<PAGE>   1

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
(MARK ONE)
(X)     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996      COMMISSION FILE NUMBER 1-5492-1

                            CERION TECHNOLOGIES INC.
             (Exact name of registrant as specified in its Charter)

<TABLE>
<S>                                           <C>
                   DELAWARE                                     02-0485458
      (State of or other jurisdiction of         (I.R.S. Employer Identification Number)
        incorporation or organization)
</TABLE>

                             1401 INTERSTATE DRIVE
                           CHAMPAIGN, ILLINOIS 61821
                                 (217) 359-3700
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.  Yes X      No ____

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

     On February 28, 1997, the aggregate market value of the voting stock held
by nonaffiliates totaled approximately $29,828,000 based on the closing stock
price as reported by The Nasdaq Stock Market.

     On February 28, 1997, there were 7,018,406 shares of common stock, $.01 par
value, of the registrant issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

1.  Portions of the definitive Proxy Statement to be delivered to Shareholders
    in connection with the Annual Meeting of Shareholders to be held May 7, 1997
    are incorporated by reference herein.

2.  Portions of the 1996 Annual Report to Shareholders are incorporated by
    reference herein.

3.  Portions of the registrant's Registration Statement on Form S-1
    (Registration No. 333-2590) are incorporated by reference herein.

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                            CERION TECHNOLOGIES INC.
                          1996 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>        <C>                                                                            <C>
                                            PART I
Item 1.    Business.....................................................................    3
Item 2.    Facilities and Properties....................................................   10
Item 3.    Legal Proceedings............................................................   10
Item 4.    Submission of Matters to a Vote of Security Holders..........................   11
                                           PART II
Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters........   11
Item 6.    Selected Financial Data......................................................   12
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations...................................................................   12
Item 8.    Financial Statements and Supplementary Data..................................   16
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial
           Disclosure...................................................................   16
                                           PART III
Item 10.   Directors and Executive Officers of the Registrant...........................   16
Item 11.   Executive Compensation.......................................................   18
Item 12.   Security Ownership of Certain Beneficial Owners and Management...............   18
Item 13.   Certain Relationships and Related Transactions...............................   18
                                           PART IV
Item 14.   Exhibits, Financial Statements Schedules and Reports on Form 8-K.............   18
Signatures..............................................................................   21
</TABLE>

     This Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including without limitation those discussed in
the Company's 1996 Annual Report to Shareholders in the section titled "Outlook"
(which section is hereby incorporated by reference herein). Such forward-looking
statements speak only as of the date on which they are made, and the Company
cautions not to place undue reliance on such statements. The Company disclaims
any duty to update any such statements.

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                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Cerion Technologies Inc. ("Cerion" or "the Company") manufactures
precision-machined aluminum disk substrates, which are the metallic platforms of
magnetic thin film disks used in the hard disk drives of portable and desktop
computers, network servers, add-on storage devices and storage upgrades. The
Company's manufacturing and engineering expertise, together with its proprietary
manufacturing processes and equipment, enable it to supply customers with high
product volumes and consistent quality while meeting increasingly stringent
product tolerances. The Company believes that its ability to develop and
manufacture high quality aluminum substrates helps thin film disk manufacturers
meet the rapidly evolving technological requirements of the hard disk drive
market. The Company has used its core competencies in precision machining to
produce aluminum organic photo conductor ("OPC") drum substrates for laser
printer cartridges and maintains this manufacturing capability. See "Factors
That Affect Future Results" hereunder for discussion regarding matters that may
affect the Company's future performance.

INDUSTRY BACKGROUND

     Fluctuating Market Conditions.  The markets in which the Company sells its
aluminum disk substrates have shown rapid growth in demand, but increased demand
has also generated a rapid growth in production. Periods of shortage have
alternated recently with periods of oversupply. During the latter half of 1996,
and continuing since then, the market appears to have been dominated by
oversupply, and consequently, pricing pressures. Although the Company's strategy
during 1996 was to compete on quality more than on price, during the latter half
of 1996 the Company was nevertheless forced to compete increasingly on price,
even on those products meeting the tightest specifications. These changing
market forces had a significant impact on the Company's sales and margins.

     Growth in Demand.  The introduction of increasingly powerful
microprocessors and more memory intensive software, combined with the
development and growth of multimedia computing applications and Internet usage,
have stimulated demand for PCs in both the home and business markets. In
addition, the applications currently being developed for PCs require greater
storage capacity, sharply increasing the demand for high-capacity disk drives.
According to International Data Corporation, mean storage capacity per desktop
disk drive has increased from 170 megabytes in 1993 to 540 megabytes in 1995.
The market demand for aluminum substrates used for thin film disks in disk
drives has been growing rapidly, stimulated by demand for PCs, storage upgrades
and add-ons to existing computers and the growing use of sophisticated network
servers. According to TrendFOCUS in 1996, an industry publication, the number of
thin film disks produced worldwide in 1993, 1994, 1995, and 1996 was 134
million, 186 million, 256 million, and 344 million, respectively, and projected
at 426 million in 1997, which would represent a compound annual growth rate of
approximately 34 percent over this five-year period.

     Although the average storage capacity per disk drive has increased
significantly, the average number of disks per drive has remained relatively
constant, primarily as a result of significant advances in technology and in the
storage capacity of thin film disks. The Company believes that success in the
disk drive industry will continue to depend on the ability of the disk drive
manufacturers, together with their suppliers of critical components, such as
thin film disks and disk substrates, to keep pace with these advances. As a
result, thin film disk manufacturers are likely to continue to require more
stringent smoothness and flatness tolerances and higher quality levels from
their aluminum disk substrate suppliers.

     Growth in Supply.  Aluminum disk substrates are produced by vertically
integrated thin-film disk manufacturers and by independent producers, including
the Company and Kobe Steel, Ltd. ("Kobe") through its subsidiaries. Cerion's
primary independent aluminum disk substrate competitor is Kobe, which the
Company believes has production capacity that is substantially greater than that
of the Company. In addition, vertically integrated companies produce substrates,
such as Seagate Technologies, Inc. ("Seagate"), Akashic Memories Corporation
("Akashic") and Komag, Inc. ("Komag"). In addition, during 1996, two other major

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companies began to move towards vertically-integrated production, as StorMedia
Incorporated ("StorMedia") announced that it will produce aluminum disk
substrates at a new manufacturing facility in Singapore, and HMT Technology
Corporation ("HMT") acquired a facility in Oregon for aluminum disk substrate
production. While Cerion has been able to sell substrates to certain of these
vertically integrated companies, it has lost revenues from others, including a
significant amount of revenues lost from one vertically integrated company, HMT.
Even as the demand has increased for smoothness, flatness and uniformity,
pricing pressures have also increased substantially during the latter half of
1996, even for disks meeting the most stringent specifications.

     Changes in Aluminum Disk Substrate Performance Characteristics.  A thin
film disk is composed of a substrate, generally aluminum, which must be flat,
smooth and free of surface defects. This base substrate is then coated with very
thin layers of nickel and magnetic material, which create the disk's magnetic
properties. Minor deviations in the tolerance or qualities of the aluminum
substrate can cause significant numbers of disks to be rejected, creating
significant yield loss to thin film disk manufacturers.

     The increased demand for high-performance disk drives has resulted in
increased pressures for aluminum substrate manufacturers to tighten their
specifications for smoothness, flatness and uniformity. These qualities
contribute to improved disk performance in the following ways: (i) the flatter
the disk, the less risk that the recording head will "crash" against the surface
of the disk, thus increasing the performance and reliability of the finished
product; (ii) with a smoother original substrate, thin film disk manufacturers
are able to spend less time and use less material on the smoothing of the nickel
plating layer that is applied on the aluminum substrate, resulting in cost
efficiencies; and (iii) a smoother disk facilitates storage of information at
higher densities, thus increasing the disk's memory capability.

THE CERION STRATEGY

     Cerion focuses on providing value-added engineering and technological
solutions that meet the demands of markets requiring precision finishing of
aluminum. The Company's strategy is to combine engineering expertise, innovative
manufacturing techniques and proprietary equipment to provide a high volume of
advanced, precision-machined products of consistent, high quality at competitive
prices. This strategy has been heavily influenced by the teachings of Dr. W.
Edwards Deming, a consultant to the Company from 1986 until his death in 1993.
The Company adopted many of his management principles.

     In the latter half of 1996, market conditions forced the Company to pursue
"commodity," or "low-end" products for most of its aluminum disk substrate
production to maintain market share, and the Company expects that a dominant
portion of its 1997 revenue will also be derived from the low-end of this
market. Nevertheless, the Company believes that if it is to be successful over
the longer term it must shift the dominant portion of its sales to the "high
end" of the market, in which products must meet more demanding specifications of
flatness, smoothness and uniformity. The Company succeeded in achieving this
goal during the latter half of 1995 and the first half of 1996. Despite the
quality of the Company's products, it was unable to sustain this sales mix
during the latter half of 1996 because it was faced with backwards integration
by its largest customer and cancellation of orders by its second largest
customer due to excess supply. As noted above, the Company expects the impact of
these developments to make it unlikely that it will be able to shift sales back
to the "high end" of its market during 1997.

     The Company has sought to be a supplier to the "high end" of the disk
market for the following reasons: (i) those customers that demand the highest
quality and most stringent tolerances have the greatest ability to benefit from
the value added by the Company's core competencies -- its engineering skills,
proprietary manufacturing processes and proprietary equipment; and (ii) the
Company believes that, unlike the "lower end", less exacting segment of the disk
market, suppliers in the "high end" of the market compete substantially on
quality as well as on price, thereby permitting higher average selling prices.

     The key elements of the Company's strategy are as follows:

     - Focus on Manufacturing Cost Improvement.  The reduction in market demand
       for the Company's products in the second half of 1996, driven by
       backwards integration by its largest customer, and

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       cancellation of orders by its second largest customer, required the
       Company to pursue "commodity", "low-end" products to maintain market
       share. The Company expects that a dominant portion of its 1997 revenue
       will be derived from this "low-end" substrate. Thus, Cerion is focused on
       bringing manufacturing costs in line with new pricing standards in the
       industry. This focus requires innovative manufacturing process changes
       designed to increase output from existing labor and equipment resources.
       One element of the strategy is the automation of processing steps which
       is currently under evaluation.

     - Development of "High-End" Products.  The Company believes it is a leader
       in developing new products exceeding current industry requirements. For
       example, the Company's innovations in proprietary processes, such as
       chemical etching, resulted in the manufacture of substrates capable of
       meeting increasingly stringent tolerance requirements. In addition,
       Cerion's proprietary grinding technology has led to the development of
       the Company's newest product, its FFX Super Smooth ("FFX") disk, which is
       substantially smoother than aluminum disk substrates commercially
       available. The FFX disk is being sold to one customer in small
       quantities. The Company focuses on developing products ahead of market
       requirements, increasing the likelihood that the Company's products will
       be designed into new disk media for higher-capacity disk drives.

     - Continue to Improve Proprietary Manufacturing Processes and Production
       Equipment.  The Company seeks to continue to improve its manufacturing
       processes and equipment to increase efficiency and production capacity
       and to improve product quality. The Company believes its proprietary
       equipment enables Cerion to achieve significant cost savings and reduces
       the capital required to expand capacity. In addition, the Company
       believes that continuing advances in these areas have helped Cerion to
       develop manufacturing expertise that may give it a competitive advantage.

     - Maintain Strict Control of Manufacturing Process.  The Company's
       real-time statistical monitoring of its manufacturing processes results
       in greater product uniformity and higher production yields, and provides
       its customers with more detailed statistical information regarding
       product consistency, which can improve Cerion's customers' production
       yields relative to competing substrates. In addition, product uniformity
       is an essential factor in the supplier qualification process of disk
       drive manufacturers. The Company's quality system is ISO 9001 registered.

PRODUCTS

     The Company currently manufactures products within two categories: aluminum
disk substrates, which represented at least 95 percent of net sales for the last
three years, and OPC drum substrates. Cerion's aluminum disks are the base, or
substrate, for the memory disk in a hard disk drive. The Company's current
aluminum disk substrate products consist of 130mm (5 1/4 inch), 95mm (3 1/2
inch) and 65mm (2 1/2 inch) diameter disks. The 95mm product, which accounts for
the large majority of the Company's current disk substrate sales, is used
primarily in the hard disk drives of desktop computers, network servers and
add-on storage devices. The 65mm diameter product is used primarily in laptop
computers. The Company's aluminum disk substrates have evolved significantly
over time. For example, the Company's 95mm product, which the Company has been
selling since 1987 for thin film disk applications, has been enhanced over time
to incorporate greatly improved characteristics for smoothness, flatness, and
dimensional variations.

     Most laser printers and certain office copiers contain an organic
photoconductor ("OPC") imaging drum which accepts an electric charge that
attracts toner for transfer to paper. These OPC drums use a precision-machined
aluminum substrate onto which a photo-reactive coating is applied. OPC drums are
incorporated into laser printer cartridges that are consumed during operation
and replaced on a regular basis. The Company has produced and maintains
manufacturing capabilities for OPC drum substrates in 30mm and 40mm diameters
for use in desktop laser printer cartridges. The Company also is developing OPC
drum substrates and magnetic roller substrates for use in office copiers and
laser printer cartridges, respectively.

     The Company currently is exploring other offerings to expand on its core
product lines. The Company has developed its FFX disk, which is designed to be a
"high-end" 95mm product and which has only one-quarter of the surface roughness
of the Company's standard product. Cerion's FFX disk is being sold to one
customer

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in small quantities. In addition, the Company is investigating the application
of its precision-machining capabilities for other products, materials and
industries.

MANUFACTURING PROCESSES AND PROPRIETARY EQUIPMENT

     The Company's manufacturing methods are derived from careful attention to
the practice of continuous improvement and statistical methods of data analysis.
Together with its engineering expertise and internally developed proprietary
equipment, the Company believes its manufacturing and processing methods provide
it with lower capital equipment costs relative to certain of its competitors, as
well as superior yields and product quality. In the application of these
processes, the Company has arranged its manufacturing operation in a cellular
manner. The Company staffs each cell with a team of cross-trained employees.
These teams monitor the productivity of their individual cells and are trained
to prevent and, if necessary, correct quality problems within their cells. In
addition, teams are encouraged to suggest process improvements. These individual
manufacturing cells are built around equipment necessary for most process steps,
thus allowing each cell to operate, in many respects, as a mini-factory. This
cellular approach substantially reduces in-process inventory, facilitates more
effective communication, and improves both quality and productivity.

     The following diagram summarizes the stages in the Company's aluminum disk
substrate manufacturing process:

<TABLE>
<CAPTION>
                STAGE                                         DESCRIPTION
-------------------------------------     ---------------------------------------------------

<C>                                       <S>

-------------------------------------     Raw aluminum blanks are received by the Company and
          Thickness Sorting               sorted by individual thickness to a resolution of
-------------------------------------     .0001 of an inch.


-------------------------------------     Blanks are chemically etched to reduce thickness
          Chemical Etching                variation and remove the hard oxide layer on the
-------------------------------------     surface, making the disks easier to grind.


-------------------------------------     The inner and outer diameters of the disks are
     Edge and Chamfer Machining           machined to exacting tolerances and are finished to
-------------------------------------     specific chamfer angles.


-------------------------------------     The disks are subjected to high temperatures to
              Annealing                   release stresses built up during the preceding
-------------------------------------     machining step.


-------------------------------------     A very fine abrasive grinding stone is applied to
              Grinding                    the disk to produce the final surface finish,
-------------------------------------     thickness and flatness.


</TABLE>

     Even though there are extensive quality checks throughout the process, some
parameters can be checked only after the grinding stage. Those parameters
include visual quality, surface finish, thickness and flatness.

     The Company's real-time statistical monitoring of its processes results in
greater product uniformity and higher production yields, and provides its
customers with more detailed statistical information regarding product
consistency.

     The greater uniformity of the Company's products can improve the customers'
individual production yields relative to competing aluminum disk substrates.
Proprietary real-time tracking systems allow the Company to pinpoint where in
the manufacturing process a defect may have occurred, so that any disks affected
may be isolated and removed. It also provides for feedback to the operators in
order to eliminate the source of the defect immediately.

     The Company's study of its customers' manufacturing processes has led to
the adoption of certain manufacturing and processing methods that the Company
believes to be unique. For instance, Cerion has pioneered the use of chemical
etching in the manufacture of aluminum disk substrates. This process was
developed in collaboration with the University of Illinois chemical engineering
department and certain of the Company's suppliers. Today, the majority of the
aluminum disk substrates produced by the Company are chemically etched.

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  Proprietary Equipment and Processes

     The Company has developed proprietary equipment and processes that allow it
to produce aluminum disk substrates within narrow specifications of smoothness,
flatness and uniformity. For example, the Company has internally developed and
built proprietary grinding machines for its own use, which the Company believes
provide it with both a cost advantage and superior substrate over that produced
by commercially available grinders. The capital cost of the Company's
custom-built proprietary grinding machine is less than 25 percent of the list
price of comparable grinders from a leading manufacturer.

     The Company's internally developed and manufactured proprietary abrasive
stones used in the grinding process are significantly less expensive than
typical commercially available alternatives. In-house control of grinding stone
fabrication enables the Company to produce superior products with less machining
time and allows for the custom fabrication of grinding stones for specific
products. Custom fabrication of grinding stones has enabled Cerion to pioneer
its new FFX product, which has a mirror-like surface with an average surface
roughness of less than 20 angstroms (a unit of length equal to one ten-millionth
of a millimeter), as opposed to the 80 angstrom average of the current disk
substrates sold by the Company.

  Employee Participation

     Cerion believes that a critical component of its program of continuous
process improvements and quality control is the active participation of its
employees in these efforts. Employee teams are aware of production targets and
meet regularly to discuss and evaluate process improvements. As incentive to
such involvement, the Company in the first half of 1996 distributed 4 percent of
its pretax earnings to its employees (other than executive officers) as profit
sharing when the Company had positive operating performance.

     To facilitate process improvements, the Company encourages employees to
pursue their own ideas by providing a procedure in which an employee writes a
detailed description of a process improvement that is then reviewed by key
engineering, manufacturing, training, maintenance and safety personnel. If
approved, the Company provides support, such as process or safety engineering,
to the employee, who is then responsible for implementation of his or her
suggestion on a trial basis. At the end of the trial period, the employee
prepares a report, including results and recommendations, and, if the trial has
been successful, a change notification document is issued. Upon approval of key
areas, the change is implemented system-wide. The Company assigns a process
engineer full time to facilitate employee team meetings to review process
improvement issues.

     The Company places significant emphasis on training and education. Cerion
provides a tuition payment benefit available to all employees. In addition, the
Company's hourly pay system works on a pay-for-skills basis. Employees are
certified to pre-set standards in various skills relating to their job
assignments. As the employees earn additional certifications, their pay
increases. Classroom training in statistics, decision-making, business basics,
teamwork and systems-thinking are being added to this skill certification
system. The Company believes these practices foster a Company-wide dedication,
sense of common ownership and increased skills which contribute to higher
product quality and manufacturing yields.

CUSTOMERS AND MARKETING

     Aluminum disk substrates represented over 95% of the Company's sales in
1995 and 1996. During 1996, Cerion shipped the majority of its aluminum disk
substrates to four companies, HMT, StorMedia, Trace Storage Technologies Inc.
("Trace") and Seagate, representing approximately 45%, 30%, 11%, and 6%,
respectively, of the Company's net sales of disk substrates. During the fourth
quarter of 1996, the Company shipped its aluminum disk substrates to six
companies, Trace, StorMedia, Akashic, Seagate, HMT, and International Business
Machines ("IBM"), representing approximately 20%, 19%, 18%, 17%, 13%, and 12%,
respectively. In its OPC drum substrate product line, the Company primarily
shipped products in 1995 and 1996 to two companies, Nashua Corporation
("Nashua") and Xerox Corporation ("Xerox"). Cerion's customer base, and each
customer's relative importance, has fluctuated significantly and the Company
believes it will continue to do so. In addition, as is customary in the
industry, Cerion's sales generally are made pursuant to purchase orders which
are subject to cancellation, modification or rescheduling generally without

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penalties and, in the past, certain orders have been canceled or deferred, as
evidenced by the cancellation of all orders by StorMedia in the third quarter of
1996 and a reduction in orders to zero by HMT in the fourth quarter of 1996.

     The Company, which has produced aluminum disk substrates since 1982,
emerged in 1994 from a primarily captive supplier relationship with Nashua's
Computer Products Divisions. Since the sale by Nashua of that division in 1994,
Cerion has expanded its customer and product base in response to growth in
market demand for substrates, and it continues its efforts to broaden this
customer base, both in the aluminum disk substrate and OPC drum substrate
markets. Nevertheless, the Company believes that its dependence on a small
number of customers will continue. Consequently, the loss of, or reduction in
demand from, one or more aluminum disk substrate customers through backwards
integration, consolidation, adverse financial circumstances, production
disruptions or otherwise does from time to time have a material adverse effect
on the Company's business, results of operations and financial condition.

     Cerion, like other suppliers to the thin film disk industry, is required to
work closely with thin film disk manufacturers in order to meet their
specifications and to become qualified as a supplier. Qualifying aluminum disk
substrates requires the Company to work extensively with the customer to meet
product specifications. Therefore, customers often require a significant number
of product presentations and demonstrations as well as substantial interaction
with the Company's senior management before making a purchasing decision.
Accordingly, Cerion's products typically have a lengthy sales cycle during which
the Company may expend substantial financial resources and management time and
effort with no assurance that a sale will result.

     To meet these demands, the Company uses a system of multi-tiered
communication for sales, marketing and customer service. Senior management of
the Company, as well as production, operation and engineering personnel,
directly market and interact with their counterparts at the Company's customers.
The Company believes that this multi-tiered approach has resulted in strong,
active relationships with both customers and suppliers and has helped Cerion
pursue close technical collaboration with its customers during the design phase
of new products and throughout the products' subsequent life cycle.

SOURCES OF SUPPLY

     The Company relies on Alcoa Memory Products, Inc., a subsidiary of Aluminum
Company of America, Incorporated ("Alcoa") as its sole source of supply for the
aluminum disk blanks used in producing substrates. The Company also relies on
VAW of America, Inc. ("VAW") as its sole source of supply for the aluminum drum
blanks used in producing OPC drum substrates. A limited number of suppliers
provide certain chemicals used in the Company's manufacturing processes. These
chemicals often are customized to meet the Company's needs. Cerion has no
long-term supply agreement with Alcoa, VAW or any of its other suppliers. The
Company's reliance on Alcoa, VAW and its chemical suppliers therefore entails
risk. If their products were to become unavailable or available in significantly
reduced quantities or increased prices, it would have a significant impact on
the Company's operating results. Locating and qualifying a substitute supplier
could be a time-consuming and uncertain process. Changing suppliers for certain
materials could require that the product be requalified with the customer.
Moreover, a substitute supplier might be reluctant to undertake such a project
without a significant commitment by the Company to higher prices or future
purchases.

     Cerion believes, however, that the advantage of working closely with these
suppliers may offset the foregoing risks. For example, Alcoa works closely with
the Company to optimize Alcoa's production processes to meet Cerion's
specifications.

COMPETITION

     The aluminum disk substrate industry and the OPC drum substrate industry
are both characterized by intense competition. The Company believes that the
principal competitive factors affecting these industries are product
availability, quality, and price. Cerion's primary independent aluminum disk
substrate competitor is Kobe, which the Company believes has production capacity
that is substantially greater than that of the

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Company's. The Company further believes that Kobe has significantly greater
financial, technical and marketing resources. In addition, Kobe has the
advantage of being supplied by an affiliated company with the aluminum blanks
used for its aluminum disk substrates. In 1996, StorMedia announced that it
would produce aluminum disk substrates, as part of the production of nickel
plated and polished substrates, at a new manufacturing facility in Singapore. In
addition, HMT acquired a facility in 1996 in Oregon for aluminum disk substrate
production, as well as for nickel plating and polishing. HMT expanded the
capacity of this facility and as a result regular shipments to HMT were reduced
to zero in December 1996. Several other disk drive and thin film disk
manufacturers, including Seagate, Akashic and Komag produce aluminum disk
substrates internally for their own use. Moreover, backwards integrated
companies could make their aluminum disk substrates available for distribution
in the market as direct competitors of the Company. Any of these changes would
reduce the already small number of current and potential customers and increase
competition for the remaining market. Such competition could materially
adversely affect the Company's business, results of operations and financial
condition. In addition, because of the limited number of potential customers in
the disk drive industry, the loss of one or more of its customers through
backwards integration, consolidations, adverse financial circumstances or
otherwise, has during 1996 and could again have a material adverse effect on the
Company's business, results of operations and financial condition.

     The Company believes that Kobe and certain vertically-integrated disk drive
manufacturers currently are attempting to increase aluminum disk substrate
manufacturing capacity. These efforts, together with the Company's own efforts
in 1996 to increase production, have resulted in significant additional capacity
in the aluminum disk substrate industry. This additional capacity has resulted
in industry capacity in excess of demand, and Cerion has experienced increased
competition which has materially adversely affected the Company's business,
results of operations and financial condition.

     The Company believes that a majority of the machined aluminum disk
substrates in the U.S. market is supplied by vertically integrated thin film
media and disk drive manufacturers, such as Seagate, Komag, and HMT, and that
the balance is supplied by independent aluminum disk substrate manufacturers
such as Cerion. Shortage of supply in the past has influenced disk drive
manufacturers and thin film disk manufacturers to vertically integrate substrate
manufacturing into their own operations.

BACKLOG

     Cerion's sales generally are made pursuant to supply agreements, purchase
orders and releases which are subject to cancellation, modification or
rescheduling, generally without penalty. The Company's backlog of supply
agreements and purchase orders requesting delivery in the following quarter was
approximately $3.7 million as of December 31, 1996, $7.9 million as of December
31, 1995, and $2.5 million as of December 31, 1994. Because these purchase
orders may be canceled, modified or rescheduled by customers on short notice and
generally without penalty, the Company does not believe that its backlog as of
any particular date should be considered indicative of sales for any future
period.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The Company regards elements of its manufacturing processes, product
designs and internally developed equipment as proprietary and seeks to protect
its proprietary rights through a combination of employee and third-party
non-disclosure agreements, internal security procedures and trade secret laws.
Because patent protection requires public disclosure of a process or design,
which gives potentially valuable knowledge to a competitor even if the patent is
issued, Cerion evaluates the advantages and disadvantages of seeking patent
protection for its proprietary processes and designs versus continuing to rely
on trade secret protections. To date, the Company has generally opted to protect
its proprietary rights as trade secrets but may file patent applications in the
future.

     Although Cerion intends to defend its proprietary interests, there can be
no assurance that these measures will be successful. The Company believes,
however, that because of the rapid pace of change in manufacturing processes and
product design in the aluminum disk substrate and OPC drum substrate industries,
legal protections of its proprietary rights are less significant factors in the
Company's success than the innovative skills, experience and technical
competence of its employees.

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<PAGE>   10

     The Company attempts to ensure that its products and processes do not
infringe patents and other proprietary rights of third parties. Nevertheless,
there can be no assurance that such a claim will not arise at some future date.
If a patent claim were to arise, the Company may be required to seek a patent
license from a third party. Although patent holders commonly offer such
licenses, no assurance can be given that licenses would be offered or that the
terms of any offered licenses would be acceptable to the Company. If a patent
license were to become necessary, the failure to obtain such a license could
cause Cerion to incur substantial liabilities and possibly suspend use of the
process or equipment utilizing the patented invention.

EMPLOYEES

     As of February 12, 1997, Cerion had 418 full-time employees located at its
facility in Champaign, Illinois, with approximately 391 in manufacturing and
research, development and engineering, and the remainder in administration and
marketing. None of Cerion's employees is represented by a labor union. The
Company believes that attracting and motivating skilled technical talent, and
managing turnover, is vital to its success.

ENVIRONMENTAL REGULATION

     The Company's operations and manufacturing processes are subject to certain
federal, state and local environmental protection laws and regulations relating
to Cerion's use, handling, storage, discharge and disposal of certain hazardous
materials and hazardous and non-hazardous wastes. The Company has not suffered
any material adverse effect in complying with applicable environmental
regulations. However, environmental laws and regulations, especially those
relating to the use of hazardous materials or generation of hazardous wastes,
may become more stringent over time. There can be no assurance that Cerion has
complied or will comply in all respects with environmental laws and regulations,
nor can there be any assurance that the Company will be able to obtain all
necessary permits that will be required under such laws and regulations. Any
modified environmental regulations, and any failure by the Company with respect
to any of the other matters described above, might subject Cerion to significant
penalties, compliance expenses, or production suspensions or delays, and might
require the Company to acquire costly equipment.

ITEM 2.  FACILITIES AND PROPERTIES

     The Company's headquarters and manufacturing facility are located in one
49,000 square foot building in Champaign, Illinois. At this Company-owned
facility, Cerion operates twenty manufacturing cells for aluminum disk
substrates and four for OPC drum substrates.

     Cerion also has an option to purchase 3.1 acres of land adjacent to its
headquarters. In addition, the Company leases 12,000 square feet in Urbana,
Illinois for cleaning shipping containers and for storage of finished goods and
raw materials.

     The Company's existing facility is operating three shifts per day, five
days per week and is using all remaining manufacturing space at this facility.
Any significant expansion of capacity would require Cerion to return to a seven
days per week manufacturing schedule, or if that was insufficient, to build,
purchase or lease a new facility.

ITEM 3.  LEGAL PROCEEDINGS

     On August 8, 1996, an individual plaintiff, Joshua Tietelbaum, initiated a
lawsuit against the Company, Nashua, William Blair & Co., David A. Peterson,
Paul A. Harter, Richard A. Clark and Gerald G. Garbacz in the Circuit Court of
Cook County, Illinois. The action purports to be on behalf of a class consisting
of all persons (other than the defendants) who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. The complaint alleges that, in
connection with the Cerion initial public offering, the defendants issued
certain materially false and misleading statements and omitted the disclosure of
material facts regarding, in particular, certain significant customer
relationships. The complaint alleges that the defendants violated sections 11,
12, and 15 of the 1993 Securities Act and sections 12 and 13 of the Illinois
Blue Sky Law. The complaint seeks a declaration that the case may proceed as a
class action, damages, rescission of the sale of Cerion common stock by Cerion
and Nashua, costs, attorneys fees, and other relief on behalf of the

                                       10
<PAGE>   11

individual plaintiff and the class. The Company believes the lawsuit to be
without merit and intends to vigorously defend against this action.

     On September 4, 1996, an individual plaintiff, Philippe Olczyk, initiated a
lawsuit against the Company, Nashua, William Blair & Co., David A. Peterson,
Daniel M. Junius and Gerald G. Garbacz in the Circuit Court of Cook County,
Illinois. The action purports to be on behalf of a class consisting of all
persons (other than the defendants) who purchased the common stock of Cerion
between May 24, 1996 and July 9, 1996. The complaint alleges that, in connection
with the Cerion initial public offering, the defendants issued certain
materially false and misleading statements and omitted the disclosure of
material facts regarding, in particular, certain significant customer
relationships. The complaint alleges that the defendants violated the Illinois
Blue Sky Law and the Illinois Consumer Fraud and Deceptive Practices Act. The
complaint seeks declarations that the case may be maintained as a class action
and that the defendants violated the Illinois Consumer Fraud Act, actual and
punitive damages, costs, attorneys fees, appointment of a trustee, and other
relief. The Company believes the lawsuit to be without merit and intends to
vigorously defend against this action.

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

     No matters were submitted during the fourth quarter of the year ended
December 31, 1996 to a vote of the Company's security holders.

                                    PART II

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

     The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on The Nasdaq National Stock Market under the symbol "CEON".
The following table sets forth the high and low bid prices as reported by The
Nasdaq Stock Market for the periods indicated beginning on May 24, 1996, the
first day of trading, after the Company completed its initial public offering:

<TABLE>
<CAPTION>
                                                                        HIGH         LOW
                                                                       ------       -----
     <S>                                                               <C>          <C>
     1996
          Second Quarter.............................................  $19.50       $8.00
          Third Quarter..............................................   11.25        2.25
          Fourth Quarter.............................................    9.19        2.75
</TABLE>

     On March 24, 1997, the closing price of the Company's common stock as
reported by The Nasdaq National Stock Market was $3.63 per share. There were
approximately 3,800 shareholders of the common stock of the Company as of such
date. Cerion has not paid cash dividends on its Common Stock and does not intend
to do so in the foreseeable future.

                                       11
<PAGE>   12

ITEM 6.  SELECTED FINANCIAL DATA

     The following table summarizes certain selected financial data for each of
the five years in the period ended December 31, 1996. The information presented
should be read in conjunction with the financial statements included elsewhere
in this report.

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                     ----------------------------------------------------------------
                                                                                 PRO FORMA
                                      1992       1993       1994       1995       1995(1)      1996
                                     -------    -------    -------    -------    ---------    -------
<S>                                  <C>        <C>        <C>        <C>        <C>          <C>
STATEMENTS OF OPERATIONS DATA:
Net sales..........................  $16,542    $14,612    $14,553    $28,175     $28,175     $36,540
Cost of sales......................   13,544     12,306     12,995     19,668      19,668      26,729
                                     -------    -------    -------    -------     -------     -------
     Gross profit..................    2,998      2,306      1,558      8,507       8,507       9,811
Selling, general & administrative
  expenses.........................    1,321      1,651      1,731      2,537       3,510       5,561
                                     -------    -------    -------    -------     -------     -------
     Operating income (loss).......    1,677        655       (173)     5,970       4,997       4,250
Interest income (expense)..........      (89)       (94)      (115)      (316)     (1,129)        169
                                     -------    -------    -------    -------     -------     -------
     Income (loss) before provision
       (benefit) for income
       taxes.......................    1,588        561       (288)     5,654       3,868       4,419
Provision (benefit) for income
  taxes............................      612        222       (105)     2,210       1,512       1,914
                                     -------    -------    -------    -------     -------     -------
Net income (loss)..................  $   976    $   339    $  (183)   $ 3,444     $ 2,356     $ 2,505
                                     =======    =======    =======    =======     =======     =======
Net income per share...............                                               $   .44     $   .39
Average common shares
  outstanding......................                                                 5,400(2)    6,379
</TABLE>

<TABLE>
<CAPTION>
                                      1992       1993       1994       1995                    1996
                                     -------    -------    -------    -------                 -------
<S>                                  <C>        <C>        <C>        <C>                    <C>
BALANCE SHEET DATA:
Working capital....................  $  (139)   $   (27)   $ 2,645    $ 3,436                 $10,248
Total assets.......................    3,428      4,629      7,546     11,874                  23,333
Short-term debt....................       21         23         26         --                      --
Long-term debt.....................      365        342        316         --                      --
Stockholders' equity(3)............    1,987      3,182      6,121      8,458                  19,366
</TABLE>

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

(1) The pro forma statement of operations data presents the results of the
    Company after giving effect to the following, as if each had occurred as of
    January 1, 1995: (i) interest expense of $1.1 million (less $304,000
    allocated interest expense to the Company) related to dividends to Nashua in
    the form of certain promissory notes payable to Nashua in the aggregate
    original principal amount of approximately $11.1 million; (ii) the
    elimination of a $227,000 corporate charge paid to Nashua; and (iii) the
    inclusion of $1.2 million in estimated selling, general and administrative
    expenses that would have been incurred if the Company were an independent
    public company during 1995.

(2) Reflects shares outstanding as of December 31, 1995, giving effect to a
    stock split. See Stockholders' Equity and Parent Company Investment Notes to
    the Financial Statements.

(3) Represents parent company investment at December 31, 1992, 1993, 1994 and
    1995 and stockholders' equity at December 31, 1996.

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

     Information required not included hereunder by this item may be found in
the section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing in the 1996 Annual Report to
Shareholders, and is incorporated herein by reference. (1)

MATTERS AFFECTING FUTURE RESULTS

     This Report contains certain forward-looking statements, including the
statement below regarding the possible impact of cancellation of orders by a
major customer and backwards integration within the industry towards the
manufacture of aluminum disk substrates. Moreover, from time to time in both
written releases and reports and oral statements, the Company and its Senior
Management may express expectations regarding

                                       12
<PAGE>   13

future performance of the Company. All of these "forward-looking statements" are
inherently uncertain, and investors must recognize that actual events could
cause actual results to differ materially from Senior Management's expectations.
Key risk factors that could, in particular, have an adverse impact on current
and future performance include the Company's dependence on a small number of
customers, as witnessed by the cancellation of orders in July 1996 by one of the
Company's two largest customers, a trend toward vertical integration among
thin-film disk manufacturers that may reduce demand for the Company's products,
as evidenced by the Company's largest customer in 1996, dependence on the
intensely competitive and cyclical hard-disk drive industry, absence of
long-term purchase commitments from the Company's customers and risk of excess
industry capacity.

     With respect to forward-looking statements contained herein, we urge our
shareholders to read Cerion's Annual Report and other reports filed with the
Securities and Exchange Commission, including forms 10-Q and the Company's
Prospectus dated May 24, 1996.

FACTORS THAT AFFECT FUTURE RESULTS

     Dependence on a Small Number of Customers.  Aluminum disk substrates, all
sales of which were to thin film disk manufacturers, represented over 95% of the
Company's sales in 1996 and 1995. The Company's aluminum disk substrate
customers in 1996 were primarily HMT, StorMedia, Trace and Seagate which
represented approximately 45%, 30%, 11% and 6%, respectively, of the Company's
aluminum disk substrate sales. There are a relatively small number of thin film
disk manufacturers worldwide. Because many of these thin film disk manufacturers
supply all or part of their aluminum disk substrate needs either through captive
suppliers or vertically integrated operations, the Company believes that its
dependence in this business on a few customers will continue in the future. The
Company's customer base, and each customer's relative importance, fluctuated
significantly during 1996 and may continue to fluctuate. The loss of one or more
of the Company's customers or potential customers through consolidations,
adverse financial circumstances or otherwise, could have a material adverse
effect on the Company's business, results of operations and financial condition.
In 1996, StorMedia announced that it would produce aluminum disk substrates, as
part of the production of nickel plated and polished substrates, at a new
manufacturing facility in Singapore. Subsequent to this announcement, in July
the Company announced the cancellation of subsequent orders from StorMedia
because of a loss of orders from StorMedia's largest customer, not because of
StorMedia's internal capability to manufacture aluminum disk substrates in
Singapore. In addition, HMT acquired a facility in Oregon for aluminum disk
substrate production, as well as for nickel plating and polishing. HMT expanded
the capacity of this facility and regular shipments to HMT ceased in December
1996. The internal production of aluminum disk substrates by the Company's
principal customers resulted in 1996 in the reduction or elimination of
purchases from the Company and could result in the future in further reduction
or elimination of purchases from the Company or the sale by such customers of
aluminum disk substrates in competition with the Company. Moreover, the decision
by one or more of the Company's customers to move to a single supply source
could materially adversely affect the Company if the Company were not chosen as
the single supply source. Similarly, a decision by one or more of the Company's
customers to expand its base of suppliers could result in that customer reducing
its purchases from the Company and materially adversely affect the Company's
business, results of operations and financial condition. For example, in 1994
StorMedia shifted a significant portion of its demand to a competitor of the
Company to eliminate the Company's sole-supplier status, which significantly
affected the Company's results of operations.

     There also has been a trend toward consolidation in the disk drive
industry, which the Company expects to continue. For example, in 1995 two
leading disk drive manufacturers, Seagate and Conner, merged to form the world's
largest disk drive manufacturing company. If any of the Company's customers or
competitors were to combine, it would result, among other things, in a reduction
of the number of their suppliers or increased pricing pressures, which could
materially adversely affect the Company's business, operating results and
financial condition.

     There can be no assurance that the Company's current customers will
continue to place orders with the Company, that orders by existing customers
will continue at the levels of previous periods or that customers will not
cancel existing orders (which they did in 1996 and may generally do without
penalty), nor can there be any assurance that the Company will be able to obtain
orders from new customers. The level of orders for

                                       13
<PAGE>   14

aluminum disk substrates also depends on the production levels of thin film disk
manufacturers, which may be subject to disruptions and delays as well as
fluctuations in market demand. The loss of one or more of the Company's current
customers or a significant reduction in the level of their orders could
materially adversely affect the Company's business, operating results and
financial condition.

     Dependence on Intensely Competitive and Cyclical Hard Disk Drive Industry;
Price Reductions.  The demand for the Company's aluminum substrates for thin
film disks depends solely upon the demand for hard disk drives, which in turn
depends on the demand for new personal computers, storage upgrades and add-ons
to existing computers and the growing use of sophisticated network servers. The
disk drive industry is cyclical and historically has experienced periods of
oversupply and reduced production levels, resulting in significantly reduced
demand for thin film disks, as well as pricing pressures, as evidenced by recent
market price reductions as much as 20 percent in the third and fourth quarters
of 1996. The effect of these cycles on suppliers, including manufacturers of
thin film disks and aluminum disk substrates, has been magnified by the hard
disk manufacturers' practice of ordering components, including thin film disks,
in excess of their current needs during periods of rapid growth. In recent
years, the disk drive industry has experienced significant growth, and the
Company has expanded its capacity. There can be no assurance that growth in the
disk industry will continue at recent rates or at all, that the level of demand
for disk drives will not decline, or that future demand will be sufficient to
support existing and future capacity. In addition, the growth rate of personal
computer unit sales may decline, which may adversely affect the demand for hard
disk drives. A decline in demand for hard disk drives could reduce the Company's
sales of its primary product line and have a material adverse effect on the
Company's business, operating results and financial condition.

     Absence of Long-Term Purchase Commitments.  As is customary in this
industry, the Company's sales are usually made pursuant to purchase orders which
are subject to cancellation, modification or rescheduling generally without
penalties. Customers typically provide the Company with forecasts of expected
requirements for the next three- to six-month period and submit purchase orders
or releases 14 to 60 days in advance of shipment dates. In the past, certain
forecasts of the Company's customers have failed to materialize or have been
altered and delivery schedules have been deferred. For instance, in 1994 and
1996, sharp reductions in two large customers' orders adversely affected the
Company's results of operations. Changes in forecasts, rescheduling and quantity
reductions may result in inventory losses and under-utilization of production
capacity. From time to time, customers have changed certain specifications or
standards for their products, resulting in lower production yields, higher
manufacturing costs and lower productivity and margins than anticipated by the
Company.

     Risk of Excess Industry Capacity.  The Company believes that Kobe
Precision, Inc., a subsidiary of Kobe Steel, Ltd., is attempting to increase
aluminum substrate manufacturing capacity. Kobe is the Company's primary
competitor among independent aluminum disk substrate manufacturers. The Company
increased its own manufacturing capacity in 1996, and some or most of the
vertically integrated, thin film disk or hard drive manufacturers did the same
in 1996 and are expected to continue in the future, including the Company's two
largest customers in 1996: HMT and StorMedia. These efforts may result in
significant additional capacity in the industry within the next one to two
years. The Company has already faced increased pricing pressures in the latter
half of 1996, with price reductions as much as 20 percent. To the extent the
efforts described above result in industry capacity in excess of levels of
demand, the Company could experience increased levels of competition and
increased pricing pressures, which could have a material adverse effect on the
Company's business, results of operations and financial condition.

     Intense Competition Among Manufacturers of Aluminum Disk Substrates.  The
Company believes that Kobe is its primary competitor among independent aluminum
disk substrate manufacturers. Kobe has significantly greater financial,
technical and marketing resources than the Company. In addition, Kobe has an
advantage in that it is supplied by an affiliated company with the aluminum
blanks from which its aluminum disk substrates are manufactured. Moreover,
Seagate, HMT and several other industry participants currently produce aluminum
disk substrates internally for their own use, and the Company believes that a
majority of the thin film disk market currently is supplied by such vertically
integrated manufacturers. These companies could make their products available
for distribution into the market as direct competitors of the Company.
Additionally, the Company's principal current aluminum disk substrate customer
announced in 1996 that they

                                       14
<PAGE>   15

will produce aluminum disk substrates for internal use. Any of these changes
could reduce the already small number of current and potential customers for the
Company's products and increase competition for the remaining market.

     Moreover, the aluminum disk substrate industry is characterized by intense
price competition. Although the Company's products compete on the basis of
availability and quality, price also is an important competitive factor as
evidenced by recent market price reductions as much as 20 percent in the second
half of 1996. Any increase in price competition will have a material adverse
effect on the Company's gross margins and on its business, operating results and
financial condition. There can be no assurance that the Company will be able to
continue to compete successfully with existing or new competitors.

     Although the Company believes its products are competitive, the Company
also believes that certain factors have had a negative impact on its products'
competitiveness. The Company currently lacks the capability to nickel plate and
polish its substrates, a capability considered important by certain customers.
Moreover, the Company's manufacturing facility in Illinois is a significant
distance from its principal customers. The Company's manufacturing process also
is more labor intensive than a number of its competitors and, as a result, may
be more adversely affected by rising labor costs.

     Lengthy Qualification Process for New Products and Changes in Manufacturing
Processes.  The Company is required to work closely with manufacturers in the
thin film disk industry in order to become qualified as a supplier. In addition,
changes in products or, in certain cases, manufacturing processes, also may
require additional customer qualification. Qualifying aluminum disk substrates
requires the Company to work extensively with the customer to meet product
specifications. Therefore, customers often require a significant number of
product presentations and demonstrations as well as substantial interaction with
the Company's senior management before making a purchasing decision.
Accordingly, the Company's products typically have a lengthy sales cycle during
which the Company may expend substantial financial resources and management time
and effort with no assurance that a sale will result. In the event the Company's
products do not become qualified for a particular product development program on
a timely basis, the Company could be excluded as a supplier of aluminum disk
substrates for such program entirely or could become a secondary source of
supply for such program, which typically results in lower sales. In addition,
the Company may be prevented or delayed from making certain manufacturing
process improvements due to the qualification process. Such failure to become
qualified or timely qualified could have a material adverse effect on the
Company's business, operating results and financial condition.

     Dependence on Suppliers.  The Company relies on Alcoa as its sole supplier
of the aluminum blanks used by it for producing aluminum disk substrates. It
also relies on a sole supplier for the aluminum drum blanks used for its OPC
drum substrates, and on a limited number of suppliers for certain materials used
in its aluminum disk and OPC drum substrate manufacturing processes, including
etching chemicals and coolants. The Company does not have any long-term supply
contracts with Alcoa or any of its other major suppliers. Changing suppliers for
certain materials would be expensive and require long lead times. For certain
materials, a change in supplier could result in the Company being required to
requalify its products with certain of its customers. Any significant
limitations on the supply of raw materials could disrupt, limit or halt the
Company's production of aluminum disk substrates or OPC drum substrates and
could have a material adverse effect on the Company's business, operating
results and financial condition. Further, a significant increase in the price of
one or more of these components also could materially adversely affect the
Company's business, results of operations and financial condition.

     Future Capital Needs.  Based upon anticipated cash flows from operating
activities, remaining proceeds from the initial public offering completed in
1996 and credit availability, the Company believes that it has the liquidity and
capital resources needed to meet its financial commitments through 1997. Unless
the Company achieves substantial cost improvements, increased demand and no
further price reductions beyond year end levels, the Company expects it will
continue to incur net losses and negative cash flows from operating activities.
Without such cost improvements and increased demand, at present cost levels and
planned capital expenditures of approximately $4.0 million annually, the Company
over an extended period of time will exhaust all or substantially all of its
cash resources and borrowing availability under its credit facility. In such

                                       15
<PAGE>   16

event, the Company would be required to pursue other alternatives to improve
liquidity, including further cost reductions, sales of assets, the deferral of
certain capital expenditures and obtaining additional sources of funds. No
assurance can be given that the Company will be able to successfully pursue such
alternatives.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information with respect to this item may be found in the Financial section
of the 1996 Annual Report to Shareholders on pages 7 through 23, and is
incorporated herein by reference. (1)

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

     None
---------------

     (1) The Company's 1996 Annual Report to Shareholders is not to be deemed
filed as part of this report except for those parts thereof specifically
incorporated by reference.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required not included hereunder with respect to Directors and
compliance with Section 16(a) of the Securities Exchange Act may be found in the
sections captioned "Proposal No. 1 -- Election of Directors" and "Executive
Compensation and Other Information Concerning Directors and Executive Officers"
appearing in the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on May 7, 1997.
Such information is incorporated herein by reference.

     The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
                NAME                   AGE                       POSITIONS
-------------------------------------  ---   -------------------------------------------------
<S>                                    <C>   <C>
David A. Peterson....................   57   Chief Executive Officer, President and Director
Michael F. Brown.....................   38   Vice President-Marketing
Richard A. Clark.....................   32   Chief Financial Officer, Vice President-Finance
                                             and Treasurer
Paul A. Harter.......................   31   Vice President-Operations
William A. Hughes....................   34   Vice President-Product Development
Gerald G. Garbacz (2)................   59   Chairman of the Board of Directors
Joseph A. Baute (2)..................   69   Director
Sheldon A. Buckler (1)...............   66   Director
Daniel M. Junius (1).................   44   Director
Ross W. Manire (2)...................   45   Director
</TABLE>

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

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

     The following is a biographical summary of the experience of the executive
officers, key employees and existing directors of the Company.

     David A. Peterson is a co-founder of the original operations of the Company
and has served as Chief Executive Officer, President and a director of the
Company since its incorporation on December 31, 1995. From December 1991 through
December 1995, Mr. Peterson served as General Manager of the Precision
Technologies division of Nashua, the predecessor of the Company. From April 1991
until December 1991 he served as Vice President-Operations of the Thin Film unit
of the Computer Products Division of Nashua. From July 1986 until April 1991,
Mr. Peterson served as Vice President-Manufacturing of Disk-Tec (acquired

                                       16
<PAGE>   17

by Nashua in July 1986 and became the Precision Technologies division of
Nashua). From June 1982 until July 1986 he served as Director of Operations of
Disk-Tec.

     Michael F. Brown has served as Vice President-Marketing of the Company
since February 1996. From December 1995 until February 1996, Mr. Brown served as
Market Development Manager of the Company. From September 1991 to December 1995,
Mr. Brown was the Director of Sales and Marketing for Frisby Manufacturing Co.,
a precision-component manufacturer for the automotive and home appliance
industries. From January 1986 to August 1991, Mr. Brown served as Manufacturer's
Representative of J.A. Shoemaker & Associates, a manufacturing company.

     Richard A. Clark has served as Chief Financial Officer, Vice
President-Finance and Treasurer of the Company since March 1996. From May 1995
through March 1996, Mr. Clark served as Director of Internal Audit of Nashua.
From January 1992 to May 1995, Mr. Clark served as Manager within the Business
Assurance practice of the accounting firm of Coopers & Lybrand L.L.P. From July
1988 to January 1992, Mr. Clark was a Senior Associate with Coopers and Lybrand
L.L.P. Mr. Clark is a certified public accountant.

     Paul A. Harter has served as Vice President-Operations of the Company since
February 1996. From August 1994 until February 1996 Mr. Harter served as
Director of Operations of the Company. From July 1987 to August 1994, Mr. Harter
served the Company in various management and staff positions.

     William A. Hughes has served as Vice President-Product Development of the
Company since February 1996. Mr. Hughes has served the Company as Director of
Product Development from September 1995 until February 1996, Product Development
Manager from December 1993 to September 1995, Technical Supervisor from June
1989 until December 1993, and in a variety of other management and staff
positions from June 1983 until June 1989.

     Gerald G. Garbacz has served as director of the Company since January 1996,
and has been President and Chief Executive Officer since January 1996 and became
Chairman in March 1996 of Nashua Corporation. From 1994 through 1995, Mr.
Garbacz was a private investor. He was Chairman and Chief Executive Officer of
Baker & Taylor Inc., an information distribution company from 1992 to 1994 and
Executive Vice President of W.R. Grace & Co. from 1990 to 1992. He is also a
Director of Handy & Harman Inc.

     Joseph A. Baute has served as a director of the Company since March 1996.
Mr. Baute served as a Director of Nashua from 1984 through June 1996, as
Chairman of its Board of Directors from April 1995 through June 1996, and in an
interim capacity as its President and Chief Executive Officer from November 1995
through December 1995. From 1979 until his retirement in 1993, Mr. Baute served
as Chairman and Chief Executive Officer of Markem Corporation, an information
application systems company. Mr. Baute is director of Houghton Mifflin Company,
State Street Boston Corporation, INSO Corporation and several private
corporations. He also is a former director and Chairman of the Federal Reserve
Bank of Boston and a former director and past Chairman of the Board of Directors
of the The New England Council for Economic Development.

     Sheldon A. Buckler has served as a director of the Company since March
1996. Mr. Buckler has been Chairman of the Board of Commonwealth Energy System
since May 1995. He was Vice Chairman of the Board of Polaroid Corporation from
1990 until his retirement in 1994. He is also a Director of Nashua Corporation,
ASECO Corporation, PARLEX Corporation and Spectrum Information Technologies,
Inc.

     Daniel M. Junius has served as a director of the Company since January
1996. Mr. Junius has served as Vice President-Finance and Treasurer of Nashua
since September 1995 and as Treasurer of Nashua since 1985.

     Ross W. Manire has served as a director since February 1997. Mr. Manire has
served as Senior Vice President and General Manager of the Networks Products
Division of U.S. Robotics, Inc. since May 1995 and served as its Senior Vice
President-Operations and Chief Financial Officer from early 1993 through May
1995.

                                       17
<PAGE>   18

U.S. Robotics, Inc. is an international designer, manufacturer and marketer of
high performance information access products. Mr. Manire is a director of Seaton
Corporation and the Machaira Group.

     The executive officers of the Company are Messrs. Peterson, Harter, Clark,
Hughes and Brown. Officers are elected on an annual basis to serve at the
discretion of the Board of Directors.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required with respect to this item may be found in the
sections captioned "Executive Compensation and Other Information Concerning
Directors and Executive Officers" appearing in the definitive Proxy Statement to
be delivered to shareholders in connection with the Annual Meeting of the
Stockholders to be held on May 7, 1997. Such information is incorporated herein
by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required with respect to this item may be found in the
section captioned "Security Ownership of Management and Directors" and "Security
Ownership of Certain Beneficial Owners and Management" appearing in the
definitive Proxy Statement to be delivered to shareholders in connection with
the Annual Meeting of Shareholders to be held on May 7, 1997. Such information
is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required with respect to this item may be found in the
section captioned "Certain Transactions" appearing in the definitive Proxy
Statement to be delivered to shareholders in connection with the Annual Meeting
of Shareholders to be held on May 7, 1997. Such information is incorporated
herein by reference.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) DOCUMENTS FILED AS PART OF FORM 10-K

1.  FINANCIAL STATEMENTS.

     The following financial statements and supplementary data are included in
Part II Item 8 filed as part of this report:

        -  Balance Sheets as of December 31, 1996 and 1995

        -  Statements of Operations for the years ended December 31, 1996, 1995
           and 1994

        -  Statements of Cash Flows for the years ended December 31, 1996, 1995
           and 1994

        -  Notes to Financial Statements

        -  Quarterly Financial Information (unaudited)

        -  Report of Independent Accountants

2.  FINANCIAL STATEMENT SCHEDULE.

        -  Schedule II - Valuation and Qualifying Accounts

Schedules not listed above have been omitted because they are not applicable,
not required or the information required is shown in the financial statements or
the notes thereto.

                                       18
<PAGE>   19

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE
                        --------------------------------

To the Board of Directors of
Cerion Technologies Inc.

Our audits of the financial statements referred to in our report dated February
3, 1997 (except as to the "Revolving Credit Facility" note, which is as of March
7, 1997) appearing in the 1996 Annual Report to Shareholders of Cerion
Technologies Inc. (which report and financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.

PRICE WATERHOUSE LLP

Chicago, Illinois
February 3, 1997, except as to the
     "Revolving Credit Facility" note,
     which is as of March 7, 1997

                                       19
<PAGE>   20

3.  LIST OF EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                        DESCRIPTION
------     ----------------------------------------------------------------------------------
<C>        <S>
  2.1(a)   Capital Contribution Agreement.
  3.1(a)   Amended and Restated Certificate of Incorporation of the Registrant.
  3.2(a)   Amended and Restated By-Laws of Cerion Technologies Inc.
  4.1(a)   Specimen Certificate for shares of Cerion Technologies Inc.'s Common Stock.
 10.1(a)   Form of Tax Allocation Agreement between Cerion Technologies Inc. and Nashua
           Corporation.
 10.2(a)   Form of Registration Rights Agreement between Cerion Technologies Inc. and Nashua
           Corporation.
 10.3(a)   Form of Intercompany Agreement between Cerion Technologies Inc. and Nashua
           Corporation.
 10.4(a)   1996 Stock Incentive Plan.
 10.5(a)   Form of One-Year Vesting Option Agreement.
 10.6(a)   Form of Performance-Accelerated Option Agreement.
 10.7      Financing Agreement, dated as of March 7, 1997 between Cerion Technologies Inc.,
           and The CIT Group/Business Credit, Inc.
 10.8      Mortgage, Security Agreement, Financing Statement and Assignment of Rents and
           Leases by and between Cerion Technologies Inc. and The CIT Group/Business Credit,
           Inc..
 10.9(b)   Employment Contract between Cerion Technologies Inc. and David Peterson as
           President and Chief Executive Officer.
 10.10(b)  Form of Employment Contract between Cerion Technologies Inc. and the four
           remaining executive officers of the Company.
 11.1      Computation of net income per common share.
  27.      Financial Data Schedule (EDGAR version only).
 99.1      Financial Section of the 1996 Annual Report to Shareholders, pages 11 through 23.
</TABLE>

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

(a) Incorporated by Reference to Form S-1 filed on March 21, 1996 amended on
    April 25, 1996, File No. 333-2590.

(b) Incorporated by Reference to Form 10-Q filed for the quarter ended September
    27, 1996 (Exhibits 10.9, and 10.10 originally filed as Exhibits 10.1 and
    10.2, respectively).

(B) REPORTS ON FORM 8-K

     The Company filed no reports on Form 8-K during the quarter ended December
     31, 1996.

                                       20
<PAGE>   21

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            CERION TECHNOLOGIES INC.

                                            By:     /s/ RICHARD A. CLARK
                                              ----------------------------------
                                                       RICHARD A. CLARK
                                                VICE PRESIDENT-FINANCE, CHIEF
                                                FINANCIAL OFFICER AND TREASURER

     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
                SIGNATURE                               CAPACITY                    DATE
------------------------------------------  ---------------------------------  ---------------
<C>                                         <S>                                <C>

          /s/ DAVID A. PETERSON             President and Chief Executive      March 24, 1997
------------------------------------------  Officer (Principal Executive
            DAVID A. PETERSON               Officer) and Director

           /s/ RICHARD A. CLARK             Chief Financial Officer, Vice      March 24, 1997
------------------------------------------  President-Finance, and Treasurer
             RICHARD A. CLARK               (Principal Financial and
                                            Accounting Officer)

           /s/ JOSEPH A. BAUTE*             Director
------------------------------------------
             JOSEPH A. BAUTE

         /s/ SHELDON A. BUCKLER*            Director
------------------------------------------
            SHELDON A. BUCKLER

          /s/ GERALD G. GARBACZ*            Director
------------------------------------------
            GERALD G. GARBACZ

          /s/ DANIEL M. JUNIUS*             Director
------------------------------------------
             DANIEL M. JUNIUS

           /s/ ROSS W. MANIRE*              Director
------------------------------------------
              ROSS W. MANIRE

         By /s/ RICHARD A. CLARK                                               March 24, 1997
------------------------------------------
            *RICHARD A. CLARK
           AS ATTORNEY-IN-FACT
</TABLE>

                                       21
<PAGE>   22

                                                                     SCHEDULE II

                           CERION TECHNOLOGIES, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        COLUMN C - ADDITIONS
                                       COLUMN B     -----------------------------
                                     ------------    PROVISION                        COLUMN D
             COLUMN A                 BALANCE AT        FOR        RECOVERIES FOR   -------------     COLUMN E
-----------------------------------   BENGINNING     BAD DEBTS        ACCOUNTS      UNCOLLECTIBLE   -------------
  ALLOWANCE FOR DOUBTFUL ACCOUNTS         OF        AND CUSTOMER     PREVIOUSLY       ACCOUNTS       BALANCE AT
       AND CUSTOMER RETURNS             PERIOD        RETURNS       WRITTEN-OFF      WRITTEN-OFF    END OF PERIOD
-----------------------------------  ------------   ------------   --------------   -------------   -------------
<S>                                  <C>            <C>            <C>              <C>             <C>
Year ended December 31, 1996.......      $ 51           $187              0              $ 4            $ 234
Year ended December 31, 1995.......        36             21              0                6               51
Year ended December 31, 1994.......        15             21              0                0               36
</TABLE>

<TABLE>
<CAPTION>
                                      BALANCE AT     PROVISION     RECOVERIES FOR
                                      BENGINNING        FOR          INVENTORY      UNCOLLECTIBLE
                                          OF         INVENTORY       PREVIOUSLY       INVENTORY      BALANCE AT
    INVENTORY VALUATION RESERVE         PERIOD       VALUATION      WRITTEN-OFF      WRITTEN-OFF    END OF PERIOD
-----------------------------------  ------------   ------------   --------------   -------------   -------------
<S>                                  <C>            <C>            <C>              <C>             <C>
Year ended December 31, 1996.......      $ 50           $419              0                0            $ 469
Year ended December 31, 1995.......        19             31              0                0               50
Year ended December 31, 1994.......        50              0              0               31               19
</TABLE>

<TABLE>
<CAPTION>
                                                                   RECOVERIES FOR
                                      BALANCE AT     PROVISION      DEFERRED TAX
                                      BENGINNING        FOR            ASSET        DEFERRED TAX
        DEFERRED TAX ASSET                OF          DEFERRED       PREVIOUSLY         ASSET        BALANCE AT
        VALUATION ALLOWANCE             PERIOD       TAX ASSET      WRITTEN-OFF      WRITTEN-OFF    END OF PERIOD
-----------------------------------  ------------   ------------   --------------   -------------   -------------
<S>                                  <C>            <C>            <C>              <C>             <C>
Year ended December 31, 1996.......         0           $147              0                0            $ 147
Year ended December 31, 1995.......         0              0              0                0                0
Year ended December 31, 1994.......         0              0              0                0                0
</TABLE>

                                       22