President's Letter

To Our Stockholders:

1978 was an important year for Keane Associates. It was a year in which we increased revenues 52% and built a strong foundation for future growth and development.

Revenues for the year were $11,113,000, up from $7,323.000 the prior year. Net income was $408,000, or 50 cents a share, the same as the year before. Contributions from operating divisions were up 17%, but were offset by non recurring expenses and investments made in company growth.

In October, Keane settled a dispute with the IRS which related to the years 1971-1975. This out-of-court settlement amounted to $48,000, or the equivalent of 6 cents per share. In addition, investments were made in expanding our geographic base; Keane Information Services opened four new branch offices, and KeaMed Hospital Services increased the level of available services and converted seven new hospitals to facilities management. Along with this expansion, we significantly strengthened our management structure to assure that the high quality performance we have maintained up to the present will continue in the future.

Keane Information Services

The increased demand for our services in 1978 presented both staffing challenges and geographic growth opportunities. We have greatly increased our ability to identify, select and assimilate a large number of highly qualified personnel with varied backgrounds. In spite of severe shortages of personnel in the computer industry, Keane was able to increase its technical staff by 50%. One approach taken by the company was the placement of sixteen college graduates in a nine-month training program designed to raise their academic knowledge to an experience level consistent with our clients' requirements. This program has been exceedingly successful, and we plan to expand it.

As Keane's reputation grows, we receive additional requests for our services outside the geographic areas now served by our current branches. For this reason, we opened four new offices in Baltimore, Maryland; Norfolk, Virginia; Toledo, Ohio; and Memphis, Tennessee and plan to add additional branch offices in the future. We see many benefits in locating some of our new offices near existing offices. This concentration permits quick response to clients' needs and optimum usage of personnel.

Keane Information Services made significant additions to its management structure. Most notable were the newly-created positions of Vice

President of Service Operations, Vice President of Product Develop ment, and Director of Quality Assurance. In addition, we implemented a number of management training programs which we are confident will contribute to the continuing supply of management talent.

KeaMed Hospital Services

Our KeaMed Division has grown considerably during the year. Five new hospitals were added in Massachusetts with conversion activities almost completed at year's end. In addition to strengthening our New England base, we added two new hospitals to our more established New York market area. KeaMed is now servicing 24 clients and has developed computer systems to cover a broad range of hospital applications.

Early in the year, our first on-line hospital systems were successfully installed and we anticipate these applications will assume a more important part in our future product offerings, Recent announcements of new computers with advanced communications capabilities will enhance KeaMed's ability to serve its client base.

During the year, KeaMed also made significant additions to its management structure. The positions of Vice President of KeaMed and Vice President of Operations were created. Under their management direction, we expect KeaMed to continue its rapid growth by providing new products and services to an ever-expanding geographic client base.

Productivity: The key to our future

Keane took advantage of the opportunities presented in 1978. We significantly expanded both our professional staff and the geographic base from which we provide services. But perhaps most important, we continued to develop new ways to increase our productivity.

We recognize that improved productivity is key to Keane's continued growth and the nation's economic stability. Accordingly, we are optimistic about business prospects for 1979 and are confident that we can successfully adjust to the challenges of inflation and recession. Our efforts in developing and implementing techniques to improve the efficiency of the computer environment. Because of its continued importance, the focus of this year's annual report is on Keane's productivity.

Annual Report

Key Information

Keane Associates Inc, is traded on the Boston Stock Exchange under the symbol KEA