<PAGE>

                                                                      Exhibit 13
                                                                      ----------


                                                          Carleton
                                                          Pure data Pure results












                                                       1999 ANNUAL REPORT
                                                       Year Ended March 28, 1999



                               Carleton is a leading provider of customer data
                               management solutions for customer-focused front
                               office and analytical applications.
<PAGE>

BOARD OF DIRECTORS

Robert D. Gordon
   Chairman of the Board,
   Chief Executive Officer,
   Chief Financial Officer,
   President
   Carleton Corporation

Nicholas J. Covatta, Jr.
   Chairman of the Board
   Atlantis Group, Inc.

Michael Dexter-Smith
   Chief Executive Officer
   VenturCom, Inc.

Robert W. Fischer
   President
   Robert W. Fischer & Co., Inc.

George E. Hubman
   Independent Consultant

Arch J. McGill
   President
   Chardonnay, Inc. Group



CORPORATE OFFICERS

Robert D. Gordon
   Chairman of the Board,
   Chief Executive Officer,
   Chief Financial Officer,
   President

Alexander F. Collier
   Corporate Vice President, Research & Development

David M. Haggerty
   Corporate Vice President, Professional Services

Travis M. Richardson
   Corporate Vice President, Marketing

Eugene E. Waara, Jr.
   Corporate Vice President, Sales
<PAGE>

MESSAGE TO SHAREHOLDERS

Fiscal year 1999 was an exciting year for the new Carleton Corporation. Key
accomplishments included new company positioning around customer relationship
management (CRM), the introduction of Carleton's new Pure-View(TM) customer data
management products, and growing revenue momentum that reflects early market
success for our new products and positioning. The challenge looking forward to
fiscal year 2000 is to accelerate revenue momentum and secure new capital to
expand sales and marketing.

Positioning and Products

Today Carleton is positioned as a leading provider of customer data management
solutions. Carleton's Pure-View is the only integrated solution that combines
data from diverse sources to create complete and accurate customer profiles to
enable CRM applications. This positioning fulfills our vision, which was
articulated in October 1997. At that time, the new Carleton was created through
the merger of Apertus Technologies Incorporated and Carleton Corporation to
focus on developing and marketing a new generation of customer data management
solutions by leveraging core technologies of the combined companies. In November
1998, Carleton reinforced this positioning by introducing Pure-View to
aggressively target CRM applications, one of the fastest growing segments of the
corporate IT solutions market.

Market Opportunity

The market opportunity for Carleton is expected to be significant. IDC, a
leading market research firm, estimates the combined market for analytical
applications and tools to build, manage and access the underlying data
warehouses and data marts will increase from $4.9 billion in 1998 to $11.8
billion by the year 2002. Carleton's Pure-View customer data management solution
is well positioned to participate in this growth by addressing the growing
demand for accurate customer data. Carleton sees customer data management as a
critical success factor for fueling the new generation of analytical CRM
applications that are designed for targeting, penetrating and retaining
customers.

Pure-View changes the competitive paradigm with its superior capabilities and
strong competitive differentiation. Unlike expensive multi-vendor alternatives,
Pure-View is the only product that combines the complete data extraction, data
transformation, and deep customer data cleansing capabilities required for CRM
applications in one cost-effective solution.

Since the release of Pure-View in November 1998, Carleton has achieved market
validation and success, winning major new accounts like ABN AMRO, H&R Block and
RCN Corporation. Pure-View has also received strong support from leading
marketing analysts like Gartner, META Group and Aberdeen, and growing interest
from major systems integrators.

Fiscal 2000 Challenges

To realize the full potential of Pure-View, Carleton must significantly increase
its investment in new sales and marketing programs. To meet this objective,
Carleton has retained Dougherty Summit Securities, an investment banking firm
that specializes in financing emerging growth companies, to advise Carleton on
strategic alternatives for financing Pure-View growth. Carleton anticipates
presenting a formal proposal to shareholders for approval at its 1999 annual
meeting later this summer.

The creation of the new Carleton is an exciting venture and I remain confident
the new Carleton will be a success.

/s/ Robert D. Gordon

Robert D. Gordon
Chairman, CEO, CFO, and President
<PAGE>

MANAGEMENT DISCUSSION AND ANALYSIS

Overview

Carleton Corporation delivers data integration software and services that enable
large organizations to rapidly deploy business-critical applications, such as
customer relationship management systems (CRM), data warehouses, data marts and
new packaged applications. Industry analysts estimate that the data preparation
process--including data extraction, transformation, cleansing, integration,
dimensioning & aggregating--represents as much as 60-80% of the deployment costs
of a data warehouse. Our solutions provide unparalleled capability in automating
these critical data preparation processes, resulting in faster application
development, improved data quality, lower implementation costs, and reduced
overall project risk. Our corporate tag line "Pure data Pure results" captures
our expertise and focus on data integration along with our commitment to our
customer's success.

We offer an integrated product suite which provides a complete solution for
creating and maintaining customer relationship management systems, data
warehouses, data marts or packaged application conversions.

Our products are meta data-driven in their architecture, which not only speeds
the development process but also simplifies ongoing maintenance. Meta data is
automatically captured in our meta data repository. This repository contains all
the business, technical and operational information required for creating,
maintaining and managing the data preparation process. The repository serves as
the integration point between our tools, resulting in increased developer
productivity. In addition, the meta data can be exported to other leading third
party tools.

Our implementation services are designed to help our customers be successful in
their deployment of their business-critical applications. Our customers like the
fact that we offer a wide range of services, including product training, on-site
mentoring for fast project start-ups and full project management capabilities.
At Carleton, we take a deliverables-driven approach to managing projects, with
clearly defined goals that meet the deadline and budget parameters of each
project.



RESULTS OF CONTINUING OPERATIONS

Restatement of Financial Statements

On October 31, 1997, we acquired the former Carleton Corporation in a
transaction accounted for using the purchase method. In accordance with
Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations," we allocated costs of the acquisition to the assets acquired and
liabilities assumed based on their estimated fair values using valuation methods
believed to be appropriate at the time. We expensed in-process research and
development (IPR&D) ($9.5 million) related to the acquisition in accordance with
FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method."

In response to the Securities and Exchange Commission (SEC) letter to the AICPA
dated September 9, 1998 regarding its views on IPR&D, we have re-evaluated our
original IPR&D charge taken in connection with the acquisition. As a result of
the re-evaluation, we have revised the purchase price allocation and restated
our financial statements for the fiscal year ended March 29, 1998. We have
decreased the amount previously expensed as IPR&D and increased the amount
capitalized as developed technology and goodwill by $7.9 million for the fiscal
year ended March 29, 1998. Additionally, amortization of goodwill related to the
restatement has been increased by $1.1 million for the fiscal year ended March
29, 1998.

The effect of these adjustments on the reported consolidated financial
statements as of and for the year ended March 29, 1998 is disclosed in Note 4 to
the Consolidated Financial Statements - Acquisition of the Former Carleton
Corporation.



Valuation Analysis - Acquisition of the former Carleton Corporation

Valuation Methodology

Standard valuation procedures and techniques were utilized in determining the
fair value of each intangible asset. The valuation was performed by an outside
organization in conformity with the requirements of the Principals of Appraisal
Practice Code of Ethics of the American Society of Appraisers. Intangible assets
were identified through discussions regarding the Company's intentions for

2
<PAGE>

future use of the acquired assets, interviews with the Company's management, and
analysis of data provided by the Company concerning its products, technologies,
markets, historical financial performance, estimates of future performance, and
the assumptions underlying those estimates. The economic and competitive
environment in which the Company and the former Carleton Corporation operate was
also considered in the valuation analysis.

Specifically, purchased research and development was identified and valued
through extensive discussions with the Company's management and the Company's
analysis of the data provided concerning developmental products, their
respective stage of development, the time and resources needed to complete them,
their expected income-generating ability, their target markets and associated
risks. The Income Approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing each purchased research and development project. A
portion of the purchase price was allocated to the developmental projects based
on the appraised fair values of such projects.

Valuation Analysis

The value of the acquired in-process technology was computed using a discounted
cash flow analysis on the anticipated income stream of the related product
sales. The discounted cash flow analysis was based on management's forecast of
future revenues, cost of revenues, and operating expenses related to the
products and technologies purchased from the former Carleton Corporation.
Management's analysis also considered anticipated product development and
product introduction schedules for future products, product sales cycles, and
the estimated life of a product's underlying technology.

Revenue

Revenue estimates for the acquired technologies were developed by the Company's
management and represent expectations of the former Carleton Corporation on a
stand-alone basis, exclusive of any synergies that may be derived from the
combination with the Company.

Operating Expenses

Operating expenses used in the valuation analysis of the former Carleton
Corporation included (i) cost of goods sold, (ii) general and administrative
expense, (iii) selling and marketing expense, and (iv) research and development
expense. Selected operating expense assumptions were based on an evaluation of
the overall business model, including both historical and expected direct
expense levels (as appropriate), and an assessment of general industry metrics.

Cost of Goods Sold. Cost of goods sold, expressed as a percentage of revenue,
for the in-process technologies was estimated to be 11% throughout the
estimation period. Cost of goods sold estimates, expressed as a percentage of
revenues, were based on historical and expected cost of goods sold as a
percentage of revenues, and an assessment of general industry gross margins.

General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the in-process technologies was estimated to decline
from 25.1% for the 3.9 months ended February 28, 1998 (the former Carleton
Corporation's fiscal year end) to 8.4% for the fiscal year ended February 28,
1999. G&A expense was estimated to stabilize at 5.0% of revenue for the
remainder of the estimation period. These estimates were based on historical
company-wide G&A levels.

Selling and marketing expense. Selling and marketing expense, expressed as a
percentage of revenue, for in-process technologies was estimated to decline from
77.6% to 14.5% during the estimation period based upon the former Carleton
Corporation's historical experience with similar products.

Maintenance research and development ("R&D") expense. Maintenance R&D activities
and associated expenses consist of the costs associated with activities
undertaken after a product is available for general release to correct errors or
keep products updated with current information. These activities include routine
changes and additions. The maintenance R&D expense, expressed as a percentage of
revenue, for the in-process technologies was estimated to be approximately 1.0%
throughout the estimation period based on the former Carleton Corporation's
historical experience with similar products.

Operating margin. Accordingly, operating margins for the in-process technologies
were estimated to increase from -14.7% for the 3.9 months ended February 28,
1998 to 50.9% during 1999 to 68.5% during 2004. The anticipated early release in
fiscal 1999 of Passport 5.6-5.7 and later release in fiscal 1999 of Pure Extract
were estimated to generate significant licensing revenues and propel the
improved operating margin in fiscal 1999.

                                                                               3
<PAGE>

Effective Income Tax Rate

The effective tax rate utilized in the analysis of the in-process technologies
reflected the former Carleton Corporation's combined federal and state statutory
income tax rates, exclusive of non-recurring charges at the time of the
acquisition and estimated for future years. The effective tax rate, expressed as
a percentage of operating income, for the in-process technologies was estimated
to be approximately 34.0% throughout the estimation period.

Discount Rate

The discount rate selected for the in-process technology was 30%. In the
selection of the appropriate discount rate, primary consideration was given to
the former Carleton Corporation's Weighted Average Cost of Capital ("WACC"), as
well as venture capital rates of return. The discount rate utilized for the
in-process technology was determined to be higher than the former Carleton
Corporation's WACC due to the fact that the technology had not yet reached
technological feasibility as of the date of valuation. In utilizing a discount
rate greater than the former Carleton Corporation's WACC, the Company's
management has reflected the risk premium associated with achieving the
forecasted cash flows associated with these projects.

Comparison to Actual Results

The assumptions used in the projections of revenues from IPR&D projects and the
estimated costs and completion dates for those projects were reasonable based on
factors known at the acquisition date. Our actual results for the fiscal year
ended March 28, 1999 reflect several unexpected difficulties that we encountered
during the year:

         1)   The quality of the acquired Passport 5.6-5.7 technology was
              dramatically different than presented at acquisition. There were
              significant customer issues that arose after acquisition. These
              quality issues led to the loss of Software AG as a partner and,
              consequently, no revenue was generated by them in the fiscal year
              ended March 28, 1999. The quality issues also resulted in no
              revenue being generated by NCR, another partner, in the Pacific
              Rim for the year ended March 28, 1999. As a result, the Company
              had to direct development resources towards dealing with the
              quality issues, which delayed the completion of previously
              anticipated development projects.

         2)   The integration of the acquired Passport 5.6-5.7 technology into
              the Company's existing Enterprise Integrator technology was more
              challenging than anticipated and required the unplanned addition
              of third party products to complete the Company's planned release
              of an integrated product suite. The complexity of integrating the
              differing technologies required significantly more development
              effort than originally anticipated and delayed the release of the
              anticipated integrated products. The release of the integrated
              products was further delayed by the realization that additional
              functionality would have to be included in the release of the
              integrated suite of products in order to achieve the Company's
              revenue goals. The Company completed a Software License Reseller
              Agreement with Firstlogic, Inc. on August 1, 1998 that allows the
              Company to market Firstlogic's Firstlogic ACE Library
              Functionality(TM), Firstlogic TrueName Library Functionality(TM)
              and Firstlogic ZIP+4 Database(TM) as additional tools in the
              Company's integrated suite of products. On September 29, 1998 the
              Company completed an agreement with RelMat Corporation (now part
              of Cognos Corporation) to resell their DecisionStream(TM) software
              as part of the Company's integrated suite of products. Anticipated
              revenues from the integrated products were not fully realized in
              the fiscal year ended March 28, 1999 due to the delays associated
              with the difficulties in integrating the technologies and the need
              to add additional functionality to the product suite through the
              inclusion of third party products.

         3)   The legal issues with respect to the ownership of some of the
              Passport code required the Company to divert development resources
              towards removing the disputed code from the product and replacing
              it with new, internally-developed code. This diversion of
              resources delayed the completion of development on Passport
              5.6-5.7.

The Company believes that the delay in the release of the integrated suite of
products and the unanticipated quality problems associated with the acquired
Passport technology resulted in the large shortfall between estimated revenues
used for the valuation of IPR&D and actual revenues. The Company believes that
its estimates for costs and expenses used in the valuation of IPR&D were
reasonable.

4
<PAGE>

Fiscal Year 1999 Compared to Fiscal Year 1998

Revenues and earnings in the software industry are subject to fluctuation. The
Company derives revenues from:

    o licensing of its software products and third party software products that
      the Company sells under reseller agreements,

    o professional consulting and implementation services and
    o other services, consisting primarily of maintenance fees paid by the
      Company's installed customer base for ongoing technical support services.

Revenues were $5,559,000 in fiscal 1999 compared to $3,048,000 in fiscal 1998,
an increase of $2,511,000 or 82%. The increase in revenues was due to fiscal
1999 including a full twelve months of operations of the combined operations of
the Company and the former Carleton Corporation compared to only five months of
combined operations in fiscal 1998 and sales growth in the third and fourth
quarters of fiscal 1999. License revenues increased by $833,000 or 90% to
$1,755,000 in fiscal 1999. Professional services revenues increased by
$1,052,000 or 72% to $2,518,000 in fiscal 1999. Other services revenues
increased by $626,000 or 95% to $1,286,000 in fiscal 1999. Costs of revenues
increased by 49% in fiscal 1999, resulting in an improved gross profit margin of
41% compared to 28% in fiscal 1998. Gross profit margins improved for each
source of revenue in fiscal 1999 compared to fiscal 1998 although the costs of
professional services still exceeded the revenues generated. The absence of
capitalized software amortization, increased utilization efficiency of the
professional services consultants and the increase in maintenance revenues (a
result of both twelve months of combined operations and the Company's increased
installed customer base) were the most significant factors contributing to the
improved gross profit margins in fiscal 1999.

The proportion of revenue types (licensing, professional services and other
services) to total revenues remained relatively constant in fiscal 1999 compared
to fiscal 1998. The Company believes that licensing revenues must grow
significantly both in total and as a proportion of total revenues in order to
achieve profitability.

Research, development and engineering expenses increased by $850,000 or 34% in
fiscal 1999 compared to fiscal 1998. Additionally, $231,000 of costs related to
PureoExtract were capitalized in fiscal 1999. Research, development and
engineering expenses consist primarily of personnel costs, facility costs and
equipment and software costs. The increase was due to fiscal 1998 expenses
reflecting only five months of expenses from the combined operations of the
Company and the former Carleton Corporation and to the Company's ongoing
commitment to invest in improvements to our products' performance. The Company
will continue to invest in product improvement with its focus on performance,
ease of use and added features in order to address the requirements of our
customers.

Selling, general and administrative expenses increased by $539,000 or 11% in
fiscal 1999 compared to fiscal 1998. Selling, general and administrative
expenses consist primarily of personnel costs, facility costs and professional
fees. Fiscal 1999 results reflect a full twelve months of expenses of the
combined operations of the Company and the former Carleton Corporation compared
to only five months of expenses from the combined operations in the fiscal 1998
results. Personnel savings in the general and administrative area were realized
through the elimination of duplicative executive and office positions. The
savings realized in general and administrative personnel reductions were
partially offset by the expansion of the sales and business development force,
which was necessary to support the increased level of sales. Additionally,
marketing expenses increased in fiscal 1999 as the Company invested in product
placement, market positioning and brand identification. Fiscal 1999 expenses
include approximately $250,000 of non recurring legal expenses associated with
the settlement of the legal dispute between the Company and Case Associates and
Carleton Europe in excess of the amount that was available as an offset against
the notes payable to the former Carleton shareholders (see Notes 4 and 6).

Other charges decreased by $943,000 or 26% in fiscal 1999 compared to fiscal
1998. Other charges consist primarily of amortization of goodwill recorded in
connection with the acquisition of the former Carleton Corporation. The decrease
in fiscal 1999 is due to the absence of the $1,600,000 charge for acquired
in-process research and development taken in connection with the acquisition of
the former Carleton Corporation recorded in fiscal 1998 and the write off of
$858,000 of capitalized software taken in fiscal 1998. Fiscal 1999 results
reflect a full year of amortization of goodwill recorded in connection with the
acquisition of the former Carleton Corporation compared to five months of
amortization in fiscal 1998 (see Note 4).

Net interest income decreased by $171,000 in fiscal 1999 due to the decrease in
funds available to invest throughout the year because of the Company's need to
fund its operating loss.

                                                                               5
<PAGE>

Fiscal Year 1998 Compared to Fiscal Year 1997

In fiscal 1998, the Company completed a major restructuring to focus itself
exclusively on the dynamic data integration market. The Company sold its
Internet Solutions Division and acquired the former Carleton Corporation. Both
of these transactions were completed in October 1997. The sale of the Internet
Solutions Division has been reflected as a discontinued operation.

Fiscal 1998 revenues were $3,048,000 compared to $2,794,000 in fiscal 1997, an
increase of $254,000 or 9%. The increase in revenues was due to the acquisition
of the former Carleton Corporation in October 1997 and its operations being
included with the Company beginning in November 1997. Revenues for the Company,
excluding the incremental revenues associated with the acquisition of the former
Carleton Corporation, decreased by $1,080,000 or 39% compared to fiscal 1997.

Fiscal 1998 license revenues decreased $870,000 or 49% to $922,000 compared to
fiscal 1997. The decrease in licensing revenues was due to fewer installations
in fiscal 1998 compared to the prior year. Professional services revenues
increased by $669,000 or 84% to $1,466,000 in fiscal 1998 compared to fiscal
1997. Incremental revenues provided by the acquisition of the former Carleton
Corporation accounted for approximately $187,000 of the increase. The remainder
of the increase was derived both from continuing engagements at existing
customers and new engagements at fiscal 1998 installations. Other services
revenues increased by $455,000 or 222% to $660,000 in fiscal 1998. Incremental
revenues provided by the acquisition of the former Carleton Corporation
accounted for $412,000 of the increase. Costs of revenues increased by $982,000
or 80% in fiscal 1998, resulting in a decrease in the gross profit margin
percentage to 28% compared to 56% in fiscal 1997. The decrease in gross profit
margin percentage was attributable to the decrease in higher margin licensing
revenues and the increase in lower margin professional services revenues. In
addition, the amortization of capitalized software against lower fiscal 1998
licensing revenues reduced the gross profit margin percentage of licensing
revenues.

Research, development and engineering expenses increased significantly from
$766,000 in fiscal 1997 to $2,519,000 in fiscal 1998. The increase was due in
part to the acquisition of the former Carleton Corporation, an increased level
of investment and no capitalization of development costs in fiscal 1998. The
Company's focus on investment in research, development and engineering was on
product performance and stability, ease of use and increased functionality. The
Company did not capitalize any development costs in fiscal 1998 because the
ongoing development projects had not achieved technological feasibility.

Selling, general and administrative expenses increased by $555,000 or 12% to
$5,100,000 in fiscal 1998 compared to fiscal 1997. The increase was due
primarily to the acquisition of the former Carleton Corporation and the expenses
associated with maintaining operations at both locations.

Other charges increased by $3,198,000 to $3,580,000 in fiscal 1998 compared to
fiscal 1997. Other charges in fiscal 1998 include the write-off of $1,600,000 of
in-process research and development taken in connection with the acquisition of
the former Carleton Corporation, $1,101,000 of amortization of goodwill
recognized in connection with the acquisition of the former Carleton Corporation
and the write off of $858,000 of capitalized software.

Net interest income increased by $206,000 in fiscal 1998 due to the increase in
funds available to invest throughout the year.


Impact of Inflation

The Company has not experienced any significant impact from inflation.


Liquidity and Capital Resources

The Company had cash and cash equivalents of approximately $3,168,000 and
$11,111,000 at March 28, 1999 and March 29, 1998 respectively. The Company does
not anticipate any significant capital asset investment in the short term. The
Company currently does not have any outside credit arrangement other than the
$1,000,000 note that is secured by investments.

The Company estimates that its current cash balances will not be sufficient to
fund operations of the Company through the end of fiscal 2000. Accordingly, the
report of the independent auditors on the Company's fiscal 1999 financial
statements contains an explanatory paragraph regarding the Company's ability to
continue as a going concern. There can be no assurance that the Company will be
able to obtain additional financing on satisfactory terms, or at all. If the
Company is unable to obtain additional financing, it will be forced to cease
operations and it may be forced to seek protection under bankruptcy laws.

6
<PAGE>

Year 2000

Introduction

The Company relies heavily on sophisticated information technology ("IT") and
non-information technology ("Non-IT") for its business operations. Additionally,
the Company's products consist of sophisticated software products that interface
directly with our customers' information technology systems. The Company's Year
2000 (Y2K) compliance issues are, therefore, broad and complex. The Company
established a Y2K Committee in December 1998 to coordinate and support the
Company's Y2K compliance effort.

The Company's Y2K compliance efforts are focused on business-critical items.
Hardware, software (including our software products), systems, technologies and
applications are considered "business-critical" if a failure would have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company believes that its Y2K compliance effort is on
schedule and believes that it will achieve Y2K compliance prior to January 1,
2000.

Carleton Corporation Software Products

The Company has, and continues to, take significant actions to ensure Y2K
compliance with customers' use of the Carleton family of data integration tools.
The Company has developed a comprehensive suite of Y2K tests and has performed
those tests against its products. The testing of Enterprise Integrator 4.3.1,
Passport 5.1 for the Mainframe, Passport 5.7.02 and Pure Dimension has been
completed, and these products meet the Company's Y2K compliance requirements.
For those customers with current support agreements, Enterprise Integrator 4.3.1
was shipped prior to March 28, 1999, Passport 5.7.02 was shipped by May 7, 1999
and Passport 5.1 release CAL216 was shipped by May 14, 1999.

Although the Company believes its Y2K testing has been extensive and rigorous,
in the event that unforeseen compliance issues arise, they will be corrected and
delivered to customers as part of the support agreements between the customer
and the Company. The Company will also take steps to ensure that all releases
subsequent to the above releases and all new products will also be Y2K
compliant.

Internal business-critical infrastructure and applications software
The Company's compliance efforts for all business-critical infrastructure and
applications software ("IT Systems") are 95% complete as of March 28, 1999. The
Company has inventoried all of its IT Systems. All of the Company's internal
hardware systems are Y2K compliant as of March 28, 1999. The software packages
that the Company uses for internal processing to support its operations and to
support its on-going development efforts are obtained from outside vendors.
These software packages are Y2K compliant and have been installed as of March
28, 1999 with the exceptions of the voice-mail software for both the Minnetonka
and Billerica facilities, router software for the Company's network servers and
the software used for payroll processing. The voice-mail software was installed
at the end of April 1999 for the Billerica facility. The voice-mail software for
our Minnetonka facility was installed in the middle of May 1999. The router
software for our network servers and the payroll processing software were
installed at the end of April 1999.

Interfaces with Material Third Parties

The Company is making concerted efforts to understand the Y2K status of third
parties, including property owners of our leased office facilities,
telecommunications vendors, utilities, banks, payroll processors and the trustee
of the Company's 401(k) Investment and Savings Plan. The Y2K non-compliance of
any of these third parties could have a material adverse effect on the Company's
business, financial condition or results of operations. The Company is actively
encouraging Y2K compliance on the part of third parties and is developing
contingency plans in the event of their Y2K non-compliance.

The Company's vendor and product compliance program includes the following
tasks: assessing vendor compliance status; tracking vendor compliance progress;
addressing contract and lease language; developing contingency plans, including
identifying alternate suppliers and assessing the availability of redundant or
backup sources; and sending questionnaires. The Company is requesting assurances
from its vendors and other third party suppliers that they are addressing Y2K
issues and that the products and services purchased by the Company from these
vendors and suppliers will function properly in the year 2000 and beyond. If
third parties fail to respond to these questionnaires, the Company sends further
mail or phone correspondence. Continued failure to respond to these
questionnaires could lead to replacement of these vendors or other third party
suppliers.

                                                                               7
<PAGE>

Costs to Address Y2K Compliance

The total estimated cost for resolving the Company's Y2K issues is not expected
to exceed $110,000, of which approximately $85,000 has been spent through March
28, 1999. This includes the cost of testing the Company's products for Y2K
compliance and costs relating to internal processing systems or vendor-provided
systems that may be incurred in making such systems Y2K compliant. Estimates of
Y2K costs are based on numerous assumptions, and there can be no assurance that
the estimates are correct or that actual costs will not be materially greater
than anticipated.

Contingency Planning and Risks

The Company has begun developing contingency plans for Y2K non-compliance. These
plans include identifying alternate suppliers, vendors, procedures, conducting
staff training and developing communication plans. Any significant incremental
costs associated with these plans will not become known until these plans are
fully developed. The Company's standing Y2K Committee has been assigned the task
of developing and coordinating the Y2K non-compliance contingency plan. The
Company's goal is to complete its Y2K non-compliance contingency plan by
September 30, 1999.

Based on its assessments to date, the Company does not believe that it will
experience any material disruption of its internal information processing,
interfacing with customers or processing of orders and billing due to Y2K
non-compliance. However, if certain critical third-party providers, such as
those providers supplying electricity, water or telephone service, experience
difficulties resulting in disruption of service to the Company, a shutdown of
certain of the Company's operations at individual facilities could occur for the
duration of the disruption. The Company believes that the greatest Y2K exposure
exists in infrastructure areas such as telecommunications (both voice and data)
and electricity and other utilities. The Company is working closely with the
property owners of the Company's leased facilities to assess the possibility of
providing backup systems to provide power in the event of an electrical
infrastructure failure and with its major telecommunications vendors to provide
alternate or redundant telecommunications availability in the event of a
telecommunications infrastructure failure. A temporary slowdown or cessation of
operations at one or more of the Company's facilities could result in delays in
meeting customers' orders, the timing of billings to and receipt of payment from
customers and could result in complaints, charges or claims. The Y2K
non-compliance of customers could potentially delay the receipt of orders for
the Company's products and also the timing of payments for products already
delivered.

The Company believes that its Y2K program, including related contingency
planning, should significantly lessen the possibility of significant
interruptions of normal operations. While costs related to the Y2K
non-compliance of third parties, business interruptions, litigation and other
liabilities related to Y2K issues could materially and adversely affect the
Company's business, results of operations and financial condition, the Company
believes its Y2K compliance effort will enable the Company to manage its Y2K
transition without any material effect on its business, financial condition or
results of operations.

The most reasonably likely worst-case scenario of failure by the Company or its
suppliers or customers to resolve Y2K issues could potentially be a temporary
slowdown or cessation of operations at one or more of the Company's facilities
and/or a temporary inability on the part of the Company to process orders in a
timely manner and to deliver finished products to customers. Delays in meeting
customers' orders could potentially affect the timing of billings to and
payments received from customers and could result in complaints, charges or
claims. Customers' Y2K issues could potentially also delay the receipt of orders
for the Company's products and also the timing of payments to the Company for
products already delivered.

Safe Harbor for Forward-Looking Statements

Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" or made by management of the Company which contain
more than historical information may considered forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
which are subject to risks and uncertainties. These statements often contain
words like believe, expect, anticipate, intend, contemplate, seek, plan,
estimate or similar expressions. Forward-looking statements do not guarantee
future performance. Forward-looking statements represent the Company's
expectations or beliefs concerning future events, including the following: any
statements regarding future sales and other results of operations; any
statements regarding the continuation of historical trends; any statements
regarding the sufficiency of the Company's cash balances and cash generated from
operating and financing activities for the Company's future liquidity and
capital resources; and any statements regarding the future of the software
industry, the segment of the software industry within which the Company
operates, or the Company's business. Actual results may differ materially from
those expressed in the forward-looking statements because of important factors
identified in this section and those set forth on Exhibit 99.1 to the Company's
annual report on Form 10-K for the fiscal year ended March 29, 1998.

8
<PAGE>

Carleton Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share)

<TABLE>
<CAPTION>

                                                                          For the Fiscal Years Ended
                                                          ---------------------------------------------------------
                                                          March 28,1999         March 29,1998        March 30, 1997
                                                          ---------------------------------------------------------
                                                                                    (restated)
<S>                                                       <C>                    <C>                <C>
REVENUES
     License                                                    $ 1,755               $   922               $ 1,792
     Professsional services                                       2,518                 1,466                   797
     Other services                                               1,286                   660                   205
                                                          ---------------------------------------------------------
     Total                                                        5,559                 3,048                 2,794
COSTS OF REVENUES
     License                                                        382                   515                   416
     Professional services                                        2,726                 1,644                   687
     Other services                                                 162                    43                   117
                                                          ---------------------------------------------------------
     Total                                                        3,270                 2,202                 1,220
                                                          ---------------------------------------------------------
Gross Profit                                                      2,289                   846                 1,574

OPERATING EXPENSES
     Research, development and engineering                        3,369                 2,519                   766
     Selling, general and administrative                          5,639                 5,100                 4,545
     Other charges                                                2,637                 3,580                   382
                                                          ---------------------------------------------------------
     Total Operating Expenses                                    11,645                11,199                 5,693
                                                          ---------------------------------------------------------
     (Loss) from Operations                                      (9,356)              (10,353)               (4,119)

OTHER INCOME (EXPENSE)
     Interest expense                                               (73)                  (78)                  (83)
     Investment income                                              390                   566                   365
                                                          ---------------------------------------------------------
     Total                                                          317                   488                   282
                                                          ---------------------------------------------------------
(Loss) from Continuing Operations Before Income Taxes            (9,039)               (9,865)               (3,837)
Income tax expense                                                   --                   (10)                  (20)
                                                          ---------------------------------------------------------
(Loss) from Continuing Operations                                (9,039)               (9,875)               (3,857)
Discontinued Operations
     Income (Loss) from operations of discontinued Internet
     Solutions Division (net of taxes of $0 , $55 and $180)          --                   606               (10,621)
     Gain on disposal of Internet Solutions Division                185                 4,264                    --
                                                          ---------------------------------------------------------
                                                                    185                 4,870               (10,621)
                                                          ---------------------------------------------------------
Net (Loss)                                                      ($8,854)              ($5,005)             ($14,478)
                                                          =========================================================
     (Loss) Per Common Share-Basic and Diluted
     Continuing Operations                                       ($2.71)               ($3.25)               ($1.40)
     Discontinued Operations                                        .06                  1.60                ( 3.75)
                                                          ---------------------------------------------------------
     Total                                                       ($2.65)               ($1.65)               ($5.15)
                                                          =========================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements

                                                                               9
<PAGE>


CARLETON CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
                                                           March 28,   March 29,
                                                             1999        1998
                                                           ---------------------
                                                                      (restated)

ASSETS
Current Assets
     Cash and cash equivalents                             $  3,168    $ 11,111
     Cash in escrow                                              65         730
     Accounts receivable, less allowance for doubtful
        accounts of $50 in 1999 and $185 in 1998              2,016       1,517
     Other                                                      296          76
                                                           --------------------
     Total current assets                                     5,545      13,434

Property and Equipment
     Property and equipment                                   2,666       4,649
     Less accumulated depreciation                           (1,845)     (3,256)
                                                           --------------------
     Net property and equipment                                 821       1,393

Other Assets
     Intangible assets - net of accumulated amortization
         of $3,743 in 1999 and $1,101 in 1998                 4,184       6,827
     Capitalized software                                       231        --
                                                           --------------------
     Total other asssets                                      4,415       6,827
                                                           --------------------
     TOTAL ASSETS                                          $ 10,781    $ 21,654
                                                           ====================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                      $    183    $    319
     Accrued expenses                                         1,421       3,067
     Deferred revenue                                           962         809
     Note payable                                             1,000       1,000
                                                           --------------------
     Total current liabilities                                3,566       5,195

Long-term Notes Payable                                         174         602

Shareholders' Equity
     Common stock - authorized 6,000,000 shares
     at $.25 par value;  issued and outstanding at
         March 28, 1999 - 3,345,918 shares,
         March 29, 1998 - 3,305,363 shares                      836         826
     Additional paid-in capital                              62,779      62,751
     Retained deficit                                       (56,574)    (47,720)
                                                           --------------------
         Total shareholders' equity                           7,041      15,857
                                                           --------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $ 10,781    $ 21,654
                                                           ====================



See Accompanying Notes to Consolidated Financial Statements


10
<PAGE>

Carleton Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                          For the Fiscal Years Ended
                                                          ---------------------------------------------------------
                                                          March 28,1999          March 29,1998       March 30, 1997
                                                          ---------------------------------------------------------
                                                                                    (restated)
<S>                                                       <C>                    <C>                <C>
OPERATING ACTIVITIES
Net loss                                                        ($8,854)               ($5,005)            ($14,478)
Adjustments to reconcile net loss to net cash (used in)
operating activities net of acquisition of company:
     Depreciation                                                   409                    935                1,619
     Amortization                                                 2,643                  1,722                2,521
     Compensation earned on restricted stock                         --                     52                   67
     Write-off of assets due to impairment                           --                    858                6,292
     (Gain) Loss on sale of property and equipment                   (2)                    --                  301
     Gain on sale of product line                                    --                     --               (5,783)
     Gain on disposal of Internet Solutions Division               (185)                (4,264)                  --
     Non-current portion of other charges                            --                  1,621                   --
     Accounts receivable                                           (499)                 1,704                4,229
     Installment receivables                                         --                   170                 1,369
     Inventories                                                     --                   (52)                2,890
     Other assets                                                  (220)                  163                   851
     Accounts payable, accrued expenses and
       deferred revenue                                          (1,211)               (8,704)                 (255)
                                                          ---------------------------------------------------------
     Net cash (used in) operating activities                     (7,919)              (10,800)                 (377)

INVESTING ACTIVITIES
     Cash received from sale of product line                         --                 10,712                7,400
     Acquisition of business (net of cash acquired)                  --                     68                   --
     Sales and maturities of marketable securities                   --                     --                4,318
     Payments received on note receivable                            --                     --                8,700
     Purchases of property and equipment                            (94)                  (154)              (1,029)
     Capitalized software                                          (231)                    --               (2,704)
     Change in cash held in escrow                                  664                    (15)                 736
                                                          ---------------------------------------------------------
     Net cash provided by investing activities                      339                 10,611               17,421

FINANCING ACTIVITIES
     Repayment of debt                                             (428)                (2,750)              (8,976)
     Other stock transactions including option exercises             65                    185                  342
                                                          ---------------------------------------------------------
     Net cash used in financing activities                         (363)                (2,565)              (8,634)
                                                          ---------------------------------------------------------
     Net increase (decrease) in cash and equivalents             (7,943)                (2,754)               8,410
     Beginning cash and equivalents                              11,111                 13,865                5,455
                                                          ---------------------------------------------------------
     Ending cash and equivalents                                $ 3,168                $11,111              $13,865
                                                          =========================================================
     Supplemental disclosures of cash flow information:
     Cash paid for interest                                        $ 76                    $74                  $74
     Cash paid for income taxes                                      18                    141                   94
     Non-cash issuance of common stock and debt for
       acquisition of business                                       --                  6,344                   --

</TABLE>
See Accompanying Notes to Consolidated Financial Statements


                                                                              11
<PAGE>

Carleton Corporation
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>

                                             Common Stock
                                       -----------------------
                                          Number                         Additional     Accumulated     Unearned
                                        of Shares       Amount       Paid-in Capital    Deficit      Compensation
                                       --------------------------------------------------------------------------
<S>                                    <C>             <C>           <C>                <C>            <C>
Balance March 31, 1996                 2,805,691         $701            $57,062         ($28,237)          ($197)
Options exercised/Employee
  Stock Purchase                          27,194            7                335               --              --
Net change in restricted stock            (1,160)          --                (24)              --              24
Compensation earned                           --           --                 --               --              67
Net loss                                      --           --                 --          (14,478)             --
                                       --------------------------------------------------------------------------
Balance March 30, 1997                 2,831,725          708             57,373          (42,715)           (106)
Options exercised/Employee
  Stock Purchase                          43,010           10                175               --              --
Acquisition of Carleton Corp.            432,238          108              5,257               --              --
Net change in restricted stock            (1,610)          --                (54)              --              54
Compensation earned                           --           --                 --               --              52
Net loss                                      --           --                 --           (5,005)             --
                                       --------------------------------------------------------------------------
Balance March 29, 1998                 3,305,363          826             62,751          (47,720)             --
Options exercised/Employee
  Stock Purchase                          40,555           10                 28               --              --
Net Loss                                      --           --                 --           (8,854)             --
                                       --------------------------------------------------------------------------
Balance March 28, 1999                 3,345,918         $836            $62,779         ($56,574)            $--
                                       ==========================================================================

</TABLE>
See Accompanying Notes to Consolidated Financial Statements

12
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 28, 1999
(Dollars in thousands, except per share amounts)

1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Carleton
Corporation and its wholly owned subsidiaries (together "the Company"). All
inter-company accounts and transactions have been eliminated in consolidation.
The net assets and the operations of the two subsidiaries, Systems Strategies,
Inc. and BlueLine Software Inc., were acquired by Computer Network Technology
Corporation in its acquisition of the Company's Internet Solutions Division in
October 1997 (see Note 3) while the Company continues to own the legal entities.
The Company is in the process of liquidating these subsidiaries.

Description of Business

The Company operates in one segment which develops and markets software products
that provide data integration solutions for business critical applications such
as customer relationship management systems, data warehousing and application
conversions. The Company distributes its technology and professional services
through direct sales and channel partners primarily in North America. In fiscal
1999, sales to one customer accounted for 22% of total revenues and sales to a
second customer accounted for 11% of total revenues. In fiscal 1998, one
customer accounted for 20% of total revenues and a second customer accounted for
14% of total revenues. In fiscal 1997, one customer accounted for 15% of total
revenues, a second customer accounted for 13%, a third customer accounted for
11%, and a fourth customer accounted for 10% of total revenues. The customer
that accounted for 20% of total revenues in fiscal 1998 is the same customer
that accounted for 13% of total revenues in fiscal 1997.

Fiscal Year

The Company's fiscal year ends on the Sunday nearest March 31. Fiscal 1999,
fiscal 1998 and fiscal 1997 were all 52-week years.

Revenue Recognition

License revenues are recorded when the persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is probable in accordance with AICPA Statement of Position 97-2.
Professional services revenues are recorded when the services are provided.
Maintenance revenues are recognized over the time period covered by the related
contract.

Cash Equivalents

Securities that are readily convertible to cash with original maturities of
three months or less when purchased are considered cash equivalents. The cost of
the cash equivalents approximates market value. Cash and cash equivalents
consist of:
                                           March 28, 1999       March 29, 1998
                                           -----------------------------------
      Cash                                     $ 186                  $ 306
      Money market funds                       1,867                  9,705
      US Treasury bills & Bank CD's            1,115                  1,100
                                           -----------------------------------
      Total cash and cash equivalents        $ 3,168               $ 11,111
                                           ===================================
Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line
basis over the assets' estimated useful lives. Leasehold improvements are
depreciated over the lesser of the lease life or the estimated life of the
related improvement. Property and equipment consist of:
                                                                    Depreciable
                                  March 28, 1999  March 29, 1998  Lives in Years
                                  ----------------------------------------------
      Machinery and equipment         $ 2,078        $ 3,255           3 - 6
      Furniture and fixtures              588          1,112           4 - 10
      Leasehold improvements               --            282           4 - 5
                                     --------------------------
      Total property and equipment    $ 2,666        $ 4,649
                                     ==========================

                                                                              13
<PAGE>

Capitalized Software

The Company, in accordance with Statement of Financial Accounting Standard No.
86, capitalizes software development costs by project. These capitalized costs
are amortized on a straight-line basis over a period of three years or the
expected life of the product, whichever is less. Research and development costs
are charged to expense as incurred.

Impairment of Long-Lived Assets

The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. The amount of impairment loss recorded is the amount by which the
carrying value of the assets exceeds the fair value of the assets.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases.

Income (Loss) per Share

The numerators used in the computation of the basic and diluted income (loss)
per share shown on the consolidated statements of operations are the applicable
amounts shown as income (loss) from continuing operations and discontinued
operations. The denominators used in the calculation of the basic income (loss)
per share are 3,339 for fiscal 1999, 3,036 for fiscal 1998 and 2,822 for fiscal
1997, which represent the weighted average shares outstanding for each of the
years. These same amounts are used as the denominator in the calculation of the
diluted income (loss) per share.

Stock Split

The Company completed a 1-for-5 reverse stock split during fiscal 1999.
Accordingly, all share, per share, weighted average share and stock option
information for periods prior to the split have been restated to reflect the
split.

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 amounts reported on the financial statements and in the accompanying
notes. Actual results could differ from such estimates.

Reclassification

Certain prior year items have been reclassified to conform to current year
presentation.


2)     GOING CONCERN

The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company's ability to do so will be dependent upon obtaining additional funds
from external sources and generating sufficient working capital for operations.
The Company has been exploring and continues to explore potential strategic
relationships. In May 1999, Dougherty Summit Securities, LLC, an investment
banking firm specializing in financing emerging growth companies, was retained
by the Company to advise it on strategic financing alternatives.

Due to uncertainties related to the ability of management to achieve its plans,
no assurances can be given as to the ability of the Company to continue in
existence. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amount and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.

14
<PAGE>

3)     DISCONTINUED OPERATIONS

The Company closed on an Asset Purchase Agreement (the Agreement) with Computer
Network Technology Corporation (CNT) on October 31, 1997 for the sale of the
Company's Internet Solutions Division. The terms of the Agreement provided for
CNT to pay the Company $11,412 in cash and to assume certain liabilities. A
portion of the cash proceeds was placed in escrow pending final resolution of
the book value of the net assets acquired by CNT.

The sale of the Internet Solutions Division has been accounted for as a
discontinued operation and reflected as such in the consolidated financial
statements. The Internet Solutions Division included the business operations of
Systems Strategies, Inc. (acquired by the Company in December 1993) and BlueLine
Software, Inc. (acquired by the Company in June 1995). The MQView product line
sold to Candle Corporation in January 1997 had also been a part of the Internet
Solutions Division. Revenues for the discontinued operations were $13,809 and
$34,336 for fiscal 1998 and 1997 respectively.


4)     ACQUISITION OF THE FORMER CARLETON CORPORATION

The Company closed on an Agreement and Plan of Merger (the Agreement) with the
former Carleton Corporation (Former) on October 31, 1997. Under the terms of the
Agreement, the Company acquired all the stock of Former through (i) the cash
purchase of Former shares held by shareholders owning less than 20,000 shares
and (ii) the exchange of 432,238 shares of the Company's common stock (valued at
$10.00 per share) and the issuance of notes with an initial face value of $2,000
for the Former shares held by shareholders owning more than 20,000 shares. The
notes have a maturity date of October 31, 2001, carry an interest rate of 5.81%,
and are subject to certain offsets as well as further adjustments based upon the
market price performance of the Company's stock. The initial face value of the
notes was reduced by $1,000 to a value of $1,000 at March 29, 1998. This
reduction was based upon the provision in the notes that allowed the Company to
reduce the face value of the notes based upon the Company's total revenues for
the period between September 29, 1997 and March 28, 1997. Another offset related
to the disagreement over ownership of certain intellectual property included
within the former Carleton Corporation products. Such disagreement was resolved
in a settlement agreement dated March 19, 1999 between Case Associates and
Carleton Europe, N.V., and the Company. These offsets, together with other
offsets and adjustments, reduced the value of the notes to $0 at March 28, 1999
and $602 at March 29, 1998. One of the noteholders is a Director of the Company
whose share in the recorded value was $0 at March 28, 1999 and $28 at March 29,
1998.

In addition, the Company rolled over any outstanding options and warrants for
Former stock and converted them into options and warrants for the Company's
common stock. The excess of the market value of the Company's common stock over
the fair value of the options and warrants being rolled over, in the amount of
$1,022 net of forfeitures, was recorded as an additional cost of the
acquisition.

The total purchase price of $10,868 consisted of the value of the common stock
issued ($4,322), the value given to options and warrants net of forfeitures
($1,022), the value of the notes payable less the $1,000 adjustment for the
revenue shortfall ($1,000), the liabilities assumed ($3,744), and transaction
expenses and other items ($780). The total purchase price was allocated to
current and fixed assets acquired ($1,340) and goodwill and other intangibles
($9,528).

Pro forma consolidated results of continuing operations (excluding other
charges) as if the Carleton acquisition had occurred at the beginning of the
periods presented are:
                                                            (Unaudited)
                                                   Fiscal 1998       Fiscal 1997
                                                   -----------       ----------
         Revenues                                    $4,852            $7,075
         Net loss  from continuing operations        (2,858)           (4,169)
         Net loss from continuting operations
          per share - basic and diluted                (.87)            (1.30)

The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods presented.

                                                                              15
<PAGE>

Valuation Methodology

The transaction was recorded under the purchase method of accounting. Standard
valuation procedures and techniques were utilized in determining the fair value
of each intangible asset. The valuation was performed by an outside organization
in conformity with the requirements of the Principals of Appraisal Practice Code
of Ethics of the American Society of Appraisers. Intangible assets were
identified through discussions regarding the Company's intentions for future use
of the acquired assets, interviews with the Company's management, and analysis
of data provided by the Company concerning products, technologies, markets,
historical financial performance, estimates of future performance, and the
assumptions underlying those estimates. The economic and competitive environment
in which the Company and the former Carleton Corporation operate was also
considered in the valuation analysis.

Specifically, purchased research and development was identified and valued
through extensive discussions with the Company's management and the Company's
analysis of the data provided concerning developmental products, their
respective stage of development, the time and resources needed to complete them,
their expected income-generating ability, their target markets and associated
risks. The Income Approach, which includes an analysis of the markets, cash
flows, and risks associated with achieving such cash flows, was the primary
technique utilized in valuing each purchased research and development project. A
portion of the purchase price was allocated to the developmental projects based
on the appraised fair values of such projects.

Valuation Analysis

The value of the acquired in-process technology was computed using a discounted
cash flow analysis on the anticipated income stream of the related product
sales. The discounted cash flow analysis was based on management's forecast of
future revenues, cost of revenues, and operating expenses related to the
products and technologies purchased from the former Carleton Corporation.
Management's analysis also considered anticipated product development and
product introduction schedules for future products, product sales cycles, and
the estimated life of a product's underlying technology. The purchase
consideration allocated to the intangible assets based on fair values is as
follows (in thousands):

              In-process research and development             $1,600
              Developed technology                             1,800
              Assembled work force                               700
              Customer base                                      900
              Trademark and trade name                           900
              Goodwill                                         3,628
                                                              ------
              Total purchase consideration                    $9,528
                                                              ======

Developed technology and goodwill acquired are being amortized on a straight
line basis over three years.

The purchase price allocation related to the former Carleton Corporation
acquisition differs from what was originally recorded. The Company allocated
costs of the acquisition to the assets acquired and liabilities assumed based on
their estimated fair values using valuation methods believed to be appropriate
at the time. The Company expensed in-process research and development (IPR&D)
($9.5 million) related to the acquisition in accordance with FASB Interpretation
No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted
for by the Purchase Method."

Subsequent to the Securities and Exchange Commission's letter to the AICPA dated
September 9, 1998 regarding its views on IPR&D, the Company has re-evaluated its
IPR&D charges on the acquisition of the former Carleton Corporation.
Consequently, the Company has revised the purchase price allocations and
restated the fiscal 1998 annual financial statements and the financial
statements for the first three quarters of fiscal 1999. The Company has
decreased the amount previously expensed as IPR&D and increased the amount
capitalized as developed technology and goodwill by $7.9 million. The effect of
the restatement related to acquired in-process technology in the following table
presents the impact on the Company's results of operations for the fiscal year
ended March 29, 1998 and its financial position at March 29, 1998 (in
thousands). The adjustment results from the decrease in the value assigned to
acquired in-process technology and the increased amortization of goodwill.

16
<PAGE>

<TABLE>
<CAPTION>
                                                                       Year Ended March 29, 1998
              <S>                                                            <C>
              Results of Operations:
                Loss from Continuing Operations                               ($16,674)
                Adjustment related to acquired in-process technology             6,799
                                                                           -----------
                Restated                                                       ($9,875)
                                                                           ===========
                Net loss as previously reported                               ($11,804)
                Adjustment related to acquired in-process technology             6,799
                                                                           -----------
                Restated net loss                                              ($5,005)
                                                                           ===========
                Loss per share as previously reported                           ($3.90)
                Adjustment related to acquired in-process technology              2.25
                                                                           -----------
                Restated loss per share                                         ($1.65)
                                                                           ===========


              Financial Position                                           March 29, 1998
                Intangible assets previously reported                                -
                Adjustment related to acquired in-process technology
                and valuation of stock options                                   6,827
                                                                           -----------
                Restated                                                        $6,827
                                                                           ===========
                Retained deficit, as previously reported                      ($54,519)
                Adjustment related to acquired in-process technology             6,799
                                                                           -----------
                Restated                                                      ($47,720)
                                                                           ===========
</TABLE>

5)     CAPITALIZED SOFTWARE

A summary of the Company's transactions involving capitalized software is shown
below. In fiscal 1998 and 1997, capitalized software costs related to certain
products were deemed to be impaired and the unamortized balances were written
off and included in other charges in the Consolidated Statements of Operations.
The write off in fiscal 1997 included $4,750 that was related to the Internet
Solutions Division.
                                            Fiscal 1999         Fiscal 1998
                                            -----------         -----------
              Balance beginning of year      $  --                $1,373
              Software costs capitalized       231                    --
              Written off                       --                  (858)
              Amortized                         --                  (515)
                                            -----------         -----------
              Balance end of year             $231                $   --
                                            ===========         ===========

6)    NOTES PAYABLE

In addition to the notes payable to the former Carleton shareholders (see Note
4), the Company has a $1,000 note payable to a bank under the terms of a Credit
Agreement. The Credit Agreement's maturity date is October 31, 1999, and the
borrowings are secured by a first priority, perfected security interest in the
Company's cash and cash equivalents. The balance carries an interest rate equal
to the LIBOR plus 1.75% (7.0625% at March 28, 1999). As discussed in Note 4, the
Company resolved a disagreement over certain intellectual property rights with
Case Associates and Carleton Europe, N.V. The agreement called for a $300,000
payment by the Company on the date of the agreement and $200,000 payable on
March 16, 2001. Per terms of the settlement, this note is non-interest bearing.
Accordingly, the present value of the note has been recorded assuming the
Company's current cost of money as the discount factor.

     Note Payable to:                         March 28, 1999     March 29, 1998
                                              --------------     --------------
     Current:
       Bank                                        1,000              1,000
     Long-term:
       Case Associates and Carleton Europe N.V.      174                 --
       Former Carleton shareholders                    --               602

                                                                              17
<PAGE>

7)     INCOME TAXES

The Company has operating loss carryforwards at March 28, 1999 of approximately
$66,138 that are available to offset taxable income through 2013. The
carryforwards begin to expire in 2001. A valuation allowance has been recorded
to offset net deferred tax assets, resulting primarily from operating loss
carryforwards that may not be realized. The Company has incurred some foreign
and state tax expense in fiscal years 1999, 1998 and 1997. The state tax
provisions of $0, $30 and $50 for fiscal years 1999, 1998 and 1997,
respectively, have been allocated between continuing and discontinued
operations. The foreign tax provisions of $0, $35 and $150 for fiscal years
1999, 1998 and 1997, respectively, have been entirely recorded against
discontinued operations. The components of deferred tax assets and liabilities
are as noted:

<TABLE>
<CAPTION>

                                                       March 28,1999      March 29, 1998
                                                       -------------      --------------
              <S>                                      <C>                <C>
              Deferred tax assets
                  Net operating loss carryforwards       $ 29,802            $ 26,276
                  Research and development credit           1,081               1,081
                  Allowance for doubtful accounts              20                  74
                  AMT carryforward                            127                 127
                  Other                                       217                 362
                                                       -------------      --------------
                                                           31,248              27,921
              Deferred tax liabilities
                  Capitalized software                        (92)                 --
                  Depreciation and amortization                (4)                (60)
                                                       -------------      --------------
                                                              (96)                (60)
                                                       -------------      --------------
                  Net deferred tax assets                  31,152              27,861
                                                       -------------      --------------
                  Valuation allowance                     (31,152)            (27,861)
                                                       -------------      --------------
              Total net deferred tax assets             $      --            $      --
                                                       =============      ==============

</TABLE>

8)     STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK

The Company has authorized the grant of up to 640,000 options under the
Company's stock option plan. These options may be granted to certain officers,
directors and employees to purchase the Company's common stock at prices equal
to the fair market value of the stock at the date of grant. A majority of the
options granted have ten-year terms and vest over a period of two to four years.
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.

During fiscal 1998, the Company repriced all outstanding employee options as of
April 3, 1997 to an exercise price of $6.25 per share. During fiscal 1999, the
Company cancelled the majority of stock options outstanding and reissued new
options as of December 7, 1998. Vesting terms for these new options range from
two to four years depending on the time elapsed from the grant date of the
underlying cancelled options. Exerciseable options at March 28, 1999, other than
those rolled over in conjunction with the Carleton acquisition, include options
held by terminated employees and current or former directors. These options
total 96,700 and have exercise prices ranging from $6.25 to $60.00.

The acquisition of the former Carleton Corporation resulted in the Company
rolling over certain options and warrants to buy former Carleton stock into
options and warrants to buy the Company's stock. These former Carleton options
and warrants converted into 100,126 options and 27,029 warrants for the
Company's stock. The warrants include warrants on 18,428 shares at $.13 per
share and 8,601 shares at $34.88 per share and are exerciseable through May
2002. These options and warrants are fully vested. A summary of stock options
is:

18
<PAGE>

<TABLE>
<CAPTION>

                                                                                             Weighted
                                                                    Weighted                 Average
                                                                     Average                 Rollover
                                       Shares                       Exercise     Rollover    Exercise
                                      Available         Options     Price Per    Options     Price Per
                                      For Grant       Outstanding     Share    Outstanding     Share
                                      ---------------------------------------  -----------------------
<S>                                   <C>             <C>           <C>         <C>          <C>
       Balance March 31, 1996                245,833      260,670      $18.20
         Granted                            (104,740)     104,740       15.55
         Exercised                                --      (10,500)      13.00
         Canceled                             70,420      (70,420)      20.45
                                      ---------------------------------------
       Balance March 30, 1997                211,513      284,490       15.30
         Granted                            (239,360)     239,360        6.20
         Rollover                                 --           --          --      100,126        $.90
         Exercised                                --      (15,000)       6.75      (16,332)       1.00
         Canceled                            144,475     (144,475)       8.50       (6,511)       2.35
                                      ---------------------------------------  -----------------------
       Balance March 29, 1998                116,628      364,375        8.75       77,283        1.15
         Granted                            (397,850)     397,850        1.73           --          --
          Exercised                                -            -           -      (33,200)       1.18
         Canceled                            431,075     (431,075)       6.48       (3,184)       1.85
                                      ---------------------------------------  -----------------------
       Balance March 28, 1999                149,853      331,150       $2.82       40,899       $1.03
                                      =======================================  =======================
</TABLE>

The rollover options from the Carleton acquisition are fully vested and are
currently exercisable.  The rollover options outstanding at March 28, 1999
include 19,617 options at an exercise price of $.10 per share, 6,896 options at
an exercise price of $.95 per share and 14,386 options at an exercise price of
$2.35 per share. At March 28, 1999 and March 29, 1998, all of the outstanding
rollover options were exercisable.

The 331,150 options outstanding at March 28, 1999 include 275,450 options with
exercise prices between $1.19 per share and $2.63 per share; 45,000 options with
exercise prices between $6.25 per share and $8.13 per share; 9,500 options with
exercise prices between $15.63 per share and $17.81 per share; and 1,200 options
with an exercise price of $60.00 per share.  At March 28, 1999 the outstanding
options had a weighted average contractual life of 8.47 years. At March 28,
1999, March 29, 1998 and March 30, 1997, there were 96,700, 179,112 and 215,995,
respectively, options exercisable at weighted average exercise prices of $6.46,
$13.23 and $14.79.

Pro forma information regarding net loss and related per share data is required
by Statement of Financial Accounting Standards No. 123, and has been determined
as if the Company had accounted for its employee stock options, other than those
rolled over with the Carleton acquisition, under the fair value method of the
statement.  The fair value for these options was estimated at the date of the
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for fiscal 1999, fiscal 1998 and fiscal 1997: risk-free
interest rate ranging from 3.63% to 6.72%; dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of .869, .747
and .722, respectively; and a weighted average expected life of the options of 6
years.  The weighted average fair value of options granted during fiscal 1999,
1998 and 1997 was $1.29, $5.50 and $10.55, respectively.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility.  Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.  The Company's pro forma
information is:


                                    Fiscal 1999   Fiscal 1998   Fiscal 1997
                                    ---------------------------------------
          Net loss                     ($9,190)      ($5,465)    ($14,698)
          Net loss per share -
          basic and diluted              (2.75)        (1.80)       (5.20)


                                                                              19
<PAGE>

Note:  The pro forma effect on net loss for the fiscal years is not
representative of the pro forma effect in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to fiscal 1996.

The Company has authorized the issuance of up to 60,000 shares of restricted
stock and entered into restricted stock agreements with various employees.  The
agreements call for issuance of the Company's common stock to these employees
and provide vesting generally over a five-year period.  There was no activity
related to restricted stock during fiscal 1999. At March 28, 1999 36,463 shares
of restricted stock had been issued to employees.  The value of the stock at the
time of grant was deferred and amortized over the term of the agreements.
Compensation expense of $0, $52 and $67 was recognized in fiscal 1999, 1998 and
1997, respectively, related to these agreements.  A total of 23,537 additional
shares of restricted stock can be issued by the Company.


9)   OTHER CHARGES

Other charges for fiscal 1999 include the amortization of developed technology
and goodwill acquired in connection with the acquisition of the former Carleton
Corporation (see Note 4). Other charges for fiscal 1998 include the amount
expensed as IPR&D, the amortization of developed technology and goodwill
acquired in connection with the acquisition of the former Carleton Corporation
(see Note 4) and the write off of capitalized software (see Note 5). Other
charges for fiscal 1997 include the write off of capitalized software (see Note
5).  Additional items previously included in other charges for fiscal 1997
totaling $10,274 have been included in discontinued operations.  These charges
were for rent on un-subleased facilities, costs in moving and closing
facilities, write-off of property and equipment relating to those facilities,
write-off of goodwill and capitalized software and other expenses.


10)  COMMITMENTS AND CONTINGENCIES

The Company has operating leases on its headquarters and operations location in
Minnesota through August 2003 and its operations location in Massachusetts
through September 2001.  Under these leases, the Company is responsible for base
rent plus any operating cost escalation.  The Company is also a party to several
operating leases for which the Company has either assigned its interest to
another party or has arrangements with subtenants.  These leases provide for a
base rent and a sharing in the operating costs. Future minimum lease payments,
net of any subleases or assignments, as of March 28, 1999 are:


               Future Minimum
          Fiscal Year    Lease Payments
          -----------    --------------
             2000            $379
             2001             407
             2002             321
             2003             227
             2004              94


Net rent expense charged to continuing operations for property and equipment
under operating leases for fiscal 1999, 1998 and 1997 was approximately $360,
$305 and $212, respectively.

The Company is involved in various claims and proceedings that, in the opinion
of management and counsel, do not involve amounts material to the financial
position of the Company.


11)  EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) Savings and Investment Plan for its eligible
employees.  Employees scheduled to work 1,000 hours in the first year may become
participants in the before-tax contributions feature of the Plan as of the
enrollment date after their date of hire.  Employees may become participants in
the matching contribution feature of the Plan as of the first payroll period
following six months of service.

Employees' contributions can range from 1% to 15% of their compensation.  The
Company currently matches 25% of the first  4% of employees' contributions.
Company contributions totaled  $45, $67 and $118 toward 401(k) employer
contributions in fiscal years 1999, 1998 and 1997, respectively.


20
<PAGE>

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CARLETON CORPORATION

We have audited the accompanying consolidated balance sheets of Carleton
Corporation as of March 28, 1999 and March 29, 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended March 28, 1999, March 29, 1998 and March 30, 1997.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Carleton
Corporation at March 28, 1999 and March 29, 1998, and the consolidated results
of its operations and its cash flows for the years ended March 28, 1999, March
29, 1998 and March 30, 1997 in conformity with generally accepted accounting
principles.

As discussed more fully in Note 4 to the financial statements, the Company has
revised the amount allocated to acquired in-process research and development in
connection with its 1997 acquisition of the former Carleton Corporation and has
restated its 1998 consolidated financial statements accordingly.

As discussed in Note 2 to the financial statements, certain conditions raise
substantial doubt concerning the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

Ernst & Young LLP

Minneapolis, Minnesota
June 1, 1999

COMPANY REPORT ON FINANCIAL STATEMENTS

TO THE SHAREHOLDERS OF CARLETON CORPORATION:

The management of Carleton Corporation has prepared, and is responsible for, all
information and representations contained in the financial statements and other
sections of this Annual Report.  The Company's financial statements have been
prepared in conformity with generally accepted accounting principles.

Carleton maintains a system of internal accounting controls designed to provide
reasonable assurance that transactions are executed in accordance with the
proper authorization, that all such transactions are properly recorded and
summarized to produce reliable financial records and reports, that assets are
safeguarded, and that the accountability for assets is maintained.  The Company
maintains high standards when selecting, training, and developing personnel, to
insure that management's objectives of maintaining strong, effective internal
controls and unbiased, uniform reporting standards are attained.

Ernst & Young LLP, independent auditors, have audited the Company's financial
statements in accordance with generally accepted auditing standards and their
report is included herein.

The Audit Committee of the Board of Directors, which is composed solely of
directors who are not officers or employees, meets regularly and on special
occasions, as needed, with corporate financial management and the independent
auditors to review their activities.  The independent auditors have access to
the Audit Committee without management being present to discuss the results of
their work, adequacy of internal financial controls and the quality of financial
reporting.


Minneapolis, Minnesota
June 1, 1999

                                                                              21
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA
For the Year Ended March 28, 1999
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                        For the Fiscal Years Ended
                                                        --------------------------
                                              1999       1998        1997       1996      1995
                                          ----------------------------------------------------
                                                     (restated)
<S>                                       <C>        <C>        <C>         <C>        <C>
STATEMENTS OF OPERATIONS
      Revenues                            $  5,559   $  3,048   $   2,794   $  6,332   $ 8,298
      Net income (loss) from
         continuing operations              (9,039)    (9,875)     (3,857)       662     2,780
      Net income (loss) per share from
        continuing operations *              (2.71)     (3.25)      (1.40)       .25      1.05
      Net income (loss)                     (8,854)    (5,005)    (14,478)    (7,490)    9,839
      Net income (loss) per share *          (2.65)     (1.65)      (5.15)    (2 .70)     3.70

BALANCE SHEET DATA
      Total assets                          10,781     21,654      31,877     54,689    55,326
      Long-term debt/notes payable             174        602          --         --     8,976
      Shareholders' equity                   7,041     15,857      15,260     29,329    32,967

</TABLE>
SELECTED QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
(Unaudited)

The Company believes that all neccessary adjustments have been included to
present fairly the selected quarterly information.
<TABLE>
<CAPTION>

                                           First      Second      Third      Fourth     Fiscal
                                          Quarter     Quarter    Quarter     Quarter     Year
                                        -------------------------------------------------------
<S>                                      <C>         <C>        <C>         <C>        <C>
STATEMENTS OF OPERATIONS
Fiscal 1999
  Revenues                               $   1,322   $  1,012   $   1,401   $  1,824   $  5,559
  Gross Profit                                 539        262         616        873      2,289
  Net loss from continuing operations       (2,298)    (2,656)     (2,149)    (1,936)    (9,039)
  Net loss                                  (2,298)    (2,656)     (1,964)    (1,936)    (8,854)
  Net loss per share*:
   Continuing operations                      (.69)      (.79)       (.64)      (.58)     (2.71)
   Net loss                                   (.69)      (.79)       (.59)      (.58)     (2.65)

Fiscal 1998
  Revenues                               $     279   $    536   $     770   $  1,463   $  3,048
  Gross Profit (loss)                         (160)       118         118        770        846
  Net loss from continuing operations       (1,452)    (1,282)     (4,795)    (2,346)    (9,875)
  Net loss                                    (527)      (979)     (1,255)    (2,244)    (5,005)
  Net loss per share*:
   Continuing operations                      (.50)      (.45)      (1.52)      (.71)     (3.25)
   Net loss                                   (.20)      (.35)       (.40)      (.68)     (1.65)
</TABLE>

Note:  The third and fourth quarters of fiscal 1998 and the first three quarters
of fiscal 1999 have been restated to reflect the adjustment to the purchase
price allocation associated with the acquisition of the former Carleton
Corporation in October 1997.

*Per share calculations are the same for basic and diluted in 1999 and 1998.

22
<PAGE>

DIVIDEND POLICY AND PRICE RANGE OF COMMON STOCK

The Company has not declared any cash dividends on its common stock, and the
Board of Directors intends to retain all earnings for use in its business for
the forseeable future.  At March 28, 1999 the Company had 1,251 shareholders of
record. The Company's common stock is traded on the Nasdaq National Market under
the symbol CARL. The following table sets forth the high and low, end-of-the-day
prices for the common stock as reported by the Nasdaq National Market for the
period indicated.


                                     High          Low
                                 -------------------------
            Fiscal 1999
               First Quarter     $ 6   23/32   $4   11/16
               Second Quarter      6     1/4    1    1/16
               Third Quarter       2   11/16    1    1/32
               Fourth Quarter      2    3/16    1     1/8

            Fiscal 1998
               First Quarter       9     3/8    5   15/16
               Second Quarter     13     3/4    6     7/8
               Third Quarter      12     1/2    6    3/32
               Fourth Quarter      8     3/4    5     5/8


A copy of the Company's annual report on Form 10-K (excluding exhibits) filed
with the Securities and Exchange Commission may be obtained without charge to
shareholders upon written request to:

 Investor Relations
 Carleton Corporation
 10729 Bren Road East
 Minnetonka, MN 55343


                                                                              23
<PAGE>

CARLETON CORPORATION

10729 Bren Road East
Minnetonka, MN 55343
www.carleton.com
1.612.238.4000