<PAGE>   1
                                                                    Exhibit 99.1

                            Statements of Operations


<TABLE>
<CAPTION>

                                                                          Years ended December 31,
                                                            -------------------------------------------------
(In thousands, except per share data)                          1997                 1996                 1995
-------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                  <C>
Net sales                                                   $31,810              $36,540              $28,175
Cost of sales                                                26,606               26,729               19,668
                                                            -------------------------------------------------
   Gross profit                                               5,204                9,811                8,507
Selling, general and administrative expenses                  4,405                5,561                2,537
                                                            -------------------------------------------------
   Operating income                                             799                4,250                5,970
Interest income (expense)                                       366                  169                 (316)
                                                            -------------------------------------------------
   Income before provision for income taxes                   1,165                4,419                5,654
Provision for income taxes                                      338                1,914                2,210
                                                            -------------------------------------------------
Net income                                                  $   827              $ 2,505              $ 3,444
                                                            =================================================
Net income per share, basic and diluted                     $   .12              $   .39              $   .64
Average shares outstanding                                    7,024                6,379                5,400
                                                            -------------------------------------------------
</TABLE>

The notes are an integral part of the financial statements.



                                       12

<PAGE>   2


                                 Balance Sheets

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                      --------------------------
(In thousands, except share and per share data)                                          1997               1996
----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>

Assets
Current Assets:
   Cash and cash equivalents                                                          $ 4,588            $ 9,300
   Accounts receivable, net of allowances for doubtful
      accounts and customer returns of $385 and $234, respectively                     10,271              2,928
   Inventories                                                                            726              1,046
   Prepaid expenses and other assets                                                      208                395
   Deferred income taxes                                                                  637                273
                                                                                      --------------------------
         Total current assets                                                          16,430             13,942
Property, plant and equipment, net                                                      8,769              9,391
Other assets                                                                               66                  -
                                                                                      --------------------------
                                                                                      $25,265            $23,333
                                                                                      ==========================

Liabilities and Stockholders' Equity
Current Liabilities:
   Accounts payable and accrued expenses                                              $ 4,666            $ 3,694
                                                                                      --------------------------
         Total current liabilities                                                      4,666              3,694
Deferred income taxes                                                                     366                273
Commitments and contingencies
Stockholders' equity:
   Preferred Stock, par value $.01 per share, 100,000
      shares authorized, none issued                                                        -                  -
   Common Stock, par value $.01 per share, 20,000,000
      shares authorized; 7,028,337 and 7,016,184 shares issued 
      and outstanding, respectively                                                        70                 70
   Additional paid-in capital                                                          18,679             18,639
   Retained earnings                                                                    1,484                657
                                                                                      --------------------------
         Total stockholders' equity                                                    20,233             19,366
                                                                                      --------------------------
                                                                                      $25,265            $23,333
                                                                                      ==========================
</TABLE>

The notes are an integral part of the financial statements.

                                       13

<PAGE>   3



                            Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                  Years ended December 31,
                                                                    ------------------------------------------------
(In thousands)                                                         1997                 1996                1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>                  <C>
Cash flows provided by (used in) operating activities:
Net income                                                          $   827             $  2,505             $ 3,444
Adjustments to reconcile net income to cash 
   provided by (used in) operating activities:
      Depreciation                                                    2,466                2,099               1,035
      Loss on disposal of property, plant and equipment                 201                    -                   -
      Deferred income taxes                                            (271)                (249)                158
      Changes in operating assets and liabilities:
         Accounts receivable                                         (7,343)               3,002              (2,956)
         Inventories                                                    320                 (734)                109
         Accounts payable and accrued expenses                          972                  621               2,152
         Prepaid expenses and other assets                              187                 (413)                 31
                                                                    ------------------------------------------------
Net cash provided by (used in) operating activities                  (2,641)               6,831               3,973
                                                                    ------------------------------------------------

Cash flows provided by (used in) investing activities:
   Additions to property, plant and equipment                        (2,164)              (6,107)             (2,564)
   Proceeds from sale of property, plant and equipment                  153                    -                 114
   Purchase of short-term investments                                (6,750)              (4,496)                  -
   Proceeds from redemption of short-term investments                 6,750                4,496                   -
                                                                    ------------------------------------------------
Cash flows used in investing activities                              (2,011)              (6,107)             (2,450)
                                                                    ------------------------------------------------

Cash flows provided by (used in) financing activities:
   Payments to parent company                                             -                    -              (1,107)
   Debt issuance costs                                                 (100)                   -                   -
   Repayment of borrowings                                                -              (11,142)               (342)
   Proceeds from shares issued                                           40               19,545                   -
                                                                    ------------------------------------------------
Cash flows provided by (used in) financing activities                   (60)               8,403              (1,449)
                                                                    ================================================

Increase (decrease) in cash                                          (4,712)               9,127                  74
Cash at beginning of year                                             9,300                  173                  99
                                                                    ------------------------------------------------
Cash at end of year                                                 $ 4,588             $  9,300             $   173
                                                                    ================================================

Supplemental disclosure of cash flow information:

   Interest paid                                                    $     -             $     14             $   316
   Income taxes paid                                                    236                  226                   -
                                                                    ------------------------------------------------
</TABLE>

                                       14
<PAGE>   4


                        Notes to the Financial Statements

                             Description of Business

Business Definition: Until its initial public offering in May 1996, the business
of Cerion Technologies Inc. (the "Company") had been operated by Nashua
Corporation ("Nashua" or the "Parent") since its acquisition in 1986 by Nashua.
As of December 31, 1995, Nashua converted the Company into a wholly owned
subsidiary of Nashua and contributed to it the business of the Nashua Precision
Technologies division in return for the Company's stock and its assumption of
the liabilities of the business. The Company was renamed Cerion Technologies
Inc. on March 4, 1996.

    The Company develops, manufactures and markets precision-machined aluminum
disk substrates that are used in the production of magnetic thin-film disks for
hard disk drives of portable and desktop computers, network servers, add-on
storage devices and storage upgrades. The Company operates in one business
segment. All sales are denominated in U.S. dollars.

Basis of Presentation: The accompanying financial statements for the year ended
December 31, 1995 and the period January 1, 1996 through May 24, 1996, have been
prepared as if the Company had operated as an independent, stand-alone entity.
Such financial statements have been prepared using the historical basis of
accounting and include all of the assets, liabilities, revenues and expenses of
the Company previously included in Nashua's consolidated financial statements;
however, certain adjustments have been made to reflect the operations of the
Company on a stand-alone basis. Consequently, these statements include balances
for other assets and liabilities related to the Company that were previously
included in Nashua's consolidated financial statements except that there is no
allocation to the Company of Nashua's borrowings. However, an allocation of
Nashua's interest expense has been recorded as determined based upon the
Company's net assets as a proportion of Nashua's consolidated net assets.
Management believes that the basis for such allocations is reasonable. The
Company's results of operations were included in Nashua's federal, state and
local income tax returns through May 24, 1996. See "Parent Company Investment"
in the following notes. In accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 55 ("SAB 55"), these statements have been adjusted
to include certain corporate expenses incurred by the Parent on the Company's
behalf. The financial statements may not necessarily present the Company's
financial position and results of operations as if the Company were a
stand-alone entity. Beginning on May 24, 1996, the Company's financial
statements have been presented on a stand-alone basis.

                   Summary of Significant Accounting Policies

Inventories: The Company values all of its inventories at the lower of cost or
market on a first-in, first-out basis (FIFO).

Property, Plant and Equipment, Net: Property, plant and equipment is recorded at
cost. Expenditures for maintenance and repairs are charged to expense while the
costs of significant improvements are capitalized. Depreciation is provided
using the straight-line method. Upon retirement or sale, the cost of assets
disposed and the related accumulated depreciation are eliminated and related
gains or losses reflected in the statement of operations. The estimated useful
lives of the assets are as follows:

--------------------------------------------------------------------------------
Buildings and improvements                                       10 to 40 years
Machinery and equipment                                           4 to 10 years
Furniture and fixtures                                            3 to 10 years
Shipping containers                                                     2 years

Revenue Recognition: Sales of products are recorded based on product shipment to
customers.



                                       15


<PAGE>   5

Research, Development and Engineering: Included in selling, general and
administrative expenses are research, development and engineering expenditures
of $567,000, $1,071,000 and $648,000 for the years ended December 31, 1997, 1996
and 1995, respectively. Research, development and engineering expenditures are
charged to operations as incurred.

Income Taxes: The results of the Company's operations have been included in the
federal and state consolidated income tax returns of the Parent for the year
ended December 31, 1995 and the provision for income taxes has been calculated
as if the Company was a stand-alone taxpayer.

    Prepaid or deferred income taxes result principally from the use of
different methods of depreciation for income tax and financial reporting
purposes, the recognition of expenses for financial reporting purposes in years
different from those in which the expenses are deductible for income tax
purposes and the recognition of the tax benefit of net operating losses.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1997 and 1996
and the reported amounts of net sales and expenses during the three years in the
period ended December 31, 1997. Actual results could differ from those
estimates.

Cash Equivalents: The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to be cash
equivalents. At December 31, 1997 and 1996, the Company held $4.6 million and
$7.4 million, respectively, of various commercial paper instruments carried at
cost, which approximated market.

Accounting for Stock-Based Compensation: In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company
adopted SFAS 123 through disclosure only.

Impairment of Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"). The initial adoption of SFAS 121 had no impact on
the Company's financial statements.

Net Income Per Share: In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). The adoption of SFAS 128 had no impact on the calculation of net
income per share for the periods presented. Net income per share for the periods
presented is determined by dividing the applicable net income by the weighted
average number of common shares outstanding during the period. For periods prior
to the initial public offering, the weighted average number of common shares
outstanding was assumed to be the number of shares issued to Nashua on December
31, 1995. Options to purchase shares were outstanding during the years ended
December 31, 1997 and 1996 but were not included in the diluted earnings per
share computation because the exercise price exceeded the average market price
for the period.

Reclassifications: Certain amounts within the footnotes related to the
classification of Research, Development and Engineering Expenses and Accounts
Payable and Accrued Expenses in the prior years' consolidated financial
statements have been reclassified to conform with the current year presentation.
These reclassifications had no effect on previously reported net income.

                   Related Party Transactions and Allocations

Cash: The Company utilized Nashua's centralized cash management services until
May 30, 1996. Under arrangements with Nashua, excess cash generated by the
Company was retained by Nashua until May 24, 1996.



                                       16



<PAGE>   6

Product Sales: During the years ended December 31, 1997, 1996 and 1995, the
Company had sales of approximately $0, $208,000 and $645,000, respectively, to
divisions of Nashua. There were no amounts due from these divisions at December
31, 1997 and 1996. The Company believes that the product prices for such sales
were at market prices.

Corporate Services: In accordance with SAB 55, Nashua has allocated a portion of
its domestic corporate expenses and charges to its divisions, including the
Company through May 24, 1996. These expenses included management and corporate
overhead; benefit administration; risk management/insurance administration; tax
and treasury/cash management services; environmental services; litigation
administration services; and other support and executive functions. Allocations
and charges for services were based on either a direct cost pass-through or a
percentage allocation based on factors such as net sales, management time or
headcount. Such allocations and corporate charges totaled $147,000 and $227,000
for the years ended December 31, 1996 and 1995, respectively. The allocation and
charges ceased on May 24, 1996.

    Certain research and development expenses of the Parent related to the
Company's business were allocated to the Company in accordance with SAB 55.
These amounts totaled $70,000 and $69,000 for the years ended December 31, 1996
and 1995, respectively, and are included in selling, general and administrative
expenses.

    Management believes that the basis used for allocating corporate services
was reasonable. However, the terms of these transactions may have differed from
those that would have resulted from transactions among unrelated parties.
Management believes that related expenses that would have been incurred during
the year ended December 31, 1995 had the Company operated on a stand-alone basis
would have approximated $784,000 (unaudited).

    Employee fringe benefit expenses were allocated to the Company based on
Nashua's total benefits costs and the proportion of Nashua's total salaries and
wages represented by the Company's salaries and wages. Fringe benefit costs,
which are reflected in cost of sales and selling, general and administrative
expenses, include employer FICA and unemployment taxes, medical insurance and
annual accruals or contributions made for the Nashua Corporation Retirement Plan
for Salaried Employees, the Nashua Corporation Hourly Employees Retirement Plan
and the Nashua Corporation Employees' Savings Plan. See "Employee Retirement
Plans" in the following notes. The Company was allocated $168,000 and $290,000
for the years ended December 31, 1996 and 1995, respectively, for these
expenses. Management believes the allocation method for fringe benefit costs was
reasonable. Such allocation ceased on May 24, 1996.

                                   Inventories

Inventories consisted of the following:

                                                              December 31,
                                                         -----------------------
                                                             1997           1996
--------------------------------------------------------------------------------
Raw materials                                            $454,000     $  442,000
Work in progress                                           24,000         19,000
Finished goods                                            248,000        585,000
                                                         -----------------------
                                                         $726,000     $1,046,000
                                                         =======================



                                       17



<PAGE>   7

                          Property, Plant and Equipment

Property, plant and equipment consisted of the following:

                                                             December 31,
                                                      -------------------------
                                                             1997          1996
--------------------------------------------------------------------------------
Land                                                  $   260,000   $   260,000
Buildings and improvements                              3,908,000     3,908,000
Machinery and equipment                                 8,594,000     7,571,000
Furniture and fixtures                                    310,000       302,000
Construction in progress                                  253,000         4,000
Containers                                              1,950,000     1,882,000
                                                      -------------------------
                                                       15,275,000    13,927,000

Less: accumulated depreciation                         (6,506,000)   (4,536,000)
                                                      -------------------------
                                                      $ 8,769,000   $ 9,391,000
                                                      =========================

                      Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

                                                              December 31,
                                                       ------------------------
                                                             1997          1996
-------------------------------------------------------------------------------
Accounts payable - trade                               $2,839,000    $1,802,000
Container deposits                                         18,000       585,000
Accrued payroll and benefits                              925,000       727,000
Income taxes payable                                      304,000        58,000
Other                                                     580,000       522,000
                                                       ------------------------
                                                       $4,666,000    $3,694,000
                                                       ========================


                            Employee Retirement Plans

The Company adopted a defined contribution plan, the Cerion Technologies Inc.
Employees Savings Plan ("Savings Plan") as of May 24, 1996. The Savings Plan
allows full-time employees to become eligible in the month following employment
to make certain tax-deferred voluntary contributions that the Company generally
matches with a 50 percent contribution, limited to three percent of an
employee's base pay. The Company's expense for the defined contribution plan
totaled $145,000 in 1997 and $79,000 from May 24, 1996 through December 31,
1996.

    Retirement benefits were provided to the Company's employees through the
Nashua Corporation Employees' Savings Plan ("Nashua Savings Plan"), the Nashua
Corporation Hourly Employees' Retirement Plan and the Nashua Corporation
Retirement Plan for Salaried Employees ("Retirement Plans") until May 24, 1996.
The Retirement Plans were defined benefit plans. Guaranteed retirement income
levels were determined based on years of service and salary levels as integrated
with Social Security benefits. Employees were eligible under the Retirement
Plans after one year of continuous service and were 100 percent vested after
five years of service. Nashua's Retirement Plans are subject to Internal Revenue
Service and ERISA funding limitations. Assets of the plans were invested in
interest-bearing cash equivalents, fixed income securities and common stocks.

    Total expense under the Nashua Savings and Retirement Plans for the years
presented through May 24, 1996 is included in the Company's financial statements
through the fringe benefit allocations discussed in a prior note: "Related Party
Transactions and Allocations." The Company's employees were terminated from
future participation in the plan as of May 24, 1996. Nashua's Savings Plan had
similar terms and limitations as Cerion's Savings Plan.



                                       18



<PAGE>   8

                                     Leases

Lease agreements cover warehouse space and office equipment under operating
lease arrangements. These leases have expiration dates through January 1, 2000.
Rental expense was approximately $70,000 in 1997, $92,000 in 1996 and $78,000 in
1995. Future minimum rents payable under noncancelable leases with initial terms
exceeding one year are as follows: $57,000 in 1998 and $54,000 in 1999.

                                  Income Taxes

                                                  Years ended December 31,
                                          -------------------------------------
                                               1997          1996          1995
-------------------------------------------------------------------------------
Current:
Federal                                   $ 493,000    $1,783,000    $1,736,000
State                                       116,000       380,000       316,000
                                          -------------------------------------
Total current                               609,000     2,163,000     2,052,000

Deferred:
Federal                                    (244,000)     (171,000)      134,000
State                                       (27,000)      (78,000)       24,000
                                          -------------------------------------
Total deferred                             (271,000)     (249,000)      158,000
                                          -------------------------------------

Provision for income taxes                $ 338,000    $1,914,000    $2,210,000
                                          =====================================

Deferred tax liabilities and assets are comprised of the following:

                                                               December 31,
                                                         ----------------------
                                                             1997          1996
-------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation                                             $366,000     $ 273,000
                                                         ======================

Deferred tax assets:
Accrued vacation                                         $ 49,000      $ 63,000
Inventory reserve                                          90,000       187,000
Bad debt reserve                                          154,000        54,000
Accrued bonus                                             135,000        80,000
Accrued fees                                              160,000        25,000
Other                                                      49,000        11,000
                                                         ----------------------
                                                          637,000       420,000

Deferred tax asset valuation allowance                          -      (147,000)
                                                         ----------------------
                                                         $637,000     $ 273,000
                                                         ======================

Reconciliation between income taxes computed using the Federal statutory income
tax rate and the Company's effective tax rate are as follows:

                                                  Years ended December 31,
--------------------------------------------------------------------------------
                                             1997            1996           1995
                                          --------------------------------------
Federal statutory rate                      35.0%           35.0%          35.0%
State and local income taxes,
   net of Federal tax benefit                5.0%            4.7%           3.9%
Tax asset valuation reserve                (12.6)%           3.3%             -
Other, net                                   1.6%            0.3%           0.2%
                                          --------------------------------------
Effective tax rate                          29.0%           43.3%          39.1%
                                          ======================================





                                       19



<PAGE>   9

                              Stockholders' Equity

The Company, on December 31, 1995, initially issued 5,400,000 shares of Common
Stock, $.01 par value per share, to Nashua. In exchange, Nashua contributed to
the Company the business of the Nashua Precision Technologies Division,
including the liabilities of the business.

<TABLE>
<CAPTION>
                                          Parent Company         Common           Paid-in           Retained
                                              Investment          Stock           Capital           Earnings
------------------------------------------------------------------------------------------------------------
<S>                                          <C>                <C>           <C>                <C>        
Balances, December 31, 1995                  $ 8,458,000        $     -       $         -        $         -
Issuance of Common Stock                      (8,458,000)        54,000         8,404,000                  -
Nashua Notes                                           -              -        (9,294,000)        (1,848,000)
Proceeds from initial public offering
   and selling of 1,615,000 shares                     -         16,000        19,509,000                  -
Issuance of Common Stock in lieu
   of cash payment of directors' fees                  -              -            20,000                  -
Net income                                             -              -                 -          2,505,000
                                             ---------------------------------------------------------------
Balances, December 31, 1996                            -         70,000        18,639,000            657,000
Issuance of Common Stock in lieu
   of cash payment of directors' fees                  -              -            40,000                  -
Net income                                             -              -                 -            827,000
                                             ---------------------------------------------------------------
Balances, December 31, 1997                  $         -        $70,000       $18,679,000        $ 1,484,000
                                             ===============================================================
</TABLE>

Issuance of Notes Payable to the Parent: As of March 1, 1996, Cerion distributed
a dividend to Nashua in the form of a Promissory Note (the "First Nashua Note")
payable to Nashua in the principal sum of $10,000,000. The First Nashua Note had
an annual interest rate of 7.32 percent from March 1, 1996 to September 30,
1996.

    As of March 29, 1996, the Company distributed a second dividend to Nashua in
the form of a Promissory Note (the "Second Nashua Note") payable to Nashua in
the principal amount of $1,142,000. The Second Nashua Note had an annual
interest rate of 7.32 percent. On May 31, 1996, the Company repaid the two
outstanding Promissory Notes having a combined principal sum of $11,142,000.

Stock Split: During March 1996, the Company effected a 1,800-for-one stock
split. All share data in the accompanying financial statements have been
retroactively restated to reflect the stock split.

    On May 30, 1996, the Company closed its initial public offering of its stock
with the sale of 4,416,000 shares of its Common Stock. Of the 4,416,000 shares
of Common Stock sold, 1,615,000 shares were sold by the Company and 2,801,000
were sold by Nashua. Nashua continues to own approximately 37 percent of the
Company's outstanding Common Stock. The shares were sold to the public at $13.00
per share. The net proceeds to the Company after the Underwriting Discount was
$19,525,350.

                            Parent Company Investment

Because the Company operated at various times as a division and as part of a
wholly owned subsidiary of Nashua, its equity accounts have been combined and
presented as Parent Company Investment as of December 31, 1995. Parent Company
Investment also includes balances related to intercompany transactions and other
charges and credits as more fully described in a prior note: "Summary of
Significant Accounting Policies." No interest has been charged on Parent Company
Investment. A summary of changes in Parent Company Investment is as follows:

                                                       Years ended December 31,
                                                      -------------------------
                                                             1996          1995
-------------------------------------------------------------------------------
Beginning balance                                     $ 8,458,000   $ 6,121,000
Net income                                                      -     3,444,000
Issuance of Common Stock                               (8,458,000)            -
Payments to Parent, net                                         -    (1,107,000)
                                                      -------------------------
Ending balance                                        $         -   $ 8,458,000
                                                      =========================





                                       20





<PAGE>   10

                      Concentration of Business Activities

Customer Concentration: During the years ended December 31, 1997 and 1996, the
Company shipped the majority of its aluminum disk substrates to three customers.
These three customers represented approximately 29 percent, 10 percent and 44
percent, in the year ended December 31, 1996 and approximately 41 percent, 43
percent and two percent in the year ended December 31, 1997, respectively, of
net sales.

Concentration of Credit Risk: The Company sells in excess of 50 percent of its
production to customers in the U.S., with approximately 43 percent of 1997 and
11 percent of 1996 sales being made to companies located in the Pacific Rim. The
Company performs periodic credit evaluations of its customers. The Company does
not require collateral for its receivables and maintains an allowance for
potential credit losses.

Dependence on Supplier: The Company relies solely on one supplier for aluminum
blanks used in the manufacture of aluminum disk substrates. Aluminum blank
purchases were approximately $7,642,000, $8,536,000 and $5,729,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.

                            1996 Stock Incentive Plan

In February 1996, the Board of Directors adopted the 1996 Stock Incentive Plan
(the "Plan") and reserved 701,500 shares of Common Stock. The Plan provides for
grants of incentive stock options to employees and directors of the Company and
grants of stock to non-employee directors of the Company.

    The options are separated into two categories with different vesting
provisions. The first category, one-year vesting options, will become
exercisable on the first anniversary date of the option grant if the optionee
remains an employee or director of the Company on such date. The second
category, performance-accelerated options, will become exercisable in tranches
of 25 percent each based upon the Common Stock trading, for a period of 20
consecutive trading days, at an average premium of 25 percent, 50 percent, 75
percent and 100 percent, respectively, above the exercise price, if the optionee
remains an employee of the Company on such date. However, if any such
performance goals are met prior to the first anniversary of the grant date, the
shares that would otherwise become exercisable thereby only become exercisable
on the first anniversary date of the grant date, if the optionee remains an
employee of the Company on such date. On the eighth anniversary of the grant
date, any remaining shares subject to a "performance-accelerated" option will
become exercisable, if the optionee remains an employee of the Company on such
date.

    In the event of a merger, consolidation, reverse merger or reorganization,
or certain other events constituting a "Change in Corporate Control" as defined
in the Plan, options outstanding under the Plan automatically will become fully
vested and will terminate if not exercised prior to such event.

    No option granted under the Plan may be exercised after the expiration of
ten years from the date it was granted. The exercise price of options under the
Plan will equal the fair market value of the Common Stock on the date prior to
the grant. The Plan will terminate in January 2006, unless earlier terminated by
the Board of Directors.

    Had compensation cost been determined on the basis of fair value pursuant to
SFAS 123, net income and net income per share for 1997 would have been $73,000
and $.01, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants: dividend yield of zero percent for
all years, expected volatility of 77 percent, risk-free interest rate of 6.3
percent and expected life of 5.9 years.

A summary of the status of the Company's stock options under the incentive plan
follows:

                                Outstanding      Options Price       Exercisable
                                    Options          per Share           Options
--------------------------------------------------------------------------------
December 31, 1995                         0                  -                 -
Options granted                     422,680        $     13.00              None
Options forfeited                    52,500              13.00              None
                                    --------------------------------------------
December 31, 1996                   370,180              13.00              None
Options granted                     389,090         2.25- 4.13              None
Options forfeited                   374,180         4.13-13.00              None
                                    --------------------------------------------
December 31, 1997                   385,090        $2.25- 4.13              None


                                       21




<PAGE>   11


                            Revolving Credit Facility

The Company secured on March 7, 1997 a $7.5 million revolving credit facility
("facility") that matures March 7, 2000. The facility is collateralized by all
the Company's assets and the Company may borrow against the facility based upon
prescribed advance rates applied to certain of the Company's accounts receivable
and inventories. Availability under the facility as of December 31, 1997 totaled
$3.2 million.

    The facility bears interest at the bank's prime rate plus 1/4 percent. The
facility's terms include a fee for the unused portion of the credit facility
equal to 3/8 percent per annum, payable monthly. The facility contains certain
covenants including the maintenance of certain financial ratios.

    In connection with obtaining the facility, the Company paid a commitment fee
equal to 100 basis points of the total facility and other costs totaling
approximately $90,000 in 1997. These costs are being amortized over the term of
the facility.

                                Legal Proceedings

In August and September 1996, two individual plaintiffs initiated lawsuits
against the Company, Nashua, certain directors and officers of the Company, and
the Company's underwriter, on behalf of classes consisting of all persons who
purchased the Common Stock of the Company between May 24, 1996 and July 9, 1996.
In March 1997, the two individual plaintiffs, joined by a third plaintiff,
initiated a consolidated complaint with substantially the same allegations. In
October 1997, the court dismissed the complaint and provided for the plaintiffs
to file an amended complaint. The plaintiffs filed an amended complaint in
December 1997. The amended complaint alleges that, in connection with the
Company's initial public offering, the defendants issued certain materially
false and misleading statements and omitted the disclosure of material facts, in
particular, certain matters concerning significant customer relationships. The
complaints seek damages and injunctive relief. The Company believes this lawsuit
is without merit and it has substantial defenses and intends to vigorously
defend against this action.

                                Liquidity Matters

During the second half of 1996 and throughout 1997, industry market supply
exceeded demand, resulting in significant pricing and volume reductions and net
losses for each of the last two quarters of 1996 and close to break-even
performance for the first three quarters of 1997. No assurance can be given that
further backwards integration by thin-film media manufacturers or other industry
factors will not result in canceled orders or further volume reductions beyond
levels experienced in the second half of 1996 and 1997. Additionally, the
Company does not believe current market conditions will support substantial
price increases in the foreseeable future. Unless the Company achieves
substantial cost improvements, increased demand and no further price reductions
that exceed cost reductions beyond year-end levels, the Company could incur net
operating 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 $3.0 million annually, the Company over an
extended period of time may exhaust all or substantially all of its cash
resources and borrowing availability under its credit facility (See the
"Revolving Credit Facility" note for a description of the borrowing limitations
under the Company's credit facility). In such 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. Furthermore, any significant default
by customers on the payment of outstanding amounts due to the Company could
cause a significant reduction in liquidity and may exhaust the Company's cash
resources sooner than would otherwise happen. No assurances can be given that
the Company will be able to pursue such alternatives successfully.

     During the first quarter of 1998, one of the Company's significant
customers became delinquent in the payment of outstanding accounts receivable
totaling $4.1 million. This delinquency occurred because of the customer
experiencing significant operating losses and negative cash flow from operations
that strained the customer's liquidity. This customer's outstanding balance due
to the Company exceeds an average of approximately 110 days compared to normal
trade terms provided to this customer of 60 days. Future payment of this amount
by the customer is expected to be structured payments over a time frame not to
exceed one year. This anticipated structuring of future payments will reduce the
Company's liquidity and financial flexibility. Furthermore, in the event that
this customer's financial position worsens during the payment period, the risk
of default increases.



                                       22




<PAGE>   12

      Quarterly Operating Results and Common Stock Information (Unaudited)

<TABLE>
<CAPTION>
                                                   1st           2nd           3rd            4th
(In thousands, except per share data)          Quarter       Quarter       Quarter        Quarter           Year
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>            <C>           <C>            <C>    
1997
Net sales                                      $ 8,266       $ 7,104        $6,701        $ 9,739        $31,810
Gross profit                                     1,004           947           839          2,414          5,204
Operating income (loss)                             22           (87)         (261)         1,125            799
Net income                                          66             9            45            707            827
Net income per common share                        .01             -           .01            .10            .12
Market bid price:
   High                                           6.88          4.38          3.00           3.44           6.88
   Low                                            3.63          2.63          1.94           1.97           1.94

1996
Net sales                                      $11,774       $13,440        $5,521        $ 5,805        $36,540
Gross profit (loss)                              4,676         4,984           560           (409)         9,811
Operating income (loss)                          3,200         3,592          (879)        (1,663)         4,250
Net income (loss)                                1,848         2,204          (467)        (1,080)         2,505
Net income (loss) per common share(1)              .34           .36          (.07)          (.15)           .39
Market bid price:
   High                                            N/A         19.50         11.25           9.19          19.50
   Low                                             N/A          8.00          2.25           2.75           2.25

1995
Net sales                                      $ 5,028       $ 5,890        $7,232        $10,025        $28,175
Gross profit                                     1,148         1,607         2,131          3,621          8,507
Operating income                                   640         1,123         1,478          2,729          5,970
Net income                                         338           636           854          1,616          3,444

Net income per common share(1)                     .06           .12           .16            .30            .64
</TABLE>

N/A--information not applicable as the Company's stock began trading on NASDAQ
on May 24, 1996.

The Company's stock is traded on the Nasdaq National Market. At March 9, 1998,
there were approximately 2,500 record holders of Cerion's Common Stock.

(1)Earnings per share data prior to May 30, 1996 assumes shares issued to Nashua
on December 31, 1995 were outstanding.

                        Report of Independent Accountants

        To the Board of Directors and Stockholders of Cerion Technologies Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Cerion Technologies Inc. at December 31, 1997 and 1996 and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating of the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.


/s/ Price Waterhouse LLP

Chicago, Illinois
February 2, 1998



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