<PAGE>   1
                                                                   Exhibit 13.1

MANAGEMENT'S DISCUSSION AND ANALYSIS   of Financial Condition and Results of
Operations  

Results of Operations   

For the year ended June 30, 1997, the Company reported record revenues and
income from operations, reflecting the continued increase in the acceptance of
Focused Ion Beam ("FIB") systems by semiconductor manufacturers and other
manufacturers outside of the semiconductor industry. Total revenues increased
42% and income from operations increased 39% as compared to the year ended June
30, 1996.

The following table summarizes the Company's historical results of operations as
a percentage of total sales for fiscal 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                   1997         1996        1995
                                                   ----         ----        ----
<S>                                                <C>          <C>         <C>
Total revenue                                      100%         100%        100%
Gross profit                                        38           38          37
Selling, general and administrative                 19           18          18
Research and development                            10           11          10
                                                   ---          ---         ---
Total operating expenses                            29           29          28
Income from operations                               9            9           9
Other (expense) income, net                         (1)          (6)          1
Income tax (expense) benefit                        (3)           2           1
                                                   ---          ---         ---
Net income                                           5%           5%         11%
                                                   ===          ===         ===
</TABLE>

Fiscal 1997 Compared to Fiscal 1996

Revenues. Total revenues increased by 42% to $56.0 million for the year ended
June 30, 1997 from $39.5 million for the same period ended June 30, 1996. The
increase was primarily due to increased product revenues as a result of
increased sales of FIB systems.

Product revenues consist of revenues from the sale of systems, spare and
replacement parts and services provided with respect to systems. Product
revenues increased 43% to $54.8 million for the year ended June 30, 1997 as
compared to $38.3 million for the same period ended June 30, 1996. The increase
was due to increased sales of FIB systems resulting from increased spending by
semiconductor manufacturing companies and continued market acceptance of
Micrion's FIB products, particularly the MicroMill HT head trimming systems used
by disk drive manufacturers and the FlipChip FIB systems used by semiconductor
manufacturers.

Contract revenues decreased 7% to $1.16 million for the year ended June 30, 1997
from $1.25 million for the same period ended June 30, 1996. The decrease was due
to the reduction of spending on a government contract during fiscal 1997. The
Company expects research and development contract revenue to decrease in the
future and not be a significant part of total revenues. Also, the Company
expects a higher proportion of contract revenues to be derived from government
contracts in the future, which will yield a lower gross margin.
<PAGE>   2
MANAGEMENT'S DISCUSSION AND ANALYSIS

Gross Profit. Total gross profit increased 41% to $21.2 million for the year
ended June 30, 1997 from $15.0 million for the same period ended June 30, 1996.
This increase was primarily due to an increased number of shipments of FIB
systems during fiscal 1997.

The Company's gross margin varies due to the product mix, distribution channels
and geographical location of customers. Gross profit on product revenues
increased 40% to $21.0 million for the year ended June 30, 1997 from $15.0
million for the same period ended June 30, 1996. The increase was primarily due
to the higher number of FIB system sales. The gross margin on product revenues
decreased to 38% for the year ended June 30, 1997 from 39% for the year ended
June 30, 1996.

Gross profit on contract revenues increased to $.19 million for the year ended
June 30, 1997 as compared to $.005 million for the same period ended June 30,
1996. The increase is due to a higher mix of commercial contract revenues during
the period, which generally yield a higher profit margin. The Company's gross
margin on contract revenues increased to 17% for the year ended June 30, 1997
from .4% for the year ended June 30, 1996. The increase was due to a higher mix
of contract revenues from commercial entities during the period.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46% to $10.5 million for the year ended June
30, 1997 from $7.2 million for the same period ended June 30, 1996. The increase
is primarily attributable to additional personnel in sales, applications
support, customer support for an expanded installed base of FIB systems, and
field service for expanded operations in Japan and Europe, and to the
installation of a customer call center.

Research and Development Expense. The Company's research and development expense
increased 36% to $5.8 million for the year ended June 30, 1997 from $4.2 million
for the same period ended June 30, 1996. This increase was due to the Company's
additional development activity for new products and enhancements and an
increase in the number of engineering and research employees during the year.
Research and development expense as a percentage of total revenues decreased to
10% for the year ended June 30, 1997 from 11% for the same period ended June 30,
1996.

Other Income and Expense. Other income and expense for the year ended June 30,
1997 consists primarily of interest expense on the bank line of credit and
capital lease borrowings. Also, interest income decreased to $.16 million for
the period ended June 30, 1997 from $.22 million for the same period ended June
30, 1996. The decrease is primarily due to a lower average cash position during
the period.

Income Tax Expense. The Company's effective tax rate for fiscal 1997 was 35%.

Fiscal 1996 Compared to Fiscal 1995

Revenues. Total revenues increased by 37% to $39.5 million for the year ended
June 30, 1996 from $28.8 million for the same period ended June 30, 1995. The
increase was primarily due to increased product revenues as a result of
increased sales of FIB systems.

Product revenues consist of revenues from the sale of systems, spare and
replacement parts and services provided with respect to systems. Product
revenues increased 45% to $38.3 million for the year ended June 30, 1996 as
compared to $26.4 million for the same period ended June 30, 1995. The increase
was due to increased sales of FIB systems resulting from increased spending by
semiconductor manufacturing companies and continued market acceptance of
Micrion's FIB products, particularly the MicroMill HT head trimming systems used
by disk drive manufacturers.
<PAGE>   3
MANAGEMENT'S DISCUSSION AND ANALYSIS

Contract revenues decreased 47% to $1.2 million for the year ended June 30, 1996
from $2.4 million for the same period ended June 30, 1995. The decrease was due
to the completion of a commercial contract during fiscal 1996. The Company
expects research and development contract revenue to decrease in the future and
not be a significant part of total revenues. Also, the Company expects a higher
proportion of contract revenues to be derived from government contracts in the
future, which will yield a lower gross margin.

Gross Profit. Total gross profit increased 40% to $15.0 million for the year
ended June 30, 1996 from $10.7 million for the same period ended June 30, 1995.
This increase was primarily due to an increased number of shipments of FIB
systems during fiscal 1996.

The Company's gross margin varies due to the product mix, distribution channels
and geographical location of customers. Gross profit on product revenues
increased 45% to $15.0 million for the year ended June 30, 1996 from $10.4
million for the same period ended June 30, 1995. The increase was primarily due
to the higher number of FIB system sales. The gross margin on product revenues
remained the same at 39.2% for the years ended June 30, 1996 and June 30, 1995.

Gross profit on contract revenues decreased 99% to $.005 million for the year
ended June 30, 1996 as compared to $.37 million for the same period ended June
30, 1995. The decrease is due to a higher mix of government contract revenues
during the period, which generally yield a lower profit margin, and completion
of a commercial contract which had additional costs related to that contract
which were not anticipated during the period. The Company had anticipated the
decrease in total contract revenues, primarily due to reductions in U.S.
Government funding availability for research and development type contracts. The
Company's gross margin on contract revenues decreased to .4% for the year ended
June 30, 1996 from 15.4% for the year ended June 30, 1995. The decrease was due
to a higher mix of contract revenues from government entities during the period.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 40% to $7.2 million for the year ended June
30, 1996 from $5.1 million for the same period ended June 30, 1995. The increase
is primarily attributable to the ramp-up of the Company's infrastructure in
order to produce the FIB systems for a new application. Also, the increase is
due to increases in sales and marketing expenses associated with the addition of
personnel in applications support, sales and advertising, the expansion of
product advertising and trade show presence, additional administrative
personnel, increases in compensation levels and litigation costs. The Company
also increased customer support personnel, especially in the Pacific Rim, to
support the disk drive head trimming systems located in that geographic area.

Research and Development Expense. The Company's research and development expense
increased 45% to $4.2 million for the year ended June 30, 1996 from $2.9 million
for the same period ended June 30, 1995. This increase was due to the Company's
additional development activity for new products and enhancements and an
increase in the number of engineering and research employees during the year.
Research and development expense as a percentage of total revenues increased to
11% for the year ended June 30, 1996 from 10% for the same period ended June 30,
1995.

Other Income and Expense. Other income and expense for the year ended June 30,
1996 consists primarily of a one-time settlement charge of $2.7 million relating
to the negotiated settlement with KLA Instruments Corporation. Under the terms
of the non-cash settlement, the Company issued 119,202 shares of Micrion common
stock for dismissal of all claims filed in the litigation. Also, interest income
decreased to $.22 million for the period ended June 30, 1996 from $.39 million
for the same period ended June 30, 1995. The decrease is primarily due to a
lower cash position during the period.

Income Tax Benefit. Income tax benefit in fiscal 1996 reflects the reduction in
the valuation reserve for deferred tax assets. The reduction in the valuation
reserve resulted in the recognition of net deferred tax assets of $1,346,400
during the fourth quarter of fiscal 1996. The Company continuously re-evaluates
the recoverability of deferred tax assets.
<PAGE>   4
MANAGEMENT'S DISCUSSION AND ANALYSIS

Liquidity and Capital Resources

The Company had $2.7 million in cash and cash equivalents at June 30, 1997, an
increase of $.6 million from June 30, 1996.

In fiscal 1997, net cash used by operating activities amounted to $3.0 million,
primarily to fund increases in accounts receivable and inventories due to
increased revenues and customer demand for the Company's FIB systems. The
increase in accounts receivable and inventories was partially offset by
increases in accounts payable and accrued expenses.

Investment activities in fiscal 1997 used $3.0 million, consisting primarily of
capital expenditures related to customer support, research and development,
manufacturing, administrative functions and a new demonstration facility for the
Company's products.

Net cash provided by financing activities in fiscal 1997 was $6.6 million and
consisted primarily of proceeds from net borrowings from the Company's bank line
of credit and the lease line of credit used to fund capital purchases. At June
30, 1997, the Company had total debt outstanding of $8.9 million which is
comprised of $6.9 million related to the bank line of credit and $2.0 million
related to capitalized lease obligations.

The Company's existing bank line of credit provides for borrowings of up to
$10.0 million. The bank line of credit expires on December 1, 1997 and is
unsecured. See Note 16 of the Notes to Consolidated Financial Statements.

The Company believes that existing cash balances, together with its available
and expected lines of credit, will be sufficient to finance the Company's
operations and meet its foreseeable cash requirements at least through fiscal
1998.

Other

At June 30, 1997, the Company had available for financial statement and federal
income tax purposes tax credit carryforwards of approximately $485,000. The tax
credit carryforwards expire in varying amounts in the years 2002 through 2007.
See Note 11 of the Notes to Consolidated Financial Statements.

A significant portion of the Company's revenues are subject to the risks
associated with international sales. Although the Company's prices are generally
denominated in United States currency, customers in foreign countries usually
evaluate purchases of the Company's products on the purchase price expressed in
the customers' currency. Therefore, changes in foreign currency exchange rates
may adversely affect the sale of the Company's products.

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
128 establishes a different method of computing earnings per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic
earnings per share and diluted earnings per share. Basic earnings per share is
expected to be higher than the currently presented earnings per share as the
effect of dilutive stock options will not be considered in computing basic
earnings per share. The Company plans to adopt SFAS 128 in its fiscal quarter
ending December 31, 1997 and at that time all historical earnings per share data
presented will be restated to conform to the provisions of SFAS 128.

In June 1997, the Financial Accounting Standards Board issued Statement 130
(SFAS 130), "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its fiscal year
ending June 30, 1999, is not expected to have a material impact on the
consolidated financial statements of the Company.