Centennial Technologies, Inc.

SECURITIES ACT of 1933
Release No. 7897 / September 26, 2000

SECURITIES EXCHANGE ACT of 1934
Release No. 43345 / September 26, 2000

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1311 / September 26, 2000

ADMINISTRATIVE PROCEEDING
File No. 3-10303

In the Matter of

CENTENNIAL TECHNOLOGIES, INC.,
Respondent.

 ORDER INSTITUTING CEASE-
AND-DESIST PROCEEDINGS
PURSUANT TO SECTION 8A OF
THE SECURITIES ACT OF 1933
AND SECTION 21C OF THE
SECURITIES EXCHANGE ACT
OF 1934, MAKING FINDINGS
AND IMPOSING A CEASE-AND
DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that a public administrative proceeding be, and hereby is, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against respondent Centennial Technologies, Inc. ("Centennial").

II.

In anticipation of the institution of these cease-and-desist proceedings, Centennial has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that the Respondent admits that the Commission has jurisdiction over it and the subject matter of these proceedings, Centennial consents to the issuance of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease -and-Desist Order.

III.

On the basis of this Order and the Offer, the Commission makes the following findings:1

1. Centennial is a Delaware corporation based in Massachusetts. It is a high-technology company that manufactures computer-related hardware and software, including personal computer cards ("PC cards"). At all relevant times, Centennial's securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act and it was required to file reports with the Commission pursuant to Section 13(a) of the Exchange Act. Centennial began trading as a public company on the American Stock Exchange in April 1994. It became listed on the NYSE in November 1996 and was delisted on March 3, 1997. Its stock currently trades on the over-the-counter bulletin board.

2. Between April 1994 and December 31, 1996, Centennial made material misstatements about its revenues, assets and net income in public announcements and in documents filed with the Commission. On June 12, 1997, Centennial filed restated financial results for each fiscal period from April 1994 through December 31, 1996 (the "restatement period"). Prior to the restatement, Centennial had reported approximately $12 million in profits during the restatement period. In fact, for this period, Centennial had overstated income by approximately $40 million and had actually incurred losses of approximately $28 million.

3. Centennial's misrepresentations and misstatements about its financial condition resulted from multiple fraudulent practices instigated by Centennial's former chief executive officer and its former chief financial officer. Among other things:

  1. Centennial improperly recognized revenue from sales in which the customer had no real obligation to pay for product, from sales where phony product was shipped, and from sales where no product was shipped at all. For example, for the fiscal year ended June 30, 1996, Centennial recognized $1.6 million in revenues from sales of "Flash 98," aCentennial product that did not actually exist. In addition, in December 1996, Centennial's former chief executive officer and its former chief financial officer directed employees to ship fruit baskets and polo shirts to companies owned by the former chief executive officer's friends. Centennial's former chief financial officer then created fictitious sales documentation to make it appear as if $2 million of PC cards had been sold rather than fruit baskets and polo shirts. In total, $22.6 million of improperly recorded revenue was reversed in the restatement.

  2. Centennial overstated its inventory values and levels in a variety of ways. It falsified invoices to support inflated inventory pricing, manipulated inventory counts, understated the cost of sales and included phony inventory. For example, in the spring of 1996, Centennial's former chief executive officer and its former chief financial officer caused 27,000 PC cards to be manufactured. Although these PC cards looked like the typical product that Centennial manufactured, they consisted of outer metal casing only and had no inner circuitry. These dummy PC cards were included in inventory and counted by the independent auditors during Centennial's annual audit. These empty cards constituted a material amount of the finished goods inventory Centennial reported on its balance sheet for the quarters ended June 30, 1996 and September 30, 1996. As of December 31, 1996, Centennial's inventory was overstated by $8.8 million, or 78%.

  3. Centennial also overstated the value of its fixed assets in several ways. Non-existent additions to fixed assets were made on the company's books and the cost of bona fide fixed asset additions was padded to inflate their reported value. These additions consisted primarily of small dollar amounts (less than $5,000) which the former chief financial officer believed, based on his prior experience working for the outside auditing firm, the auditors would not check. Moreover, Centennial's books and records were adjusted to falsely increase the reported value of fixed assets and certain inventory items were improperly reclassified as fixed assets. For the quarter ended June 30, 1996, for example, Centennial's former chief financial officer improperly caused $820,000 of inventory to be reclassified as fixed assets on Centennial's books. To support this reclassification, documentation was altered to falsely reflect fixed asset additions. As of December 31, 1996, Centennial's fixed assets were overstated by $2.7 million, or 95%.

  4. Centennial invested in and loaned money to other companies which it improperly valued on its books. For example, in July 1996, Centennial loaned $500,000 to a company owned by close associates of Centennial's former chief executive officer. The borrowing company then lent this money to one of its own affiliates, which in turn used the funds to repay an outstanding debt to Centennial. Centennial also loaned money to small companies (owned by the former chief executive officer's friends and associates) which had no real possibility of repaying the amounts owed. In the restatement, $15.8 million of Centennial's investments and notes were written off.

4. As a result of the practices described above, and others, Centennial materially misrepresented its financial condition and earnings in its periodic filings of Forms 10-K and Forms 10-Q with the Commission. Centennial's misrepresentations to the Commission included the following:

  1. For the fiscal year ended June 30, 1994, Centennial filed an inaccurate Form 10-KSB in which sales were overstated by $413,000, inventories were overstated by $1.79 million and total assets were overstated by $2.4 million. Centennial reported net income of $464,000, although it had actually lost $1.67 million, an overstatement of $2.1 million.

  2. For the fiscal year ended June 30, 1995, Centennial filed a Form 10-K that falsely reported $8.6 million in inventory, assets of $18.2 million, sales of $12.4 million, and net income of $874,000. In fact, sales were overstated by $3.5 million, inventory was overstated by $6.4 million and rather than having net income of $874,000, Centennial incurred a net loss of $5.9 million, resulting in a $6.7 million overstatement.

  3. For the fiscal year ended June 30, 1996, Centennial filed a Form 10-K that falsely reported sales of $37.8 million, an overstatement of $4.4 million. In this filing, inventory was reported at $18.2 million, a $9.98 million overstatement. Net income of $4.9 million was reported, representing a $9.2 million overstatement, as Centennial had actually incurred a net loss of almost $4.3 million.

  4. On January 30, 1997, Centennial issued a press release announcing its financial results for the three months ended December 31, 1996. The release reported sales of approximately $31.7 million, and net income of approximately $3.5 million. Of the $31.7 million in reported sales, $8.4 million consisted of improperly recognized revenue that was reversed in the restatement. Rather than having net income of $3.5 million, the company had lost $13.5 million.

5. As a result of the practices described above, Centennial committed or caused violations of Section 17(a) of the Securities Act to be committed by making misrepresentations in documents filed with the Commission in connection with the company's secondary offering of securities in March 1996.

6. Centennial committed or caused violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by making misrepresentations relating to its asset valuation, revenue, sales and net income in documents filed with the Commission.

7. Centennial committed or caused violations of Section 13(a) of the Exchange Act by failing to file with the Commission information and documents in accordance with the rules and regulations prescribed by the Commission.

8. Centennial committed or caused violations of Section 13(b)(2)(A) of the Exchange Act by failing to make and keep books, records and accounts which, in reasonable detail, would accurately and fairly reflect its transactions and dispositions of its assets.

9. Centennial committed or caused violations of Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain an adequate system of internal accounting controls.

10. Centennial committed or caused violations of Rule 12b-20 of the Exchange Act by failing to include material information that would make required statements not misleading.

11. Centennial committed or caused violations of Rule 13a-1 of the Exchange Act by filing with the Commission false and misleading annual reports.

12. Centennial committed or caused violations of Rule 13a-13 of the Exchange Act by filing with the Commission false and misleading quarterly reports.

13. Centennial committed or caused violations of Rule 13b2-1 of the Exchange Act by maintaining false and misleading books, records and accounts.

IV.

In determining to accept the Offer, the Commission considered remedial acts undertaken by the Company and the cooperation afforded the Commission staff.

V.

In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Centennial and accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Centennial Technologies, Inc. cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.

By the Commission.

Jonathan G. Katz

Secretary

Footnote

1 The findings herein are not binding on anyone other than the Respondent.