Total number of pages:  52
                                                   With Exhibits


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

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

     For the fiscal year ended September 30, 1996 or

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

 For the transition period from ____________________ to ____________________

                         Commission file number 0-20506

                         BKC SEMICONDUCTORS INCORPORATED
             (Exact name of registrant as specified in its charter)

       Massachusetts                                04-2883532
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
incorporation or organization)

6 Lake Street, Lawrence, Massachusetts               01841
(Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code: (508) 681-0392

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


           Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for, such shorter period that the registrant was
required to filed 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-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant, based upon the closing sale price of the
Common Stock on September 30, 1996, was approximately $2,239,899 on the NASDAQ
National Market System. The number of shares held by non affiliates was 639,971.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

The number of outstanding shares of the registrant's Common Stock on September
30, 1996, was 1,276,411.

Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on March 25, 1997 (the "Proxy Statement") are
incorporated by reference in Part III.



                                     - 1 -


<PAGE>


                                     PART I


ITEM 1.    BUSINESS

General

           BKC Semiconductors Incorporated, which was formed in 1985,
manufactures a wide range of discrete semiconductor diodes for signal switching,
voltage conversion, rectification, and surge suppression in electronic circuits.
The Company's manufacturing and executive offices are located at 6 Lake Street,
Lawrence, Massachusetts 01841. The telephone number is (508) 681-0392, and the
fax number is (508) 681-9135.

Products

The Company's product line includes:

           Silicon Switching Diodes.  Silicon switching diodes are designed
for relatively low-power (500 milliwatt or less) applications.  In end
applications, they provide voltage rectification.  These diodes are generally
used for signal switching functions.

           Rectifiers.  High voltage diodes are often called rectifiers.

           Zener Diodes. A zener diode is analogous to a valve which
stops flow in one direction but breaks down at a specific well-defined pressure
and allows flow in the reverse direction. When reverse voltage is applied to a
zener diode, it resists the flow of current until its breakdown voltage is
reached, at which point it allows current to flow at a particular voltage level.
A zener diode can therefore be used as a voltage regulator, maintaining the
voltage across it at the breakdown voltage. Zener diodes are used to maintain a
particular voltage in an electronic unit.

           Transient Suppressors.  Transient suppressors operate as higher-power
zener diodes just as rectifiers operate as higher-power diodes.

           Schottky Diodes. Schottky diodes operate in much the same ways
as silicon and germanium diodes, but they are manufactured with metal as well as
semiconducting materials. A Schottky diode provides a low voltage drop like that
of a germanium diode but also switches very rapidly.

           Germanium Diodes. Diodes can be made from several semiconducting
materials. Silicon is the most common, but germanium has several advantages
in some applications. A germanium diode functions similarly to a silicon
diode, but it has a lower voltage drop across it in operation.



                                     - 2 -

<PAGE>


Markets

           Due to the broad applications of discrete semiconductor devices,
any industry manufacturing electronic systems is a potential user of BKC
products. The Company generally sells its products in two main markets: the
military/aerospace and the commercial/industrial markets.

           High-Reliability Military/Aerospace Product Market. BKC has
established itself as a high reliability manufacturer of discrete semiconductor
devices to military specifications. Sales of products built to military
specifications are made primarily in the U.S. These sales represented
approximately 50% of total revenues of the Company in fiscal year 1996. The
Company does business with a number of suppliers of conventional military
products, including Motorola, Honeywell, Magnavox, Rockwell, Texas Instruments,
Boeing, Raytheon and Hughes.

           Despite anticipated reductions in many areas of the US.
military budget, BKC believes that the demand for its products, built to
military specifications, for use in satellite communications, civil aviation and
space applications will remain strong. The Company believes that there is
significant market share growth opportunities considering the ever increasing
supplier base. This is coupled with BKC's broad line of product and reputation
for excellent service and high quality.

           Commercial/Industrial Product Market. The market for BKC's
commercial/ industrial products includes such applications as consumer products,
automotive electronic systems, computers, telecommunications and industrial
production. Sales of commercial/ industrial products represented approximately
50% of the Company's sales in fiscal year 1996.

           The commercial market is a very price competitive arena for
discrete semiconductors with many high volume suppliers. As such, BKC's strategy
for this market includes a combination of specialized and sourced products to
attack profitable niche opportunities.

Customers

           The Company's business strategy includes working closely with
a limited customer base to develop partnership programs and products designed to
meet customers' ongoing needs. The Company has franchise agreements with several
major components distributors, including Zeus/Arrow, Hamilton/Hallmark and
Future Electronics. The Company also has several major end users as customers,
including GM Delco, Hughes, Motorola, Lucent, Ericsson and Alcatel. Of these
only one customer represents approximately 10% of the Company's sales. While the
loss of any one of these key customers would be significant, the Company is not
dependent on any one or two customers.

Competition

           In general, the discrete semiconductor industry is very
competitive and characterized by continual technological change and product
obsolescence, periodic shortages of materials,


                                     - 3 -


<PAGE>


variations in manufacturing yields and efficiencies and significant foreign
competition. The Company has a number of major competitors in the discrete
semiconductor components commercial/industrial market. Many of the Company's
current and prospective competitors are larger, offer broader product lines
and have substantially greater technical, financial, marketing, manufacturing,
and other resources than the Company. In spite of these conditions, BKC sees
significant growth opportunities through focusing on its core competencies of
high quality/reliability, niche market capitalization and customer service
excellence.

Sales and Distribution

           The Company's products are sold by independent sales
representatives as well as the premier distributors, such as Zeus/Arrow,
Hamilton/Hallmark, and Future Electronics.

           BKC's products are sold in North America, the Far East,
Israel, Canada, Western Europe and elsewhere. The Company's sales force covers
North America, Europe and the Far East, working with its 31 independent sales
representatives.  In 1996 approximately 38% of sales were made through
distributors.

Manufacturing

           All of BKC's manufacturing operations are conducted at its
facility in Lawrence, Massachusetts. BKC's manufacturing process comprises six
operations: wafer fabrication, assembly, testing, military processing, finishing
operations, and quality assurance.

           Wafer Fabrication -- Silicon Products. BKC purchases silicon
wafers with an epitaxial layer already applied. Each line of diodes and
rectifiers as well as each zener of a particular voltage has its own specific
requirements as to silicon substrate and epitaxial resistivities. Each silicon
wafer is processed through a multitude of steps, producing a die lot. Once the
die lot is completed, samples are evaluated and tested in order to determine
yield information and establish a reliability confidence level. If a die lot
meets BKC standards, it is approved for assembly.

           Wafer Fabrication -- Germanium Diodes. BKC purchases raw
germanium material then recasts it into a workable mold. This mold is then drawn
into a germanium ingot using radio frequency energy while doping the impurities
necessary to produce the desired resistivity. Different resistivities are
required for each line of specifications being targeted. Once obtained, the
ingot is sliced into wafers, which are processed through multiple steps in order
to produce a die lot. The die lot is then tested and approved in the manner
described above.

           Assembly and Testing. The Company assembles its products into
hermetically sealed protective packages. The Company uses an automated assembly
line which is intended to reduce packaging time and improve quality. The test
area, which is equipped to process all BKC part types, tests the electrical
characteristics of each part and sorts each part by electrical specification.


                                     - 4 -

<PAGE>


           Military Processing. Parts designed to meet military, high
reliability specifications are specially processed in the reliability
department. This processing is conducted to remove infant-mortality type
failures which cannot be detected by standard electrical testing and is designed
for customers needing products with above-average reliability.

           Finishing. Finishing operations include electroplating a
solderable finish on the device leads, marking the part with the specific part
number, polarity band and BKC logo, and packaging the parts for shipment.

           Quality Assurance. The function of BKC's Quality Assurance
group is to measure the quality level at which manufacturing is operating. The
quality level is monitored by using a Statistical Process Control system located
at strategic points throughout the manufacturing process, commencing in the
wafer fabrication area and ending with a quality monitor just prior to shipping.

Backlog

           The backlog of unfilled orders totaled $3,185,000, as of
September 30, 1996, as compared to approximately $4,173,000 as of September 30,
1995. The main cause of the lower backlog level at the end of fiscal year 1996
was the reduction of the buy-resale product lines related to the personal
computer industry. Orders counted in the backlog may be postponed or canceled by
the customer at any time subject to the terms of the purchase order. Therefore,
the backlog level is not necessarily indicative of future operating results. The
Company expects to fill all orders of its current backlog during the 1997 fiscal
year.

Patents and Proprietary Rights

           The Company has a number of proprietary processes and
techniques; however, the Company does not own any patents on any of its
technologies or processes nor are any pending. The Company attempts to restrict
access to its proprietary technologies and processes by requiring that its
salaried employees sign non-disclosure agreements as a condition of employment
and by restricting customer and visitor access to proprietary technology and
information of the Company. There can be no assurance that the Company will be
successful in its efforts to protect its proprietary technologies or processes.
In addition, the laws of some foreign countries in which the Company sells or
may sell its products do not protect the Company's proprietary rights in such
products to the same extent as do the laws of the U.S.

Research and Development

           BKC believes that its future is significantly dependent on its
ability to develop and introduce new products for its targeted markets in a
timely manner. Based upon information furnished by the Sales organization, as
well as demand from key customers, R&D efforts will continue in areas that will
broaden wafer fab capability and expand package types that the Company can
utilize to service the market.


                                     - 5 -

<PAGE>


Raw Materials

           The principal raw materials used by the Company include
germanium and silicon. Each of these items is currently available from several
sources at the quality level and in the quantities that the Company requires.
Strong industry demand has often extended the lead time for production of its
products. In the past, extended lead times for raw materials have tended to be
industry-wide, affecting the Company's competitors as well as the Company. The
Company also relies on third parties for the manufacture of certain assemblies
which are incorporated into certain of the Company's products, such as wafers
for silicon switching diodes, zeners and rectifiers. The loss of any critical
supply or supplier could have a material effect on the performance of the
Company.

Employees

           As of September 30, 1996, the Company had 108 full-time
employees, 92 of whom were engaged in manufacturing (including test development,
quality and materials functions), and 3 in product development, 5 in sales, and
8 in finance and administration. The Company's employees are not represented by
any collective bargaining agreements and the Company has never experienced a
work stoppage.

Environmental Matters

           The Company is a potentially responsible party in connection
with the contamination of soil and groundwater on the Company's leased
manufacturing site in Lawrence. The Company, as tenant, might be considered an
"operator" and therefore strictly liable for cleanup costs or liable for damages
to third parties, unless it can establish certain defenses. The Company believes
that its use, storage and disposal of material are carefully controlled and do
not result and have not in the past resulted in a release thereof. New England
Environmental Technologies Corporation ("NEET") has conducted preliminary site
investigations and has advised the Company that, although one of the
contaminants found is used in the Company's operations, the Company is not a
likely source of the contamination and that the contamination most likely
results from historical improper disposal of chlorinated solvents on the site
and upgradient of the site predating the Company's occupancy of the property.

           If the Company were required to pay cleanup costs, applicable
hazardous waste laws allow the Company to seek contribution from other parties
who caused the contamination or are also subject to strict liability (i.e.,
current and former owners and operators). The current owner and the prior lessee
have agreed to hold harmless the Company with respect to any contamination that
may have occurred prior to October 16, 1985.

           Although the outcome of this matter and the cost, if any, to
the Company cannot be reasonably estimated at this time, management does not
believe that the cost, if any, to the Company will have a material adverse
effect on the financial position of the Company.


                                     - 6 -


<PAGE>


           Federal, state and local regulations impose various
environmental controls on the discharge of chemicals and gases used in BKC's
manufacturing process. The Company believes that its operations are currently in
substantial compliance with all applicable environmental laws and regulations
and that costs of continuing compliance will not, except as described herein, be
material to the Company's financial condition.

           The Company believes that it has insurance coverage in amounts
and scope which are adequate and customary for its industry. The Company's
policies contain exclusionary provisions attempting to limit the insurer's
responsibility for damages, if any, arising from certain events, including those
arising from pollution or contamination of the environment. Whether these
limitations would ultimately preclude recovery by the Company of damages arising
from these types of losses would likely be the subject of a dispute between the
Company and its insurers at or after the time at which such liability arises.

ITEM 2.    PROPERTIES

           The Company's executive offices and manufacturing facilities
are located in Lawrence, Massachusetts, and consist of one building containing
approximately 160,000 gross square feet. The building is occupied by the Company
pursuant to a lease expiring in October, 2000. Approximately 100,000 square feet
of the building are occupied by the Company, 45,000 square feet are sub-leased
by the Company to third parties, 15,000 square feet are common area. The Company
believes its currently leased facilities are adequate for all its reasonably
foreseeable requirements.

ITEM 3.    LEGAL PROCEEDINGS

           None

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

           During the fourth quarter of fiscal 1996, no matter was
submitted to a vote of the security holders through the solicitation of proxies
or otherwise.



                                     - 7 -


<PAGE>


                                     PART II

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

           The Company's Common Stock is traded on the NASDAQ National
Market System under the symbol BKCS. The following table sets forth for the
periods indicated the high and low bid quotations of the common stock as
reported by NASDAQ. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.


<TABLE>
<S>                    <C>       <C>       <C>       <C>      <C>       <C>
                               1994                1995               1996
                       High Bid  Low Bid   High Bid  Low Bid  High Bid  Low Bid
Fiscal Quarter                                                                                                Bid

First quarter            7.25      5.62      4.00      2.00     3.75     1.88

Second quarter           6.25      4.25      3.37      1.75     4.00     1.75

Third quarter            5.25      3.75      2.75      1.75     4.75     1.75

Fourth quarter           4.25      3.75      7.50      2.25     3.75     2.25
</TABLE>

           On September 30, 1996, the last reported bid price for the Common
Stock on the NASDAQ market was $3 1/2, per share.

           As of September 30, 1996, the Company estimated that there are
approximately 700 record holders of the Company's Common Stock.

           The Company has not paid any cash dividends on its Common
Stock since inception, and it does not anticipate paying any cash dividends in
the foreseeable future.



                                     - 8 -

<PAGE>


ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA
           (in thousands, except per share data)

           The following table summarizes certain financial data which are
qualified by more detailed financial statements included herein.


<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME (LOSS) DATA:

<S>                                          <C>         <C>         <C>            <C>          <C>
                                                          FISCAL YEARS ENDED SEPTEMBER 30,
                                        ---------------------------------------------------------------------
                                               1996         1995        1994          1993         1992

Revenue                                       $9,797      $11,277     $11,384        $9,775       $8,361

Gross profit                                   1,947        1,278       2,005         2,915        2,607

Income (loss) from operations                     96       (1,530)       (533)          700          977

Net income (loss)                                 34       (1,207)       (475)          353          407

Net income (loss) per share                      .03         (.97)       (.38)          .28          .28

Weighted average shares outstanding            1,273        1,244       1,247         1,248          785


CONSOLIDATED BALANCE SHEET DATA:

                                                                     AT SEPTEMBER 30,
                                           ----------------------------------------------------------------
                                               1996         1995         1994         1993         1992 (1)

Working capital                               $2,015       $1,744       $3,100       $3,232       $3,379

Total assets                                   6,429        7,824        8,351        7,761        6,468

Short-term debt                                1,805        2,967        2,144        1,556          211

Long-term debt and non-current capital lease
    obligations                                  581          915        1,219          591          396

Stockholders' equity                           2,969        2,852        4,062        4,558        4,385


<FN>
1   On August 27, 1992, the Company completed its initial public offering of
    500,000 shares of its common stock. In connection therewith, the redemption
    rights on certain common stock were canceled and/or expired.
</FN>
</TABLE>


                                      - 9 -



<PAGE>




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

Results of Operation

           1996 compared to 1995. Revenues for 1996 fiscal year were
$9,796,858 versus $11,277,350 for fiscal year 1995. A major element attributing
to the lower revenue for fiscal year 1996 was a decrease in the level of product
resale revenue which is derived from resale of components manufactured for BKC
from an off-shore vendor. During fiscal year 1996 the total revenue from
components resale was $1,115,000 versus $2,166,000 during fiscal year 1995. This
drop of $1,051,000 in such revenue during fiscal year 1996 is related to the
sensitivity of the computer industry's inventory levels and model design
changes. BKC's core product line which is 100% manufactured at its Lawrence
site, saw a slight decline in fiscal year 1996 versus fiscal year 1995 resulting
from BKC actions regarding increased pricing and product pruning.

           Net Income for the year was $34,156, or $.03 per share, versus
a net loss of ($1,207,469), or ($.97) per share, for fiscal year 1995. Included
in the net income figure for the year was a gain on disposal of property and
equipment of $208,815. The additional improvement in net income versus the prior
year was due to increased pricing and resultant margins, plus positive results
from cost reductions and reduced spending actions throughout the Company.

           Gross Profits for fiscal year 1996 were $1,947,406, or 20% of
sales, versus $1,277,972, or 11% of sales in fiscal year 1995. This improvement
was a result of management instituted initiatives involving increased prices,
manufacturing cost reductions and decreasing the manufacturing spending levels.

           Operating Expenses for the year were $1,851,051, versus
$2,808,197 for fiscal year 1995, which in fiscal year 1995 included a write down
of assets in the amount of $574,873 due to the Company's decision to exit the
photo detector business. Selling expenses for the current fiscal year were
$898,714, versus $1,286,202 for fiscal year 1995. The improvement in selling
expenses was due to the elimination of selling expenses related to the photo
detector business and reduction in the general expenses and spending related to
the selling activity.

           General and Administrative Expenses were $740,512 for the
fiscal year compared to $785,415 for fiscal year 1995. The reduction in spending
was a result of the company-wide focus on cost reduction and profit improvement
objectives.

           Research and Development Expenses (R&D) were $211,825 versus
$161,707 for the prior fiscal year. This increase in spending was a planned
action to invest in new product development such as the square ended melf
product line which had its production launch during the first quarter of fiscal
year 1997. The increased spending reflects management's commitment to new
product development as the Company returns to profitability.



                                     - 10 -


<PAGE>


           The major risks the Company faces include the availability of
silicon wafers, which is a total industry problem, other raw materials, and the
speed and effectiveness in accomplishing performance improvement initiatives
planned for fiscal year 1997.

           As discussed above, fiscal year 1996, in total, had overall
positive net income. The first through third quarter of fiscal year 1996 had
positive performance, while quarter four had both a decrease in revenue compared
to prior quarters, negative operating profits, and negative net income. The
issues with the fourth quarter were a major decrease in resale product revenue,
and a softening in demand from BKC's distributors and some key OEM customers. In
addition, during the fourth quarter of fiscal year 1996 certain adjustments were
made to recognize the return of products by some BKC distributors and
product/customer account issues. Looking ahead, there is continued concern
regarding market demand as we enter the new year. Meeting business plan shipping
and manufacturing levels will be a critical factor in reaching the Company's
fiscal year 1997 goals.

           1995 compared to 1994. Revenues for 1995 fiscal year were
$11,277,000 versus $11,384,000 for 1994, indicating no growth for the Company as
there had been in past years. Impacting revenues for 1995 was the DESC (Defense
Electronics Supply Center) hold shipment during the first quarter, which had an
estimated $400,000 negative effect on shipments. The hold shipment order was
issued pursuant to a DESC audit of the BKC facility during October 1994. The
auditors determined that certain military product lines were marginally out of
conformance to military specifications and had to be re-tested. It is estimated
that the Company re-tested over three million parts including 600,000 that were
in the field.

           Net Loss for the year was $(1,207,000), or $(.97) per share,
versus a net loss of $(475,000), or $(.38) per share for fiscal year 1994. There
were several factors which caused the poor performance for 1995. First, the DESC
hold shipment in the first quarter fiscal year 1995 cost the Company
approximately $400,000 in revenues and an estimated $197,000 in net income or
$.16 per share. Second, the Board decided to close the Photo Detector operation
and write down the assets. This write-down cost the Company $376,000 in net
income or $.30 per share. Third, the management completed an extensive study of
commercial inventories and determined that an after-tax reduction in value of
$364,000 or $.29 per share was necessary. The total of these three items reduced
net income by $937,000 or $.75 per share.

           During the fourth quarter 1995, the management instituted a
number of initiatives affecting the future operation of the Company. Included in
these initiatives were strategy changes, management reorganization, price
increases, product pruning, headcount reductions, and a manufacturing focus on
cycle time improvements and on-time delivery. Excluding the commercial inventory
write-down, the Company was able to achieve better than break-even income from
operations during the quarter on sales of $2,950,000.

           Gross Profits for 1995 were $1,278,000, or 11.3% of sales
versus $2,005,000 or 17.6% of sales for 1994. Fiscal year 1995 gross profits
were adversely affected by three events: (1) the DESC hold shipment in the first
quarter which had an estimated $328,000 impact on gross profits, (2) the losses
on the Photo Detector line in the first and second quarters had a $96,000
impact, and (3) the inventory write-down in the fourth quarter impacted gross
profits an


                                     - 11 -


<PAGE>



additional $552,000. Excluding these three events, gross profits for 1995
would have increased to approximately $2,254,000 or 20.0% of sales.

           Operating Expenses for the year, excluding the write down of
the Photo Detector assets of $574,873, were down by 12% or $304,745, to
$2,233,324 from $2,538,069 in 1994. Selling expenses were flat year-to-year as
1995 expenses were $1,286,000 or 11.4% of sales versus 1994 expenses of
$1,287,000 or 11.3% of sales. Management targeted reductions in selling expenses
during the fourth quarter of 1995 fiscal year and were able to reduce the
spending levels to $286,000, or 9.7% of sales, for the quarter.

           General and Administrative Expenses were $785,000 or 7.0% of
sales for 1995 as compared to $1,089,000 or 9.6% of sales for 1994. The lower
cost of G&A for 1995 can be attributed to the phase out of Photo Detectors and
Souza Semiconductor subsidiaries, headcount reductions, and lower discretionary
spending.

           Product Development Expenses (R&D) were also flat year-to-year as
1995 spending totaled $162,000 or 1.4% of sales, as did 1994 spending.

           Liquidity and Capital Resources.   The Company's ability to meet its
short term commitments are reflected by its working capital ratios.

<TABLE>
    <S>                                  <C>           <C>          <C>
    WORKING CAPITAL:
    (Data in $000's except ratios)         1994          1995          1996
                                           ----          ----          ----

    Beginning of Year                     $3,232        $3,100       $1,744

    End of Year                            3,100         1,744        2,015

    Increase/(decrease) in W.C.             (132)       (1,356)         271

    W.C. Ratio                               2.0           1.4          1.7
</TABLE>

           The Company generated a $1,193,000 positive cash flow from
operations during 1996 versus a positive cash flow of $34,000 for the same
period in 1995. In addition to lower fiscal spending and improved collections,
the Company received a $204,000 income tax refund which helped operating cash
flow.

           Cash flows were also increased through investing activities by
an additional $281,000. The Company sale of property located at 85 Broadway,
Lawrence, MA, and other equipment generated proceeds of $426,000 which were
partially offset by $145,000 of property and equipment purchases.

           The Company used its total positive cash flows of $1,474,000
to pay down its credit line by $849,000 and make principal payments on its long
term debt of $704,000.


                                     - 12 -



<PAGE>



           As of September 30, 1996, the Company has a revolving credit
line with Eastern Bank for $2,500,000 collateralized by accounts receivable and
inventories. The balance used on the line is $1,430,839. The line of credit
agreement contains certain restrictive covenants which the Company has complied
with or the bank has waived.

           The Company had long term debt, including the amount due
within one year, of $955,000 as of fiscal year end 1996. This debt is secured by
all the assets of the Company. Refer to Notes 5 and 6 within the consolidated
financial statements for details. In September 1996, the Company closed on new
long term financing of $1,100,000 which replaced all prior existing long term
debt and will provide additional operating capital of $145,000 along with a
$16,000 reduction in monthly payments. This term loan is secured by all the
assets of the firm along with a $450,000 loan guarantee from HUD. The loan
agreement contains restrictive covenants which require, among other things, the
maintenance of certain financial ratios. There is no certainty the Company's
future performance will result in compliance with the covenant requirements.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           Financial statements and schedules together with the auditors
reports thereon are referenced in Part IV and are attached hereto.


ITEM 9.    DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE

           None



                                     - 13 -

<PAGE>


ITEM 10.   EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT

           The executive officers and directors of the Company and their ages
as of September 30, 1996, are as follows:

    Name                       Age     Positions Held with Company

    Albert A. Magdall           61     Chairman, Director
    James R. Shiring            55     President, CEO, Director
    John L. Campbell            62     Strategic Marketing and Distribution,
                                          Clerk, Director
    William J. Kady             56     Vice President of  Quality, Director
    Gerald T. Billadeau         54     Director
    W. Randle Mitchell, Jr.     62     Director
    Thomas M. Cunneen           36     Vice President Marketing and Sales
    Bryan A. Schmidt            44     Controller, Treasurer

           Messrs.  Billadeau,  Kady and Campbell founded the Company in 1985.
Mr. Billadeau served as the Company's President and Chief Executive Officer
from 1985 through July of 1995.

           Mr. Magdall was elected to the Board of Directors in November
of 1994, elected Chairman of the Board in May of 1995, and served as interim
President, Chief Executive Officer until a new President was hired by the
Company on March 19, 1996 at which time Mr. Magdall resumed his role as an
independent Director and Chairman of the Board. Mr. Magdall has a long record of
successful management in product development and manufacturing with IBM and
managing four European sales and service companies as a Senior Vice President
and Corporate Officer at Genicom Corporation.

           Mr. Shiring joined BKC as its President and Chief Executive
Officer on March 19, 1996. Mr. Shiring had been Managing Director of Clare
Europe, a unit of CP Clare, a worldwide manufacturer of electronic components,
and prior to that Chief Operating Officer of the parent company of CP Clare. Mr.
Shiring's professional background covers 33 years of progressive global
experience in the electronics industry with the focus on semiconductor
components. His prior professional experience has been with Westinghouse,
Varian, Semicon, Teledyne, and Theta-J Corporation, the forerunner to CP Clare
Corporation for the past thirteen years.

           Prior to the founding of BKC, Mr. Billadeau served as Vice
President and Controller of the ITT Semiconductors Division of ITT from 1980 to
1985. From 1973 to 1980, Mr. Billadeau served as Assistant Controller and
Financial Manager of a subsidiary of ITT. Mr. Billadeau left BKC June 1995 to
pursue other interests. He remains a Director of the Company.

           Mr. Kady served in various capacities in the ITT Semiconductors 
Division of ITT, primarily in the areas of engineering, quality and reliability,
with the exception of the period from 1970 to 1979, during which time Mr. Kady
owned and managed an automobile dealership.



                                     - 14 -


<PAGE>


           From 1963 to 1985, Mr. Campbell held a number of sales and
marketing positions in the ITT Semiconductors Division of ITT, lastly as Eastern
Regional Sales Manager.

           Mr. Mitchell was elected to the Board of Directors of the
Company on December 16, 1994. He joined Amoskeag Company (a company involved in
the home furnishing textile business) in 1979 as VP, Treasurer and CFO and most
recently served as President and CEO, a position he left in 1994 following the
sale of Amoskeag to Fieldcrest Cannon, Inc. He was Executive VP and CFO of
Fieldcrest Cannon from 1985 to 1990, Amoskeag's former 80% controlled
subsidiary. He also served as the Senior VP and CFO of Wellington Management
Company in Boston and held various financial management positions with the Merck
Sharp & Dohme International Division of Merck & Co.

           Mr. Thomas M. Cunneen joined BKC as its Vice President of
Sales and Marketing on May 14, 1996. Prior to joining BKC, Mr. Cunneen had been
Vice President, Field Operations of CP Clare, a worldwide manufacturer of
electronic components. Mr. Cunneen's professional background covers fourteen
years of progressive global experience in the electronics industry with the
focus on semiconductor components. His prior professional experience has been
with Sprague, Sigma Instruments and Theta-J Corporation, the forerunner to CP
Clare Corporation for the past ten years.

           Mr. Bryan A. Schmidt joined BKC as its Controller on June 24,
1996 and was subsequently elected treasurer at the BKC Board Meeting of July 23,
1996. Mr. Schmidt's professional training includes degrees of BS and MBA in
Finance from Northeastern University and progressive financial management
experience within manufacturing concerns for the last twenty years. Prior to
joining BKC, Mr. Schmidt was Controller and CFO for Gare, Inc., a manufacturer
of products for the ceramics industry.

           All directors hold office until the next annual meeting of
stockholders and until their successors have been elected. The officers of the
Company are elected annually and serve at the discretion of the Board of
Directors of the Company. There are no family relationships among any of the
directors and executive officers of the Company.

           The Company's outside directors, Mr. W. R. Mitchell, Jr., along with
 Mr. A. A. Magdall, Chairman, will serve on the Audit and Compensation
Committees.

           Certain information regarding reports required to be filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934 by directors,
officers and beneficial owners of 10% or more of the Company's Common Stock is
contained in the Proxy Statement and is incorporated herein by reference.


ITEM 11.   EXECUTIVE COMPENSATION

           The information required with respect to executive compensation
of the Company is incorporated herein by reference to "Executive Officer
Compensation" in the Proxy Statement and is incorporated herein by reference.



                                     - 15 -


<PAGE>



ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The information required by this item with respect to security
ownership and management and certain beneficial owners of the Company is
incorporated by reference to the caption "Stock Ownership of Directors,
Executive Officers and Principal Stockholders" contained in the Proxy Statement
and is incorporated herein by reference.

           The Company knows of no arrangements, including any pledge by
any person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company. The Company also
knows of no agreements among its shareholders which relate to voting or
investment power of its shares of Common Stock.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           None.



                                     - 16 -



<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

(a)  Documents filed as part of this report:

     (1)  Financial Statements:                                        Page

          Index to Consolidated Financial Statements and                20
            Schedules

          Report of Independent Certified Public                        21
            Accountants

          Consolidated Balance Sheet, September 30, 1996                22
            and 1995

          Statement of Consolidated Income (Loss) for the               23
            years ended September 30, 1996, 1995 and 1994

          Statement of Consolidated Stockholders' Equity                24
            for the years ended September 30, 1996, 1995
            and 1994

          Statement of Consolidated Cash Flows for the                  25
            years ended September 30, 1996, 1995 and 1994

          Notes to Consolidated Financial Statements,                   26
            September 30, 1996, 1995 and 1994

     (2)  Schedules for the years ended September 30,
            1996, 1995 and 1994:

          II - Valuation and Qualifying Accounts                        38

     All other schedules called for under Regulation S-X are not submitted
       because they are not applicable or not required, or because the
       required information is included in the Consolidated Financial
       Statements and Notes thereto.


     (3)  Exhibits:

     The following exhibits are filed herewith:

     Exhibit
     No.                           Title

       *1.3  - Agreement among Registrant, Arthur W. Wood
                 Company, Inc. and McGinn, Smith & Co.
      **1.4  - Warrant Agreement between Registrant and Arthur
                 W. Wood Company, Inc.
      **3.2  - Restated Articles of Organization of the
                 Registrant
      **3.4  - Amended and Restated By-Laws of the Registrant
       *4.3  - Specimen share certificate.
      *10.3  - Registrant's Savings Plan dated September 20,
                 1991.
    **10.28 - Agreement dated March 25, 1992 between
               Registrant and Arthur W. Wood Company, Inc.


                                     - 17 -

<PAGE>





     Exhibit
     No.                           Title

      10.39  - Financing with Eastern Bank, filed as an exhibit
                 to the Company's Form 10-K for the year ended
                 September 30, 1994 and incorporated herein by
                 reference.
      10.40  - BKC/Eastern Bank/City of Lawrence - HUD
                 Financing Agreement dated November 25, 1996
       27.1  - Financial data schedule
    ***99.1  - Registrant's 1994 Stock Option Plan
    ***99.2  - Registrant's 1994 Non-Employee Director Stock
                 Option Plan


   *  Incorporated by reference to the same exhibit number to the
      Registration Statement on Form S-18 filed with the Commission on June
      22, 1992.

  **  Incorporated by reference to the same exhibit number of
      Amendment No. 1 to the Registration Statement on Form S-18
      filed with the Commission on August 4, 1992.

 ***  Incorporated by references to the same exhibit number of the
      Registration Statement on Form S-8 filed with the Commission on May 29,
      1995.

(b)  Reports on Form 8-K:

         None


                                     - 18 -

<PAGE>




           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.

                         BKC Semiconductors Incorporated


Date:                             /s/ James R. Shiring
                                  --------------------------------------------
                                  By:  James R. Shiring, President and Chief
                                       Executive Officer, Director

           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 dates indicated.

Date:  December 26, 1996          /s/ James R. Shiring
                                  --------------------------------------------
                                  James R. Shiring, President and Chief
                                  Executive Officer, Director


Date:  December 26, 1996          /s/ Bryan A. Schmidt
                                  --------------------------------------------
                                  Bryan A. Schmidt, Controller, Treasurer



Date:  December 26, 1996          /s/ John L. Campbell
                                  --------------------------------------------
                                  John L. Campbell, Strategic Marketing and
                                  Distribution, Clerk, Director


Date:  December 26, 1996          /s/ William J. Kady
                                  --------------------------------------------
                                  William J. Kady, Vice President Quality,
                                  Director



                                  --------------------------------------------
                                  Albert A. Magdall, Chairman, Director



                                  --------------------------------------------
                                  W. Randle Mitchell, Jr., Director



                                  --------------------------------------------
                                  Gerald T. Billadeau, Director




                                     - 19 -

<PAGE>







                         BKC SEMICONDUCTORS INCORPORATED

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

                                                                      Page

Financial Statements:

  Report of Independent Certified Public Accountants                    21

  Consolidated Balance Sheet, September 30, 1996 and 1995               22

  Statement of Consolidated Income (Loss) for the years                 23
    ended September 30, 1996, 1995 and 1994

  Statement of Consolidated Stockholders' Equity for the                24
    years ended September 30, 1996, 1995 and 1994

  Statement of Consolidated Cash Flows for the years                    25
    ended September 30, 1996, 1995 and 1994

  Notes to Consolidated Financial Statements, September                 26
    30, 1996, 1995 and 1994

Schedules for the years ended September 30, 1996, 1995 and 1994:

  II - Valuation and Qualifying Accounts                                38

All other schedules called for under Regulation S-X are not submitted because
  they are not applicable or not required, or because the required information
  is included in the Consolidated Financial Statements and Notes thereto.











                                     - 20 -



<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
  BKC Semiconductors Incorporated

           We have audited the accompanying consolidated balance sheet of
BKC Semiconductors Incorporated and subsidiaries as of September 30, 1996 and
1995, and the consolidated statements of income (loss), stockholders' equity and
cash flows for the years ended September 30, 1996, 1995 and 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

           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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 our audits provide a
reasonable basis for our opinion.

           In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of BKC
Semiconductors Incorporated and subsidiaries as of September 30, 1996 and 1995,
and the results of their operations and their cash flows for the years ended
September 30, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.

           Our audits, referred to above, also include the financial
schedules listed in the Index at Item 14(a)(2). In our opinion, based on our
audits, such financial schedules present fairly the information required to be
set forth therein.


                                               /s/ Sullivan Bille, P.C.
                                               SULLIVAN BILLE, P.C.



Boston, Massachusetts
November 11, 1996 (except for Notes 5 and 6
   for which the date is November 25, 1996)



                                     - 21 -


<PAGE>



<TABLE>
<CAPTION>
                         BKC SEMICONDUCTORS INCORPORATED

             CONSOLIDATED BALANCE SHEET, SEPTEMBER 30, 1996 AND 1995

<S>                                             <C>               <C>
                                                    1996               1995
                                      ASSETS
CURRENT ASSETS:
  Cash                                           $    5,921        $   28,340
  Accounts and notes receivable - trade (less
    allowance for doubtful accounts: 1996,
    $11,694; 1995, $20,000)                       1,274,927         1,899,748
  Refundable income taxes                                             215,255
  Inventories                                     3,119,741         3,038,082
  Prepaid expenses                                   33,577            54,357
  Deferred income taxes                             460,000           491,400
                                                 ----------        ----------

              Total current assets                4,894,166         5,727,182

PROPERTY AND EQUIPMENT - Net                      1,426,439         1,996,220

OTHER ASSETS                                        107,908           100,939
                                                 ----------        ----------

              TOTAL                              $6,428,513        $7,824,341
                                                 ==========        ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Note payable - bank                            $1,430,839        $2,279,647
  Accounts payable                                1,019,836           894,853
  Accrued liabilities                                54,481           120,998
  Current maturities of long-term debt              374,070           687,671
                                                 ----------        ----------

              Total current liabilities           2,879,226         3,983,169
                                                 ----------        ----------

LONG-TERM DEBT - Net of current maturities          580,610           915,251
                                                 ----------        ----------

DEFERRED INCOME TAXES                                                  73,900
                                                 ----------        ----------


STOCKHOLDERS' EQUITY:
  Convertible preferred stock, Series A - 6%,
    authorized, 5,000 shares of no par value;
    issued 2,940 shares                             242,078           242,078
  Common stock - authorized, 2,000,000 shares
    of no par value; issued, 1996, 1,295,311
    shares; 1995, 1,262,311 shares                3,916,721         3,834,221
  Deficit                                          (834,503)         (868,659)
                                                 ----------        ----------

              Total                               3,324,296         3,207,640

  Less cost of shares held in treasury:
    Convertible preferred stock, 2,940 shares       235,200           235,200
    Common stock, 18,900 shares                     120,419           120,419
                                                 ----------        ----------

              Stockholders' equity - net          2,968,677         2,852,021     
                                                 ----------        ----------

              TOTAL                              $6,428,513        $7,824,341
                                                 ==========        ==========
</TABLE>


                 See notes to consolidated financial statements.




                                     - 22 -

<PAGE>



<TABLE>
<CAPTION>
                         BKC SEMICONDUCTORS INCORPORATED

                     STATEMENT OF CONSOLIDATED INCOME (LOSS)
              FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

<S>                                   <C>             <C>              <C>
                                          1996            1995             1994

REVENUE                                $9,796,858      $11,277,350      $11,383,732

COST OF REVENUE                         7,849,452        9,999,378        9,378,271
                                       ----------      -----------      -----------

GROSS PROFIT                            1,947,406        1,277,972        2,005,461
                                       ----------      -----------      -----------

OPERATING EXPENSES:
  Selling                                 898,714        1,286,202        1,287,418
  General and administrative              740,512          785,415        1,088,629
  Research and development                211,825          161,707          162,022
  Write down of assets of Photo
    Detector division                                      574,873
                                       ----------      -----------      -----------

    Total operating expenses            1,851,051        2,808,197        2,538,069
                                       ----------      -----------      -----------

INCOME (LOSS) FROM OPERATIONS              96,355       (1,530,225)        (532,608)
                                       ----------      -----------      -----------

OTHER (INCOME) EXPENSE:
  Interest expense                        293,262          311,727          236,470
  Gain on disposal of property and
    equipment                            (208,815)
                                       ----------      -----------      -----------

     Other expense - net                   84,447          311,727          236,470
                                       ----------      -----------      -----------

INCOME (LOSS) BEFORE CREDIT FOR
  INCOME TAXES                             11,908       (1,841,952)        (769,078)

CREDIT FOR INCOME TAXES                   (22,248)        (634,483)        (293,825)
                                       ----------      -----------      -----------

NET INCOME (LOSS)                      $   34,156      $(1,207,469)     $  (475,253)
                                       ==========      ===========      ===========

NET INCOME (LOSS) PER SHARE                $.03            $(.97)           $(.38)
                                           ====            =====            =====
</TABLE>


                 See notes to consolidated financial statements.


                                     - 23 -

<PAGE>



<TABLE>
<CAPTION>
                         BKC SEMICONDUCTORS INCORPORATED

                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

<S>                                     <C>              <C>           <C>           <C>            <C>           <C>
                                                                                      CONVERTIBLE
                                          CONVERTIBLE                    RETAINED     PREFERRED       COMMON
                                           PREFERRED        COMMON       EARNINGS     STOCK HELD      STOCK HELD    STOCKHOLDERS'
                                             STOCK          STOCK        DEFICIT)     IN TREASURY     IN TREASURY   EQUITY - NET

BALANCE AT SEPTEMBER 30, 1993               $242,078      $3,834,221    $ 814,063     $(235,200)      $ (97,535)     $4,557,627

PURCHASE OF 4,000 SHARES OF
  COMMON STOCK FOR THE
  TREASURY                                                                                              (20,580)        (20,580)

NET LOSS FOR THE YEAR                                                    (475,253)                                     (475,253)
                                            --------       ---------     --------      ---------       ---------     ----------

BALANCE AT SEPTEMBER 30, 1994                242,078       3,834,221      338,810      (235,200)        118,115)      4,061,794

PURCHASE OF 1,000 SHARES OF
  COMMON STOCK FOR THE
  TREASURY                                                                                               (2,304)         (2,304)

NET LOSS FOR THE YEAR                                                  (1,207,469)                                   (1,207,469)
                                            --------       ---------    ---------      ---------       ---------      ----------

BALANCE AT SEPTEMBER 30, 1995                242,078       3,834,221     (868,659)     (235,200)       (120,419)      2,852,021

ISSUANCE OF 33,000 SHARES OF
  COMMON STOCK                                                82,500                                                     82,500

NET INCOME FOR THE YEAR                                                    34,156                                        34,156
                                            --------       ---------    ---------      --------        ---------      ---------

BALANCE AT SEPTEMBER 30, 1996               $242,078      $3,916,721   $ (834,503)    $(235,200)      $(120,419)     $2,968,677
                                            ========       =========      =======       =======         =======       =========
</TABLE>


                          
                See notes to consolidated financial statements.




                                     - 24 -

<PAGE>



<TABLE>
<CAPTION>
                         BKC SEMICONDUCTORS INCORPORATED

                      STATEMENT OF CONSOLIDATED CASH FLOWS
              FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

<S>                                          <C>             <C>               <C>
                                                  1996            1995              1994
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from customers and
    tenants                                   $10,413,935      $10,990,248      $11,248,193
  Cash paid to suppliers and employees         (9,123,310)     (11,047,999)     (11,219,829)
  Interest paid                                  (293,262)        (311,727)        (236,470)
  Income taxes paid                                (8,030)         (32,800)        (194,569)
  Income tax refunds received                     204,003          436,627           64,850
                                              -----------      -----------      -----------

              Net cash provided by (used in)
                operating activities            1,193,336           34,349         (337,825)
                                              -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment            (145,049)        (268,196)        (892,572)
  Proceeds from disposal of property and
    equipment                                     426,344
                                              -----------      -----------      -----------

              Net cash provided by (used in)
                investing activities              281,295         (268,196)        (892,572)
                                              -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (payments) under line-
    of-credit agreements                         (848,808)         647,596          375,022
  Proceeds from issuance of long-term
    debt                                           55,819           26,864        2,652,539
  Principal payments on long-term debt           (704,061)        (462,065)      (1,811,568)
  Purchase of stock for the treasury                                (2,304)         (20,580)
                                              -----------      -----------       ----------

              Net cash provided by (used in)
                financing activities           (1,497,050)         210,091        1,195,413
                                              -----------      -----------      -----------

NET DECREASE IN CASH                              (22,419)         (23,756)         (34,984)

CASH AT BEGINNING OF YEAR                          28,340           52,096           87,080
                                              -----------      -----------      -----------

CASH AT END OF YEAR                           $     5,921      $    28,340      $    52,096
                                              ===========      ===========      ===========
</TABLE>


                 See notes to consolidated financial statements.


                                     - 25 -

<PAGE>




                         BKC SEMICONDUCTORS INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1996, 1995 AND 1994


1.  OPERATIONS

          BKC Semiconductors Incorporated (the Company), and its subsidiaries,
            Souza Semiconductors, Inc. (Souza), BKC Photo Detector Division,
            Inc. (Photo Detector), which was organized in December 1992, and
            Clearwater Enterprises of Massachusetts, Inc. (Clearwater), which
            was organized in October 1993, design, manufacture and market
            discrete and photo detector semi-conductor devices in the United
            States and internationally. The Company grants credit to its
            customers in the industrial, automotive, telecommunications,
            military and aerospace industries. Approximately 8%, 19% and 16% of
            revenues during the years ended September 30, 1996, 1995 and 1994,
            respectively, were from international sales.

          There was one customer which accounted for 10% of revenue for the year
            ended September 30, 1996. There was no customer accounting for more
            than 10% of revenue for the year ended September 30, 1995. One
            customer accounted for 11% of total revenue for the year ended
            September 30, 1994. No other customers accounted for more than 10%
            of revenue in each of the years ended September 30, 1996 and 1994.


2.  SIGNIFICANT ACCOUNTING POLICIES

          Principles of Consolidation

          The consolidated financial statements include the accounts of the
            Company and its subsidiaries Souza, Clearwater and Photo Detector.
            All material intercompany transactions have been eliminated.

          Effective September 30, 1996, Clearwater was liquidated. Effective
            June 30, 1995, Souza was merged into the Company and Photo Detector
            was liquidated. In connection with Photo Detector's liquidation, the
            Company recorded a loss of $574,873 in the accompanying statement of
            consolidated income (loss) from the write down of inventory and
            property and equipment to its net realizable value.

          Management Estimates

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



                                     - 26 -

<PAGE>



2.  SIGNIFICANT ACCOUNTING POLICIES (Continued)


          Revenue Recognition

          Revenue from product sales is recorded upon shipment to the customer.

          Inventories

          Inventories are valued at the lower of cost (first-in-first-out
            method) or market.

          Property and Equipment

          Property and equipment are recorded at cost. Depreciation and
            amortization are computed principally on the straight-line method
            for financial accounting purposes, and accelerated methods for tax
            purposes, over the estimated useful lives of the assets.

          Leasehold improvements are amortized on the straight-line method over
            their respective lives or the lease terms, whichever is shorter.

          Costs of maintenance and repairs are charged to expense while costs of
            significant renewals and betterments are capitalized.

          Income Taxes

          Amounts in the consolidated financial statements related to income
            taxes are calculated using the principles of Financial Accounting
            Standards Board Statement No. 109, "Accounting for Income Taxes"
            (SFAS 109). Under SFAS 109, prepaid and deferred taxes reflect the
            impact of temporary differences between the amounts of assets and
            liabilities recognized for financial reporting purposes and the
            amounts recognized for tax purposes as well as tax credit
            carryforwards and loss carryforwards. These deferred taxes are
            measured by applying currently enacted tax rates. A valuation
            allowance is used to reduce deferred tax assets when it is "more
            likely than not" that some portion or all of the deferred tax assets
            will not be realized.

3.  INVENTORIES

          Inventories consisted of the following:

<TABLE>
             <S>                          <C>                  <C>
                                                     September 30,
                                                -------------------------

                                              1996                   1995
                                              ----                   ----

              Raw Material                  $ 558,008             $ 360,694
              Work in Process               1,519,481             1,823,009
              Finished Goods                1,042,252               854,379
                                            ---------            ----------
                        Total              $3,119,741            $3,038,082
                                           ==========            ==========
</TABLE>



                                     - 27 -



<PAGE>



4.  PROPERTY AND EQUIPMENT

          Property and equipment consisted of the following:

<TABLE>
             <S>                              <C>                  <C>
                                                     September 30,
                                             ---------------------------
                                                  1996                  1995
                                                  ----                  ----

              Machinery and equipment          $5,268,890            $5,260,174
              Leasehold improvements              233,444               229,137
              Equipment under capital lease       132,000               132,000
              Real estate                                               105,316
              Furniture and office equipment       31,043                25,627
                                               ----------             ---------
                  Total                         5,665,377             5,752,254

              Less accumulated depreciation and
                amortization                    4,238,938             3,756,034
                                               ----------            ----------

              Property and equipment - net     $1,426,439            $1,996,220
                                               ==========            ==========
</TABLE>


          The useful lives employed for computing depreciation and amortization
            on principal classes of property and equipment are as follows:

              Class Description                                   Years

              Machinery and equipment                             5 - 10
              Leasehold improvements                                10
              Equipment under capital lease                          5
              Real estate                                         31-1/2
              Furniture and office equipment                      5 - 10


5.  NOTE PAYABLE - BANK

          Note payable - bank of $1,430,839 and $2,279,647 at September 30, 1996
            and 1995, respectively, represents borrowings on the Company's
            $2,500,000 line of credit. Interest is payable monthly at prime plus
            1% (1996, 9-1/4%; 1995, 9-3/4%). The line is collateralized by a
            security interest in substantially all assets of the Company. The
            loan documents contain certain restrictive covenants which the
            Company has complied with or the bank has waived. The line-of-credit
            was renewed by the bank on November 25, 1996.


                                     - 28 -



<PAGE>



6.  LONG-TERM DEBT

<TABLE>
           <S>                                        <C>            <C>
          Long-term debt consisted of the following:
                                                            September 30,
                                                       -----------------------
                                                         1996          1995
                                                         ----          ----

             Note payable - bank, prime plus 1%
              (9-1/4%), payable in monthly
              instalments of $27,500, commencing in 
              December 1996, plus interest, balance
              due March 2000, collateralized by a 
              security interest in substantially all 
              assets of the Company and a $450,000
              guarantee by the City of Lawrence, 
              Massachusetts, the guarantee is reduced 
              by $25,000 per month and expires May
              1998, this financing closed on 
              November 25, 1996                        $908,839

             Note payable - bank, prime plus 1/2% 
              (9-1/4%), payable in monthly
              instalments of $31,667, plus interest,
              to October 1997, collateralized by a 
              security interest in substantially all
              assets of the Company, refinanced 
              November 25, 1996                                      $849,523

             Note payable - bank, prime plus 1/2% 
              (9-1/4%), payable in monthly
              instalments of $12,500, plus interest, 
              to May 1998, collateralized by a 
              security interest in substantially 
              all assets of the Company, refinanced 
              November 25, 1996                                       391,134

             Note payable - bank, prime plus 1% 
              (9-3/4%), payable in monthly
              instalments, commencing in December
              1995, of $9,584, plus interest through
              December 1998 or date paid in full,
              collateralized by a security interest 
              in substantially all assets of the Company, 
              refinanced November 25, 1996                            257,375

             Note payable - other, payable in monthly 
              instalments of $2,778 to January 1997, 
              collateralized by a security interest in
              certain equipment                         11,108         41,666

             Capital lease obligations, 10.7%,
              payable in monthly instalments
              aggregating $2,825, including 
              interest, through December 1997,
              collateralized by a security 
              interest in certain equipment             34,733         63,224
                                                                                                     --------            ----------

                       Total                           954,680      1,602,922

             Less current maturities                   374,070        687,671
                                                       -------     ----------

             Long-term debt - net                     $580,610     $  915,251
                                                      ========      =========
</TABLE>

                                     - 29 -



<PAGE>



6.  LONG-TERM DEBT (Continued)

          The above notes payable - bank contain the same restrictive covenants
            as the Company's line of credit (Note 5) which the Company has
            complied with or the bank has waived.

          Principal payments of long-term debt as of September 30, 1996 are due
            as follows:

<TABLE>
                <S>                                      <C>
                Year Ended
               September 30,                                 Amount

                  1997                                      $374,070
                  1998                                       279,113
                  1999                                       272,640
                  2000                                        28,857
                                                             -------

                                              Total         $954,680
</TABLE>

7.  LEASE AGREEMENTS

          The Company leases its manufacturing and office facility in Lawrence,
            Massachusetts under an eight-year operating lease which expires in
            October 2000, at an annual rental of $144,000 through October 1997
            and $168,000 thereafter. The lease provides for an option to
            purchase the facility at a base price of $960,000 adjusted by
            increases in the Consumer Price Index (not to exceed 5% per year).
            The option expires in October 1999. The future minimum lease
            payments, under the lease, are as follows:


<TABLE>
               <S>                                      <C>
               Year Ended
               September 30,                                Amount
                1997                                       $144,000
                1998                                        166,000
                1999                                        168,000
                2000                                        168,000
                2001                                         14,000
                                                            -------

                                             Total         $660,000
</TABLE>


          The above future minimum lease payments have not been reduced by the
            total sublease rentals to be received of approximately $239,900
            under non-cancelable subleases.

          The amount charged to rent expense was approximately $144,000, for
            each of the years ended September 30, 1996, 1995 and 1994. The
            Company received approximately $228,400, $219,000 and $222,000 in
            sublease rental income for the years ended September 30, 1996, 1995
            and 1994, respectively.


                                      - 30 -

<PAGE>



7.  LEASE AGREEMENTS (Continued)

          The Company leases certain equipment under operating lease agreements
            which expire at various dates through December 1999. The future
            minimum lease payments are as follows:

<TABLE>
                    <S>                                  <C>
                    Year Ended
                   September 30,                             Amount

                      1997                                  $ 66,483
                      1998                                    45,560
                      1999                                    11,211
 
                                        Total               $123,254
</TABLE>


8.  INCOME TAXES

          Credit for income taxes consisted of the following:

<TABLE>
                                                        September 30,
                                             --------------------------------

            <S>                          <C>            <C>            <C>
                                              1996           1995             1994
                                              ----           ----             ----

              Current:
                Federal                   $ 11,252        $(215,988)      $(258,868)
                State                        9,000           30,205           8,719
              Deferred:
                Federal                    (42,352)        (355,805)         30,044
                State                         (148)         (92,895)        (73,720)
                                           --------       ---------        --------

                 Credit for income taxes -
                   net                    $(22,248)       $(634,483)      $(293,825)
                                          ========         ========        ========
</TABLE>

          The differences between the credit for income taxes and income taxes
            using the U.S. Federal Income Tax Rate of 34% is as follows:


<TABLE>
                                                        September 30,
                                             --------------------------------

         <S>                             <C>            <C>            <C>
                                          1996           1995             1994
                                          ----           ----             ----


                                                                               
           Amount computed using the
             above rate                 $ 4,000      $(626,300)       $(261,500)
           State income tax - net of  
             federal tax benefit         10,200       (107,375)         (42,900)
           Reduction of deferred tax
             asset due to uncertainty of
             state loss carryforward, net
             of federal tax benefit                     66,000
           Other                        (36,448)        33,192           10,575
                                       --------       --------         --------

               Credit for income taxes -
                 net                   $(22,248)     $(634,483)       $(293,825)
                                       ========      =========        =========
</TABLE>


                                      - 31 -

<PAGE>



8.  INCOME TAXES (Continued)

          The Company has available federal net operating loss carryforwards of
            approximately $1,125,400 expiring through September 2011 and state
            net operating loss carryforwards of approximately $2,466,000
            expiring through September 2001. A deferred tax asset valuation
            allowance of $100,000 has been recognized to offset the related
            deferred tax asset due to the uncertainty of realizing a portion of
            the benefit of the state loss carryforward.

          Significant components of the Company's deferred tax assets and
            liabilities are as follows:
    
<TABLE>
            <S>                                     <C>             <C> 
                                                          September 30,
                                                    ---------------------------

                                                        1996             1995
                                                        ----             ----

              Deferred income tax assets:
                Federal and state net operating loss
                  carryforwards                       $616,900        $298,100
                Inventory reserve                       51,700         222,300
                Write down of assets of Photo Detector
                  division                                             142,400
                Other non-deductible accruals            6,900          10,900
                                                       -------         -------

                        Total deferred income tax
                          assets                       675,500         673,700

              Deferred income tax liabilities - tax
                over book depreciation                (115,500)       (156,200)
              Valuation allowance for deferred tax
                assets                                (100,000)       (100,000)
                                                       --------        --------
                             Net deferred income tax
                               asset                  $460,000        $417,500
                                                      ========        ========
</TABLE>


          The above deferred income tax assets and liabilities are shown in the
            accompanying consolidated balance sheet under the following
            captions:

<TABLE>
            <S>                                     <C>             <C> 
                                                        September 30,
                                                     --------------------
                                                      1996             1995
                                                      ----             ----

              Current asset                         $460,000          $491,400
              Long-term liability                                      (73,900)
                                                    --------          --------
                    Net deferred income tax asset   $460,000          $417,500
                                                    ========          ========
</TABLE>


9.  EMPLOYEE BENEFIT PLAN

          The Company has a deferred compensation plan (the Plan) under Section
            401(k) of the Internal Revenue Code for the benefit of all employees
            who meet certain requirements. Each participant in the plan may
            elect to defer or contribute up to 20% of his/her annual
            compensation on a pre-tax basis to a maximum of $9,500 per year.


                                     - 32 -



<PAGE>



9.  EMPLOYEE BENEFIT PLAN (Continued)

          The Company is not required to make any contributions under the Plan
            and did not make a contribution to the Plan during the years ended
            September 30, 1996, 1995 and 1994.


10. NET INCOME (LOSS) PER SHARE

          Net income (loss) per share is based on the weighted average number of
            shares of common stock and common stock equivalents outstanding
            during the respective period. Shares reserved for outstanding
            warrants have been excluded from the net income per share
            calculation because their effect is antidilutive. The weighted
            average number of shares outstanding is as follows:

                 Year Ended                                 Number
                September 30,                              of Shares

                  1996                                     1,272,895
                  1995                                     1,243,978
                  1994                                     1,246,767


11. STOCK PURCHASE WARRANTS

          Inconnection with the Company's public offering in August 1992, the
            Company sold to the underwriter warrants to purchase up to 50,000
            shares of common stock at a price per share equal to 140% of the
            initial per share public offering price of the common stock of $7.
            The underwriter warrants are exercisable for a period of four years
            commencing August 21, 1993. No warrants have been exercised as of
            September 30, 1996.


12. STOCK OPTION PLANS

          During the year ended September 30, 1995, the Company's Board of
            Directors and Stockholders approved the 1994 Stock Option Plan (the
            Plan) covering its officers and employees. The total number of
            shares of common stock, no par value, for which options may be
            granted under the Plan cannot exceed 60,000 shares. During the year
            ended September 30, 1996, the Plan was amended to increase the
            number of shares for which options may be granted to 235,000 shares.

          Following the statutory requirements of the Internal Revenue Code, the
            Plan provides that the Board of Directors may establish the purchase
            price of the stock at the time the option is granted. However, the
            purchase price may not be less than 100 percent of the fair market
            value of the Company's common stock. The aggregate fair market value
            of the stock for which any employee may be granted options in any
            calendar year shall not exceed $100,000 plus any unused limit
            carried over (as defined in the Plan) to such year from any prior
            calendar year. The Plan terminates in 2004, ten years from its
            effective date.



                                      - 33 -


<PAGE>



12. STOCK OPTION PLANS (Continued)

          No options were granted under the Plan during the year ended September
            30, 1995. During the year ended September 30, 1996, the Company
            granted options to purchase 212,500 shares of common stock at prices
            ranging between $2.00 and $3.00 per share. Options granted during
            the year ended September 30, 1996, vest over a period of two to
            three years and expire ten years from the date of grant. No options
            are exercisable as of September 30, 1996. The Plan provides that any
            outstanding options will become immediately exercisable upon merger
            or acquisition transaction in which the Company does not survive as
            a separate entity.

          Also during the year ended September 30, 1995, the Company's Board of
            Directors and Stockholders approved the 1994 Non-Employee Director
            Stock Option Plan (the NED Plan). The total number of shares of
            common stock, no par value, for which options may be granted under
            the NED Plan cannot exceed 60,000 shares.

          The NED Plan provides that the Board of Directors may select
            non-employee directors of the Company to whom the options will be
            granted. Options may be granted on April 1 of each year for each
            non-employee director for a number of shares of common stock not to
            exceed $7,500 in market value at the date of grant. The purchase
            price may not be less than 100 percent of the fair market value of
            the Company's common stock at the time the option is granted.
            Options granted under the NED Plan shall expire ten years after the
            date of grant. The NED Plan terminates in 2004, ten years from its
            effective date.

          No options were granted under the NED Plan during the year ended
            September 30, 1995. During the year ended September 30, 1996, the
            Company granted options under the NED Plan to purchase 4,000 shares
            of common stock at $3.75 per share. Options granted during the year
            ended September 30, 1996 vest over a two year period and expires ten
            years from the date of grant or 180 days after a director ceases to
            be a director. No options are exercisable as of September 30, 1996.

          In October 1995, the Financial Accounting Standards Board issued
            Statement of Financial Accounting Standards No. 123,
            "Accounting for Stock-Based Compensation" (SFAS No. 123).  SFAS
            No. 123 established financial accounting and reporting
            standards for stock-based compensation plans and to
            transactions in which an entity issues its equity instruments
            to acquire goods and services from nonemployees.  The new
            accounting standards prescribed by SFAS No. 123 are optional,
            and the Company may continue to account for its plans under
            previous accounting standards.  The Company does not expect to
            adopt the new accounting standards, consequently, SFAS No. 123
            will not have a material impact on the Company's consolidated



                                     - 34 -


<PAGE>



12. STOCK OPTION PLANS (Continued)

            results of operations or financial position.  However, pro
            forma disclosures of net earnings and earnings per share must
            be made as if the SFAS No. 123 accounting standards had been
            adopted.  Adoption of SFAS No. 123 is not required by the
            Company until 1997.


13. CASH FLOW INFORMATION

          The following is a reconciliation of net income (loss) to net cash
            provided by (used in) operating activities for the years ended
            September 30, 1996, 1995 and 1994:

<TABLE>
<S>                                <C>            <C>              <C>
                                       1996             1995            1994
                                       ----             ----            ----

  Net income (loss)                  $ 34,156       $(1,207,469)     $(475,253)
  Adjustments to reconcile net
    income (loss) to net cash
    provided by (used in)
    operating activities:
    Non-cash charges (credits) to
      net income (loss):
      Depreciation and amorti-
        zation                        528,061           562,688        592,708
      (Gain) loss on disposal of
        property and equipment       (208,815)                           4,581
      Write down of assets of
        Photo Detector division                         574,873
      Provision for doubtful
        accounts                        7,244            11,410
      Reserve of inventory
        obsolescence                                    551,908
      Deferred income taxes           (42,500)         (448,700)       (43,676)
    Decrease (increase) in other
      assets                          (24,058)          (24,135)        17,148
    Decrease (increase) in
      current assets:
      Accounts receivable             617,577          (287,102)      (135,539)
      Refundable income taxes         215,255           218,044       (379,868)
      Inventories                     (81,659)         (105,639)       185,818
      Prepaid expenses                  9,755            15,857         47,234
    Increase (decrease) in current
      liabilities:
      Accounts payable                122,337           179,397       (165,113)
      Accrued liabilities              15,983            (6,783)        14,135
                                    ---------         ----------      --------

          Net cash provided by
            (used in) operating
            activities             $1,193,336        $   34,349      $(337,825)
                                   ==========        ==========      =========
</TABLE>


                                      - 35 -

<PAGE>



13. CASH FLOW INFORMATION (Continued)

          The Company incurred the following non-cash investing and financing
            activities:

            During the years ended September 30, 1996 and 1994, the Company had
               property and equipment additions of $2,646 and $25,851,
               respectively, included in accounts payable. In addition, $307,375
               of property additions were financed during the year ended
               September 30, 1995.

            TheCompany issued 33,000 shares of common stock for $82,500 in lieu
               of compensation during the year ended September 30, 1996.


14. FAIR VALUE OF FINANCIAL INSTRUMENTS

          The following methods and assumptions were used by the Company in
            determining its fair value disclosures for financial instruments:

            Cash

            Thecarrying amount reported in the consolidated balance sheet
               approximates fair value.

            Short and Long-term debt

            Thecarrying amount of the Company's short-term bank borrowings and
               floating-rate long-term debt approximates its fair value. The
               fair value of the Company's fixed rate long-term debt is
               estimated using discounted cash flow analysis.

          The carrying amounts and fair values of the Company's financial
            instruments as of September 30, 1996 are as follows:

<TABLE>
            <S>                                <C>                 <C>
                                                 Carrying             Fair
                                                  Amount              Value
             Cash                              $    5,921           $   5,921
             Line-of-credit                     1,430,839           1,430,839
             Long-term debt (including current
               maturities                         954,680             954,680
</TABLE>


15. CONTINGENCIES

          The Company is a potentially responsible party in connection with the
            contamination of soil and groundwater on the Company's leased
            manufacturing site in Lawrence. The Company, as tenant, might be
            considered an "operator" and therefore strictly liable for cleanup
            costs or liable for damages to third parties, unless it can
            establish certain defenses. The Company believes that its use,
            storage and disposal of materials are carefully controlled and do
            not result and have not in the past resulted in a release thereof.
            New England Environmental Technologies



                                      - 36 -



<PAGE>



15. CONTINGENCIES (Continued)

            Corporation ("NEET") has conducted preliminary site investigations
            and has advised the Company that, although one of the contaminants
            found is used in the Company's operations, the Company is not a
            likely source of the contamination and that the contamination most
            likely results from historical improper disposal of chlorinated
            solvents on the site and upgradient of the site predating the
            Company's occupancy of the property.

          If the Company were required to pay cleanup costs, applicable
            hazardous waste laws allow the Company to seek contribution from
            other parties who caused the contamination or are also subject to
            strict liability (i.e., current and former owners and operators).
            The current owner and the prior lessee have agreed to hold harmless
            the Company with respect to any contamination that may have occurred
            prior to October 16, 1985.

          Although the outcome of this matter and the cost, if any, to the
            Company cannot be reasonably estimated at this time, management does
            not believe that the cost, if any, to the Company will have a
            material adverse effect on the financial position of the Company.




                                     - 37 -

<PAGE>




                                                                   SCHEDULE II


<TABLE>
<CAPTION>
                         BKC SEMICONDUCTORS INCORPORATED

                        VALUATION AND QUALIFYING ACCOUNTS

<S>                               <C>                  <C>          <C>            <C>              <C>
       COLUMN A                      COLUMN B                 COLUMN C              COLUMN D         COLUMN E

                                     BALANCE                 ADDITIONS
                                       AT               CHARGED TO   CHARGED TO                       BALANCE
                                     BEGINNING          COSTS AND      OTHER                           AT END
               DESCRIPTION            OF YEAR           EXPENSES     ACCOUNTS       DEDUCTIONS        OF YEAR

Year Ended September
  30, 1994:

  Allowance for
    doubtful accounts                 $10,719                                           $627 (1)       $10,092

Year Ended September
  30, 1995:

  Allowance for
    doubtful accounts                 $10,092            $11,410                      $1,502 (1)       $20,000

  Reserve for
   inventory
   obsolescence                       $ -0-             $551,908                                      $551,908

Year Ended September
  30, 1996:

  Allowance for
    doubtful accounts                 $20,000             $7,244                     $15,550 (1)       $11,694

  Reserve for
   inventory
   obsolescence                      $551,908                                       $423,405 (2)     $128,503


<FN>
1 Represents accounts written off during the respective period.

2 Represents inventory written off during the respective period.
</FN>
</TABLE>


                                     - 38 -