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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE 30, 1997 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:  0-23840

                               MICRION CORPORATION
                (Name of registrant as specified in its charter)

             MASSACHUSETTS                                   04-2892070
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                      Identification No.)

      ONE CORPORATION WAY                                   01960-7990
      PEABODY, MASSACHUSETTS                                (Zip Code)
(Address of principal executive offices)

                                 (978) 538-6700
              (Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Act:  NONE

Securities registered under Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE

Indicate by check mark whether the registrant (1) 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 file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X   No
                                      ---     ---  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.  X
           ---

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was $93,983,985 as of September 19, 1997.

The number of shares of the registrant's Common Stock outstanding as of
September 19, 1997 was 4,050,791.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended June 30, 1997 (the "1997 Annual Report") are incorporated by reference in
Part II, and portions of the registrant's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held November 3, 1997 (the "Proxy
Statement") are incorporated by reference in Part III.
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                                     PART I

ITEM 1.           BUSINESS.

INTRODUCTION

      Micrion Corporation (the "Company" or "Micrion") is a leader in the
design, development, manufacture and marketing of focused-ion-beam (FIB)
systems. Micrion(R) FIB systems are used in the design, fabrication and testing
of semiconductor integrated circuits (ICs) and other high technology devices.
FIB technology provides a unique combination of capabilities to image, analyze
and perform "microsurgery" on ICs and other high technology devices.
Semiconductor integrated circuit and other high technology manufacturers use
Micrion's FIB systems to reduce the time needed to get new products to market
and/or to achieve and maintain acceptable manufacturing yields more quickly and
cost effectively. The Company introduced the world's first FIB system
specifically designed for use in the manufacturing process of ICs in 1985 and
since then has introduced new products incorporating a variety of technological
advances, including the MicroMillTM HT and 9500HT FIB systems, specifically
designed for magnetic head manufacturing applications.

TECHNOLOGY AND MARKET TRENDS

      Integrated circuits are critical components of a wide variety of products
such as computers, telephones, televisions, automobiles and aircraft. As
applications for ICs continue to expand, the trend in the industry is to put
more functionality on a single chip. To increase functionality, semiconductor
manufacturers are producing larger chips with more layers utilizing smaller
feature sizes. Improvements in lithography technology have allowed the printing
of progressively smaller features on progressively larger wafers. Minimum
feature sizes in advanced ICs are now less than 0.5 microns, or one
one-hundredth the diameter of a human hair. The density of components on the
most advanced ICs has approximately doubled every two years. At the same time,
the market price per functional element on a chip has decreased and product
cycles have shortened. The combination of technology and market forces has put
enormous pressure on semiconductor equipment manufacturers to produce tools with
increased capabilities. FIB systems, such as those manufactured by Micrion, have
been developed to meet this need.

      Disk drive manufacturers are constantly striving to achieve higher
densities of data on a disk because higher densities generally permit greater
storage capacities at lower costs in smaller packages. One of the primary
factors that determines data density is the size and performance of the magnetic
"read/write" heads. Smaller heads can record and retrieve data from narrower
tracks, thus providing increased data density on a given disk size. Therefore,
disk drive manufacturers desire to produce increasingly smaller read/write
heads. However, the current photolithographic technology used to manufacture
such heads seems to be reaching a barrier beyond which smaller heads cannot be
reliably produced. In fiscal 1996 and 1997, the MicroMill HT and 9500HT FIB
systems were introduced to help meet the need of producing smaller, more precise
magnetic heads.

INTEGRATED CIRCUIT MANUFACTURING PROCESS AND PROBLEMS

      The integrated circuit manufacturing process consists of three major
phases: design, fabrication and test.

      The design phase begins with the specification of the desired
functionality and architecture of the IC and ends with a fully operational,
mass-producible IC. Depending on the complexity of the IC, the average design
phase often can last from several months to several years. The design phase
involves many iterations of design, test, analysis and redesign. A key step is
the computer aided design of a circuit layout that defines the physical
locations of the circuit elements. The IC manufacturer analyzes the layout using
design verification software and makes necessary modifications. Although design
verification software is effective, the manufacturer must produce working


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sample chips before beginning volume production. To accomplish this, a set of
master patterns or masks must be generated and used to fabricate sample chips.
Identifying and correcting design problems exposed in the test of initial sample
chips presents one of the most difficult, costly and potentially time consuming
tasks in the IC design phase. This task has traditionally been done using an
iterative design modification cycle consisting of sample chip fabrication,
sample chip test, data analysis, design change, new design verification, new
mask set generation and new sample chip fabrication. This cycle takes from
several weeks to several months and may have to be repeated numerous times to
arrive at a final proven design. The amount of time spent in the design
modification cycle has a significant impact on when a new product can be
introduced to the marketplace.

      The fabrication phase can begin once sample chips have been manufactured
and the design is deemed to be functional. The first critical step in the
fabrication phase is to generate a production mask set with as few defects as
possible, as mask defects result in circuit failures and manufacturing yield
loss. Following mask generation, multiple ICs are fabricated on a wafer by
performing in sequence a large number of complex processing steps including film
deposition, mask pattern printing (lithography) and film etch. In this manner,
the circuit is built up layer by layer into a complex three-dimensional
structure. Since wafer fabrication is very costly, it is critical to know that
each process step is being performed correctly. Expensive, specialized equipment
is used to obtain data from the wafers as they progress through the fabrication
sequence. Information is relatively easy to gather for each individual step by
making observations during or immediately after the step is completed; however,
information on how various steps or layers relate to each other is much more
difficult and costly to gather using traditional methods since previous layers
are covered by subsequent layers. Traditionally, three-dimensional information
has been obtained by the costly and wasteful procedure of cutting or breaking a
wafer and analyzing its cross-section with a high resolution scanning electron
microscope (SEM).

      During the test phase, completed wafers undergo a rigorous test procedure
and are then cut into individual chips and packaged. Chips that fail their
initial tests or subsequently fail after some period of use often undergo
failure analysis by semiconductor manufacturers to determine and correct the
cause of the failure. Failure analysis is a difficult procedure as faults are
often embedded within the layers of the IC. In order to assess accurately the
cause of failure, the manufacturer must be able to locate, expose and analyze
the faulty area without destroying the surrounding areas or losing the
information at the site of the fault. Shrinking geometries, increased complexity
and more three-dimensional chip structures have created a need for instruments
with higher resolution, more accurate navigation (ability to locate specific
areas and features on a chip or wafer) and increased analytical capability.

      Micrion's FIB systems permit semiconductor manufacturers more quickly and
effectively to view, analyze and modify ICs and mask sets during the design,
fabrication and test phases. The Company's FIB systems use a highly focused beam
of ions to create high resolution images of a portion of an IC or workpiece to
locate specific areas where work is necessary. Once located, Micrion's systems
can remove or add material to modify the circuit or analyze the area of the
circuit to determine construction and composition. This combination of
capabilities is unique to FIB systems and allows IC manufacturers to use one
system to perform many analysis and circuit modification tasks with accuracy,
precision and speed that previously were not possible.

MAGNETIC HEAD TRIMMING PROCESS AND PROBLEMS

      The magnetic head manufacturing process is driven by the need to produce
smaller read/write heads that can record and retrieve data accurately at a lower
effective overall cost. The existing photolithographic process technology seems
to be approaching size limit barriers that may make the process less able to
produce increasingly smaller heads. Currently, the heads are manufactured using
a stepper process, similar to that used in integrated circuit manufacturing, to
produce row bars containing thousands of magnetic heads that are then introduced
to an ion etch process to remove excess material and to achieve the proper head
size.

      Micrion's MicroMill HT FIB system overcomes certain of the technical
limitations of head manufacturing, using a combination of a highly focused ion
beam and sophisticated automation. Precisely positioning and imaging


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heads, the MicroMill HT FIB system automatically defines and performs the
necessary micromachining to the manufacturer's specification.

FIB SYSTEMS APPLICATIONS

      There are four principal applications of FIB systems in the semiconductor
manufacturing process: circuit modification, mask repair, process control and
failure analysis. Each is used in one or more phases of IC manufacturing. There
is one principal application in the disk drive production process: magnetic head
trimming.

      Circuit Modification. The wiring of a chip can be modified using Micrion's
FIB systems by removing and adding metal connections without damaging any of the
circuitry in the intervening layers. Wiring can be modified on even the most
advanced ICs containing as many as five metal layers sandwiched between multiple
layers of insulating materials.

      Mask Repair. Mask quality has a major impact on IC yield during the
manufacturing process. Defects are usually the result of contamination during
mask fabrication. The Company's FIB systems can be used to make repairs on a
mask by removing unwanted material and replacing missing material. It is
possible to repair defects with a precision that is not attainable by any other
technique, often making the repaired site indistinguishable from non-defective
areas.

      Process Control. Semiconductor manufacturers use Micrion's FIB systems to
prepare and view a cross- section of an in-process wafer to provide vital
information about the three-dimensional structure of the circuit. The systems
can reveal layer-to-layer alignment, layer thickness, etch profiles, step
coverage and metal grain structure.
In addition, particle contamination can be analyzed to determine its origin.

      Failure Analysis. The combined features of the Company's FIB systems can
permit semiconductor manufacturers to dissect and analyze defective circuits
more precisely than is possible by any other technique. A defective area can be
exposed one segment at a time in increments of a small fraction of a micron.
Each slice can be sequentially imaged and analyzed to obtain a complete
understanding of the defect, helping to determine its cause.

      Magnetic Head Trimming. The features of the MicroMill HT FIB system allow
it to position precisely and image magnetic read/write heads and perform the
necessary micromachining to produce smaller heads. This allows for narrower
tracks and greater data storage density on a disk drive.

MICRION PRODUCTS

      FIB Systems

      Micrion FIB systems consist of a number of modular subsystems, including
the ion column and source, the control computer, the control electronics, the
substrate handling mechanism and the vacuum system. The Company's systems
incorporate proprietary software through a graphical user interface similar to
those used on personal computers. Micrion's proprietary software controls the
electronics used throughout the FIB systems, manipulates the ion beam, moves the
workpiece, collects imaging data and performs other system functions.

      To minimize the design cycle and inventory costs of new systems, the
Company utilizes its modular subsystems and components wherever suitable. For
example, the high resolution ion column used in all of Micrion's current FIB
products was originally developed for application to x-ray mask repair and is
now used for other FIB applications such as circuit modification, process
control and failure analysis. Much of the electronics and software used in
Micrion FIB systems are common to all of Micrion's FIB products. The price of
Micrion FIB systems generally ranges from $400,000 to $2,500,000, depending on
the features selected.



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      The Micrion 9000 Series is used primarily for circuit modification and
cross-sectional imaging and is the largest unit volume product of Micrion's
family of FIB systems. In cross-sectional imaging applications, the important
attributes of substrate handling are accurate x/y navigation and the ability to
tilt large work pieces, such as 8" silicon wafers, to angles up to 60 degrees.
The Micrion 9000 Series incorporates a fully automated computer-controlled 8"
stage that can accommodate the largest silicon wafers used in semiconductor
manufacturing today. A product development program is currently underway to
design and produce FIB systems that will accommodate the next generation of
silicon wafers, which are 12" in diameter.

      The Micrion 9000EX Series adds a state-of-the-art field emission SEM
column to the basic Micrion 9000 Series platform to provide high resolution SEM
images in addition to the features offered by FIB technologies. The combination
of SEM and FIB technologies permits increased resolution of a cross-sectional
image without breaking the wafer or tilting the workpiece. An available option
for the Micrion 9000EX Series is an x-ray spectrometer that detects x-rays whose
characteristic wavelength can be used to determine the elements comprising the
area being analyzed.

      The Micrion 9000IL Series is specifically designed for use in-line in a
semiconductor fabrication facility. Unlike most FIB systems, which are used in
laboratory-like environments, the 9500IL is intended for use in a clean room
production environment. Accordingly, the 9500IL is equipped with a stainless
steel exterior and features an automatic cassette-to-cassette wafer handling
system. An FIB system in-line permits the semiconductor manufacturer to get
answers to process problems more quickly, resulting in increased yields.

      The Micrion 9800 is used primarily for circuit modification and is
differentiated from the 9000 Series principally by its substrate handling
capabilities. In automated circuit modification applications, x/y navigation is
required to be more accurate but the workpiece does not need to be tilted. In
fact, navigation on a substrate to an accuracy of better than 0.25 microns is
desired. To achieve this higher accuracy, Micrion equips such systems with x/y
stages in which stage position is monitored by a laser interferometer. This type
of measurement technique is the most accurate available and at the present time
only Micrion FIB systems offer this feature. The handling and positioning
capability of the Micrion 9800 is valuable since it permits a large number of
complex modifications to be programmed and automated, eliminating operator error
in making the modifications.

      The Micrion 9800 FlipChipTM system is specifically designed to facilitate
the circuit modification or probing of ICs that are packaged using the
increasingly popular flip-chip packaging technology. In a flip-chip package, the
IC is mounted upside down and bonded directly to the package, burying the active
circuitry under a thick layer of bulk silicon. Micrion's 9800 FlipChip system
incorporates a high current column, laser interferometer stage, in-situ
optical/IR microscope, and a proprietary enhanced gas etching technology to
quickly and precisely access exactly the right location, then perform the
microsurgery necessary for probing or circuit modification.

      The Micrion MicroMill HT FIB system is used primarily for magnetic head
trimming by disk drive component manufacturers. It utilizes parts of the Micrion
9800 platform and incorporates sophisticated imaging software to analyze the
read/write heads and to determine which areas to micromachine in a completely
automated process. The system is designed to run automatically for extended
periods of time.

      The Micrion 9500HT system combines the flexibility of the basic 9500
system with some of the sophisticated machine vision and software features of
the MicroMill HT system, resulting in a tool that is ideally suited for process
monitoring, failure analysis and pilot production of new magnetic head designs.
All head trimming parameters developed on the 9500HT are readily transferable to
the MicroMill HT for high-volume production.

      The Micrion 8000 is similar in hardware configuration to the Micrion 9800
but is used for the repair of masks, including phase shifting masks and x-ray
masks. The Micrion 8000 comes equipped with a number of specialized etching and
deposition processes customized for mask repair applications.



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      The Micrion 2000 Series system is designed for use by customers who do not
require the large substrate size handling possible with the Micrion 9000 Series
and who are willing to accept a less automated instrument in return for reduced
cost. Many of the features of the Micrion 9000 Series are maintained in the
Micrion 2000 Series. This series includes the Micrion JFIB-2100 Specimen
Preparation System used primarily to prepare samples for viewing in transmission
electron microscopes.

      Laser Systems

      Micrion also manufactures and sells a focused laser beam system, the
Micrion L2, to perform cut and deposition operations on substrates. The primary
applications of the Micrion L2 system are the repair of liquid crystal display
(LCD) substrates used in laptop computers and plasma panels used for flat
display television systems. As these applications do not require resolutions as
high as FIB applications, the Micrion L2 uses high speed laser cutting and
laser-induced metal deposition to achieve higher throughput for production
repairs. The Micrion L2 uses a proprietary miniature vacuum chamber to deliver
the process gases to the vicinity of the substrate needing repair without the
time consuming necessity of transferring the large LCD panel into a vacuum
chamber.

MARKETS

      The primary current markets for Micrion FIB systems are found within both
the semiconductor industry and the data storage industry. At this time, the
largest market segment of the semiconductor industry market consists of failure
analysis laboratories where FIB systems are used for circuit modification,
failure analysis and process control in support of both semiconductor design and
wafer fabrication groups. The need for FIB systems by semiconductor design
groups will be driven by the growing number of new designs introduced each year
and the increasing complexity of these designs. The need for FIB systems by
wafer fabrication groups will be driven by the increasing complexity of the
semiconductor products being produced and the need for fast, thorough answers to
process problems which may affect manufacturing yields. The urgency of solving
yield-threatening problems in the fabs appears to be creating a new market
segment within the semiconductor industry for FIB systems to be used in-line in
the fabs, in addition to being used in the failure analysis laboratories.

      Another market segment within the semiconductor industry, mask repair,
includes both semiconductor manufacturers and commercial suppliers of masks to
the semiconductor industry. Larger manufacturers, such as IBM, Motorola, Intel,
Hitachi, Fujitsu and Samsung, generally maintain their own in-house mask making
capability. Smaller semiconductor companies typically buy from commercial mask
suppliers, including DuPont, Dai Nippon Printing, Toppan, Photronics and Hoya.
While the Company believes that the market for mask repair applications will
increase, sales of FIB mask repair tools by the Company are not expected to
represent a substantial portion of the Company's sales in the foreseeable
future.

      The market for Micrion FIB systems within the data storage industry
consists of the manufacturers of magnetic read/write heads used in computer disk
drives. Disk drive manufacturers compete to achieve the highest data storage
capacity at the lowest cost. Data storage capacity depends on many factors
including the size and performance of the magnetic read/write heads. With
current production techniques reaching practical limits, manufacturers are
considering the use of FIB technology to assist in the production of smaller
heads. The need for FIB systems by magnetic head manufacturers will be driven by
the ability of FIB systems to produce smaller heads, cost effectively.

SALES AND MARKETING

      Micrion utilizes a network of direct sales engineers, distributors and
representatives to sell the Company's products to customers in the United
States, Europe, Japan and certain of the Pacific Rim countries. In the United
States, the Company has four sales engineers. Micrion's wholly-owned subsidiary,
Micrion GmbH, headquartered in Feldkirchen, Germany, employs two sales engineers
for Europe and Western Asia. The Company's sales engineers are supported by
management personnel.


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      In Japan, the Company uses Tokyo Electron Limited (TEL) as its exclusive
distributor of semiconductor manufacturing equipment in Japan. TEL buys
equipment at negotiated prices from Micrion and resells the equipment to end
users in Japan. The Company entered into an initial distribution agreement with
TEL in 1986. The distribution agreement is cancelable with 60 days' notice to
either party. At the present time, TEL maintains demonstration equipment
inventory and sufficient spare parts to service the installed base. Typically,
TEL does not purchase equipment from the Company until it has received an order
from a customer. As of June 30, 1997, TEL maintained a full time staff of one
sales manager, three salesmen and seven service engineers dedicated solely to
Micrion's FIB products.

      The Company also uses JEOL, Ltd. ("JEOL") for the exclusive distribution
of the Micrion JFIB-2100 Specimen Preparation System in Japan. These systems are
sold in conjunction with JEOL's sales of their line of transmission and scanning
electron microscopes. The Company entered into this distribution agreement in
May 1995 and began shipments of the Micrion JFIB-2100 systems to JEOL's
customers in fiscal 1996. The distribution agreement is automatically renewable
annually unless terminated by either party by 90 days' written notice prior to
the end of any annual term. In fiscal 1996, the Company consigned a JFIB-2100
system to JEOL for sales demonstrations. JEOL is solely responsible for sales
distribution of this product in Japan, while the Company maintains installation
and service responsibility. Typically, JEOL does not purchase equipment from the
Company until it has received an order from a customer. As of June 30, 1997,
JEOL's sales staff offers Micrion's JFIB-2100 system as part of their product
offerings.

      Micrion has established a wholly-owned subsidiary in Japan, Micrion Japan
Corporation KK, to provide technical sales and service support to TEL and JEOL,
and to provide information to the Company about the needs of the Japanese
market. Currently, Micrion Japan Corporation KK employs one marketing manager,
one technical manager, four service engineers and one administrator.

      In South Korea, the Company uses ETEC Systems Korea Corporation (ETEC) as
its sales and service representative. ETEC is compensated on a commission basis
and is paid after the product is delivered. ETEC also provides warranty service
after the installation and customer acceptance of FIB systems in South Korea. It
receives an additional commission after the inception of the warranty period,
which generally extends for one year. As of June 30, 1997, ETEC maintained a
staff of one salesman and seven service engineers in support of Micrion's FIB
products.

      In each of the two other Pacific Rim countries where the Company's FIB
products are marketed, Taiwan and Singapore, the Company uses a local
representative compensated on a straight sales commission basis and paid only
when a product is delivered.

      Micrion has entered into an arrangement with ZMC Technologies, Ltd. (ZMC),
to provide technical contract labor to the Company to support the installation
of the Company's MicroMill HT FIB systems at a customer site in Thailand. As of
June 30, 1997, ZMC maintained a staff of ten service engineers to support the
Micrion installed systems.

CUSTOMER SUPPORT AND SERVICE

      The Company maintains separate customer support and field service
organizations that work closely together to promote customer satisfaction. The
Company's customer support and field service personnel do not perform sales and
marketing functions. The customer support organization is a group of engineers,
resident at the Company's factory, dedicated to technical and logistical support
of the field engineers on a worldwide basis. The customer support group, as of
June 30, 1997, consisted of 28 employees, and has ready access to in-house
engineering, manufacturing and final test personnel to provide rapid and
knowledgeable support for the engineers maintaining customer equipment in the
field.



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      As of June 30, 1997, the field service group consisted of 33 field
engineers stationed around the world near the Company's installed systems. Each
engineer is assigned to specific customer sites. Service is provided at the
customer's discretion either under full service contracts where Micrion receives
monthly revenue and provides all the labor and spare parts necessary to maintain
system performance, or as on-call service where the customer is billed on a time
and materials basis for service work performed at the customer's site. A small
number of customers contract with the Company for telephone support of the
customers' system operation staff.

      In 1997, the Company established a new customer support "call center" to
help customers with the answers, technical assistance and support they need. In
addition, the "help desk" operation of the call center provides greater support
and direction for the Company's field service representatives.

RESEARCH AND DEVELOPMENT

      As of June 30, 1997, the Company's research and development effort
employed 54 scientists and engineers, 20 of whom have advanced technical
degrees. Both short- and long-term programs are underway to enhance existing
products and develop new products and technology. Current short-term research
and development programs include work to improve source lifetime, develop
improved columns that can produce smaller spots, expand the applicability of
ion-assisted chemical processes and enhance the materials analysis capabilities
of systems. Long-term research programs are underway to explore areas such as
advanced ion sources, beam focusing techniques and system architectures that
could lead to significant improvements in the capabilities of future FIB
systems. In fiscal 1997, 1996 and 1995, the Company spent $5.8 million, $4.2
million and $2.9 million, respectively, on research and development.

      Research and development activities are enhanced by funded contracts and
strategic alliances with government agencies, major semiconductor manufacturers
and universities. Funded programs help provide support and leverage for the
Company's research and development efforts, allowing a larger and more complete
overall program than would be possible with internal funding alone. Contracts
are chosen in areas that are closely related to Micrion's main business
activities. The Company is currently involved in a funded program with ARPA.
Under this program, the Company is developing gas field ion source (GFIS)
technology. This technology has the potential to produce significant performance
improvements in future FIB systems. Although the United States government
retains a license to use the technology developed under funded contracts for its
own internal purposes, the Company retains the exclusive right for commercial
development of the technology. In some cases, the funding of research by ARPA is
based upon needs identified by the semiconductor industry. In fiscal 1997, 1996
and 1995, the Company received research and development revenues of $1.2
million, $1.2 million and $2.4 million, respectively. Due to pressures on US
government budgets, funds available for research and development programs have
been reduced, and no new contracts were issued to the Company in fiscal 1997,
1996 or 1995. The Company expects external research and development funding to
decrease in the future.

      Technology licensing agreements are in effect with the Max Planck Institut
in Germany and certain large industrial companies. Cooperative development
programs are underway with the Department of Energy and a large domestic
semiconductor manufacturer. The Company believes that these arrangements
accelerate technology development and guide the directions the Company takes in
research and development toward those that are responsive to current and future
customer requirements. They also provide valuable insight into the feasibility
and market potential of long-range technology developments.

MANUFACTURING

      Manufacturing of all Micrion products is done at the Company's facility in
Peabody, Massachusetts. FIB system manufacturing entails fabrication, assembly,
integration and test of components and subassemblies made by the Company or
purchased from suppliers. Key components such as ion sources and ion focusing
columns are designed and assembled in-house using parts fabricated both
internally and by outside suppliers. Other components and subassemblies are
either fabricated in-house or purchased if readily available. Most purchased
parts and


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assemblies are standard products. Although certain components and subassemblies
used in the Company's products are made to the Company's specifications, some
components and subassembly items, such as high voltage power supplies, are
obtained or are available from a limited number of suppliers. Although the
Company believes that it could develop alternative sources of supply for all of
the parts included in its systems, the Company could experience significant
delays in the shipment of its products if key suppliers were unable to deliver
product to the Company in a timely way.

      The typical manufacturing cycle takes between four and six months
depending on the type and complexity of the system. The manufacturing operation
utilizes up-to-date techniques such as computerized materials release and
just-in-time delivery.

COMPETITION

      Competition in the FIB market is intense. There are a limited number of
FIB technology suppliers worldwide. A number of these suppliers have greater
financial and technological resources or have greater strengths in certain
technical or other areas compared with Micrion. There can be no assurance that
Micrion can maintain competitiveness in the market for FIB systems and
technology. Current principal competitors are Seiko, primarily in Japan, and FEI
Company, principally in the United States and Europe. The Company believes that
other suppliers of semiconductor capital equipment which have introduced FIB
products, including Hitachi, JEOL and Schlumberger, may become significant
competitors in the future. Individual competitors have strength in different
areas, including system features, geographic market presence, customer service
and support, breadth of applications and price. While the Company competes
effectively in the market for high-end, sophisticated systems, others of its
competitors compete on the basis of lower price for less complex and less
flexible systems. In addition, at any point in time, a particular FIB
manufacturer may achieve technological advances which provide a competitive
advantage over others in the industry.

INTELLECTUAL PROPERTY

      The Company believes that the success of its business depends more on its
technical innovation, marketing abilities and responsiveness to customer
requirements, than on patents, trademarks, copyrights and other intellectual
property rights. Nevertheless, the Company has a policy of seeking to protect
its intellectual property through patents, license agreements, confidential
disclosure agreements and trade secrets. The Company currently holds eleven U.S.
patents and a number of patents in foreign countries covering aspects of its
technology. The earliest any of these patents expires is 2004. Confidential
disclosure agreements are in place with the customers and other parties who have
a need or desire to exchange proprietary information with the Company. In
addition, the Company generally enters into confidentiality agreements with its
employees and limits access to its proprietary information. Despite these
precautions, it may be possible for unauthorized third parties to copy aspects
of the Company's FIB systems or to obtain information that the Company regards
as proprietary. 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 the
products to the same extent as do the laws of the United States.

      Licensing agreements are in effect with the Max Planck Institut (Germany)
and certain large commercial enterprises which give the Company rights to use
aspects of the technology of those organizations. Certain of these arrangements
are non-exclusive and terminable, and there can be no assurance that the Company
will be able to maintain these relationships or to initiate similar
relationships. The Company is not dependent on any licensed technology for its
present FIB systems and has developed alternative technological solutions to
those offered by the licensed technologies.

      Various competitors of Micrion hold patents in FIB and related
technologies. From time to time, the Company has notified others that their
products may be infringing the patents of the Company.




                                        9
<PAGE>   10
EMPLOYEES

      As of June 30, 1997, the company had a total of 253 full-time employees,
consisting of 56 in research, development and engineering, 145 in manufacturing,
customer support and quality assurance, 35 in sales and marketing and 17 in
general management, administration and finance. None of the Company's employees
is represented by a labor union and the Company has never experienced a work
stoppage, slowdown or strike. Management considers its relationship with its
employees to be excellent and employee turnover to be low.

      The success of the Company's future operations depends in large part on
the Company's ability to attract and retain highly skilled technical, marketing
and management personnel. Certain of such personnel are in limited supply and
are difficult to attract and retain.

ITEM 2.           PROPERTIES.

      The Company's corporate headquarters and manufacturing and research and
development facility are located at One Corporation Way, Centennial Park,
Peabody, Massachusetts, where the Company occupies approximately 53,000 square
feet under a lease that expires in February 2005. The Company leases an
additional 38,000 square feet at Ten Technology Drive, Peabody, Massachusetts,
under a lease that expires in July 2001; the space is used as a warehouse for
inventory and spare parts in support of the Company's manufacturing and field
service operations, to support an expanded customer service organization, and to
provide future expansion for manufacturing production. The Company also leases
field service and/or sales offices in Austin, Texas; San Jose, California;
Colorado Springs, Colorado; Feldkirchen, Germany; and Tachikawa, Japan.

      The Company believes that its existing facilities are adequate to meet its
requirements for at least the next twelve months.

ITEM 3.           LEGAL PROCEEDINGS.

      On August 2, 1996, an action was filed in the U.S. District court for the
District of Massachusetts against the Company, Nicholas P. Economou, a director
and officer of the Company, and David M. Hunter and Robert K. McMenamin,
officers of the Company. On September 9, 1996, another action was filed in the
same court against the Company, Dr. Economou, Messrs. Hunter and McMenamin and
Billy W. Ward, an officer of the Company. On December 6, 1996, the plaintiffs in
both actions filed an amended consolidated complaint. The consolidated complaint
does not contain a claim against Billy W. Ward. The consolidated complaint
purports to be brought on behalf of a class of purchasers of the Company's
common stock from April 26, 1996 through June 21, 1996. It asserts claims for
violations under the federal securities laws, alleging that the Company made
false and misleading statements to the public concerning the nature of its sales
agreement with a customer. The Company filed a motion to dismiss the
consolidated complaint for failure to state a claim. This motion was denied on
April 30, 1997. The Company believes the consolidated complaint to be without
merit and intends vigorously to defend the claims. There can be no assurance,
however, that the Company will be successful in defending this lawsuit or that
money damages, if awarded, would not have a material adverse effect on the
Company.

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

      No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1997.




                                       10
<PAGE>   11
EXECUTIVE OFFICERS OF THE REGISTRANT

      The following are the names, ages, positions with the Company and a brief
description of the business experience during the last five years of the
executive officers of the Company.

<TABLE>
<CAPTION>
NAME                            AGE     POSITION AND BUSINESS EXPERIENCE
----                            ---     --------------------------------
<S>                             <C>     <C>
Nicholas P. Economou......      48      President and Chief Executive Officer.
                                        Dr. Economou has been President and a
                                        Director of the Company since February
                                        1990 and Chief Executive Officer since
                                        August 1993. Dr. Economou joined the
                                        Company in 1984 as the Director of
                                        Engineering and was subsequently
                                        promoted to Vice President, Engineering,
                                        prior to becoming President.

David M. Hunter...........      53      Vice President, Finance and Administration, Chief
                                        Financial Officer and Treasurer.
                                        Mr. Hunter has been Vice President, Finance and
                                        Administration, since January 1993. Mr.
                                        Hunter joined the Company in 1984 as
                                        Treasurer.

Charles J. Libby..........      52      Vice President, Engineering.
                                        Mr. Libby has been Vice President, Engineering, since
                                        August 1993.  Mr. Libby joined the Company in 1989 as
                                        Director of Software Engineering and was subsequently
                                        promoted to Director of Engineering prior to becoming
                                        Vice President, Engineering.

John A. Doherty...........      51      Senior Vice President, Marketing.
                                        Mr. Doherty has been Senior Vice
                                        President, Marketing, since January 1997
                                        and was Vice President, Marketing, from
                                        1983 to January 1997, and a Director of
                                        the Company from 1983 to 1988, from 1991
                                        to 1993 and from 1994 until 1996.

Billy W. Ward.............      44      Senior Vice President, Chief Engineer. 
                                        Mr. Ward has been Senior Vice President
                                        and Chief Engineer, since January 1996 and 
                                        was Vice President and Chief Engineer from 
                                        1983 to January 1996 and a Director of the
                                        Company from 1983 to 1984, from 1988 to
                                        1991, from 1993 to 1994 and since
                                        November 1996.

Robert K. McMenamin.......      55      Vice President, Sales.
                                        Mr. McMenamin has been Vice President, Sales, since
                                        1990.  Mr. McMenamin joined the Company in 1988 as
                                        Sales Manager.

Frank Frontiero...........      43      Vice President, Manufacturing.
                                        Mr. Frontiero has been Vice President, Manufacturing,
                                        since November 1996.  Prior to that time, he served in
                                        various capacities since joining the Company in 1984
                                        and was Director of Manufacturing, from January 1994
                                        to November 1996.
</TABLE>



                                       11
<PAGE>   12
                                     PART II

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

      The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol "MICN." As of September 19, 1997, there were approximately 133
holders of record and approximately 4,000 holders in street name of the
Company's Common Stock. The following table sets forth, for the periods
indicated, the high and low bid prices of the Common Stock, as reported by
Nasdaq. The bid prices quotations reflect interdealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                                               HIGH       LOW
                                               ----       ---
<S>                                            <C>       <C>
1997
First Quarter.................................$14 1/2    $ 8 3/4
Second Quarter................................ 22 3/4     10 3/8
Third Quarter................................. 28 1/4     12 1/4
Fourth Quarter................................ 19         11 1/2

1996
First Quarter................................. 16 1/2     11
Second Quarter................................ 16 1/4      9 1/2
Third Quarter................................. 20 1/2      9 3/4
Fourth Quarter................................ 40 1/4     10 3/4
</TABLE>


DIVIDEND POLICY

      The Company has not declared or paid cash dividends on its Common Stock,
presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The Company's
current bank line of credit prohibits the payment of dividends, in cash or in
kind, without the bank's consent.





                                       12
<PAGE>   13
ITEM 6.     SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
                                                                 For the years ended June 30,
                                                                 ----------------------------
                                                1997        1996        1995          1994         1993
                                                ----        ----        ----          ----         ----
                                                      (Amounts in thousands, except per share data)
<S>                                            <C>          <C>         <C>           <C>          <C>
Total revenue                                  $55,979      $39,536      $28,768      $20,011      $11,871
Income from operations                           5,009        3,611        2,666        1,966          355
Net income                                       3,049       *2,004        3,217        1,717          200
Income from operations per share                  1.19          .89          .75          .97          .19
Net income per share                               .72         *.49          .91          .85          .11

At year end:
Total assets                                   $54,384      $41,571      $30,486      $14,144      $ 9,612
Long-term capital lease obligations              1,355          779           26           68          425
Total stockholders' equity                      32,448       29,257       24,637       10,269        3,719
</TABLE>
------------------------



* Includes a one-time litigation settlement charge of $2,685 during the fourth
quarter of fiscal 1996. See note 13 in Notes to Consolidated Financial
Statements

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

      The information required by this item appears in the 1997 Annual Report on
pages 12 through 15 and is incorporated herein by reference.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The information required by this item appears in the 1997 Annual Report on
pages 16 through 30 and is incorporated herein by reference.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE.

      None.





                                       13
<PAGE>   14
                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The information required regarding the Executive Officers of Micrion
Corporation is included in Part I in the unnumbered item captioned "Executive
Officers of the Registrant." Certain other information required regarding the
Directors of Micrion Corporation is contained in the Proxy Statement on pages 2
and 3 and is incorporated herein by reference.

      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 on page 13 and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION.

      The information required is contained in the Proxy Statement on pages 8
and 9 and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information required with respect to security ownership of certain
beneficial owners and management of Micrion Corporation is contained in the
Proxy Statement on pages 1 and 2 under the heading "Stock Ownership of 
Directors, Nominees, Executive Officers and Principal Stockholders" and is 
incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      None.




                                       14
<PAGE>   15
                                    PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

      (a) 1.Financial Statements

      The following consolidated financial statements are incorporated by
reference in Item 8:

            Consolidated Balance Sheets as of June 30, 1997 and June 30, 1996
            Consolidated Statements of Income for the years ended June 30, 1997
                June 30, 1996 and June 30, 1995
            Consolidated Statements of Stockholders' Equity for the years ended
                June 30, 1997, June 30, 1996 and June 30, 1995
            Consolidated Statements of Cash Flows for the years ended June 30,
                1997, June 30, 1996 and June 30, 1995

      (a) 2.Financial Statement Schedules

      All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.

      (a) 3.Listing of Exhibits

      The exhibit numbers in the following list correspond to the numbers
assigned to such exhibit in the Exhibit Table of Item 601 of Regulation S-K. The
Company will furnish to any stockholder, upon written request, any exhibit
listed below upon payment by such stockholder to the Company of the Company's
reasonable expense in furnishing such exhibit.


EXHIBIT NUMBER                     DESCRIPTION OF DOCUMENT
--------------                     -----------------------

  *3.1           Restated Articles of Organization of the Registrant.

   3.2           Amended and Restated By-laws of the Registrant (as amended
                 March 28, 1997).

  +4.1           Specimen Stock Certificate. (treb clef)

   4.2           Rights Agreement dated July 30, 1997 between the Company as
                 Rights Agent (including exhibits thereto). 

X+10.1           Registrant's Incentive Stock Plan, as amended 
                 (the "1986 Plan").

X+10.2           Form of Stock Restriction Agreement under the 1986 Plan.

X+10.3           Registrant's 1990 Nonqualified Stock Option Plan, as amended
                 (the "1990 Option Plan").

X+10.4           Form of Stock Option Agreement under the 1990 Option Plan.

X+10.5           Registrant's 1993 Common Stock Incentive Plan, as amended (the
                 "1993 Plan").

X+10.6           Form of Stock Restriction Agreement under the 1993 Plan,
                 together with vesting schedule for executive officers.

  10.7           Registrant's 1994 Amended and Restated Omnibus Stock Plan.

X+10.8           Registrant's 1994 Stock Purchase Plan.

X#10.8.1         Registrant's 1994 Non-Employee Director Stock Option Plan.




                                       15
<PAGE>   16
EXHIBIT NUMBER                     DESCRIPTION OF DOCUMENT

+10.9            Lease dated as of December 21, 1987 between the Registrant and
                 Centennial Park Associates Limited Partnership I (the "Lease").

@10.9.1          Second Amendment to the Lease, dated as of March 1, 1995.

+10.10           Development Agreement, dated as of June 10, 1993, by and
                 between the Registrant and SEMATECH, Inc.

+10.11           Agreement dated as of May 6, 1993, by and between the
                 Registrant and U.S. Army Research Laboratory, as amended.

+10.12           Distributor Agreement between the Registrant and Tokyo Electron
                 Limited, dated as of March 1, 1988.

+10.23           Form of Employee Agreement.

*10.25           Common Stock Purchase Warrants issued to RvR Securities Corp.
                 and Fechtor, Detwiler & Co., Inc., in connection with
                 Registrant's initial public offering.

10.31            Letter Agreement, dated July 31, 1997, by and between the
                 Registrant and Fleet National Bank ("Fleet").

10.32            Promissory (Term) Note of the Registrant in favor of Fleet,
                 dated July 31, 1997.

10.33            Promissory (Revolving) Note of the Registrant in favor of
                 Fleet, dated July 31, 1997.

10.34            Inventory, Accounts Receivable and Intangibles Security
                 Agreement from the Registrant to Fleet.

10.35            Supplemental Security Agreement from the Registrant to Fleet.

10.36            Security Agreement (Patents) from the Registrant to Fleet.

10.37            Security Agreement (Trademarks) from the Registrant to Fleet.

11.1             Statement of Computation of Per Share Earnings.

13.1             Management's Discussion and Analysis of Financial Condition and
                 Results of Operations from 1997 Annual Report to Stockholders.

13.2             Consolidated Financial Statements and Notes thereto from 1997
                 Annual Report to Stockholders.

@21.1            Subsidiaries of Registrant.

23.1             Consent of KPMG Peat Marwick LLP.

27.1             Financial Data Schedule.

99.1             Cautionary Statement for Purposes of the "Safe Harbor"
                 Provisions of the Private Securities Litigation Reform Act of
                 1995.

-------------------------------

+    Incorporated by reference to the same exhibit number to the Registrant's
     Registration Statement on Form SB-2 (Registration No. 33-75784) or an
     amendment thereto.

*    Incorporated by reference to the same exhibit number to the Registrant's
     Report on Form 10-QSB filed on June 24, 1994.

#    Incorporated by reference to the same exhibit number to the Registrant's
     Report on Form 10-KSB filed on September 29, 1994.

X    Management contract or compensatory plan or arrangement.



                                       16
<PAGE>   17
*             Incorporated by reference to the same exhibit number to the
              Registrant's Registration Statement on Form SB-2 (Registration No.
              33-86008) or an amendment thereto.

@             Incorporated by reference to the same exhibit number to the
              Registrant's Report on Form 10-KSB filed on September 29, 1995.

(treb clef)   Incorporated by reference from the Company's Registration
              Statement on Form 8-A filed with the Commission on July 30, 1997.

              (b)   Reports on Form 8-K

      The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the fiscal quarter ended June 30, 1997.





                                       17
<PAGE>   18
                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                          MICRION CORPORATION


Date:  September 26, 1997           By: /s/ Nicholas P. Economou
                                        ------------------------
                                        Nicholas P. Economou
                                        President and Chief Executive Officer

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.


<TABLE>
<CAPTION>
        Signature                     Title                           Date
        ---------                     -----                           ----
<S>                           <C>                                     <C>
/s/ Nicholas P. Economou      President, Chief Executive Officer      September 26, 1997
--------------------------    and Director (Principal Executive
Nicholas P. Economou          Officer)



/s/ David M. Hunter           Vice President, Finance and             September 26, 1997
--------------------------    Administration (Principal
David M. Hunter               Financial and Accounting Officer)



/s/ Billy W. Ward             Senior Vice President, Chief            September 26, 1997
--------------------------    Engineer and Director
Billy W. Ward



/s/ Charles M. McKenna        Director                                September 26, 1997
--------------------------
Charles M. McKenna



/s/ Louis P. Valente          Director                                September 26, 1997
--------------------------
Louis P. Valente




/s/ Thomas W. Folger          Director                                September 26, 1997
--------------------------
Thomas W. Folger
</TABLE>