fiscal year 1999 of approximately $106,000.

Financing Transactions

On August 14, 1997, the Company entered into a credit agreement with
Congress Financial Corp. ("Congress Financial"), a commercial credit
institution, 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. On
August 15, 1997, 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. At June 27, 1998 and March 31, 1998, the Company had no
outstanding borrowings under the Congress Financial credit agreement.

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.

<PAGE> 13

cash and a $1.9 million 9% promissory note due December 1998.

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 "Part II, Item 1 --
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 "Part II, Item 1
- -- 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.

RISK FACTORS

From time to time, information provided by the Company or statements made
by its employees may contain forward-looking information. The Company's actual
future results may differ materially from those projections or suggestions made
in such forward-looking information as a result of various potential risks and
uncertainties including, but not limited to, the factors discussed below.

Losses in Prior Periods; Liquidity and Financing Risks. The Company has
experienced significant losses from operations from fiscal 1994 through fiscal
1998. The Company has taken measures since the firing of its former Chief
Executive Officer in February 1997 to reduce those losses, including appointing
a turnaround specialist, hiring new senior management, reducing various expenses
and implementing new cost controls. If cost savings are not achieved or revenues
are not increased, the operating plan for the Company could include further cost
reductions. If cost savings are not achieved, or revenues are not increased, it
would significantly impair the ability of the Company to continue as a going
concern. The Company believes that its present cash balances after giving effect
to the proceeds from the sale of Century-related assets, financing from Congress
Financial, and anticipated future cash flows will be sufficient to fund
operations for the foreseeable future. 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,
Inc. and Navionics, Inc. accounted for approximately 32% and 6%, respectively,
of the Company's sales for the three months ended June 27, 1998. These customers
accounted for 28% and 12%, respectively, of the Company's sales for the three
months ended June 30, 1997. 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. 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

<PAGE> 14

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 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.

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
writeoffs 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.

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.

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.

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.

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

<PAGE> 15

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").

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.

<PAGE> 16

ITEM 2. CHANGES IN SECURITIES NOT APPLICABLE.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES NOT APPLICABLE.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NOT APPLICABLE.

ITEM 5. OTHER INFORMATION NOT APPLICABLE.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
<TABLE>
<CAPTION>

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

<S> <C> <C>
3.1 -- Certificate of Amendment to the Certificate of Incorporation...........................................................(4)
3.2 -- By-Laws ...............................................................................................................(7)
3.3 -- Shareholder Voting Agreement between Centennial Technologies, Inc. and the Shareholders who are a party thereto,
dated November 27, 1996 ...............................................................................................(4)
4.1 -- Specimen Stock Certificate ............................................................................................(3)
4.2 -- Form of Warrant Agreement between the Company and American Securities Transfer, Incorporated (includes Specimen
Warrant Certificate) ..................................................................................................(7)
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) .........................................................(4)
10.2 -- Form of the Company's Domestic Distributor Agreement between the Company and its domestic distributors
(originally filed as Exhibit 10.10)....................................................................................(7)
10.3 -- Form of the Company's Agreement with its Manufacturer's Representatives (originally filed as Exhibit 10.11) ...........(6)
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)..................................................................(4)
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)....................................................................................(4)
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).....................................(4)
</TABLE>

<PAGE> 17

<TABLE>
<S> <C> <C>
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)..................................(3)
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)................................(3)
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)...............................(3)
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)......................................................................(3)
10.13 -- Agreement for Consulting Services between The Boston Agent and Centennial Technologies, Inc., dated
January 20, 1997 (originally filed as Exhibit 10.26)...................................................................(3)
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).................................................(3)
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)................................................(3)
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)...............................(2)
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)...................(2)
10.18 -- Employment Agreement between Centennial Technologies, Inc. and L. Michael Hone, effective August 19, 1997
(originally filed as Exhibit 10.31)....................................................................................(2)
10.19 -- Key Employee Agreement between Centennial Technologies, Inc. and Richard N. Stathes dated September 15, 1997
(originally filed as Exhibit 10.32)....................................................................................(2)
10.20 -- Key Employee Agreement between Centennial Technologies, Inc. and Jacques Assour dated September 15, 1997
(originally filed as Exhibit 10.33)....................................................................................(2)
10.21 -- Letter Agreement between Centennial Technologies, Inc. and John J. McDonald dated January 20, 1998 ....................(1)
21 -- Schedule of Subsidiaries ..............................................................................................(4)
27 -- Financial Data Schedule ....................................................................................Filed Herewith
</TABLE>

(1) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "Commission") on June 29, 1998.

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

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

(4) 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.

(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.

(7) 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.

<PAGE> 18

SIGNATURES

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

CENTENNIAL TECHNOLOGIES, INC.

Dated: August 11, 1998 By: /s/ L. Michael Hone
---------------- ---------------------------------------
L. Michael Hone
President and Chief Executive Officer

Dated: August 11, 1998 By: /s/ Donald R. Peck
----------------- ---------------------------------------
Donald R. Peck
Secretary, Treasurer and General Counsel

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<PERIOD-START> APR-01-1998
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