SECURITIES AND EXCHANGE COMMISSION
                                              WASHINGTON, D.C.  20549

                                                    FORM 10-KSB


            [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                     SECURITY EXCHANGE ACT OF 1934 [FEE REQUIRED]

            [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

  For the fiscal year ended January 31, 1997   Commission file No.  33-5820-LA


          NEVADA                                             77-00882545
State or other jurisdiction                             (IRS Employer ID#)
 of incorporation or organization

                                  SEMICON TOOLS, INC.
            Exact name of Registrant as specified in its charter

                   111 Business Park Drive, Armonk, New York  10504
            (Address of principle executive offices)        (Zip code)

      Registrant's telephone number, including area code  (914) 273-1400

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

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

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  Act of 1934,  during the
preceding 12 months (or for such period that the registrant was required to file
such reports) 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-B is not contained herein, and will not be contained to the
best of the Registrant' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB. [X]

      Issuers revenue for its most recent fiscal year $1,602,830

      The   aggregate   market  value  of  the  voting   common  stock  held  by
      non-affiliates  (1) of the  Registrant  based on the  average  of the high
      ($0.15) and ($0.13) low bid prices of the Company's  Common Stock, for the
      week  ended  March 14,  1997,  is  approximately  $966,224  based upon the
      6,830,174 shares of Registrant's Common Stock held by non-affiliates.

      The number of shares  outstanding of each of the  Registrant's  classes of
      Common Stock, as of April 17, 1997 is 9,367,500 shares all of one class of
      $.001 par value Common Stock.


                                        DOCUMENTS INCORPORATED BY REFERENCE
                                                       NONE


      Transition Small Business Disclosure Format  Yes           No    X




                                                SEMICON TOOLS, INC.

                                                    FORM 10-KSB

                                        FISCAL YEAR ENDED JANUARY 31, 1997













                                                 TABLE OF CONTENTS


PART I

Item 1.                 Business

Item 2.                 Properties

Item 3.                 Legal proceedings

Item 4.                 Submission of matters to a vote of security holders


PART II

Item 5.                 Market for Company's common equity and related
                         stockholder matters

Item 6.                 Management's discussion and analysis of financial
                         condition and results of operation

Item 7.                 Financial statements

Item 8.                 Changes in and disagreement with accountants
                         on accounting and financial disclosure


PART III

Item 9.                 Directors, executive officers, promoters and
                         control persons; compliance with Section 16(a)
                         of the Exchange Act

Item 10.                Executive compensation

Item 11.                Security ownership of certain beneficial owners
                         and managements

Item 12.                Exhibits and reports on Form 8-K

Signatures



<PAGE>






PART I

Item 1.  Business

General Development and Plan Operation:

Semicon Tools, Inc. (the "Company") principally sells small precision disposable
diamond tools used to  manufacture  electronic  components  and devices which it
either  manufactures or purchases from exclusive  suppliers.  Through East Coast
Sales Company, Inc. ("ECS"), a wholly-owned subsidiary,  the Company also serves
as a distributor and fabricator of industrial ceramic products and a distributor
of "clean room"  materials and supplies  primarily used by the  electronics  and
defense   industries  (e.g.,   items  used  to  preserve  a   contamination-free
environment).

In August 1989, the Company  purchased for $15,000 an interest in KBR (Malaysia)
SDN BHD ("KBR"), a new corporation  organized under the laws of, and located in,
Malaysia.  Subsequently, the Company increased its ownership in KBR to 9.25% for
which it paid,  in the  aggregate,  a total of $232,000  in cash and  technology
rights. On January 1, 1993, L.S. Technology of Penang, a Malaysian  manufacturer
("LS") acquired 50% of, and assumed the management  responsibilities of KBR, LS,
through KBR, assumed the overall manufacturing  responsibility for the Company's
hubbed and hubless  diamond-coated  nickel-dicing  blades. During the year ended
January 31, 1996, KBR relocated its manufacturing facilities.  Operations during
this period were minimal.

On June 22,  1996,  the Company  purchased  all the assets of KBR/LS  Technology
Joint  Venture  and  placed  them  in a  new  Malaysian  company  division,  DTI
Technology SDN BHD ("DTI"). This wholly-owned  subsidiary  manufactures products
sold  by  the  other  two   subsidiaries   inclusive   of  hubbed  and   hubless
diamond-coated  nickel-dicing  blades. In effect a start-up  operation,  it will
also sell to an Asian base of semiconductor manufacturers.

Patent License:

Mr. Pian and his wife granted the Company an exclusive  royalty-free  license to
U.S.  Patent No.  4,219,004  (relating to the Company's  hubless  dicing blades,
issued  August 26,  1980),  and  corresponding  French and British  patents,  to
manufacture,  use and sell the invention. The license expires in August 1997 and
is  terminable  by the  licensors,  among other  things,  if the Company files a
petition in bankruptcy or insolvency or is declared  bankrupt or insolvent.  The
Company is obligated under the license to defend, at its sole expense, all suits
alleging  that the  patented  inventions  infringe  third  party  claims  or are
invalid.  In January 1993, the Company granted KBR  non-exclusive  rights to the
use the patent, technology and process for the manufacture of hub diamond dicing
blades and  hubless  diamond  dicing  blades,  which  rights  were  subsequently
purchased by STI.

Mr. Pian and the Company no longer consider the patent to have material value
or usefulness.  Management believes that the market is driven now by
production know-how and marketing capability.

Principal Products:

The  disposable  tools sold by the Company to more than 400  customers  include:
dicing  blades  and  scribes  which  are the  tooling  components  of  precision
electronic saws and scribers,  respectively, used for cutting circuit chips from
silicon wafers and ceramic substrates,  for cutting shapes and forms principally
out of porcelain and ceramic molds in the  manufacture  of false teeth,  and for
cutting  ferrite  materials  for the  computer  industry;  and  dressers for the
shaping and forming of grinding wheels in the machine tool industry.  Industrial
ceramic  products and clean room supplies round out the Company's  major product
lines as of the fiscal year-end.



                                                         1


<PAGE>







The  percentage  contributions  to the  Company's  sales by product  line are as
follows for the periods indicated.


                                Fiscal Year Ended January 31:

Product line          1993          1994         1995         1996        1997
------------          ----          ----         ----         ----        ----

Blades                29.6%         27.2%        29.3%        28.0%       24.7%

Scribes                4.9%          4.3%         3.9%         4.0%        7.1%

Dressers               2.3%          2.7%         2.0%         1.8%        1.4%

Miscellaneous*        18.8%         10.3%         4.2%         5.9%        3.5%

Ceramic products      26.8%         45.8%        47.2%        47.6%       57.6%

Clean room supplies   17.6%          9.7%        13.4%        12.7%        5.7%


* Includes flanges,  flange lapping rings,  dismounting  tools,  special bonding
tools, wax holding media, dressing plates and thermodes/synthrodes.

The Company  principally sells the products and provides the services  described
below:

1. Scribes:

Scribes were the original way of cutting  silicon  wafers and performing die and
integrated  circuit  separation.  These  tools,  which have tips made out of gem
quality  diamonds,  are used to make a scratch  or  channel on the wafer so that
separation  occurs when pressure is applied.  Presently,  this product group has
limited  growth  potential  in  this  application   since  the  electronics  and
semiconductor  industries have in large part switched from scribing  machines to
dicing  saws  for the  wafer  cutting  process.  However,  diamond  scribes  are
preferred  over  sawing for cutting  certain  wafer  materials,  such as gallium
arsenide,  because they provide cleaner  separation,  and for certain low volume
applications  which do not justify the capital expense of converting to a dicing
saw  operation.  The Company  currently  uses third party  contractors to set or
"lap" the diamonds into the tools.  In addition,  a new  application  associated
with products with special surfaces has been required of the Company.

2. Dicing blades:

Dicing blades are made of diamonds bonded with nickel alloy.  They are used with
the precision  electronic  dicing saws which the electronics  and  semiconductor
industries use to cut and separate integrated circuits and discrete devises from
silicon and other type wafers. Like scribes, dicing blades are manufactured in a
variety of  exposures,  thicknesses  and micron sizes to best match the material
being cut. The blade market consists of two types of blades (hubbed and hubless)
and   three   types   of   materials;    diamond/metal,   (the   most   common),
diamond/thermoset plastic (called resin blades) and sintered metal.

The hubbed blade,  which has been used since the introduction of die sawing,  is
permanently  affixed to the outer edge of an  aluminum  hub,  and when the blade
loses its cutting edge,  generally after about eight hours of use, or is broken,
the unit, i.e. both the hub and blade,  must be discarded.  The Company's hubbed
blades are  manufactured  by DTI under the  Company's  label.  Hubbed blades are
competitively  manufactured  principally by Disco, Inc., Semitec Corporation and
Dynatex Corporation.


                                                         2


<PAGE>









The  Company  also   manufactures   and  sells  a  hubless  blade  made  from  a
diamond/nickel  alloy in such a way as to  produce  a very  fine  edge  which is
extremely hard and durable. The blade can be easily reduced in size if it breaks
or loses its sharpness, enabling it to perform in progressively smaller flanges.
In this  manner,  a hubless  blade can be used up to four  times  longer  than a
hubbed  blade.  In  addition,  because  the blade has no hub it can be  replaced
without discarding any flanges. However, despite these benefits,  hubless blades
have not been widely accepted in the United States.  However hubless blades have
gained  wide-spread  acceptance  in the Far East where  management  believes the
Company has gained  approximately  20% of the dicing  blade  market.  Management
attributes  this  dichotomy  to a general  resistance  in the  United  States to
implement new production approaches and train saw operators in different methods
of  operation.  For  example,  to replace both a hubbed and hubless  blade,  the
operator  must remove the old unit and install a workable one.  However,  with a
hubless  blade,  before  such  installation,   the  operator  must  perform  the
additional  steps of reducing the size of the blade and mounting it on a smaller
flange.  This requires some special training which presently is only provided by
the Company or other hubless  blade  manufacturers.  Furthermore,  the potential
cost savings  associated with the use of hubless blades constitutes a relatively
small percentage of total manufacturing  costs.  Hubless blades also are sold by
Disco Abrasive Systems, Inc., Norton Company, Kulicke & Soffa Industries, Inc.

Resin  Blades are  primarily  used to cut hard  abrasive  materials  used in the
Hybrid Industry of Microelectronics  such as ceramic and glass. Resin Blades are
manufactured  in the Company's New York facility at the present time.  Sales and
marketing are presently done through the Company's  network of distributors  and
representatives,  and direct  sales.  The Company  believes that its blades have
superior features which distinguish them from the blades of other manufacturers,
due to a process developed and refined by the Company.

At present,  the Company has an  insignificant  share of the  world-wide  dicing
blade  market.  There  can be no  assurance  that  the  Company  will be able to
increase its market share or that the market for hubless blades will increase in
the future.

3. Dressers:

Dressers are  diamond-tipped  tools  generally used to "dress" or shape abrasive
grinding  wheels  in  machine  shops.  These  products  are sold by the  Company
principally  to Black & Decker  Company  and Snap on  Tools,  which  resell  the
products to third parties.  The Company believes that there are multiple foreign
suppliers of natural diamond-tipped dressers.

4. Industrial Ceramic Products:

This group of products are  manufactured  by third  parties,  warehoused  by the
Company and  distributed  by it,  often after a  value-added  machining  process
(accomplished  either internally or by third parties).  These products fall into
two principal  categories (1)  insulators,  tubes,  rods and crucibles and other
labware, all of which are standard catalogue items; and (2) machinable ceramics,
which are produced by a Japanese firm and others.

5. Clean Room Materials and Supplies:

This group of products include cleaning chemicals, mats, flooring, wipes, swabs,
gloves,  vinyl  curtains,   finger  cots  and  desiccators.   The  Company  also
distributes  small tools such as tweezers,  pliers,  vacuum pickups and scribes,
core drills and sinter blades for ceramic applications.



                                                         3


<PAGE>








6. Custom Room Materials and Supplies:

Because of the wide variety of dicing  blades and the dicing saws needed to test
the  blades  already in place at the  Company's  facility,  a  contract  cutting
service was started a few years ago. Since fiscal 1994,  this service has become
a  significant  product line in terms of the  Company's  overall  revenues.  The
timely purchase of a new saw increased the quality, capability and output of the
custom  cutting  service  offered by the Company.  Future  growth is expected as
additional equipment is purchased.

Competition:

The  Company  competes  with many  companies  which  participate  in one or more
segments  of  the  Company's  business   operations.   Virtually  all  of  these
competitors  have greater  financial and personnel  resources and greater market
recognition than the Company. The Company also competes with firms manufacturing
different products performing similar functions,  particularly diamond/thermoset
plastics or resin  blades,  which are the blades  most widely used in  precision
electronic saws for cutting ceramics  substrates even though they have a shorter
useful life.  Furthermore,  the Company faces the  possibility of adverse market
conditions arising from technological  changes,  shifting product emphasis among
competitors  and the  entry  of new  competitors  into its  markets.  Management
believes that the Company will be able to successfully  compete in these markets
due to superior pricing and specialized services provided to its customers.

Customer and Backlog:

During the fiscal year ended  January 31,  1997,  two  customers  accounted  for
approximately  34% of the Company's net sales.  All other  individual  customers
each accounted for less than 10% of net sales of the Company.

As of January 31,  1997,  the  Company had a backlog of orders of  approximately
$440,000,  of which  approximately 90% are expected to be shipped between June 1
and August 31,  1997.  While such  orders may be  cancelled  or  postponed,  the
Company believes that they are firm and the resulting revenues will be realized.

Manufacturing Facilities:

The  Company's  Armonk  plant,  a  modern  one-story  building,   includes  both
administrative offices and a complete machine shop of lathes, electronic saws, a
surface grinder,  a milling machine,  a 15 ton power punch press, a drill press,
injection molds,  lapping machine tools, dies and molds;  inspection  equipment,
including  hand  measuring   instruments,   profile  projector   microscope  and
electronic testers for equipment service; and a complete  manufacturing facility
for resin/diamond dicing blades.

The Company's  Malaysian facility is equipped to manufacture both the hubbed and
hubless dicing blades.

Marketing:

The Company  markets  its  products  directly  through  telephone  solicitation,
participation  in trade shows and  advertisements  in trade  journals.  By these
latter means and  coincident  with an upsurge in general in market  demand,  the
internal sales personnel saw a substantial buying increase.

In 1997, the Company will also  anticipate  results from the additional  outside
representatives which it has put in place.



                                                         4


<PAGE>







Employees:

The  Company  employs  a total  of six  full-time  employees  and one  part-time
employee.  This  employee  count  includes Mr. Pian who serves as President  and
Chief Executive Officer,  and Francine Pian and Craig Pian, Mr. Pian's children,
both of whom are also  Directors  of the  Company  and who  continue to serve in
fabrication  and   clerical/administrative   capacities  with  the  Company.  In
addition,  the Company also utilizes outside  consultants and part-time  workers
when  required.   The  Company  anticipates  that,  if  needed,  it  could  hire
fabrication   and   administrative   personnel,   encountering  no  problems  in
identifying suitable candidates.

In Malaysia, the Company employs five full-time employees.  Mr. Pian makes
regular trips to the Country to oversee the manufacturing operation.

Research and Development:

The Company's research and development activities are limited to the testing and
evaluation of  manufacturing  processing  and  procedures.  Such  activities are
accomplished  routinely without any special or unusual expenditures.  All of the
Company's  nickel/diamond  hub and hubless dicing blade research and development
is now being conducted at the University of Sains (science) Malaysia pursuant to
a joint venture  agreement  between the Company and the University for which the
Company, in its opinion, pays a nominal price in accordance with the agreement.

Potential Acquisitions:

The  Company  believes  that a  substantial  part of its  growth  will come from
acquisitions  made both in the United States and overseas.  It has instituted an
aggressive program in Malaysia which is tied into the operation of DTI. Locally,
the  Company  is  seeking  opportunities  less  strenuously,  but  nevertheless,
seriously.  In both  instances,  both funding and the  acceptance  of its common
stock by sellers are not certain and could be mitigating factors.

Item 2. Properties

The  Company  rents   approximately  4,000  square  feet  of  manufacturing  and
warehousing space and 2,000 square feet of office space in Armonk, New York. The
lease,  which runs  through May 31,  1998 calls for an annual  rental of $39,047
including  utilities,  taxes and  other  costs.  As  compared  to the  Company's
previous  location in New Rochelle,  New York, the reduced area presently leased
by the  Company  for  manufacturing  and  warehousing,  is  consistent  with the
Company's  recently adopted reliance upon third parties for manufacturing and is
in keeping with management's cost-savings program.

The Company leases three  automobiles  with terms expiring through December 2000
at an aggregate annual rental plus insurance of $25,307.

Item 3. Legal proceedings

The Company is not presently a party to any material litigation.

Item 4. Submission of Matters to a Vote of Security Holders

For the fiscal year ended January 31, 1997, no matters were  submitted to a vote
of security holders through the solicitation of proxies or otherwise.






                                                         5


<PAGE>










PART II

Item 5. Market for Company's Common Equity and Related Stockholder Matters

(a) The principal U.S. market in which the Company's Common Shares (all of which
are of  one  class,  $.001  par  value  Common  Stock)  are  tradable  is in the
over-the-counter  market on the "Bulletin Board".  The aforesaid  securities are
not traded or quoted on any automated  quotation system.  The OTC Bulletin Board
symbol for the Company's Common Stock is "SETO".  The following table sets forth
the range of high and low bid quotes of the Company's  Common Stock per calendar
quarter as  provided by the  National  Quotation  Bureau,  Inc.  (which  reflect
inter-dealer prices without retail mark-up,  mark-down or commission and may not
necessarily  represent  actual  transactions).  The  information  provided below
reflects the one-for-150 reverse split of the Company's Common Stock effected on
February 3, 1993.




            Period                                       Low            High

            1997

            First quarter                             $0.070          $0.200

            1996

            First quarter                              0.125           0.625

            Second quarter                             0.406           0.969

            Third quarter                              0.313           0.688

            Fourth quarter                             0.125           0.406

            1995

            First quarter                               0.25            1.50

            Second quarter                              0.25           0.625

            Third quarter                               0.25            1.00

            Fourth quarter                            0.0625           0.375

            1994

            First quarter                               0.25            1.50

            Second quarter                              0.50            5.25

            Third quarter                               0.25            3.00

            Fourth quarter                              0.25           2.125







                                                         6


<PAGE>











(b) As of January 31, 1997, the approximate  number of the Company's  issued and
outstanding  shares of Common  Stock was  9,367,500,  which  shares  are held by
approximately  308 owners of record,  inclusive of those  brokerage firms and/or
clearing houses holding the Company's common shares for their clients (with each
such brokerage house and/or clearing house being considered as one holder).



(c) The Company has not paid or declared  any  dividends  upon its Common  Stock
since its  inception  and,  by reason of its  present  financial  status and its
contemplated financial  requirements,  does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.




Item 6.  Management's Discussion and Analysis of Financial Condition and
Results of Operations



I.  Financial Condition

Assets:

Total  assets  at the end of fiscal  1997  were  $1,288,937,  as  compared  with
$1,005,609 at the end of fiscal 1996.  Generally,  the increase results from the
higher, more profitable sales volume.

The notable  differences  in these years is reflected in the components of total
assets as follows:

         (i) At January  31, 1997 cash  increased  to  $116,334,  as compared to
         $42,642 at January  31,  1996.  This  increase  was  largely due to the
         higher  overall  revenues  experienced  during fiscal 1997 coupled with
         sales of stock and exercise of options;

         (ii) For the same  reason,  accounts  receivables  at January  31, 1997
         reached   $162,439,   up  from  $158,631  at  January  31,  1996.  This
         represented an increase of 2.4% from the end of fiscal 1996;

         (iii) Inventory increased during fiscal 1997 to approximately $339,552,
         or 30.3%,  to meet the  demands  of  increases  in sales for 1997.  See
         "Results of  Operations"  below for a more  complete  discussion of the
         factors which resulted in higher net sales for fiscal 1996;

         (iv)   Property   and   equipment   for  fiscal  1997  did  not  change
         substantially  when  compared  to  fiscal  1996  and  did  not  have  a
         significant effect on the Company's  financial condition in 1996. There
         were no substantial additions to property and equipment during the year
         other than via investment in the new subsidiary.








                                                         7


<PAGE>











Liabilities:

Total  liabilities  at the end of fiscal 1997 were  $543,020,  as compared  with
$855,594 at the end of fiscal 1996. The changes in this comparison are reflected
in the components of total liabilities as follows:

         (i)  Significant  reductions in liabilities for notes payable and notes
         payable  shareholders  are  evident  this  year  as  the  Company  made
         substantial  repayment of these items through the issuance of shares of
         its common stock. This also contributed to a significant improvement in
         the Company's retained earnings deficit at January 31, 1997 as compared
         to January 31, 1996. See discussion in "Results of Operations" below;

         (ii) Accounts payable at January 31, 1997 were also substantially lower
         than at January  31,  1996,  also due to the Company  settling  certain
         accounts  payable  through  the  issuance  of shares  of common  stock.
         Additionally,  during  fiscal 1996,  accounts  payable were higher than
         usual because purchase of inventory  increased in 1996 in line with the
         increased dependency upon third party manufacturers by the Company;

         (iii) Long term liabilities  decreased in 1997 to $170,000, as compared
         to $185,421 in 1996 due to the  reclassification of the old shareholder
         loans from current to long-term loans. This  reclassification  resulted
         from the subordination of the shareholder debt to certain bank loans in
         1995. None of the long-term loans are considered by management to be on
         demand;

         (iv) Accrued interest increased  substantially in 1997 to $188,309,  as
         compared to $155,177 in 1996 due principally to the reclassification of
         certain  payments due with respect to  shareholder  loans from accounts
         payable,  as carried on the  Company's  books during  1996,  to accrued
         interest.  This reclassification was made in order to correctly reflect
         the nature of these obligations.


Financial  condition  in fiscal 1997 when  compared to 1996 is stronger and more
stable.

See "Results of Operations" for additional information.

II.  Results of Operations

Net sales for the year ended  January 31,  1997  (fiscal  1997) were  $1,602,830
compared to  $1,248,668  for the year ended January 31, 1996 (fiscal  1996),  an
increase of over 28.3%.  This increase in sales  revenues  has, in  management's
opinion,  continues the reversal of the decline  experienced  during fiscal 1995
and was the result of  management's  efforts to expand the Company's  ability to
fabricate value-added ceramic and resin blade manufacture and an increase in the
sale of scribes mostly due to a new application from one customer. During fiscal
1997,  this  effort  resulted  in a 69.4%  increase  in ceramic  sales,  an 8.9%
increase in all blade sales including the resin based blades and a 142% increase
in the sale of  scribes.  Management  believes,  although no  assurances  can be
given,  that these increased product lines,  coupled with  management's  ongoing
efforts to further expand its supplier network, will continue to be reflected in
higher revenues during fiscal 1998 and beyond.





                                                         8


<PAGE>











Gross profit from operations during fiscal 1997 reached $1,105,570,  or 70.0% of
gross  revenues,  as  compared to  $727,304  in fiscal  1996,  or 58.2% of gross
revenues.  This increase of more than 52.0% over fiscal 1996 is  attributable to
two primary factors.  First, the Company's continued change in product sales mix
to greater  profit  margin items such as resin  blades and ceramic  products has
enhanced  overall gross profit  margins.  Second,  the full  realization  of the
benefits derived from management's competitive pricing steps taken during fiscal
1996 and continued  during  fiscal 1997 for certain  products.  In  combination,
these measures have resulted in a dramatic increase in gross profit margins well
beyond  that  projected  by  management  in its annual  report for fiscal  1996.
Management  anticipates  that this trend will  continue,  that the cost of sales
will  remain at the new  favorable  levels  experienced  in fiscal 1997 and that
gross margins will continue at fiscal 1997 levels.

Operating  expenses  decreased  dramatically  from  $1,109,735 in fiscal 1996 to
$950,013  in  1997,  a  decrease  of  over  $159,722  or  14.3%.  The  increased
profitability of the Company had the effect of decreasing the Company's retained
earnings  deficit from $2,009,971 at the end of fiscal 1996 to $1,781,396 at the
end of fiscal 1997.

However,  to properly evaluate the Company's operating results, it must be noted
that during fiscal 1996, the Company effected a series of transactions utilizing
its authorized but unissued shares of common stock (the "Shares"), and issued an
aggregate of 1,270,000 Shares to officers,  directors and various  creditors for
settlement  of accounts  payable and various  loans owing by the  Company,  in a
total aggregate value of $113,650. In addition,  during fiscal 1996, the Company
also issued an additional 910,000 Shares to several consultants as part of their
compensation for consulting  services (see "Financial  Statements - Note 8"). In
keeping with the prescribed accounting procedures of the Securities and Exchange
Commission, these Shares were valued at an aggregate of $346,442.  Consequently,
Selling,  General and Administrative  Expenses for fiscal 1996 were increased by
this amount.  These are, however,  non-recurring  events. Had these transactions
not been  present  during  fiscal  1996,  Selling,  General  and  Administrative
Expenses  would have been  $719,555 and income from  operations  would have been
$53,802,  as compared  to a loss of  $292,640,  as  reflected  on the  Company's
financial statements.
See "Financial Statements - Note 7".

The Company's net income for the year ended January 31, 1997 was $213,652  ($.02
per share)  compared  to a loss of  $419,630  for the prior  year.  It should be
noted,  however,  that  if the  effects  of the  Company's  stock  activity,  as
discussed above, were eliminated from  consideration,  the Company's  operations
would have  resulted in a net pre-tax  profit of $16,603  rather than the stated
loss in 1966. Management believes that this is significant since it demonstrates
that the Company's operations have finally turned the corner and are profitable,
a situation which management  believes will continue  throughout fiscal 1997, as
confirmed by the increase in order  back-logs at fiscal year-end (up to 10.5% to
$442,000 at January 31, 1997).  This also confirms  management's  prior estimate
that operating revenues had to reach the $1.25 million level to achieve a "break
even" from  operations.  Management  continues to take steps to reduce expenses,
identify new, more economical product sources and to generally expand sales.








                                                         9


<PAGE>











III. Liquidity and Capital Resources:

At January 31, 1997, the Company's  current ratio (i.e.,  current assets divided
by current  liabilities)  stood at 1.96:1,  as  compared to .78:1 at January 31,
1996. Management believes that the Company's  substantially improved position at
January  31,  1997 gives  further  credence to  management's  position  that the
Company's operations did in fact make substantial progress during fiscal 1997, a
situation expected to continue throughout fiscal 1998 and beyond.

The  Company  believes  that a  substantial  part of its  growth  will come from
acquisitions  made both in the United States and overseas.  It has instituted an
aggressive program in Malaysia which is tied into the operation of DTI. Locally,
the Company is also seeking  opportunities.  In the two instances,  both funding
and the  acceptance  of its common stock by sellers are not certain and could be
mitigating factors.

Otherwise,  management  believes  that the Company  will have  adequate  working
capital  and  sufficient  credit  alternatives  to fund  the  Company's  current
operations  during the next  fiscal  year,  including  support  for its  planned
expansion  of  sales.  Contributing  to this  factor  is that  the  $170,000  of
long-term debt, principal and interest, is considered by management not to be of
a demand type.

The principal  source of funds for the Company's  operations  during fiscal 1997
has been from  operating  revenues and proceeds from the sale of securities  and
the exercise of options, as reflected in the Company's financial statements.

Property  and  equipment  remained  essentially  the same in  fiscal  1997  when
compared  with  fiscal  1996.  There were no  material  commitments  for capital
expenditures  at  the  end  of  fiscal  1997,  except  in  connection  with  any
acquisitions.

The Company also does not presently  anticipate  the  allocation of  significant
resources for machinery and equipment  purchases.  Any such  commitments will be
dependent on demand for the delivery of products  under new or increased  orders
and are  expected to be  purchased  pursuant to  available  financial  programs,
leasing programs or bank financing without committing substantial cash assets on
the part of the Company. Future conditions,  such as successful equity financing
efforts, may change this position.


IV.  Inflationary Impact:

Since the inception of operations,  inflation has not significantly affected the
operating results of the Company. However, inflation and changing interest rates
have had a significant  effect in the economy in general and therefore could not
affect the operating results of the Company in the future.


Item 7.  Financial Statements

The following  financial  statements  have been prepared in accordance  with the
requirements of Item 310(a) of Regulation S-B:







                                                        10


<PAGE>





















                                           INDEPENDENT AUDITORS' REPORT



Board of Directors
Semicon Tools, Inc. and Subsidiaries
New Rochelle, New York


     We have audited the consolidated  balance sheets of Semicon Tools, Inc. and
Subsidiaries as of January 31, 1997 and the related  consolidated  statements of
income,  retained earnings,  and cash flows for the years ended January 31, 1997
and 1996.  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 did not audit the financial statements of DTI
Technology,  SDN BHD, a wholly owned subsidiary,  which statements reflect total
assets of $419,897 and  $401,371 as of January 31, 1997 and 1996,  respectively,
and total  revenues  of $118,611  and  $80,463  for the years then ended.  Those
statements were audited by other auditors whose report has been furnished to us,
and  our  opinion,  insofar  as it  relates  to the  amounts  included  for  DTI
Technology, SDN BHD, is based solely on the report of the other auditors.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

     In our opinion,  based on our audits and the report of other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material   respects,   the  financial   position  of  Semicon  Tools,  Inc.  and
Subsidiaries as of January 31, 1997 and 1996 and the results of their operations
and  their  cash  flows for the  years  ended  January  31,  1997 and  1996,  in
conformity with generally accepted accounting principles.










April 17, 1997
                                                                           F-1


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEET

                                           YEAR ENDED JANUARY 31, 1997






                                                      ASSETS


Current assets:
  Cash                                                             $  116,334
  Accounts receivable, less allowance
   for doubtful accounts of $6,500                                    162,439
  Inventory                                                           339,552
  Prepaid expenses and other current assets                            81,643
  Deferred tax asset, current portion                                  31,250
    Total current assets                                              731,218
                                                                      -------

Property and Equipment                                                378,096
                                                                      -------

Other assets:
   Goodwill, net of amortization                                      102,238
   Security deposits                                                   14,885
   Deferred tax asset, net of current portion                          62,500
                                                                       ------
                                                                      179,623
                                                                      -------

                                                                   $1,288,937
                                                                   ==========




                                       LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
  Current portion of long-term debt                               $   15,420
  Notes payable, shareholders                                         84,462
  Accounts payable                                                    83,231
  Accrued interest                                                   188,309
  Payroll taxes payable                                                1,598
                                                                       -----

   Total current liabilities                                         373,020
                                                                     -------

Long-term debt, net of current portion                               170,000
                                                                     -------

Commitments and contingencies

Shareholders' equity:
  Common stock par value $.001; 100,000,000
   shares authorized 9,367,500 shares issued and
     outstanding                                                      9,368
  Additional paid in capital                                      2,517,945
  Retained earnings (deficit)                                   ( 1,781,396)
                                                                ----------- 
                                                                    745,917
                                                                -----------

                                                                 $1,288,937
                                                                 ==========






     See notes to consolidated financial statements.
                                                                          F-2


<PAGE>



                           SEMICON TOOLS, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENT OF INCOME (LOSS)

                           YEARS ENDED JANUARY 31, 1997 AND 1996















                                                 1997               1996
                                                 ----               ----

Net sales                                     $1,602,830         $1,248,668

Cost of sales                                    497,260            521,364
                                                 -------            -------

Gross profit                                   1,105,570            727,304

Selling, general and administrative
 expenses                                        950,013          1,109,735
                                                 -------          ---------

Income (loss) from operations                    155,557       (   382,431)
                                                 -------       -   ------- 

Other income (expenses):
  Rental income                                                      8,050
  Interest expense                          (    35,655)       (    45,249)
                                             -----------        ----------- 
                                            (    35,655)       (    37,199)
                                             -----------        ----------- 

Income (loss) before income taxes               119,902       (   419,630)

Provision for income taxes (benefit)        (    93,750)
                                             -----------        -----------

Net income (loss)                            $  213,652       ($  419,630)
                                             ==========        =========== 

Income (loss) per common share               $    0.024       ($    0.103)
                                             ==========        =========== 

Weighted average number of common
 shares outstanding                           8,970,445          4,090,589
                                              =========          =========





          See notes to consolidated financial statements
                                                                       F-3








    
<PAGE>



                          SEMICON TOOLS, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF CASH FLOW

                          YEARS ENDED JANUARY 31, 1997 AND 1996

                                                        1997             1996
Operating activities:
    Net income (loss)                               $213,652         ($419,630)

Adjustments to reconcile net income to
 cash provided from operating activities:
  Depreciation and amortization                       23,317            62,542
  Compensatory stock issued                           54,125            10,050
  Prior period adjustment                                            (  74,196)
  Loss on foreign investment                                            89,119

Changes in other operating asset and liabilities:
  Accounts receivable                              (   3,808)        (  56,595)
  Inventories                                      (  79,059)        (  48,786)
  Prepaid expenses and other current assets        (  21,697)          343,482
  Deferred tax asset                               (  93,750)
  Other assets                                     (   5,244)            1,341
  Accounts payable                                 ( 234,761)          160,424
  Accrued expenses                                    33,132            77,848
  Payroll taxes payable                            (  41,415)        (  15,220)
                                                   ---------         --------- 

    Net cash provided from (used in)
     operating expenses                            ( 155,508)          130,379
                                                   ---------           -------

Investing activities:
  Purchase of property and equipment              (  25,549)         ( 357,471)
  (Increase) decrease in investment
   in foreign subsidiary                          (   3,776)            255,797
                                                  ---------          ----------

    Net cash used in investing activities        (  29,325)          ( 101,674)
                                                  ---------           --------- 

Financing activities:
  Proceeds from sale of stock                      328,125             23,438
  Increase in long-term debt                                          178,542
  Decrease in notes payable                                         (  10,186)
  Decrease in notes payable, shareholders'       (  23,338)         ( 132,937)
  Payment of long term debt                      (  46,262)         (  45,811)
                                                 ---------          --------- 

    Net cash provided from financing activities    258,525             13,046
                                                   -------             ------

    Net increase in cash                            73,692             41,751

Cash beginning of year                              42,642                891
                                                    ------                ---
Cash end of year                                  $116,334           $ 42,642
                                                  ========           ========

Supplemental disclosures of cash flow information:
Cash paid during the year for:
  Interest                                        $  2,533           $ 17,422
                                                  ========           ========
  Income taxes                                       -0-                -0-
                                                  ========           ========

Supplemental schedule of non-cash investing and financing activities:
  Issuance of common stock for conversion
   of debt, agreements, services and payment
   of interest                                    $      0           $113,650
  Issuance of common stock for purchase of
   subsidiary                                      125,048                  0
                                                   -------           ---------

                                                  $125,048           $113,650
                                                  ========           ========

     See notes to consolidated financial statements.
                                                                         F-4


<PAGE>



                                      SEMICON TOOLS, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                      YEARS ENDED JANUARY 31, 1997 AND 1996

                                                                     Additional    Retained          Total
                                                       Common           paid in    earnings        Shareholders'
                                       Shares          stock            capital    (deficit)          equity
<S>                                 <C>               <C>             <C>        <C>                 <C>      

Balance at January 31, 1995         3,685,000         $3,685         $1,869,192  ($1,501,222)       $371,655

Stock issued for settlement of
 accounts payable                     600,000            600             73,050                       73,650

Stock issued for consulting services  150,000            150              9,900                       10,050

Stock issued for exchange of loans    670,000            670             39,330                       40,000

Sale of stock                          62,500             63             23,375                       23,438

Prior period adjustment, loss in
 equity of unconsolidated subsidiary                                              (    74,196)     (  74,196)

Net loss for the year ended January
 31, 1996                                                                         (   419,630)     ( 419,630)

Balance at January 31, 1996         5,167,500          5,168          2,014,847   ( 1,995,048)        24,967

Issuance of stock on exercise
 of stock options                   2,550,000          2,550            237,450                      240,000

Sale of stock                          75,000             75             28,050                       28,125

Issuance of stock for consulting
 services                             150,000            150              7,350                        7,500

Issuance if stock regarding
 acquisition of subsidiary, DTI
 Technologies, SDN BHD                300,000            300            124,748                      125,048

Issuance of stock for services         75,000             75             28,675                       28,750

Sale of stock                         400,000            400             59,600                       60,000

Issuance of stock in lieu of payment
 of officers salaries                 650,000            650             17,225                       17,875

Net income for the year ended January
 31, 1997                                                                           213,652          213,652
 --- ----                          -----------       --------        ----------     -------          -------

                                    9,367,500         $9,368         $2,517,94  ($1,781,396)        $745,917
                                    =========         ======         =========  ===========         ========

</TABLE>

     See notes to consolidated financial statements.
                                                                           F-5

<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996






1.  Organization of the Company:

    Semicon Tools, Inc. (the "Company"),  a Nevada corporation,  is primarily in
        the business of selling  small  precision  disposable  diamond and other
        base material tools used to cut and separate  electronic  components and
        devices.  In addition,  it has two  subsidiaries  with their own product
        lines.

    One of the Company's  wholly-owned  subsidiaries,  East Coast Sales Company,
        Inc.  ("ECS")  is  a  Connecticut   corporation  which  distributes  and
        fabricates   technical  ceramic  products  and  distributes  clean  room
        supplies  and tools.  This  Company,  which was  acquired on January 26,
        1990,  was accounted for in a manner similar to the pooling of interests
        method of accounting.  The total cost of the acquisition,  $309,000, was
        paid for by the issuance of a $300,000 note, bearing interest at 10% per
        annum, and the issuance of 9,000,000 shares (60,000 shares,  as restated
        - see Note 7) of the  Company's  $.001 par value  common stock (see also
        Note 5).

    The Company's other wholly-owned  subsidiary,  DTI Technology,  SDN BHD is a
        Malaysian  company which  manufactures a product line similar to that of
        Semicon  Tools,  Inc.  Semicon  Tools,  Inc.  acquired the assets of DTI
        Technology, SDN BHD on June 22, 1996. The total cost of the acquisition,
        $125,048,  was  paid  for by  the  issuance  of  300,000  shares  of the
        Company's  $.001 par value common stock with a negotiated  fair value of
        $.42 per share.



2.  Summary of significant accounting policies:

    Principles of consolidation:
        The  consolidated  financial  statements  of  Semicon  Tools,  Inc.  and
         Subsidiary  include all the accounts of Semicon Tools,  Inc. East Coast
         Sales  Company and DTI  Technology,  SDN BHD after  elimination  of all
         significant  intercompany  transactions  and  accounts.  The  financial
         statements   give   retroactive   effect  to  the  acquisition  of  DTI
         Technology,  SDN BHD which has been  accounted for as an acquisition as
         if in a pooling of  interest  method at  historical  cost of the assets
         acquired.

    Cash and cash equivalents:
        Cash and cash equivalents  include all highly liquid investments with an
         original maturity of three months or less.

    Inventories:
        Inventories,  which consist solely of finished goods,  are stated at the
         lower of cost or market. Market is considered at net realizable value.

    Per share amounts:
        Net earnings  per share are  computed by  dividing  net  earnings by the
         weighted  average number of shares of common stock  outstanding  during
         the period. Fully diluted and primary earnings per common share are the
         same amounts for the period presented.





                                                                          F-6


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996








2.  Summary of significant accounting policies (continued):

    Property and equipment:
        Property and equipment are stated at cost.  Depreciation of property and
         equipment is provided using the straight-line method over the following
         useful lives:
                                                                 Years
           Manufacturing                                         5-10
           Furniture and fixtures                                 7
           Other equipment                                       5-7
           Leasehold improvements                         Length of lease


    Expenditures for major renewals and betterment  that extend the useful lives
        of property and equipment are capitalized.  Expenditures for maintenance
        and repairs are charged to expense as incurred.

    Income taxes:
        The Company  has  elected to file a  consolidated  corporate  income tax
         return with its subsidiaries.  For tax reporting purposes,  the Company
         uses certain accelerated  depreciation  methods which may create timing
         differences between book and tax income.  Deferred income taxes will be
         reflected for these timing differences.

    Post retirement benefits:
        On December 31, 1990, the Financial  Accounting  Standards  Board (FASB)
         issued  Statement of  Financial  Accounting  Standards  (SFAS) No. 106,
         "Employers'   Accounting  for  Post  Retirement   Benefits  Other  Than
         Pensions."  SFAS No. 106 requires that companies  recognize the cost of
         providing post retirement  health care and other  non-pension  benefits
         over the employees'  service  periods,  rather than as the benefits are
         paid.  The Company  does not provide any  non-pension  post  retirement
         benefits at the present time.

      Allowance for doubtful accounts:
        An  allowance  for  doubtful  accounts  has  been  established  based on
         management's review of the outstanding  accounts receivable balance and
         their determination of possible uncollectible accounts.

      Use of estimates:
        The  preparation  of financial  statements in conformity  with generally
         accepted accounting  principles requires management to make assumptions
         that  affect  the  reported  amounts  of  assets  and  liabilities  and
         disclosure  of  contingent  assets and  liabilities  at the date of the
         financial  statements and the reported amounts of revenues and expenses
         during the  reporting  period.  Actual  results could differ from those
         estimates.








                                                                         F-7


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996









2.  Summary of significant accounting policies (continued):

      The Financial  Accounting  Standards  Board issued  Statement of Financial
        Accounting  Standards ("SFAS") No. 121,  "Accounting for the Impaired of
        Long-Lived  Assets to Be  Disposed  Of."  "SFAS" No. 121  requires  that
        Long-Lived  Assets and certain  identifiable  intangibles to be held and
        used by the Company be reviewed for impairment whenever events indicated
        that the carrying amount of an asset may not be recoverable.

      Additionally, The Accounting Standards Board issued Statement of Financial
      Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
      Compensation".  The effective date of "SFAS" No. 123 is for fiscal years
      beginning after December 15, 1995, and established a method of accounting
      for stock based compensation plans based on fair value.  The Company does
      not believe that "SFAS" No. 121 and No. 123 will have an impact on its
      financial statements.


3.    Nature of operation, risks and uncertainties:

      The  Company  currently  has a  minuscule  share of the  dicing  blade and
      ceramics market. There can be no assurance that the Company will be able
      to  increase  its  market  share  or  that  the  market  will  increase.
      Furthermore,  the  Company  faces  the  possibility  of  adverse  market
      conditions from technological  changes,  shifting product emphasis among
      competitors and the entry of new competitions into its market.


4.  Property and equipment:

    Major classifications of property and equipment are as follows:

      Manufacturing equipment                                   $574,982
      Other equipment                                            270,894
      Office equipment                                            20,535
                                                                  ------
                                                                 866,411
      Less accumulated depreciation                              488,315
                                                                 -------

                                                                $378,096
                                                                ========


5.  Goodwill:

    On  January 26, 1990,  the Company  acquired  East Coast Sales  Company (its
    wholly-owned  subsidiary)  for a cost of $309,000.  The  purchase  price
    exceeded  the fair  value of the  assets by  $134,281  which  amount was
    assigned to goodwill,  and is being amortized on a  straight-line  basis
    over  forty  years.  Accumulated  amortization  of  goodwill  aggregated
    $32,043 as of January 31, 1997.





                                                                         F-8


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996



6.  Commitments and contingencies:

    The Company was obligated  under an operating lease agreement for the rental
        of office and  warehouse  space in New  Rochelle,  New York.  This lease
        expired on September 30, 1995 and required  minimum monthly  payments of
        $3,125.  The  Company  subleased  a portion  of this space with a tenant
        paying a monthly rent of $700.

    Rental expense for the year ended  January 31, 1996,  including  real estate
        taxes amounted to $28,125.

      InNovember  1995  the  Company  moved  to new  premises  and is  currently
        obligated  under  a  lease   agreement  for  office  and   manufacturing
        facilities.  This lease,  which  expires on May 31,  1998,  requires the
        following future minimum rental payments:

                           January 31, 1998                     $40,999
                           January 31, 1999                      14,172
                                   --- ----                      ------
                                                                $55,171
                                                                =======


      Rental expense for the year ended January 31, 1997 amounted to $39,047.

    The Company also leases three  vehicles  under  operating  leases with terms
        expiring  through 1998.  Total lease expense was $25,307 and $15,065 for
        the years ended January 31, 1997 and 1996, respectively.

      Future minimum rentals are as follows:

                           1998                           $24,425
                           1999                            13,696
                           2000                             6,163
                           ----                             -----
                                                          $44,284
                                                          =======

      The Company has entered into written sales  agreements with two employees.
        The  agreements  are on a year to year basis and call for the payment of
        commissions,  varying  from 1 to 4  percent,  on the  sale  of  selected
        products.

      OnApril 8,  1996,  the  Company  reached a  settlement  with  their  prior
        accountants  of fees due from  the  Company.  The  agreement  calls  for
        monthly  installments of $4,000  commencing  April 1, 1996 and ending on
        September  1, 1996 for a total of  $24,000.  The  balance  reflected  at
        January 31, 1996 on the  Company's  accounts  payable was  $28,068.  The
        books at October 31, 1996 have been adjusted to reflect this settlement.
        As of January 31, 1997 the balance had been paid in full.

7.  Common stock and stock split:

      OnFebruary  8, 1993,  the Company  effected a reverse  split of its common
        stock  outstanding  on a 1-for-150  basis.  As a result of the split the
        72,601,100  shares then  outstanding  became  484,007  shares  while the
        stated par value per share of common  stock was not changed  from $.001.
        Fractional  shares  were  rounded up to the  nearest  whole  share.  All
        references to the number of shares and per share amounts included in the
        financial  statements  have been restated to  retroactively  reflect the
        aforementioned stock split.



                                                                          F-9


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996




7.    Common stock and stock split (continued):


      OnJanuary 25, 1995,  the Company  issued 760,000 shares of common stock as
        per the terms of the  consulting  agreement  described  in Note 12.  The
        stock was valued at $380,000 or $.50 per share and is part of a one year
        agreement beginning February 27, 1995.

      During the year ended January 31, 1996,  the Company  issued shares of its
        common stock for the following reasons:



                            Number
                              of       Total
  Date        Issuee        shares     Value      Reason for issuance

 04/24/95    LS Technology  150,000  $ 43,650   Settlement of accounts payable

 10/16/95    Eugene Pian    370,000    25,000   Exchange for loans

 10/16/95    Silver Vaults  450,000    30,000   Settlement of accounts payable

 10/17/95    Tan Oan Khoon   50,000     3,350   Consulting services

 10/17/95    Raffic Mahamed 100,000     6,700    Consulting service

 01/31/96     Eugene Pian   300,000    15,000    Exchange for loans
 -- -- --                   -------    ------                      

                          1,420,000  $123,700
                          =========  ========



      The Company also sold 62,500  common shares in the fiscal year January 31,
        1996 for $23,438.

     On March 6, 1996 the Company  entered into an  investment  agreement  for a
     three year term.  The consultant  shall assist  management in broadening
     the Company's exposure to the financial community and securing necessary
     funding to meet its needs  according to the terms of the agreement.  The
     consultant  shall be  compensated by having the option to purchase up to
     6,000,000 of the Company's  common shares at prices varying from $.10 to
     $1.75 during the period commencing on March 6, 1996 and ending September
      30, 1996. As of September 30, 1996, 2,550,000 shares had been issued for
     $240,000.  This  agreement was  terminated on September 30, 1996 and all
     options had been cancelled.

     The Company  entered into a  consulting  agreement on August 29, 1996 with
     Toby  Investment  Group  to  provide  professional   corporate  finance,
     financial public relations, management consulting and advisory services.
     The consultant was issued options to purchase the Company's common stock
     from August 29, 1996  through  October 31,  1996.  A total of  7,900,000
     shares were offered at prices of $.15 to $1.00 per share. At October 31,
     1996,  the Company  received  $60,000 and issued  400,000  shares of its
     common stock.  At October 31, 1996,  the  consulting  agreement had been
     terminated at the option of the Company and all stock options cancelled.






                                                                       F-10


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996



7.  Common stock and stock split (continued):

   During the year ended  January 31, 1997,  the Company  issued  shares of its
   common shares in non-cash transactions as follows:

                                Number
                                 of      Total
  Date       Issuee             shares   Value   Reason for issuance

 03/05/96   Richard Staper     100,000  $ 5,000  Consulting services

 03/05/96   Richard Korlinchak  50,000    2,500  Consulting services

 06/22/96   Lee Beng Wang      100,000   33,921  Acquisition of DTI Technology

 06/22/96   LS Technology       50,000   16,961  Acquisition of DTI Technology

 06/22/96   Eugene Pian        150,000   74,166  Acquisition of DTI Technology

 08/31/96   Mark Gasarch        50,000   25,250  Legal services

 08/31/96   Paul Alper          25,000    3,500  Consulting services

 01/31/97   Eugene Pian        500,000   13,750  Bonus

 01/31/97   Craig Pian         150,000    4,125  Bonus
 -- -- --                      -------    -----             

                             1,175,000  $179,173
                             =========  ========


     The Company sold  3,025,000  common  shares  during the year ended January
     1997 for $328,125.


8.    Long-term debt:
                                                 Long-term    Current
                                          Rate    Portion     Portion   Maturity

        Note payable, Citibank     (a)     10%                $15,420     1998

        Note payable, shareholders (b)  13.5%-15% $170,000                1998
                                        ----  --  --------                ----


                                                  $170,000    $15,420
                                                  ========    =======

        (a)     Note payable to Citibank is payable in monthly  installments of
                $3,855 including  interest.  The note is  collateralized by all
                assets  of  the  Company  and   guaranteed   by  its  principle
                shareholder.

        (b)     Notes payable to two  shareholders  in the aggregate  amount of
                $170,000.  These notes are  subordinate  to the borrowing  from
                Citibank and will become due when the bank is paid in full.

      The maturities of these loans are as follows:

                           January 31, 1998                  $ 15,420
                           January 31, 1999                   170,000
                                   --- ----                   -------

                                                             $185,420
                                                             ========





                                                                       F-11


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996



9.    Notes payable, shareholders:

      Notes payable consist of the following past due obligations.  The terms of
      these notes have not been extended and are payable on demand:

      Notes payable to  shareholders  were  payable in monthly  installments  of
      $2,326,  including  interest at 14%. The notes  matured in July 1994 and
      amounted to $81,462.  In April of 1997,  these notes were  renegotiated,
      along with any accrued  interest to be paid in monthly  installments  of
      $4,053 including interest at 10%. The notes mature in April, 2001.

      Demand note payable to shareholder carries interest at 10% and amounted to
        $3,000.

      Shareholders have not demanded payment in the current year.


10.   Acquisition of subsidiary:

      OnJune  22,  1996,  the  Company  acquired  100%  of  the  assets  of  DTI
        Technology,  SDN BHD, a Malaysian  company formed on May 17, 1995, for a
        total cost of $125,048.  The  contributing  shareholder  of Semicon Tool
        Co.,  Inc.  and  Subsidiaries  was  also  a  major  stockholder  in  DTI
        Technology,  SDN BHD.  Accordingly  the  accounts  are recorded at their
        historical  basis and their operations and cash flows have been included
        as if the  acquisition  had occurred on May 17, 1995. The Company issued
        300,000 of its common shares to the shareholders of DTI Technology.  The
        fair value being determined at 4.42 per share was equal to the net asset
        value  of the  assets  acquired.  The  condensed  balance  sheet  of DTI
        Technology, SDN BHD at June 22, 1996 was as follows:

                                                   BALANCE SHEET

                                                      ASSETS

           Current assets                                           $112,003
           Property and equipment                                    312,997
                                                                     -------

              Total assets                                          $425,000
                                                                    ========


                                       LIABILITIES AND SHAREHOLDERS' EQUITY


           Current liabilities                                      $299,952
           Shareholders' equity                                      125,048
                                                                     -------

              Total liabilities and shareholders'
               equity                                               $425,000
                                                                    ========

      The  restated  assets and  liabilities  of DTI have been  included  in the
      consolidated  balance sheet at July 31, 1996.  The results of operations
      for DTI for the period June 22,  1996 to January 31, 1997  resulted in a
      net profit of $2,314.






                                                                        F-12



<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996


11.   Income taxes:

    As of January 31, 1997 the Company had net  operating  loss  carryovers  of
    approximately $1,780,000 expiring in various years through 2008.

      Effective  February 1, 1993,  the Company  adopted  Statement of Financial
      Accounting  Standards No. 109,  "Accounting for Income Taxes" ("SFAS No.
      109"),  the  cumulative   effect  of  which  was  not  material  to  the
      consolidated   financial  statements  and  is  therefore  not  presented
      separately.  Under  the  asset and  liability  method  of SFAS No.  109,
      deferred tax assets and  liabilities  are  recognized for the future tax
      consequences  attributable  to the  differences  between  the  financial
      statement  carrying amounts of existing assets and liabilities and their
      respective  tax bases and operating  loss and tax credit  carryforwards.
      Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the year in which those temporary
      differences are expected to be recovered or settled. Under SFAS No. 109,
      the effect on  deferred  tax assets and  liabilities  of a change in tax
      rates is  recognized in income in the period that includes the enactment
      date; this effect was immaterial  during the year ended January 31, 1997
      and 1996. The deferred tax asset less the deferred tax  liabilities  has
      been  reduced by a valuation  allowance  equal to the net tax benefit in
      excess of the estimated taxable profits over the next three years.

      Provision for income taxes (benefit):
                                                          1997           1996
                                                          ----           ----

            Current                                    $ 31,250     $      0
            Deferred                                  ( 125,000)
                                                      ---------      ----------
                 Total benefit                        ($ 93,750)    $      0
                                                      =========     ===========


      A reconciliation of the income tax provision at the federal statutory rate
        to the income tax provision at the effective tax rate is as follows

                                                            1997          1996
                                                            ----          ----
            Income tax computed at the
              federal statutory rates                      24,128            0
            State tax (net of federal benefit)              7,122            0
            Net operating loss carryforward             ( 125,000)
                                                        ---------       -------

            Provision (credit) for income taxes         ($ 93,750)           0
                                                        =========       =======


      The  components  of  deferred  tax assets and  liabilities  consist of the
     following:

            Deferred tax asset:

              Net operating loss carryforward           $538,750     $570,000
                                                        --------     --------

                 Total deferred tax asset                538,750      570,000

                 Valuation allowance                   ( 445,000)   ( 570,000)
                                                       ---------    --------- 

                                                        $ 93,750     $      0
                                                        ========     ========





                                                                        F-13


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996










12.     Principle products and segmentation of sales:

        The  disposable  tools sold by the  Company  include  dicing  blades and
        scribes,  which are components of precision electronic saws and scribes
        used to cut silicon  wafers,  porcelain  and ceramic molds and dressers
        used for the shaping and forming of grinding wheels in the machine tool
        industry. Industrial ceramic products and clean room supplies are among
        the Company's major products.

        Financial  information  relating  to  industry  segments  and classes of
        products:


                                                    January 31,     January 31,
                                                        1997            1996
                                                        ----            ----


           Sales to customers:
            Industry A: Semicon Tools, Inc. and
          DTI Technologies, SDN BHD
               Dicing blades                        $  396,420      $  326,072
               Scribes                                 112,846          46,586
               Dressers                                 21,773          21,532
               Miscellaneous hardware                   11,272          25,769
               Other products                           44,928          45,530
            Industry B: East Coast Sales, Inc.
               Ceramics                                924,733         540,092
               Clean room supplies                       5,582           8,891
               Other products                           85,276         153,733
                                                        ------         -------

                                                    $1,602,830      $1,168,205
                                                    ==========      ==========


         Operating profit or loss:

            Industry A:  Semicon Tools, Inc. and
              DTI Technologies, SDN BHD             ($  160,458)   ($  387,082)
            Industry B:  East Coast Sales, Inc.         280,360         57,243
                                                        -------         ------
                                                     $  119,902     $  329,839
                                                     ==========     ==========

         Identifiable assets:

            Industry A:  Semicon Tools, Inc. and
              DTI Technologies, SDN BHD              $  683,878    $  560,539
            Industry B:  East Coast Sales, Inc.         511,309       262,895
                                                        -------       -------
                                                     $1,195,187    $  823,434
                                                     ==========    ==========







                                                                         F-14


<PAGE>



                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996







12.     Principle products and segmentation of sales (continued):


         Foreign and domestic operations and export sales:

                                                  January 31,      January 31,
                                                     1997             1996
                                                     ----             ----

           Sales to customers:
              United States                     $1,100,133        $  862,190
              Far East                             162,045           163,166
              Europe                                63,607            19,034
              Canada                               277,045           123,815
                                                   -------           -------

                                                $1,602,830        $1,168,205
                                                ==========        ==========

           Operating profit (loss):
              United States                    $   77,625        ($  233,196)
              Far East                        (    17,867)       (    45,848)
              Europe                          (    16,729)       (     5,376)
              Canada                               76,873        (    45,419)
                                              -------------      ------------- 

                                               $  119,902        ($  329,839)
                                               ==========        =========== 


           Identifiable assets:
              United States                   $  590,057          $  582,167
              Far East                           432,763             114,457
              Europe                              36,786              13,422
              Canada                             135,581             113,388
                                                 -------             -------

                                              $1,195,187          $  823,434
                                              ==========          ==========


        Six customers  accounted for  approximately 49% or $772,995 and of which
        two customers accounted for 34% or $542,722 of consolidated revenues in
        1997. Six customers accounted for 45% of consolidated  revenues in 1996
        or $526,362.


13.  Prior period adjustment:

     Until July 31, 1996,  the Company had recorded an  investment  in a foreign
     affiliate at cost with the intention of accounting  for this  investment
     using the equity  method.  The Company had a 9 1/4% interest and because
     the books and records of the affiliate were not readily  available,  the
     losses  of the  affiliate  were  never  recorded  by the  Company.  This
     investment has been written down to zero, the correct value according to
      the information that has now become available.







                                                                      F-15


<PAGE>


                                       SEMICON TOOLS, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       YEARS ENDED JANUARY 31, 1997 AND 1996









14.  Employment agreements:

     On May 1, 1996, the Company  entered into  employment  agreements  with its
     President and Vice President.  The term of the agreements covers two one
     year periods expiring on January 31, 1998. Compensation is set at a base
     of  $100,000  and  $75,000  for  the  President   and  Vice   President,
     respectively,  with  each  getting a bonus of 5% of  consolidated  gross
     sales. Each employee also received 1,000,000 stock options at $.10. None
     of these options had been exercised as of January 31, 1997.


15.  Subsequent events:

     On February 27, 1997, the Company  entered into an investment  banking with
     Russo  Securities for a three year period.  The consultant  shall assist
     management  in  broadening  the  Company's  exposure  to  the  financial
     community and in securing  necessary funding to meet its needs according
     to the terms of the agreement.  The  consultant  shall be compensated by
     having the option to purchase up to  6,000,000  shares of the  Company's
     common  shares at prices  varying  from $.075 to $.10  during the period
     commencing of February 27, 1997 and ending July 30, 1997. After July 30,
     1997 the option price will be $.10 until the agreement expires. Upon the
     signing of the agreement,  the Company issued another  200,000 shares of
     its common stock to other consultants  related to Russo, with a possible
     additional  400,000  shares  being  issued to these  consultants  if the
     entire 6,000,000 options are exercised.  The agreement can be terminated
     by either party upon sixty days notice.


16.     Computation of earnings per share:
                                                          1997            1996
                                                          ----            ----
                                                        
                                                       
              Weighted average number of
               common shares outstanding               $7,458,116    $4,090,589
              Assumed conversion of
               stock options                            1,512,329
                                                       ----------- ------------
              Weighted average number of
               common shares outstanding               $8,970,445    $4,090,589
                                                       ==========    ==========














                                                                          F-16


<PAGE>











Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

There have been no changes in or disagreements  with accountants with respect to
accounting and/or financial disclosure.

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

The following table provides  information  concerning each executive officer and
directors of the Company:

              Name                                    Title

              Eugene J. Pian                    President and Director
              Craig Pian                        Treasurer and Director
              Francine Pian                     Secretary and Director


Directors are elected to serve until the next annual meeting of stockholders and
until their  successors  have been  elected  and have  qualified.  Officers  are
appointed  to serve until the meeting of the Board of  Directors  following  the
next annual meeting of stockholders and until their successors have been elected
and have qualified. Craig and Francine Pian are the children of Eugene Pian.

A summary of the business experience of each officer and director of the Company
is as follows:

EUGENE J. PIAN has been  President of the Company  since April 1987. He had been
President of East Coast Sales since its  inception in 1975 until its merger into
the  Company in January  1990.  From 1969 to 1975,  he was  Division  Manager of
Consolidated  Refining  Company,  where  he was  responsible  for  organizing  a
division  manufacturing the materials necessary to plate and stamp semiconductor
materials and supervising all sales and manufacturing. From 1960 to 1969, he was
Vice  President  of  Semi  Alloys,  Inc.,  where  he  was  responsible  for  the
manufacture and sale of fabricated metal products to the semiconductor industry.

CRAIG PIAN was  appointed  Director and  Treasurer of the Company in 1996 having
been employed by the Company  since its  inception and  previously by East Coast
Sales Co., now a subsidiary of the Company.  Mr. Pian has been involved with all
aspects of the Company's manufacturing,  sales and administrative operations for
the past 13 years and brings a great deal of stability  and customer  acceptance
to his new expanded role with the Company.  Mr. Pian graduated Manhattan College
having  received  his  Bachelor  of Science  Degree in  Business,  with a strong
emphasis on engineering.

FRANCINE  PIAN was  appointed  Secretary  and a Director  of the Company in 1996
having been employed by the Company since 1983.  Prior to joining the Company on
a full-time  basis,  Ms. Pian was employed in retail sales for some of the major
retail chain stores in the New York  metropolitan  are. She is a graduate of the
Laboratory  Institute  of  Merchandising  ("LIM")  in New York  bringing  a well
rounded background suited for her responsibilities with the Company.




                                                        11




<PAGE>












Compliance With Section 16(a) of the Securities Exchange Act of 1934:

The Company  does not have any  securities  registered  under  Section 12 of the
Securities  Exchange Act of 1934  Commission and,  accordingly,  compliance with
Section 16(a) thereof is not required or applicable.


Item 10. Executive Compensation

During the fiscal year ended  January 31, 1997,  the Company paid Mr. Pian,  its
President,  the sum of $91,000,  plus it paid for $1,000,000 of life  insurance,
under which his wife is the  beneficiary,  and automobile  leases and associated
insurance  which may be deemed for the  personal  benefit of Mr. Pian (Mr.  Pian
serves with an employment agreement).

Directors do not receive  compensation for their services as directors,  but may
be reimbursed  for expenses  incurred for attendance at meetings of the Board of
Directors.

Craig Pian,  Treasurer,  earns $66,000 per year, has an employment agreement and
life insurance coverage; Francine Pian earns $40,000 per year.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

(a) Security  Ownership of Certain  Beneficial Owners - The persons set forth on
the chart below are known to the Company to be beneficial owners of more than 5%
of the Company's Common Stock, being the only class of its voting securities, as
of January 31, 1997.

(b) Security  Ownership of  Management - Information  concerning  the number and
percentage  of  shares  of  Common  Stock of the  Company  owned of  record  and
beneficially by management, is set forth on the chart below:

                                  Amount and Nature of
  Name and Address of             Beneficial Ownership
  Beneficial Owner                Shares                   Percentage (1)

Eugene J. Pian                  1,768,150                     18.6%
c/o Semicon Tools, Inc.
111 Business Park Drive
Armonk, New York  10504

Craig Pian                        550,333                      5.8%
c/o Semicon Tools, Inc.
111 Business Park Drive
Armonk, New York  10504

All Officers and Officers
as a Group (3 Persons)          2,687,327 (2)                 28.2%


(1) Except as otherwise  indicated in Note 2 below, the Company has been advised
that all  individuals  listed  have the sole  power to vote and  dispose  of the
number of shares set forth opposite their names.





                                                        12




<PAGE>











(2)  Includes an aggregate  of 45,284  shares owned by members of the  immediate
family of Mr. Pian as to which he disclaims beneficial  ownership.  Excludes the
shares  over  which Mr.  Pian has  voting  control  pursuant  to  voting  trusts
amounting to 1,542,500 shares.  As a result of the foregoing voting trusts,  Mr.
Pian has voting  power over  approximately  44.4% of the issued and  outstanding
shares.


Item 13. Exhibits and Reports on Form 8-R


Exhibits

3.a    Articles of Incorporation (1)
3.b    By-Laws (1)
3.c    Amendment to Articles of Incorporation (2)
10.a   Agreement of Merger with Semicon Tools, Inc., a New York Corporation
           (2) 10.b Articles of Merger (2) 10.c Certificate of Merger (2) 10.d
           Patent License (1)
10.e   Patent No. 4,219,004 (1)
10.f   License Agreement with Bookuk Industry Company, Ltd. (1)
10.i   Thermode/Synthrode Supplier Agreement (1)
10.j   East Coast Sales Acquisition Agreement (3)
10.k   $300,000 Promissory Note (3)
10.l   Amendment to East Coast Sales Acquisition Agreement (4)
16.    The required letter from the former accountants (5)







(1)        Incorporated by Reference from Registrant's Registration Statement on
           Form S-18 declared effective on June 8, 1998.
(2)        Incorporated by Reference from Registrant's Form 8-K Report dated May
           19, 1987.
(3)        Incorporated by Reference from Registrant's From 8-K Report dated
           February 19, 1990.
(4)        Incorporated by Reference from  Registrant's Form 10-K Report for the
           year ended January 31, 1991.
(5)        Incorporated by Reference from Registrant's Form 8-K Report dated
           January 29, 1993.




Report of Form 8-K

None during fiscal 1996.


Statements  contained in this Form 10-KSB as to the contents of any agreement or
other document  referred to are not complete,  and where such agreement or other
document is an exhibit to the Company's  Registrant  Statement or is included in
the forms  indicated  above,  each such  statement is deemed to be qualified and
amplified in all respects by such provisions.




                                                        13


<PAGE>









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.


                               SEMICON TOOLS, INC.



Dated:                                            By:_/s/Eugene J. Pian
                                                     Eugene J. Pian, President




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


SIGNATURES                                TITLE                        DATE

                                          Director and Principal
                                          Executive Officer,
                                          Principal Financial and
                                          Accounting Officer
Eugene J. Pian



/s/ Craig A. Pian                         Treasurer and Director



Craig A. Pian



/s/Francine Pian                           Secretary and Director



Francine Pian















                                                        14