U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


(Mark one)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

      For the fiscal year ended December 31, 1998

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

                         Commission file number: 1-10938

                                SEMX CORPORATION
                 ----------------------------------------------
                    (Name of Business Issuer in Its Charter)

                Delaware                                13-3584740
      --------------------------------------          --------------
      (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                  Identification Number)
                                                  
                                                  
      1 Labriola Court                            
      Armonk, New York                                  10504
      ----------------------------------------        ---------
      (Address of principal executive offices)        (Zip Code)
                                                  
                                            
         Issuer's telephone number, including area code: (914) 273-5500

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

                                                       Name of Each Exchange
      Title of Each Class                              on Which Registered
      --------------------                             -------------------
      Common Stock, $.10 par value                     NASDAQ National Market


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

      Check 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 file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

      Check 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 Exhibit Index is located on page 20
<PAGE>

      At March 31, 1999 the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $7,477,700.

      At March 31, 1999 the Registrant had 6,041,016 shares of Common
Stock outstanding, $.10 par value ("Common Stock"). In addition, at such date,
the Registrant held 334,600 shares of Common Stock in treasury.

                      DOCUMENTS INCORPORATED BY REFERENCE:

 DOCUMENT                                  Parts Into Which Incorporated
---------                                  -----------------------------

Portions of the Definitive                 [Part III. Item 10,11,12 13]
Proxy Statement prepared in 
connection with the Company's                            
1999 Annual Meeting of Stockholders 
which will be held on May 26, 1999.



















                                      -ii-

<PAGE>

                                     PART I
Item 1. Business.

      (a) General. SEMX Corporation, formerly Semiconductor Packaging Materials
Co. Inc., consists of a Delaware corporation and its wholly owned and majority
owned subsidiaries (collectively the "Company"). In April, 1998, the Company
changed its name to SEMX Corporation (its existing ticker symbol). The Company
primarily provides specialty materials and services to the microelectronic and
semiconductor industries on a worldwide basis.

      At the end of the fiscal year, the Company's Materials Group consisted of
the operating division of the parent company ("SPM") and its subsidiaries,
Polese Company, Inc.("Polese"), Retconn Incorporated ("Retconn") and its
subsidiary, S.T. Electronics, Inc.("S.T.").The Materials Group primarily
designs, develops, manufactures and markets customized fine wire and metal
ribbon, precision metal stampings, aluminum silicon carbide stampings, powdered
metal copper/tungsten heat dissipation products, seal frames, RF coaxial
contacts and connectors and cable and cable harness assemblies which are used in
the assembly of microelectronic packages. Such products are incorporated into
electronic components used for industrial and commercial applications, primarily
to conduct electrical currents or signals, solder electronic circuitry, provide
electrical interconnects, house electronic components, mount components or
dissipate heat. In 1997, the Company entered the recreational products market by
supplying a proprietary copper/tungsten sole weight to Taylor Made Golf for use
in its Titanium Bubble 2(TM) irons. In 1998, the Company further expanded its
product offering of sole weights to additional customers in the recreational
products marketplace. The Company's products are sold through internal sales
personnel and a network of independent sales representatives, principally to
manufacturers and assemblers of electronic devices who service the aerospace,
automotive, communications, computer, medical, military and semiconductor
industries. As described herein, the Company completed the sale of its Retconn
and S.T. businesses in February 1999 and as of that date no longer designs
develops or manufacturers RF coaxial contacts, connectors and cable and cable
harness assemblies.

      The Company's Services group consists of its American Silicon Products,
Inc. ("ASP") subsidiary and a jointly owned Singapore corporation, International
Semiconductor Products Pte Ltd ("ISP"). Each provide silicon wafer polishing and
reclaiming services to the semiconductor industry. Reclaimed wafers are used in
the evaluation and testing of equipment and processes in semiconductor
fabrication. ISP is 50.1% owned by the Company, 39.9% owned by Semiconductor
Alliance Pte Ltd. and 10% owned by EDB Ventures 2 Pte ltd. ISP began operations
in the third quarter of 1997.

      History. The registrant, SEMX Corporation, formerly Semiconductor
Packaging Materials Co. Inc. is a Delaware corporation incorporated in 1988 as a
successor to a company started in 1981. In December 1991 the Company had a
public offering of its securities and became a public company. In April 1998,
the stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation to change the name of the Company to SEMX
Corporation.

      The Company has attained significant revenue growth over the last several
years. A substantial portion of that growth has been realized through the
acquisition of businesses and by applying monetary and management resources to
further the growth of the acquired companies.

      Acquisitions:

      In 1993, the Company acquired Polese Company, Inc.. Polese manufactures
and markets seal frames and copper/tungsten heat dissipation products for use in
the manufacture of electronic components, and produces sophisticated parts
through the use of electrical discharge machines ("EDM") and computer numerical
control ("CNC") turning centers for customers in the medical and aerospace
industries. In addition, the Company acquired from Frank J. Polese all of the
rights, including, but not limited to, a pending patent application, which was
subsequently issued to Mr. Polese, for the development and application of
copper/tungsten powdered metal technology to the electronics industry.(See Part
II, Item 6, Management Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"))

      In 1994, A/S Acquisition Company, Inc., a Rhode Island corporation
("ASAC") merged with and into the Company's wholly-owned subsidiary, American
Silicon Products, Inc., a Delaware corporation. ASAC had no operations of its
own, but simultaneously with the merger, acquired the assets of American Silicon
Products, Inc.("ASP"), a Rhode Island corporation. The ASP assets acquired
embodied a silicon wafer reclaiming and reconditioning business located in
Providence, Rhode Island.

      In 1996, the Company acquired Retconn Incorporated. Retconn developed,
designed and manufactured subminiature coaxial contacts and connectors which
were sold principally to manufacturers in the communications and computer
industries.


<PAGE>

      In 1996, the Company entered into a joint venture agreement to develop a
silicon wafer polishing and reclaiming facility in Singapore. The jointly owned
Singapore corporation, International Semiconductor Products Pte Ltd, is 50.1%
owned by the Company, 39.9% owned by a holding company, Semiconductor Alliance
Pte Ltd. and 10% owned by EDB Ventures 2 Pte Ltd.

      On January 23, 1997, the Company acquired certain assets and assumed
certain liabilities of Silicon Materials Service ("SMS") of Garland, Texas and
100% of the outstanding stock of Silicon Materials Service, B.V. ("SMSBV") of
Helmond, Netherlands for approximately $13,000,000 in cash. The SMS Texas
operation was merged into ASP and SMSBV was renamed American Silicon Products,
B.V. ("ASPBV"). During 1998, the Company closed the SMS Texas operation and
relocated certain customers and equipment to its Providence plant.

      Effective July 30, 1997, Retconn, a wholly owned subsidiary of the
Company, acquired 100% of the outstanding stock of S.T. Electronics, Inc
("S.T."), a company that manufactures and markets custom cable and cable
harness assemblies for $1,000,000 in cash and $2,000,000 in notes, subject to
adjustment, based on the closing net worth and adjusted EBIT delivered by S.T.
as of the closing date. In addition, Retconn acquired certain proprietary rights
from S.T. shareholders for $200,010. The notes are payable in twenty equal
quarterly installments beginning on November 1, 1997 at an interest rate of 7%
per annum on the unpaid principal.

      Dispositions

      In February 1999, the Company completed the sale its Retconn and S.T
Electronics businesses (collectively "Retconn") to Litton Systems Inc. for a
purchase price of $23.9 million in cash plus the assumption of approximately
$3.5 million of Retconn's liabilities. Commensurate with the sale, the Company
no longer engages in the manufacture, development or design of subminiature
coaxial contacts, connectors, custom cables or cable harness assemblies.
Information pertaining to these products, contained herein, is related only for
calendar 1998 and through the February 1999 date of disposition.

     (b)  Financial Information about Industry Segments - The Company has
          operated in two industry segments, materials and services, during each
          of its last three years.

     (c)  Narrative Description of Business

Products

      Wire and Metal Ribbon. The Company manufactures fine wire and metal ribbon
used to conduct electricity or signals between two points of a circuit. Metal
ribbon is wire which is flattened to specific height and width specifications
and is used primarily in microwave and selected industrial applications to
regulate electrical conductivity. Wire and metal ribbon are manufactured using
gold, aluminum, copper, nickel and various metal alloys, each of which has a
distinct characteristic for conducting electrical currents or signals. These
products are sometimes coated or plated.

      The Company manufactures various sizes of wire in dimensions as thin as
 .0005 inches (less than the size of a human hair) for specific applications.
Ribbon is produced in sizes as small as .00025 X .002 inches. The Company's
products must adhere to rigid OEM standards used in electronic applications,
including military specifications.

      Precision Metal Stampings. Precision metal stampings are parts stamped out
of metals that are used to solder or connect electronic circuitry, package
electronic circuitry, dissipate heat or provide an interface for an electronic
connection. Stampings manufactured by the Company, in dimensions as small as
 .005 inches, include preforms, heat sinks, jumper chips, bonding islands,
connectors, frames, seals, bases, and cans. The Company also produces rolled
strip.

      Preforms are custom shaped stampings used to solder metal parts to a
substrate (a base on which the electronic circuitry rests). Preforms must
quickly change from a solid state to a molten state and back again to effectuate
an efficient bond. Heat sinks are specialized metal stampings used to dissipate
heat generated by electrical currents. Jumper chips, bonding islands and
connectors are metal stampings generally used to provide an interface for an
electrical connection. Rolled strip is metal, either in pure or alloy form, that
is flattened from an ingot to a specified thickness and slit to a width to meet
a customer's specification or matched to fit with a die in the Company's
manufacturing process.

      Stampings are produced from a variety of metals, including copper,
aluminum, gold and gold alloys, special metals such as molybdenum, and clad and
plated materials. Molybdenum is a metal used for its unique heat dissipating
properties. Clad materials, which are also used to manufacture precision
stampings, are pieces of two or more different metals laminated together, and
are generally used as an interface between aluminum and gold circuitry. The
Company also has stampings plated for enhanced soldering and brazability. The
Company also manufactures assembly products by brazing low expansion materials
to ceramic.

<PAGE>

      Tape on Reel Products. The Company offers a number of packaging options
for its stamping products, including bulk packaging, parts supplied on carrier
strips and, for high volume parts, tape on reel packaging. Tape on reel
packaging is used to support surface mount assembly operations. The Company
offers its customers stampings packaged on contact or in pocket tape. Since many
of the Company's stamped products are very small, the Company employs the use of
automated and manual tape on reel equipment to perform this packaging function.
The Company has constructed a class 10,000 clean room to facilitate the
packaging of die ("semiconductor chips") in tape on reel.

      Seal Frames. In electronic applications of high reliability (military,
medical and aerospace) where a circuit is exposed to severe environmental
conditions (oceanographic and automotive applications) an electronic package is
used to hermetically seal the circuit to insure its reliability. To obtain
hermeticity, a sealing frame is brazed (a process similar to soldering) to
either a ceramic or metal base and at a later point in the production a lid is
added to complete the protective environment.

      Powdered Metal Heat Dissipation and Recreational Products. Heat
dissipation products are used to conduct heat away from critical areas of
electronic circuits where it can be dissipated. Heat dissipation products are
primarily used to conduct heat in high power wireless communication devices and
high speed microprocessor packages. In 1991 with the financial and technical
support of one of its customers, Polese began the development of a powdered
copper/tungsten materials with a more homogeneous copper and tungsten particle
distribution than similar copper/tungsten materials available in the
marketplace. In early 1995, the Company obtained a patent for a Method for
Making Heat-Dissipating Elements for Micro-Electronic Devices. Polese utilizes
this proprietary method to manufacture copper/tungsten heat dissipation
products. The Company has also developed a non-electronic use of its powdered
metal technology with the introduction of a copper/tungsten metal matrix
composite for sole weights which are used in the manufacture of golf clubs. In
addition, in late 1997, Polese introduced a new material, Nitral(TM). Nitral(TM)
is a high dissipation substrate that can be tailored for high thermal
conductivity. In 1998, Polese bought the rights to Alcoa's AlSiC technology,
which is used for certain electronics applications.

      Other EDM Products. As a result of Polese's successful EDM operation in
the manufacture of seal frames, a number of special products have been brought
to Polese for manufacture. At this time, Polese is manufacturing small and
complicated parts for the medical supply and other industries.

      Silicon Wafer Polishing and Reclaiming Services. ASP, ASPBV and ISP offer
a variety of high tech, state-of-the-art wafer polishing and reclaiming services
to the semiconductor industry. ISP began offering these services in the third
quarter of 1997. Reclaimed wafers are used in the evaluation and testing of
equipment and processes in semiconductor fabrication.

      Coaxial Contacts and Connectors, Cable and Cable Harnesses. During 1998
and through February 1999, Retconn manufactured RF coaxial contacts and
connectors which were sold principally to manufacturers in the wireless
communication and computer industries. Retconn's products included a full line
of DM subminiature RF contacts and connectors, including solder, solder/crimp,
and crimp/crimp standard coaxial contacts. It had a line of SMA, SMB, SMC and
MCX connectors that met military specifications. In addition, Retconn and its
wholly owned subsidiary, S.T., offered cable terminations, specials and cable
assemblies. As of the February 1999 sale of the Retconn and S.T business, the
Company no longer manufacturers these product lines.

Raw Materials and Principal Suppliers

      The Company in most cases utilizes two or more alternative sources of
supply for each of its raw materials. In certain instances, however, the Company
will use a single source of supply when directed by a customer or by need. In
order to ensure the quality of the Company's products, the Company has
instituted strict supplier evaluation and qualification procedures. Once a
supplier has been qualified to supply materials to the Company, they will be
included on the Company's preferred supplier list and will be evaluated and
rated on an ongoing basis. The Company considers several of its vendors as
principal suppliers. For precious metals the Company's vendors include Fleet
Precious Metals, Sigmund Cohen, Handy and Harmon and Degussa Metz Metallurgical
Corp.

      The parent company makes extensive use of precious metals, including gold
and, to a lesser extent, silver and platinum, as raw materials in the
manufacture of certain products. Precious metals, particularly gold, are
utilized based upon their reliability and conductivity. The prices at which the
Company purchases precious metals are based upon market prices at the time of
purchase. Such metals have historically been subject to significant price
fluctuations and subject to volatility as a result of numerous factors beyond
the control of the Company.

            Substantially all of the parent company's gold requirements are
currently purchased from Fleet Precious Metals ("Fleet") pursuant to a
consignment agreement. Under the agreement, Fleet has agreed to advance up to
the lesser of 5,000 troy ounces of gold or gold having a market value of
$1,870,000. The agreement provides that title to the gold remains with Fleet
until the finished material is shipped, at which time the parent company is
required to replace the gold. The prices paid by the parent company for its

<PAGE>

purchases are generally based upon the Comex or the Second London gold price and
are fixed automatically on a first-order, first-priced basis. The parent company
pays for gold in cash as of the date of purchase and pays a fee computed daily,
currently at the rate of 5% per annum, based upon the value of gold consigned to
the parent company. The revised and amended agreement with Fleet expires on June
30, 1999. The Company believes that there are alternative sources of supply for
the parent company's gold requirements in the event that the agreement with
Fleet is terminated.

      Silver and platinum are currently purchased from various trading
companies. The Company has no agreements with such suppliers, but believes that
there are numerous alternative sources of supply for such metals.

      The Company purchases base metals, including aluminum, copper,
copper/tungsten, kovar, molybdenum ,solder and clad metals and specially shaped
materials from local metal distributors, cladding companies, roll formers, or
other specialized suppliers. Principal suppliers for non-precious metals and
outside processing services include Osram Sylvania, Platronics, AEP, Fusco,
Donham Craft, Technical Materials and Clad Metal Specialties.

      The Company also purchased certain components used in the assembly of
coaxial contacts and connectors from such companies as MGB and Sorenson
Engineering until the February 1999 sale of the Retconn and S.T businesses.

      The Company's Services Group purchases polishing materials, gases and
chemicals and specialized equipment from various suppliers. These vendors
include, but are not limited to, Empak, Rodel and Hubbard Hall.

      The Company's decision to purchase certain raw materials is generally
based upon whether such material is available consistent with required
specifications at a cost lower than the Company's manufacturing costs. If the
Company does not have, or could not, at a reasonable cost, develop the
manufacturing capability for a specific material, it attempts to maintain at
least two suppliers for such materials. While the Company attempts to maintain
alternative sources for the Company's raw materials and believes that
alternative sources are currently available for most of such metals and
materials, the Company is subject to price fluctuations and periodic shortages
of raw materials. The Company has no supply agreements with its suppliers and,
accordingly, purchases raw materials pursuant to purchase orders placed from
time to time in the ordinary course of business. Failure or delay by such
suppliers in supplying required raw materials could adversely affect the
Company's ability to manufacture and deliver products on a timely and
competitive basis.

Production Process

      Products manufactured to customer specifications account for almost all of
the Company's total revenues.

      Wire and metal ribbon are manufactured by casting pure metals with
selected additives into cylindrical shapes which are then drawn through a series
of diamond dies to progressively reduce the metal to a finished size. Wire is
then either annealed in batches or strands. Metal ribbon is made by rolling wire
into a flat shape or by slitting strip into narrow widths. Annealing, spooling
and packaging are similar to those for wire.

      The manufacturing process for stamping consists of casting specific metals
or alloy combinations into ingots which are passed through a series of rolling
mills to meet specified thickness requirements, and then slit to specified
widths. The material is stamped in a press which contains the die for the
customer's part. Parts are then cleaned and packaged to suit customer
requirements. The Company ships stampings in bulk form or employs packaging
methods to integrate its stampings with automated manufacturing equipment
utilized by its customers.

      Seal Frames are manufactured by sawing tubing, primarily copper or kovar
(a nickel alloy of steel), or "burning" the frames out of stacked sheets of
kovar on EDM machines. The seal frames are lapped (ground flat), machined when
necessary, lapped again, cleaned, plated when necessary and inspected.

      Other EDM products are "burned" on EDM machines and finished on CNC
milling machines or in selected secondary operations.

      The manufacturing process for metal matrix composite heat dissipation and
recreational products consists of manufacturing a tool and die for the specific
part, pressing the powdered materials in a powdered metal press, sintering the
parts in a furnace, and machining them to the customer's specifications. The
parts are then cleaned, plated, tested and packaged for shipment.

      Silicon wafer polishing and reclaiming services begin with incoming
inspection of customer wafers. The wafers are sorted for reclaim suitability and
conformance to customer specifications. A report is then sent to the customer
indicating which wafers are reclaimable. While the Company from time to time
procures its own wafers, the majority of the wafers it processes are owned by

<PAGE>

its customers. The customer usually retains title to the reclaimable wafers
throughout the polishing and reclaiming process. The wafers are then processed
to remove all diffusions and deposited layers (i.e., polysilicon, metals,
nitrides, oxides, etc.). A two step polishing process, similar to that which is
utilized by silicon suppliers, is then performed. The wafers are then cleaned
with a front and back side scrubbing followed by rinsing, drying and further
removal of particles. All cleaning is done in certified clean rooms utilizing
deionized water. Product quality is assured through procedural discipline and
Statistical Process Controls. The Company has achieved the ability to regularly
process wafers with particles of less than .12 microns in size, with extremely
low trace metals. The Company believes that its processing capability is
comparable to that of any reclaiming capability in the world.

      The Company currently utilizes third party manufacturers in connection
with certain packaging and manufacturing processes. Such manufacturing processes
include the screw machine operations and other secondary operations performed to
produce connectors and the application of certain surface finishes, such as
plating and cladding. Additionally, the Company from time to time arranges for
third party vendors to package stamped parts for compatibility with automated
manufacturing equipment.

      The parent company usually operates on an eight-hour daily shift five days
per week, with its tape on reel production and aluminum wire drawing operating
on a two or three shift basis, consistent with business requirements. Polese
usually operates seven days per week, with its various departments running two
to three shifts per day, consistent with business requirements. ASP usually
operates on a three shift basis five days per week. Management believes that the
Company possesses sufficient capacity to expand production of its existing
products. The Company owns much of its equipment and when appropriate, leases
certain equipment from third parties.

Quality Control

      The Company utilizes extensive in-house statistical process quality
control procedures ("SPC"), excluding Retconn operations, and employs 24 persons
engaged full-time in quality control functions.

      A substantial portion of the Company's customers require the Company to
qualify as an approved supplier utilizing SPC. Generally, this qualification
includes providing samples to the customer, passing preliminary evaluations and
usage testing, completing customer evaluations and checklists and undergoing
extensive in-plant inspections of the Company's personnel, manufacturing
processes, equipment and associated quality control systems. The Company has
undergone numerous inspections by various customers and continues to undergo
such inspections on a regular basis. Accordingly, the Company's efforts are
devoted to ensure that its capabilities and quality control standards are
adequate to satisfy specific customer requirements. The Company receives quality
control certifications each year from various customers.

      The Company is certified ISO 9000 (an international quality standard for
the European community) at five of its operations, excluding Retconn, and holds
various quality awards throughout the industries it serves. The Company believes
that its ISO 9000 certifications are important in establishing the Company as a
world class supplier and will greatly aid the Company in penetrating markets for
the Company's products throughout the world. The Company is also designated as a
"Q-1" supplier by The Ford Motor Company. One of the Company's divisions
completed an initial QS 9000 Quality Control audit. Subject to resolution of
pending audit issues, the Company expects to receive its final approval during
early 1999. The Company believes that QS 9000 certification will be important to
the Company's status as a world class supplier, especially within the automotive
industry.

Marketing and Sales

      The Company's domestic and foreign sales efforts are directed towards
customers in numerous industries where the Company's products have wide
application. The Company engages independent sales representatives in various
regions throughout the United States, Europe, South America, the Middle East and
the Far East for marketing to customers. These sales representatives are paid on
a commission basis. As of February 28, 1999, the Company had arrangements with
24 sales representatives in the United States and 16 sales representatives who
market the Company's products in Europe , the Middle East, Far East and South
America, including France, Germany, Italy, the United Kingdom, Sweden, Israel,
Singapore, Hong Kong, China, Taiwan, Korea, Malaysia, the Philippines, Mexico
and Brazil. The Company believes that the use of independent sales
organizations, which typically specialize in specific products and areas and,
accordingly, have specific knowledge of and contacts in particular markets,
enhance the scope of the Company's marketing and sales efforts. Pursuant to
agreements with independent sales representatives, such representatives are
prohibited from carrying a line of products competitive with the Company's
products. The Company continues to engage new sales representatives as needed.
The Company believes that additional sales representatives are available, if
required.

<PAGE>

      The Company currently employs 25 inside sales and marketing personnel,
including two of its executive officers, who are responsible for direct sales to
the Company's customers. The Company's sales personnel also work closely with
customers to solicit future orders and to render technical assistance and
advice.

      Other marketing efforts include generation and distribution of the
Company's product catalogs and brochures and attendance at trade shows. The
Company also advertises in trade publications, primarily in the United States.

Product and Process Development

      The Company places significant emphasis on product and process development
and believes that such efforts are important to take advantage of market trends
and to maintain its competitive position. The Company's product and process
development activities include refinement of its manufacturing and processing
capabilities and improvement in the metallurgical composition, durability and
reliability of its products. The Company's technical personnel and outside
consultants conduct specific projects to enhance performance of the Company's
products and to meet specific customer requirements. In the past years these
efforts have led to the development of a new gold wire for flip chips, a
copper/tungsten metal matrix composite for sole weights used in golf clubs, a
high dissipation substrate that can be tailored for high thermal conductivity, a
packaging process for die in tape on reel and process improvements which enable
the Company's reclaiming facilities to produce wafers with particles of less
than .12 microns and extremely low levels of trace metals.

      The Company has expanded its product lines and processing capabilities
through various acquisitions and a joint venture, including the Company's
acquisition of Polese in 1993, ASP in 1994 and Retconn in 1996, the ISP joint
venture in 1996 and the SMS and S.T. acquisitions in 1997 and will continue to
seek to expand through acquisitions and other strategic alliances. Not
withstanding the sale of Retconn in February 1999, the Company continues to seek
expansion of its product lines.

Customers

      The Company's products are sold principally to customers servicing the
computer, automotive, aerospace, military, medical, semiconductor and
communications industries. The Company's customers include Kyocera America,
Motorola, IBM, Texas Instruments, National Semiconductor, Hewlett Packard,
Analog Devices, Lucent, Berg Electronics, Hi-Tech Assemblies, Ford Motor
Company, Delco Electronics, ST Electronics, Northern Telecom, Cardiac
Pacemakers, Medtronics/Micro-Rel and Wafernet.

      For the years ended December 31, 1998 and 1997, sales of the Company's
products, to the Company's five largest customers accounted for approximately
29% and 32%, respectively, of the Company's revenues. For the years ended
December 31, 1998 and 1997, single, but different, customers accounted for
approximately 10 % and 11% of the Company's total revenues.

      The Company does not maintain contracts with many of its customers and
generally sells its products pursuant to customer purchase orders. Certain of
the customers purchase orders provide for annual requirements of a particular
product. A substantial portion of the Company's orders for products which
include precious metals provide that the initial price quotation is adjusted to
reflect any changes in the price of precious metals at the time of shipment.
Customer purchase orders are generally filled within two to six weeks and
shipped to customers by common carrier.

      To date, the Company has relied upon foreign markets, including Europe and
the Far East, for a portion of its revenues. For the years ended December 31,
1998 and 1997, direct sales of the Company's products into foreign markets
accounted for approximately 15% of the Company's consolidated revenues. Sales of
the Company's products to foreign customers are made through 16 foreign
manufacturer's representatives. The Company believes that a portion of its
revenues will continue to be derived from the sale of its products in foreign
markets, which will result in the Company's being subject to risks associated
with foreign sales, including economic or political instability, shipping
delays, fluctuations in foreign currency exchange rates, custom duties and
export quotas and other trade restrictions. The Company is not aware of any
foreign tariffs with respect to products marketed by the Company. Although
export sales are subject to certain governmental restrictions, the Company has
not experienced any difficulties with foreign or domestic trade restrictions.

Backlog

      The Company manufactures standard and custom products pursuant to customer
purchase orders. Backlog is comprised of orders for products which have a
scheduled shipment date within the next 12 months. Certain orders in the backlog
may be canceled under certain conditions without significant penalty to the
customer. At January 2, 1999 and 1998, the Company's backlog of orders,
excluding Retconn and ST, believed to be firm was approximately $15,161,000 and
$16,511,000, respectively. Backlog of the Company's Retconn and S.T. Businesses
which were sold in February 1999, were $3,538,000 at January 2, 1999 and
$4,132,000 at 

<PAGE>

January 2, 1998. The Company believes that the majority of the Company's backlog
of orders existing as of January 2, 1999 will be shipped over the next twelve
months.

Competition

      The market for the Company's products is highly competitive. The Company
competes with numerous well-established foreign and domestic companies, many of
which possess substantially greater financial, marketing, personnel and other
resources than the Company and have established reputations for success in the
development, sale and service of products. Such companies include Kulicke &
Soffa Industries, Inc., Tanaka, Heraeus, Polymetallurgical Corporation, Coining
Corp., Williams Advanced Materials, Climax Specialty Metals, Inc., Johnson
Matthey, A.T. Wall, Exsil, Sumitomo Corporation, Phoenix Electronics Company of
Chicago, Inc., Radiall, Inc.,Kobe, Precision, Huber and Suhner, Inc. and
Amphenol Corporation. The Company believes that it is one of a limited number of
manufacturers of all of its primary products and services: fine wire and metal
ribbon, precision metal stampings, seal frames, other EDM products, powdered
metal heat dissipation and recreational products, coaxial contacts and
connectors, cable assemblies and harnesses and polishing and reclaiming of
silicon wafers. The Company believes that this capability provides an advantage
in marketing products to customers which seek to limit the number of their
suppliers. As discussed herein, after the February, 1999 sale of the Retconn and
S.T the Company no longer competes in the coaxial contacts and connectors, cable
assemblies and harnesses markets.

      The ability of the Company to compete successfully will depend in large
measure on its ability to fund and maintain development capabilities in
connection with upgrading its products and quality control procedures and to
adapt to technological changes and advances in the electronics industry,
including ensuring continuing compatibility with evolving generations of
electronic components and manufacturing equipment.

Patents and Proprietary Information

      The Company's ability to compete effectively may be materially dependent
upon the proprietary nature of its technologies. The Company has been issued a
patent for a Method for Making Heat-Dissipating Elements for Micro-Electronic
Devices. Polese Company utilizes this proprietary method to manufacture
copper/tungsten heat dissipation products. The powdered metal technology covered
by this patent was acquired by the Company in connection with the Polese Company
acquisition. In addition, Polese Co. has received a patent covering its newly
developed material, Nitral(TM). Few of the Company's other manufacturing
processes or products are protected by patents.

      The Company relies on proprietary know-how and employs various methods to
protect its processes, concepts, ideas and documentation associated with its
proprietary products. However, such methods may not afford complete protection
and there can be no assurance that others will not independently develop such
processes, concepts, ideas and documentation. Although the Company has and
expects to have confidentiality agreements with its employees, there can be no
assurance that such arrangements will adequately protect the Company's trade
secrets.

Government Regulation

      The Company is subject to regulations administered by the United States
Environmental Protection Agency, the Occupational Safety and Health
Administration, various state agencies and county and local authorities. Among
other things, these regulatory bodies impose restrictions to control air, soil
and water pollution and dictate safety in the workplace. The extensive
regulatory framework imposes significant compliance burdens and risks on the
Company. Governmental authorities have the power to enforce compliance with
these regulations and to obtain injunctions and/or impose civil and criminal
fines or sanctions in the case of violations.

      The Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), imposes strict, joint and several liability on
the present and former owners and operators of facilities which release
hazardous substances into the environment. The Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), regulates the generation,
transportation, treatment, storage and disposal of hazardous waste. The Company
is also subject to various state and local laws which are the counterparts of
CERCLA and/or RCRA in the jurisdictions where the Company maintains facilities
(New York, California, Connecticut and Rhode Island). The Company believes that
it is in substantial compliance with all material federal and state laws and
regulations governing its operations. The Company continually evaluates its
environmental and safety practices with respect to such requirements and
maintains all required licenses or permits.

      Various laws and regulations relating to safe working conditions,
including the Occupational Safety and Health Act, are also applicable to the
Company. The Company believes it is currently in substantial compliance with all
material federal, state and local laws and regulations regarding safe working
conditions. The Company believes that the cost of compliance with such
government and environmental regulations is not material.
<PAGE>

Executive Corporate Officers of the Company

      Gilbert D. Raker, 55, President since December 31, 1995; Chairman of the
Board and Chief Executive Officer of the Company since May 1990; Vice President
of the Company from November 1988 until May 1990.

      Frank J. Polese, 42, Vice Chairman of the Company since January 1996 and a
Director of the Company since July 1993. Mr. Polese also served as President of
the Company from January 1994 through December 1995. From August 1991 until
November 1996 and again since March 1997, Mr. Polese has served as President of
Polese Company, which was acquired by the Company on May 27, 1993, prior to
which Mr. Polese was its sole shareholder. Prior to August 1991, Mr. Polese was
a manufacturer's representative specializing in products incorporated into
microelectronic packages for the electronics industry.

      Kenneth J. Huth, 60, Executive Vice President of the Company since January
1994, President of the Company from January 1990 to December 1993 and President
of the Semiconductor Packaging Materials division since July 1998. From 1972
until December 1989, Mr. Huth served as President of Kenneth J. Huth, Inc., a
manufacturer's representative specializing in precision stampings and related
products for the electronics industry.

      Douglas G. Sages, Vice President and Chief Financial Officer, resigned
February 22, 1999. 

Employees

      As of February 28, 1999, the Company employed approximately 524 persons.
All manufacturing personnel are paid on an hourly basis. The majority of
employees are employed full-time. None of the Company's employees are covered by
a collective bargaining agreement. The Company considers its relationship with
its employees to be good.

Item 2. Properties.

      The Company's executive offices and the parent's manufacturing facility
are located in a 43,700 square foot building in Armonk, New York. The Company's
Armonk facility is suitable for the Company's current needs and is estimated to
be currently operating at approximately 50% of its productive capacity. The
property is well maintained and in good condition. SPM opened a 3000 square foot
facility in Casablanca, Morocco in January, 1999 to supply aluminum bonding wire
to North Africa and Europe.

      Polese entered into an agreement to lease approximately 24,211 square feet
of industrial space at 10103 Carroll Canyon Road and 34,615 sq. ft. at 10111
Carroll Canyon Road, San Diego, California. The lease term commenced on March
31, 1998 and expires on March 31, 2004 and calls for an initial monthly rental
of $29,833 for the first eight months, increasing to $35,296 for the next 4
months, with a 3% annual rent increase in the second through sixth years. The
performance of Polese Company's obligations under the lease is guaranteed by the
Company. Polese Company also leases approximately 10,600 square feet at 8680
Mirilani Drive, San Diego, California. The lease term commenced on May 1, 1997
and expires on December 31, 1999 and calls for a monthly rental of $5,760 with
an increase of 4% effective January 1, 1998. The facilities are suitable for the
Company's current needs and are currently operating at approximately 80% of
their productive capacity. The properties are well maintained and are in good
condition.

      ASP owns a 28,000 square foot facility in Providence, Rhode Island. The
facility is suitable for the Company's current needs and is currently operating
at approximately 70% of its productive capacity. The property is well maintained
and is in good condition. ASP formerly operated two leased facilities in
Garland, Texas; a 26,590 square foot facility at 2985 Market Street ("Market
Street"), and a 16,600 square foot facility at 2613 Industrial Lane ("Industrial
Lane"). In March, 1998 the Company closed the Garland Texas facilities and
shifted certain production and equipment to its Providence and Helmond
facilities. The Company completed its remaining lease obligations and vacated
these facilities as of February 28, 1999. American Silicon Products, B.V.'s
operations are located in a facility of approximately 25,800 square feet at
Achterdijk 8, 5705 CB, Helmond, Netherlands. This facility was purchased on
December 1, 1997 by ASP. The Helmond facility is suitable for the Company's
current needs and is currently operating at approximately 70% of its productive
capacity. The facility consists of production, office and warehouse space and is
well maintained and in good condition.

      As described herein, the Company sold its Retconn and S.T. businesses in
February 1999. Retconn's primary operations were located in a 12,000 square foot
facility in Torrington, Connecticut occupied on a month to month basis with
annualized lease payments of $56,525. Retconn also leased a 6,360 square foot
facility near its main facility to house its cable assembly operation. This
lease expired on October 31, 1998 and called for monthly rentals of $3,000. The
facilities were suitable for the Company's needs and operated at approximately
90% of their productive capacity during the latest fiscal year

      S.T. Electronics operations were housed in three separate manufacturing
"suites" totaling approximately 6030 square feet, located in Rancho Cordova, CA.
The lease was for a three year period, which commenced on July 30, 1997 with a
monthly lease 

<PAGE>

payment of $4,500 per month. The facility was suitable for the Company's needs
and operated at approximately 70% of its productive capacity during the last
fiscal year.

Item 3. Legal Proceedings.

      The Company is subject to claims and suits in the ordinary course of
business. Management believes that the ultimate resolution of such proceedings
will not have a material adverse effect on the Company. The Registrant received
notice, on January 5, 1998, that a shareholder class action was filed against
it, its Chief Executive Officer and its Chief Financial Officer, in the United
States District Court for the Eastern District of Pennsylvania on November 18,
1997, for an indeterminate amount of damages, (Blum et.al. v. Semiconductor
Packaging Materials Co., Inc., et. al. (97CV 7078)). On May 5, 1998, the United
States District Court for the Eastern District of Pennsylvania dismissed the
case. An appeal of the order dismissing this lawsuit was not filed within the
period permitted for such appeal.

      Separately, the Northeast Regional Office of the Securities and Exchange
Commission is conducting a private investigation pursuant to a formal order,
captioned "In the Matter of Trading in the Securities of Semiconductor Packaging
Materials Co., Inc.", to determine whether any persons may have violated the
federal securities laws in connection with the purchase or sale of the
Registrant's securities prior to the December 30, 1996 announcement relating to
its anticipated financial results for the fourth quarter of fiscal 1996. As a
general matter, the Commission takes the position that its investigation should
not be construed as an indication that any violations of law have occurred or as
an adverse reflection upon any person or security. The Registrant cooperated
fully with the Commission in its investigation which commenced in early 1998.
Since June 1998, the Company has not received any additional requests for 
information or communications from the SEC concerning this matter.

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

      No matter was submitted to a vote of security holders during the quarter
ended December 31, 1998.


                                     PART II

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

      Since April 8, 1996, the Company's Common Stock has traded on the NASDAQ
National Market (Ticker Symbol: SEMX). Prior thereto, the Company's Common Stock
was traded on the American Stock Exchange (Ticker Symbol: SEM).

      The prices of the Company's Common Stock for each quarter during 1998 and
1997 were as follows:

<TABLE>
<CAPTION>
                                        1998                        1997
                                  ----------------            -----------------

                                  High         Low            High          Low
                                  ----         ---            ----          ---
<S>                               <C>          <C>           <C>           <C> 
1st Quarter ..............        9-1/2        7-1/4         12-1/4        7-5/8
2nd Quarter ..............        8-1/2        5             10-1/8        7
3rd Quarter ..............        6-1/2        2-1/8         14-1/2        8-1/2
4th Quarter ..............        4-7/8        2-1/16        14-1/2        6-7/8
</TABLE>

As of April 9, 1999 (the "record date") there were approximately 101 holders of
record of the Company's Common Stock and approximately 3,700 beneficial holders.
On March 31, 1999, the high and low bid price of the common stock was $1.875 and
$1.625 per share, respectively. The Company paid no dividends on its Common
Stock in 1998 or 1997.

<PAGE>


Item 6  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                             Year Ended December 31,
(Dollar amounts in thousands;    -----------------------------------------------
per share amounts in dollars)    1994     1995      1996      1997       1998

Operating Data:

<S>                            <C>       <C>       <C>       <C>       <C>     
  Revenue                      $16,485   $28,064   $46,027   $71,076   $ 65,903
  
  Net income (loss)            $   736   $ 2,526   $ 3,805   $ 3,793   ($11,958)

Amounts Per Common Share:

  Basic                        $   .25   $   .53   $   .64   $   .62   ($  1.98)
  
  Diluted                      $   .21   $   .50   $   .62   $   .61   ($  1.98)
  
  Weighted average number
  of common and common
  equivalent shares:
  
  Basic                          2,965     4,784     5,968     6,070      6,054
  
  Diluted                        3,498     5,064     6,170     6,232      6,054
  
  
  Dividends declared           $     0   $     0   $     0   $     0   $      0
  

Balance Sheet Data:

  Working capital (deficiency) $   789   $ 9,175   $10,947   $ 9,486   ($14,064)
  
  Total assets                 $24,929   $36,071   $56,489   $91,865   $ 82,324
  
  Long-term obligations
  excluding current portion    $10,475   $ 2,863   $12,432   $32,717   $ 13,055
  
  Shareholders' equity         $ 7,706   $29,261   $33,940   $37,458   $ 25,371
</TABLE>

(1)   Financial data presented includes the results of the following
      acquisitions: American Silicon Products in December 1994, Retconn in
      January 1996, Silicon Materials Service in January 1997 and S.T.
      Electronics in July 1997. For details relating to these acquisitions
      please reference the Management Discussion and Analysis, Liquidity and
      Capital Resources sections.

(2)   Financial data presented for 1998 includes special charges. For details
      please reference the Management Discussion and Analysis section.

(3)   Amounts per common share for the years ended prior to December 31, 1997
      have been restated to conform to the provisions of Statement of Financial
      Accounting Standards No. 128, Earnings per Share, which was adopted during
      the fourth quarter of 1997.
<PAGE>

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

The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:

<TABLE>
<CAPTION>
Fiscal Year Ended
December 31                                     1998          1997         1996
                                               ------        ------       ------
<S>                                             <C>           <C>          <C>  
Net Sales                                       100.0         100.0        100.0
Cost of Sales                                    80.6          71.3         66.7
Gross Profit                                     19.4          28.7         33.3
Selling, General and
  Administrative Expenses                        24.0          16.9         17.8
Operating Income                                (21.6)         11.8         15.4
Interest Expense (Net)                            5.3           3.7          2.0
Income (Loss)
  before Income Taxes                           (26.9)          8.1         13.4
Provision  (Credit)
  for Income Taxes                               (8.3)          3.1          5.3
Net Income (Loss)                               (18.1)          5.3          8.3
</TABLE>

RESULTS OF OPERATIONS (1998 compared to 1997)

Total revenue for 1998 decreased $5,173,000, or 7.3%, from the comparable 1997
period.

Sales by the Company's Materials Group for the year ended December 31, 1998
decreased $505,000, or 1.1% from the 1997 period. The Materials Group includes
the Company's SPM, Polese and Retconn business units. The sales decline was
primarily due to a $2,003,000, or 10.8% decrease at Polese, offset by an
increase of $1,529,000, or 9.3% at Retconn. 1998 Retconn sales included a full
years revenue from S.T. Electronics, Inc., which was acquired in July 30, 1997.
Sales at SPM were slightly down from 1997 levels. In 1998, the sales decrease at
Polese was primarily due to a downturn in sales of heat dissipation products as
they relate to the communications and computer related marketplaces.

Service revenue from the Company's Service Group for the year ended December 31,
1998 decreased $4,668,000 or 20.3% from the 1997 period. The Service Group
includes the Company's American Silicon Products "(ASP)" and International
Silicon Products Pte. Ltd. ("ISP") business units. The 1998 decrease included a
$5,860,000, or 26.3% decrease in revenue at ASP's U.S. and European operations,
which was partially offset by increased revenue of $1,192,000 from ISP. The
Services Group revenue decrease was the result of a slowdown in the demand for
reclaimed wafers and pricing pressures caused by a downturn in the semiconductor
industry.

Direct sales of the Company's products into foreign markets accounted for 15% of
consolidated revenue for the years ended December 31, 1998 and 1997. The Company
currently maintains foreign manufacturing operations in the Netherlands ("ASP
B.V."), in Morocco, Semiconductor Materials S.A. R. L. ("S.A.R.L."), and in
Singapore, International Silicon Products Pte. Ltd. ("ISP"). In the year ended
December 31, 1998 and 1997, the Company derived revenue from ASP B.V. of
$3,230,000 and $3,168,000 respectively, revenue from S.A.R.L. of $192,000 and $0
respectively, and revenue from ISP of $1,936,000 and $744,000, respectively.
Foreign sales made through the Company's domestic operations are made through
foreign manufacturer's representatives and are priced and paid for both in local
currencies and in U.S. dollars. Sales for ASP B.V., S.A.R.L. and ISP are
conducted in the local currencies of Dutch Guilders, Dirhams, and Singapore
Dollars respectively and account for 8 % and 6 % of the consolidated revenue for
the years ended December 31, 1998 and 1997, respectively.

The Company's consolidated backlog as of December 31, 1998 was $18,699,000. This
compares to consolidated backlog of $20,643,000 at December 31, 1997. The
$1,944,000 decrease, which includes a $594,000 decrease in the backlog of
Retconn which was sold in February 1999, was primarily the result of $200,000
and $2,334,000 decreases at Polese and ASP, respectively. These decreases were
partially offset by a $1,204,000 increase in the backlog of SPM. The decrease at
Polese was the result of a significant decrease in order levels by a customer
servicing the communication related industry. In 1999, Polese has seen a
significant increase in its backlog from December 1998 levels primarily from
increased order inflow from its communications, computer and recreational
products customers and has recently seen an increase in order levels from the
customer which had decreased order levels in 1998. While ASP's backlog has
recently improved, it still remains at depressed levels due to the continuing
slowdown in the semiconductor industry.

Gross profit for 1998 decreased $7,599,000, or 37.3% from the comparable 1997
period. In the Materials Group, the decrease was primarily due to a $3,756,000,
or 78.6% decrease at Polese, a $452,000, or 8.4% decrease at Retconn and a
$1,156,000, or 24.3% decrease at SPM. During the fourth quarter of 1998 the
Company's Materials Group adjusted the carrying value of its inventories in
response to changing semiconductor and microelectronic market conditions and
realized charges of $1,267,000 to cost of sales to record provisions for excess
and obsolete inventory. Materials Group gross profit in 1998 reflected the
decreased sales levels as well as provisions for excess and obsolete inventory.
In the Services Group, ASP's gross profit decreased $2,711,000, or 46.5% 


<PAGE>

during 1998 as a result of decreased sales and pricing pressures. Gross profit
declines during 1998 at ASP were partially offset by an increase in gross profit
of $414,000 at ISP. Gross margin in the Materials Group decreased to 20.1% in
the 1998 period from 30.9% in the 1997 period. As a result of the foregoing,
consolidated gross margin for the Company decreased to 19.4% in 1998 from 28.7%
in the 1997 period

Selling, general and administrative ("SG&A") expenses in 1998, excluding
$11,217,000 of special charges, increased $3,796,000, or 31.7% over the 1997
period. The increase was primarily due to increased legal fees, corporate staff,
and infrastructure additions at the operational level in sales and research and
development. SG&A expenses as a percentage of revenue, excluding special
charges, increased to 24% in the 1998 period from 17% in the 1997 period.

In 1998, the Company recorded special charges of $11,217,000, the majority of
which relate to a review of the carrying values of the Company's Service Group
Assets and the closing of a Service Group plant. During the first quarter of
1998, the Company recorded a charge of $1,950,000 in conjunction with a
restructuring of the Service Group that included closing its Texas operation and
consolidating domestic business and equipment into the Group's Rhode Island
facility. As a result of the Services Group's inability to achieve the
improvements anticipated by the restructuring plan, primarily due to a more
severe than anticipated market decline, the division continued operating at a
loss in 1998. This triggered an impairment and utilization review of the
Services Group's long lived assets. The review identified approximately
$4,700,000 of excess Services Group equipment that was written down to estimated
fair value, less cost of disposal. In addition the Company wrote down
approximately $2,700,000 of Goodwill associated with certain Texas facility
customers and lines of business that have been eliminated. Due to continuing
financial problems of the Service Groups 51% owned Singapore operation, the
Company recorded an asset impairment of $1,000,000 in response to uncertainty
regarding the ultimate recoverability of its investment.

The Company's Material's Group recorded a Special charge of $620,000 in the
fourth quarter consisting of a write down of $473,000 in goodwill associated
with a line of business that has been eliminated and the write down of $147,000
of surplus equipment.

Net interest expense for the 1998 period increased $874,000 from the 1997 period
primarily due to increased interest costs associated with debt incurred with the
SMS and ST acquisitions, the ISP startup and increased capital lease
obligations.

A credit of $5,500,000 for income taxes was recorded for the 1998 period as
compared to a $2,214,000 provision in the 1997 period. In the 1998 period, the
Company received a tax credit at an effective rate of (31%) as compared to an
effective tax rate of 38% in the comparable 1997 period. The 1998 losses have
generated Net Operating Loss ("NOL") carryforwards for income tax purposes,
which are available to offset future taxable income.

Excluding $1,000,000 in special charges, the Company has included a $740,000
loss before income taxes and minority interest, as compared to $677,000 in the
1997 period, associated with ISP in its income before minority interest in loss
of consolidated subsidiary. The Company has a 50.1% interest in the joint
venture and has accordingly excluded $244,000, net of tax, as compared to
$223,000 in 1997, or 49.9% of such loss from its consolidated net income.

As a result of the foregoing, the net losses for 1998 amounted to $11,958,000 as
opposed to net income of $3,793,000 in 1997. In 1998, as a result of the above
and special charges taken during the year, all of the Company's operations
sustained a loss except for Retconn.


RESULTS OF OPERATIONS (1997 compared to 1996)

Total revenue for 1997 increased $25,049,000, or 54%, over the comparable 1996
period. Sales by the Company's Materials Group increased $14,889,000 or 45% over
the 1996 period. The sales growth was due to a $8,704,000, or 89% increase at
Polese Company, an increase of $5,276,000, or 48% at Retconn, which includes
revenue of $1,944,000 from S.T. Electronics, Inc., which was acquired on July
30, 1997 and in increase at the parent company of $909,000 or 7% from prior year
levels. In 1997, the sales increase in the Materials Group was primarily due to
increased sales to the growing communications and computer marketplace. Service
revenue generated by the Company's Service Group increased $10,160,000 or 79%
over the comparable period. This increase included a $9,416,000, or 73% increase
in revenue at ASP, which includes revenue of $10,451,000 from the January 23,
1997 acquisition of Silicon Materials Service and Silicon Materials Service,
B.V. and revenue of $744,000 from International Semiconductor Products Pte Ltd.
While revenues increased in the 1997 period, the Services Group revenue growth
has been impacted by the slowdown in the semiconductor industry. For 1997 and
1996, direct sales of the Company's products into foreign markets accounted for
slightly less than 15% and 10%, respectively, of consolidated revenue. The
Company currently maintains foreign manufacturing operations in Singapore and in
the Netherlands. In 1997, the Company derived $3,912,000 or 6% of its
consolidated revenue from its foreign manufacturing operations. Foreign sales
are made through sixteen foreign manufacturer's representatives and are priced
and paid for in both local currencies (Dutch Florins and Singapore Dollars)and
in US Dollars. The Company believes that its revenue has been, and 


<PAGE>

will be, affected by the cyclical nature of the industries it serves. The SMS
acquisition, and the Company's joint venture in Singapore, further increases the
Company's reliance on the semiconductor industry. During the 1997 period, the
Company has not experienced any significant impact on revenue or earnings from
the economic instability being experienced in Asia.

Gross profit for 1997 increased $5,067,000, or 33%, from the comparable 1996
period. In the Materials Group, the increase was primarily due to a $2,738,000,
or 133% increase at Polese, gross profit of $2,051,000, or 63% increase at
Retconn and a $468,000, or 11% increase at SPM. In the Services Group, ASP's
gross profit increased $104,000, or 2% and ISP had a gross profit loss of
($293,000). While gross margin in the Materials Group increased to 31% in the
1997 period from 29% in the 1996 period, consolidated gross margin for the
Company decreased to 29% in 1997 from 33% in the comparable 1996 period. The
decrease in consolidated gross margin was caused by a decrease in the Services
Group gross margin which decreased from 44% in the 1996 period to 24% in the
1997 period, due to the acquisition of SMS, which has gross margins
significantly below those of ASP, a gross profit loss at ISP and increased
depreciation and manufacturing costs at ASP's Rhode Island operation.

Selling, general and administrative ("SG&A") expenses in 1997 increased
$3,789,000, or 46% over the comparable 1996 period. The increase was primarily
due to the inclusion of $1,344,000 of SMS's SG&A costs with the Company's and
the increase in the sales and marketing activities throughout the Company. The
Company's 1997 SG&A expenses also include $265,000 of expenses generated by its
Singapore joint venture. SG&A expenses as a percentage of revenue decreased to
17% in the 1997 period from 18% in the comparable 1996 period.

Net interest expense for the 1997 period increased $1,681,000 from the
comparable 1996 period primarily due to increased interest costs associated with
debt incurred with the SMS and ST acquisitions, the ISP startup and increased
capital lease obligations.

A provision of $2,214,000 for income taxes has been made for the 1997 period as
compared to a $2,445,000 provision in the comparable 1996 period. In the 1997
period, the Company's earnings were taxed at an effective tax rate of 38% as
compared to an effective tax rate of 40% in the comparable 1996 period.

In the 1997 period, the Company has included a $677,000 loss before income taxes
and minority interest, as compared to $128,000 in the 1996 period, associated
with its Singapore joint venture in its income before minority interest in loss
of consolidated subsidiary. The Company has a 50.1% interest in the joint
venture and has accordingly excluded $223,000, net of tax, as compared to
$64,000 in 1996, or 49.9% of such loss from its consolidated net income.

As a result of the foregoing, net income decreased $13,000 in 1997 from the
comparable 1996 period. In 1997, all of the Company's operations were profitable
except for ISP.

Year 2000

The year 2000 problem arises since many computer programs and some pieces of
computer hardware manipulate and store dates as a two-digit field and are unable
to recognize dates past December 31, 1999.

The Company has completed its initial assessment of the systems and software at
all of its operations, including external interfaces with critical suppliers and
customers. The Company is in the process of replacing non-compliant hardware,
installing new manufacturing enterprise computer software systems at SPM and
installing software upgrades that are year 2000 compliant at its other
locations. The Company expects to complete the installation and testing of these
new systems and upgrades by the end of 1999. Outside suppliers, and customers
have been contacted and requested to complete the Company's assessment
questionnaire. The Company has completed its review of all of the assessment
questionnaires received and is re-contacting third parties who have not
responded to date.

The Company has expended approximately $300,000 to date and estimates that the
remaining incremental cost of addressing the potential Year 2000 problem beyond
those expenditures already incurred will be less than $250,000 based upon the
information assembled to date.

In the event that the company's internal software project is not completed, the
Company anticipates that the existing systems could continue functioning without
undue business interruption while the new software installation and testing is
completed. Failure of the Company to achieve year 2000 compliance is not
anticipated to have a material adverse impact on the operations of the Company.
The Company can not predict the potential effect of third parties "Year 2000"
issues on its business for those third parties that either do not complete their
own Year 2000 compliance or do not respond to the Company's assessment
questionnaire in a timely manner.


<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

General

To support the Company's growth the Company has historically made significant
capital expenditures to support its facilities and manufacturing processes as
well as working capital needs. The Company has financed its capital needs
through cash flow from operations, its line of credit facility, term loans from
the Bank, other bank financing including gold consignment supply agreements, and
capital leases. The Company has Bank short term debt maturities, standby letter
of credit maturities, gold consignment agreements and debt service requirements
which are presently deferred until June 30, 1999 under a limited forbearance
agreement with its banks. The Company completed the sale of its Retconn business
on February 19, 1999 and repaid $22,191,000 of existing Bank debt. The Company
is pursuing several additional courses of action to address its remaining Bank
debt service, gold consignment supply needs and refinancing needs.

Summary of 1998 Activity

At December 31, 1998, the Company had cash and cash equivalents of $1,141,000
and an available balance on its revolving credit facility of $200,000 as
compared to $2,260,000 and $4,525,000 respectively at December 31, 1997.

Net cash provided by operating activities in 1998 amounted to $872,000 as
compared to $3,063,000 in the comparable 1997 period. Cash provided by
operations decreased compared to 1997 principally as a result of 1998 losses
before non cash special charges and due to a dimunition in its working capital.
While the Company significantly decreased its trade receivables and inventory
levels in 1998, such decreases did not offset the more significant use of cash
for reductions in its trade payables. The increase in the deferred tax assets is
due to net operating loss carryforwards generated by the 1998 losses, which are
available for utilization in 1999, and future years to offset future taxable
income.

To support the Company's facilities and productive processes, in 1998 and 1997,
the Company invested $3,063,000 and $13,119,000, respectively, in property and
equipment. This investment excludes $3,078,000 and $4,271,000, respectively, in
the 1998 and 1997 periods for equipment acquired under capital leases. Capital
expenditures in 1997 included approximately $7,400,000 in machinery and
equipment purchased for a new wafer reclaim facility in Singapore and
approximately $996,000 for purchase of a formerly leased facility in the
Netherlands. The majority of capital lease arrangements which the Company has
entered into have lease terms of five years and provide for a bargain purchase
when the lease term expires. At December 31, 1998, the Company had capital
commitments of approximately $1,121,000 for the ongoing upgrade of the Company's
manufacturing equipment. The Company believes that the lease financing available
to it for certain equipment together with cash flow from operations will be
sufficient to fund its capital needs.

Net Cash provided by financing activities amounted to $916,000 in 1998 as
compared to $21,469,000 during 1997. During 1998, the Company's borrowings
included $1,000,000 under a interim term facility, $4,925,000 under its Bank
revolving line of credit and $690,000 from an overseas bank. Debt repayments
during 1998 of $3,371,000 include $2,450,000 in Bank term debt, $521,000 in
notes payable and $400,000 in mortgages and other debt. In addition, the Company
made payments of $2,222,000 under capital leases obligations. During 1998, the
Company also repurchased 34,600 of its shares to be held in treasury, at a cost
of $212,000.

Factors Affecting Future Liquidity

In January 1997, the Company entered into a $21,000,000 five-year term loan
("Term Loan") with First Union Bank and Fleet National Bank (collectively the
"Bank"). Pursuant to the Term Loan agreements and Interim Term Loan agreements,
as amended, the Bank has a first priority security interest in substantially all
of the Company's assets. The loan agreements provide, among other things, that
the Company maintains certain financial ratios. The Company is also subject to
restrictions relating to incurring additional indebtedness, additional liens and
security interests, capital expenditures and the payment of dividends. Under a
limited forbearance agreement, as amended, the Bank extended a previous waiver
of the Term Loan's financial ratio covenants, agreed to waive principal payments
of $350,000 per month from August 1, 1998 forward and set the maturity of the
Term Loan at June 30, 1999.

In January 1997, the Company entered into a $15,000,000 line of credit with the
Bank that originally expired in February 1999. As part of the limited
Forbearance Agreement, as amended, the Bank extended the maturity to June 30,
1999. This credit line includes a standby letter of credit for ISP in the amount
of approximately $3,000,000. Interest is payable monthly at the lower of the
Bank's loan pricing rate or a Eurodollar rate plus 2.25%. The line of credit is
collateralized by substantially all of the company's assets and provides for
limited availability based upon the eligible percentages of the Company's
receivables and inventory. The line of credit, as amended, is subject to the
same restrictions and financial covenants governing the Term Loan and Interim
Term Loan. As of December 31, 1998 and January 30, 1999 the Company was in
technical default of certain financial ratio covenants. The Company is
continuing to have discussions with the Bank concerning the waiver of the
technical default and was in compliance with its financial ratio covenants in
February 1999 and continues to make monthly interest payments.
<PAGE>

On June 19, 1998 the Company entered into a 90-day note for $1,000,000 ("Interim
Term Loan") with the Bank to supplement the Company's working capital
requirements. The Interim Term Loan note provided for the payment of interest
monthly and for the repayment of principal on October 1, 1998. As part of the
limited Forbearance Agreement, as amended, the Bank extended the maturity to
June 30, 1999. As of December 31, 1998 and January 30, 1999 the Company was in
technical default of certain financial ratio covenants. The Company is
continuing to have discussions with the Bank concerning the waiver of the
technical default and was in compliance with its financial ratio covenants in
February 1999 and continues to make monthly interest payments.

In December 1996, the Company entered into a consignment agreement (the "Gold
Consignment Agreement") with Fleet Precious Metals ("FPM") which expired
December 23, 1998. As part of the limited Forbearance Agreement, as amended, the
Bank extended the maturity to June 30, 1999. Under the Gold Consignment
Agreement, the Company purchases gold used in its manufacturing of materials.
The Gold Consignment Agreement provides for gold on consignment not to exceed
the lesser of 5,000 troy ounces of gold or gold having a market value of
$1,870,000. The Gold Consignment Agreement requires the Company to pay a
consignment fee of 5.0 % per annum based upon the value of all gold consigned to
the Company. The Company is currently in discussions with FPM and other lenders
to extend and/or negotiate a new agreement.


The limited Forbearance Agreement discussed, herein, was originally signed in
August 1998 and later amended in 1998 and early 1999. The Forbearance Agreement,
as amended, waived Term Loan principal payments of $350,000 per month from
August 1 forward, extended a previous waiver of financial ratio covenants, set
the Term Loan maturity date to June 30, 1999 and also extended the maturity of
the Interim Term Loan, the Revolving Credit Agreement, the standby letter of
credit and the Gold Consignment agreement to June 30, 1999. The Company is
pursuing a number of courses of action to restructure or refinance its existing
debt and Gold Consignment agreement. These include continuing negotiations with
the current lenders, discussions with other prospective lenders and
investigation of the sale of one or more of its subsidiaries as a means of
paying its debt obligations. On February 19, 1999, the Company sold its Retconn
business and used $22,191,000 of the cash proceeds to repay $15,050,000 of bank
term debt and $7,141,000 of line of credit borrowings. Although the Company
believes that it is presently meeting all of the Bank's covenants, as amended,
and is paying interest as due on its obligations, there is no assurance that the
Company will be able to successfully renegotiate the terms of its existing
credit/consignment agreements and/or negotiate new financing arrangements and/or
realize cash through the sale of one or more of its subsidiaries. Failure to
achieve the necessary financing could have a material adverse effect on the
Company.

The Company's 50.1% owned Singapore operation ("ISP") is currently in
discussions with its bank and may not be able to meet its financing obligations
through cash flow from operations without a change in its existing arrangements.
In May 1998, the Company invested an additional $385,000 in ISP in the form of a
redeemable convertible bond. The Company and ISP are pursuing a number of
courses of action designed to provide future capital resources including
discussions with its ISP's lenders to obtain principal repayment forbearance as
well as discussions with other investors who would provide a new source of
equity capital. There is no assurance that ISP will be able to successfully
renegotiate the terms of its existing credit agreements and/or realize cash
through an equity investor. Failure to achieve the necessary financing would
have a material adverse effect on ISP. In addition, ISP's bank could draw down
the S$5,000,000 (approximately $3,000,000 at December 31, 1998) standby letter
of credit provided by the Company's Bank. There is no assurance that the Company
would have the resources available to repay the Bank immediately as required by
the Company's Bank agreement in which case an event of default would exist.
Failure to repay the drawn Letter of Credit would have a material adverse effect
on the Company.

In conjunction with the Company's acquisition of Polese Company on May 27, 1993,
the Company acquired from Frank J. Polese, the former sole shareholder of Polese
Company, all of the rights, including a subsequently issued patent, for certain
powdered metal technology and its application to the electronics industry. For a
period of ten years, Mr. Polese has the right to receive 10% of (i) the pre-tax
profit from the copper tungsten product line, after allocating operating costs
and (ii) the proceeds of the sale, if any, by the Company of the powdered metal
technology. Through December 31, 1998, no amounts have been charged to
operations pursuant to this agreement

On December 18, 1997, the Board of Directors authorized the Company to
repurchase up to $2,000,000 of SEMX common stock on the open market. Repurchased
shares will be held as Treasury shares and may be reissued in the future or may
be reissued pursuant to the Company's stock option programs. As of December 31,
1998, the Company had repurchased 34,600 of its shares.

The Company continually seeks to broaden its product lines by various means,
including through acquisitions. The Company intends to pursue only those
acquisitions for which it will be able to arrange the necessary financing by
means of the issuance of additional equity, the use of its cash or, through bank
or other debt financing. The Company is uncertain that without a restructuring
or refinancing of Bank Debt, its working capital and internally generated funds
and other sources of financing will be sufficient to satisfy the Company's
currently anticipated cash requirements on both a short-term and long-term
basis.
<PAGE>

Forward Looking Statements

Except for historical information contained herein, this Form 10-K contains
forward looking statements which are based on the Company's current expectations
and assumptions. Various factors could cause actual results to differ materially
from those set forth in such statements. These factors include, but are not
limited to, the availability of continuing credit from the Company's banks,
general economic conditions, increased competition, changes in government
regulations, dependence on critical suppliers, increased operating costs, the
cyclical nature of the semiconductor and microelectronics industries and the
impact of the instability currently being experienced in Asia on the U.S.
economy.

Item 7(a) Quantitative and Qualitative Disclosure About Market Risk

Not applicable.


Item  8.  Financial Statements.

The Company's consolidated financial statements are set for herein in Part IV
beginning at Page F-1.


Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.


                                    PART III

Item 10, 11, 12 and 13. Directors and Executive Officers of the Registrant,
Executive Compensation, Security Ownership of Certain Beneficial Owners and
Management, and Certain Relationships and Related Transactions.

      The information required by these Items is omitted because the Company
will file a definitive proxy statement pursuant to Regulation 14A with the
Commission, not later than 120 days after the end of the fiscal year, which
information is herein incorporated by reference as if set out in full.

                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      The following is an index of the financial statements of the Company which
are incorporated herein.


(a) (1) Financial Statements:

        Report of Independent Auditors                                F-2
        
        Consolidated Balance Sheet as of December 31, 1997 and 1998   F-3
        
        Consolidated Statement of Income for the Years
        Ended December 31, 1996, 1997 and 1998                        F-4
        
        Consolidated Statement of Shareholders' Equity for the Years
        Ended December 31, 1996, 1997 and 1998                        F-5
        
        Consolidated Statement of Cash Flows for the Years
        Ended December 31, 1996, 1997 and 1998                        F-6
        
        Notes to Consolidated Financial Statements                    F-7 - F-22
      

<PAGE>

(a) (2) Financial Statement Schedules:

        All schedules have been omitted because of the absence of conditions
        under which they are required or because the required information is
        given in the above financial statements or the notes thereto
        included in this report.


(b)     Reports on Form 8-K

        No form 8-K reports have been filed by the Registrant during the
        last quarter of the period covered by this Report.

(a) (3) Exhibits:

3.1         Certificate of Incorporation of the Company (1)

3.2         Amendment to Certificate of Incorporation (1)

3.3         Bylaws of the Company (1)

4.1(a)      Underwriter's Warrant Agreement, dated as of December 20 , 1991,
            between the Company and the Underwriter (2)

4.1(b)      Amendment No. 1 to the Underwriter's Warrant Agreement, dated as of
            April 27, 1993 (6)

10.1        Gold Lease Agreement between the Company and Republic National Bank
            of New York dated May 17, 1989 (1)

10.3(a)     Amended and Restated Non-Competition Agreement by and between the
            Company and Rudolf Hanau and dated as of May 23, 1990 (1)

10.3(b)     Amended and Restated Non-Competition Agreement by and between the
            Company and Richard Gordon and dated as of May 23, 1990 (1)

10.5(a)     Termination Agreement between the Company and Rudolf Hanau dated
            October 30, 1991 (1)

10.5(b)     Termination Agreement between the Company and Richard Gordon dated
            October 30, 1991 (1)

10.6        Employment Agreement between the Company and Richard Gordon dated
            October 30, 1991 (1)

10.7        Employment Agreement between the Company and Rudolf Hanau dated
            October 30, 1991 (1)

10.8        Non-Competition Agreement between the Company and Richard Gordon
            dated as of November 30, 1988 (3)

10.9        Non-Competition Agreement between the Company and Rudolf Hanau
            dated as of November 30, 1988 (3)

10.10(a)    Company's Employee Stock Option Plan (4)

10.10(b)    Company's Amended Employee Stock Option Plan (6)

10.12(a)    Stock Purchase Agreement dated April 30, 1993 by and between
            Registrant and Frank J. Polese (5)

10.12(b)    Asset Purchase Agreement dated April 30, 1993 by and between the
            Registrant and Frank J. Polese (5)
<PAGE>

10.13(a)    Term Loan and Security Agreement dated May 27, 1993, between the
            Registrant and Union Trust Company (5)

10.13(c)    Promissory Note dated May 27, 1993 from the Registrant to Union
            Trust Company (5)

10.13(d)    Guaranty and Security Agreement between Polese Company, Inc. and
            Union Trust Company (5)

10.15       Lease Agreement dated as of October 22, 1993 between Transamerica
            Occidental Life Insurance Company and Polese Company, Inc. (6)

10.16       Form of Warrant Agreement between the Company, Continental Stock
            Transfer & Trust Company and Sands Brother & Co., Ltd. (6)

10.17       Form of Agreement to Contribute Redeemable Warrants to Company. (6)

10.18       Promissory Note dated May 27,1993 payable to Frank J. Polese. (6)

10.19       Documents related to Secured Loan from Union Trust Company dated
            December 16, 1993

            (a)   Loan and Security Agreement (6)

            (b)   Promissory Note (6)

            (c)   Subordination and Intercreditor Agreement (6)

            (d)   Guaranty and Security Agreement (6)

            (e)   Loan Modification Agreement to Loan and Security Agreement
                  dated May 27, 1993 (6)

            (f)   Assignment of Patents (6)

10.20       Documents related to Revolving Loan Agreement from Union Trust
            Company dated June 16, 1994

            (a)   Revolving Credit Agreement (8)

            (b)   Revolving Credit Note (8)

            (c)   Subordination and Pledge Agreement (8)

            (d)   Guaranty and Security Agreement of Parent (8)

            (e)   Guaranty and Suretyship Agreement of Polese Company, Inc. (8)

            (f)   Assignment of Patents (8)

10.21       Loan Modification Agreement dated November 23, 1994 to Revolving
            Credit Agreement between the Registrant and Union Trust Company (8)

10.22       Form of Modification of Gold Lease Agreement between the Registrant
            and Republic National Bank of New York dated December 6, 1994 (8)

10.23(a)    Employment Agreement dated as of December 15, 1994 between the
            Company and Gilbert D. Raker (8)
<PAGE>

10.23(b)    Modification of Employment Agreement dated as of December 15, 1994
            between Polese Company, Inc and Frank J. Polese (8)

10.23(c)    Employment Agreement dated as of December 15, 1994 between the
            Company and Kenneth J. Huth (8)

10.23(d)    Employment Agreement dated as of December 15, 1994 between the
            Company and Andrew A. Lozyniak (8)

10.24       Lease Extension Agreement dated December 1, 1994 between the Company
            and R&R Associates (8)

10.25       Lease Agreement dated as of June 1, 1994 between Nobbs Family Trust
            and Polese Company, Inc. (8)

10.26       Lease Agreement dated as of January 1, 1995 between W. Ralph Byrne
            and American Silicon Products, Inc. (8)

10.27       Lease Agreement dated as of January 19, 1995 between Thomas A.
            Langton and David T. Kearns, Jr. d/b/a Alak Associates, and American
            Silicon Products, Inc. (8)

10.28       Documents related to the ASAC merger and the acquisition of the
            assets of American Silicon Products, Inc., a Rhode Island
            corporation

            (a)   Asset Purchase Agreement dated as of September 28, 1994, as
                  amended, among Peter Vessella, ASPI and ASAC. (7)

            (b)   Merger Agreement dated as of November 18, 1994 by and among
                  the Registrant, Newco, ASAC and the stockholders of ASAC. (7)

            (c)   Consulting Agreement dated as of December 15, 1994 by and
                  between the Registrant and Peter J. Hurley. (7)

            (d)   Term Loan Agreement (Bridge Loan) dated December 15, 1994 by
                  and between the Registrant and UTC. (7)

            (e)   Term Loan Agreement dated December 15, 1994 by and between the
                  Registrant and UTC. (7)

            (f)   Promissory Note in the principal amount of $8,250,000, dated
                  December 15, 1994 from the Registrant to UTC. (7)

10.29       Documents related to Revolving Loan Agreement from First Fidelity
            Bank dated December 20, 1995.

            (a)   Revolving Loan and Security Agreement

            (b)   Revolving Promissory Note

10.30       Documents related to Term Loan Agreement from First Union Bank of
            Connecticut dated January 4, 1996.

            (a)   Term Loan Agreement

            (b)   Term Promissory Note

<PAGE>

10.31(a)    Termination Agreement dated as of October 27, 1995 between the
            Company and John P. Holmes, III.


10.31(b)    Termination Agreement dated as of October 27, 1995 between the
            Company and J. Francis Lavelle.

10.31(c)    Termination Agreement dated as of October 27, 1995 between the
            Company and Rolf E. Soderstrom.


10.31(d)    Termination Agreement dated as of October 27, 1995 among the Company
            Peter J. Hurley, Harrison Hurley & Co., Inc and Harrison Hurley &
            Co. II, Inc.

10.49       1994 Amendment to Employees' Incentive Stock Option Plan. (9)

10.50       1995 Amendment to Employees' Incentive Stock Option Plan. (9)

10.51       Commercial Grid Note dated May 31, 1995 in the amount of $1,250,000
            from the Company to Union Trust Company. (9)

10.55       Stock Purchase Agreement dated as of December 20, 1995 by and among
            Retconn Acquisition, Inc. and Daniel A. LeDonne, The Richard C.
            Ashworth 1993 Trust, Richard C. Ashworth individually, William
            S.White and Retconn Incorporated.(10) 

10.56       Employment Agreement dated January 4, 1996 between Retconn
            Incorporated and Daniel A. LeDonne. (10)

10.57       Closing Date Agreement dated January 4, 1996 among Retconn
            Acquisition, Inc., Daniel A. LeDonne, The Richard C. Ashworth 1993
            Trust, Richard C. Ashworth individually, William G. White and
            Retconn Incorporated. (10)

10.58       Joint Venture Agreement dated August 28, 1996 between Semiconductor
            Alliance Pte Ltd., the Company and International Semiconductor
            Products Pte Ltd.(11)

10.59       Intellectual Property License Agreement dated August 28, 1996
            between American Silicon Products, Inc. and International
            Semiconductor Products Pte Ltd.(11)

10.60       Purchase Agreement dated as of January 16, 1997 between American
            Silicon Products, Inc. and Air Products & Chemicals, Inc.(12)

10.61       Credit Agreement dated as of January 23, 1997 between the Company
            and First Union Bank of Connecticut. (12)

10.62       Stock Purchase Agreement dated as of July 30, 1997 by and among
            Retconn Incorporated, Semiconductor Packaging Materials Co., Inc.,
            Niwatana Chaimongkol, Somnuk Thongkumthamachart and S.T.
            Electronics, Inc. (13)

10.63       Fifth Amendment and Forebearance Agreement among SEMX Corporation
            and Subsidiairies and First Union Bank dated as of January 13, 1999

10.64       Asset Purchase Agreement by and among Litton Systems, Inc. and SEMX
            Corporation, Retconn Incorporated, S.T. Electronics, Inc. and
            Retconn SPM (Malaysia) SDN. BHD. Dated as of January 26, 1999 and
            related documents.
<PAGE>

10.65       Sixth Amendment and Forebearance Agreement among SEMX Corporation
            and Subsidiaries and First Union National Bank dated as of February
            19, 1999.

22          List of Subsidiaries of the Company

23.1        The Consent of Goldstein Golub Kessler LLP, the Company's
            independent certified pubic accountants, to incorporation by
            reference to Registration Statement on Form S-8 of their report
            dated February 5, 1999 except for Note 15 as to which the date
            is February 19, 1999.

            (1)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-43640-NY on Form S-18, filed with the
                  Securities and Exchange Commission on November 1, 1991.

            (2)   Incorporated herein by reference to the Company's Annual
                  Report for the year ended December 31, 1991, filed with the
                  Securities and Exchange Commission on March 31, 1992.

            (3)   Incorporated herein by reference to Amendment No. 1 to the
                  Company's Registration Statement No. 33-43640-NY on Form S-18,
                  filed with the Securities and Exchange Commission on December
                  6, 1991.

            (4)   Incorporated herein by reference to Amendment No. 2 to the
                  Company's Registration Statement No. 33-43640-NY on Form S-18,
                  filed with the Securities and Exchange Commission on December
                  20, 1991.

            (5)   Incorporated herein by reference to Current Report on Form 8-K
                  filed with the SEC on June 11, 1993, as amended by Form 8-K/A.

            (6)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-70876 on Form S-3 filed, with the Securities
                  and Exchange on October 28, 1993 and as amended on December
                  30, 1993, January 20, 1994 and February 7, 1994. 

            (7)   Incorporated herein by reference to Current Report on Form 8-K
                  filed with the SEC on December 29, 1994.

            (8)   Incorporated herein by reference to the Company's Annual
                  Report for the year ended December 31, 1995, filed with the
                  SEC for March 31, 1995.

            (9)   Incorporated herein by reference to the Company's Registration
                  Statement No. 33-93502 on Form SB-2 filed, with the Securities
                  and Exchange on June 16, 1995 and as amended on July 19, 1995
                  and July 26, 1995.

            (10)  Incorporated by reference to the Company's Form 8-K filed
                  January 4, 1996.

            (11)  Incorporated by reference to the Company's 10-QSB filed for
                  the quarter ended September 30, 1996.

            (12)  Incorporated by reference to the Company's Form 8-K filed
                  February 4, 1997 and amended by Form 8-K/A.

            (13)  Incorporated by reference to the Company's Annual Report for
                  the year ended December 31, 1997, filed with the Securities
                  and Exchange Commission on March 20, 1998.

<PAGE>

                                   SIGNATURES

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


                                    SEMX CORPORATION                            
                                      (Registrant)
                                    
                                 
                                 By: /s/ Gilbert D. Raker
                                 ---------------------------------
                                    Gilbert D. Raker, Chief Executive
                                    Officer, President, Chairman of the Board of
                                    Directors and Director
                                 

Dated:  April 14, 1999

      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 Company
and in the capacities and on the date indicated.


 /s/ Gilbert D. Raker                                             April 14, 1999
-----------------------------------                              
Gilbert D. Raker, Chief Executive                                
Officer, President, Chairman of                                  
the Board of Directors and Director                              
                                                                 
 /s/ Frank J. Polese                                              April 14, 1999
-----------------------------------                              
Frank J. Polese, Vice Chairman                                   
and Director                                                     
                                                                 
 /s/ Kenneth J. Huth                                              April 14, 1999
-----------------------------------                              
Kenneth J. Huth, Executive Vice                                  
President                                                        

<PAGE>
                                                                 
 /s/ Mark A. Koch                                                 April 14, 1999
-----------------------------------                              
Mark A. Koch,                                                    
Controller and Secretary                                         
Chief Accounting Officer                                         
                                                                 
 /s/ Mark A. Pinto                                                April 14, 1999
-----------------------------------                              
Mark A. Pinto, Director                                          
                                                                 
 /s/ John U. Moorhead, II                                         April 14, 1999
-----------------------------------                              
John U. Moorhead, II, Director                                   
                                                                 
/s/ Andrew  Lozyniak                                              April 14, 1999
-----------------------------------                              
Andrew  Lozyniak, Director                                       
                                                                 
                                                                 
 /s/ Steven B. Sands                                              April 14, 1999
-----------------------------------                              
Steven B. Sands, Director                                        
                                                                 
 /s/ Richard D. Fain                                              April 14, 1999
-----------------------------------                              
Richard D. Fain, Director                  


<PAGE>


                                               SEMX CORPORATION AND SUBSIDIARIES


                                                   INDEX TO FINANCIAL STATEMENTS
================================================================================


<TABLE>
<S>                                                                    <C>
Independent Auditor's Report                                             F-2

Consolidated Balance Sheet as of December 31, 1997 and 1998              F-3

Consolidated Statement of Operations for the Years Ended
 December 31, 1996, 1997 and 1998                                        F-4

Consolidated Statement of Shareholders' Equity for the Years Ended
 December 31, 1996, 1997 and 1998                                        F-5

Consolidated Statement of Cash Flows for the Years Ended
 December 31, 1996, 1997 and 1998                                        F-6

Notes to Consolidated Financial Statements                            F-7 - F-22
</TABLE>

<PAGE>


INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
SEMX Corporation


We have audited the accompanying consolidated balance sheets of SEMX Corporation
and Subsidiaries as of December 31, 1997 and 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. We have also audited the pro
forma consolidated balance sheet which gives effect to the sale of a subsidiary
and the repayment of debt as described in Note 15 to the consolidated financial
statements. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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 SEMX Corporation and
Subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the pro forma balance sheet presents fairly the financial
position of SEMX Corporation and Subsidiaries as it would have appeared at
December 31, 1998 had the transaction described in Note 15 been consummated at
that date.



GOLDSTEIN GOLUB KESSLER LLP
New York, New York

February 5, 1999 except for Note 15 as to
which the date is February 19, 1999


                                                                             F-2
<PAGE>

<TABLE>
<CAPTION>
                                                                                     SEMX CORPORATION AND SUBSIDIARIES
 
                                                                                            CONSOLIDATED BALANCE SHEET
                                                                                                (dollars in thousands)
======================================================================================================================
                                                                                                               1998
----------------------------------------------------------------------------------------------------------------------
December 31,                                                                1997               1998          Pro forma
----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>               <C>      
                                                                                                            (Note 15) 
ASSETS

Current Assets:
  Cash and cash equivalents                                             $  2,260           $  1,141          $     984
  Accounts receivable, less allowance for doubtful
   accounts of $181, $245 and $191, respectively                          10,789              8,007              5,480
  Inventories                                                             12,369             10,447              4,914
  Prepaid expenses and other current assets                                2,079                948                744
  Deferred income tax assets                                                   -              5,643              1,855
----------------------------------------------------------------------------------------------------------------------
      Total current assets                                                27,497             26,186             13,977
----------------------------------------------------------------------------------------------------------------------

Property plant and Equipment - at cost, net of accumulated
 depreciation and amortization of $10,163, $13,974
 and $13,357, respectively                                                42,031             38,352             36,720
----------------------------------------------------------------------------------------------------------------------

Other Assets:
  Goodwill                                                                19,788             15,938              8,981
  Technology rights and intellectual property                              1,077                963                963
  Other                                                                    1,472                885                815
----------------------------------------------------------------------------------------------------------------------
      Total other assets                                                  22,337             17,786             10,759
----------------------------------------------------------------------------------------------------------------------
      Total Assets                                                       $91,865            $82,324            $61,456
======================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                      $  7,322           $  5,262           $  4,164
  Accrued expenses                                                         2,602              2,947              2,544
  Income taxes payable                                                         -                  -              1,028
  Current portion of long-term debt and short-term
   obligations                                                             5,944             29,393              6,739
  Current portion of obligations under capital leases                      2,142              2,648              2,490
----------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                           18,010             40,250             16,965

Deferred Income Tax Liabilities                                            2,143              2,329              2,031

Long-term Debt                                                            26,670              6,657              5,638

Obligations under Capital Leases                                           6,047              6,398              5,710
----------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                   52,870             55,634             30,344
----------------------------------------------------------------------------------------------------------------------

Commitments and Contingency

Minority Interest in Subsidiary                                            1,537              1,319              1,319
----------------------------------------------------------------------------------------------------------------------

Shareholders' Equity:
  Preferred stock - $.10 par value; authorized 1,000,000
   shares, none issued                                                         -                  -                  -
  Common stock - $.10 par value; authorized 20,000,000
   shares, issued 6,375,616 shares                                           638                638                638
  Additional paid-in capital                                              28,199             28,199             28,199
  Accumulated other comprehensive loss                                      (405)              (322)              (322)
  Retained earnings (accumulated deficit)                                  9,026             (2,932)             1,490
----------------------------------------------------------------------------------------------------------------------
                                                                          37,458             25,583             30,005
  Less treasury stock: 300,000, 334,600 and 334,600
   shares, respectively, at cost                                               -               (212)              (212)
----------------------------------------------------------------------------------------------------------------------
      Shareholders' equity                                                37,458             25,371             29,793
----------------------------------------------------------------------------------------------------------------------
      Total Liabilities and Shareholders' Equity                         $91,865            $82,324            $61,456
======================================================================================================================
</TABLE>
                 The accompanying notes are an integral part of these statements

                                                                             F-3
<PAGE>

<TABLE>
<CAPTION>
                                                                                     SEMX CORPORATION AND SUBSIDIARIES

                                                                                  CONSOLIDATED STATEMENT OF OPERATIONS
                                                                               (in thousands except per share amounts)
======================================================================================================================
Year ended December 31,                                                        1996             1997              1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>               <C>    
Revenue:
  Net sales                                                                 $33,140          $48,029           $47,524
  Service revenue                                                            12,887           23,047            18,379
----------------------------------------------------------------------------------------------------------------------
                                                                             46,027           71,076            65,903
----------------------------------------------------------------------------------------------------------------------

Cost of goods sold and services performed:
  Cost of goods sold                                                         23,552           33,185            37,982
  Cost of services performed                                                  7,165           17,514            15,143
----------------------------------------------------------------------------------------------------------------------
                                                                             30,717           50,699            53,125
----------------------------------------------------------------------------------------------------------------------

Gross profit                                                                 15,310           20,377            12,778

Selling, general and administrative expenses                                  8,203           11,992            15,788

Special charges                                                                   -                -            11,217
----------------------------------------------------------------------------------------------------------------------

Operating income (loss)                                                       7,107            8,385           (14,227)

Interest expense - net                                                          920            2,601             3,475
----------------------------------------------------------------------------------------------------------------------

Income (loss) before provision (benefit) for income
 taxes and minority interest in loss of consolidated
 subsidiary                                                                   6,187            5,784           (17,702)

Provision (benefit) for income taxes                                          2,445            2,214            (5,500)
----------------------------------------------------------------------------------------------------------------------

Income (loss) before minority interest in loss of
 consolidated subsidiary                                                      3,742            3,570           (12,202)

Minority interest in loss of consolidated subsidiary                             63              223               244
----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                          $  3,805         $  3,793          $(11,958)
======================================================================================================================

Earnings per common share:
  Basic                                                                    $    .64         $    .62          $  (1.98)
  Diluted                                                                  $    .62         $    .61          $  (1.98)
======================================================================================================================

Shares used in computing earnings per common share:
  Basic                                                                       5,968            6,070             6,054
  Diluted                                                                     6,170            6,232             6,054
======================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements

                                                                             F-4
<PAGE>

<TABLE>
<CAPTION>
                                                                                     SEMX CORPORATION AND SUBSIDIARIES

                                                                        CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                                                                                (dollars in thousands)
===================================================================================================================================
                                                                                                       Accumulated
                                                                                                          Other          Retained
                                                                                    Additional        Comprehensive      Earnings  
                                                               Common Stock           Paid-in            Income        (Accumulated
                                                         Shares        Amount         Capital            (Loss)          Deficit)  
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>           <C>               <C>           <C>         
Balance at January 1, 1996                              6,190,066        $619          $27,214               -         $   1,428   
Net proceeds from exercise of stock warrants                1,200           -                2               -                -    
Proceeds from exercise of stock options                   149,250          15              612               -                -    
Tax benefit related to incentive stock option plan              -           -               97               -                -    
Issuance of common stock                                   15,000           2              145               -                -    
Net income and comprehensive income                             -           -                -               -             3,805   
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996                            6,355,516         636           28,070               -             5,233   
Proceeds from exercise of stock options                    20,100           2              129               -                 -   
Comprehensive income:                                                                                     
  Net income                                                    -           -                -               -             3,793   
  Foreign currency translation adjustment -                                                            
   net of deferred taxes of $385                                -           -                -           $(405)                -   
Total comprehensive income                                                                                                         
-----------------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997                            6,375,616         638           28,199            (405)            9,026   
Proceeds from exercise of stock options                         -           -                -               -                 -   
Comprehensive income (loss):
  Net loss                                                      -           -                -               -           (11,958)
  Foreign currency translation adjustment -
   net of deferred taxes of $85                                 -           -                -              83                 -    
Total comprehensive income                                                                                                     

Purchase of treasury stock                                      -           -                -               -                 -    
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                            6,375,616        $638          $28,199           $(322)        $  (2,932)  
===================================================================================================================================

<CAPTION>

=================================================================================================
                                                     
                                                     
                                                                                         Total
                                                            Treasury Stock           Shareholders'
                                                         Shares        Amount           Equity
-------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>             <C>     
Balance at January 1, 1996                              (300,000)           -            $ 29,261
Net proceeds from exercise of stock warrants                   -            -                   2
Proceeds from exercise of stock options                        -            -                 627
Tax benefit related to incentive stock option plan             -            -                  97
Issuance of common stock                                       -            -                 147
Net income and comprehensive income                            -            -               3,805
-------------------------------------------------------------------------------------------------
                                                                          
Balance at December 31, 1996                            (300,000)           -              33,939
Proceeds from exercise of stock options                        -            -                 131
Comprehensive income:                                                     
  Net income                                                   -            -                   -
  Foreign currency translation adjustment -                               
   net of deferred taxes of $385                               -            -                   -
Total comprehensive income                                                                  3,388
-------------------------------------------------------------------------------------------------
                                                                          
Balance at December 31, 1997                            (300,000)           -              37,458
Proceeds from exercise of stock options                        -            -                   -
Comprehensive income (loss):                                              
  Net loss                                                     -            -                   -
  Foreign currency translation adjustment -                               
   net of deferred taxes of $85                                -            -                   -
Total comprehensive income                                                                (11,875)
                                                                          
Purchase of treasury stock                               (34,600)       $(212)               (212)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1998                            (334,600)       $(212)           $ 25,371
=================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements

                                                                            F-5
<PAGE>

<TABLE>
<CAPTION>
                                                                                     SEMX CORPORATION AND SUBSIDIARIES

                                                                                  CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                (dollars in thousands)
======================================================================================================================
Year ended December 31,                                                           1996             1997           1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>              <C>             <C>      
Cash flows from operating activities:
  Net income (loss)                                                          $   3,805        $   3,793       $(11,958)
  Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
    Write-offs and accrued special charges                                           -                -          9,267
    Gain on sale of property and equipment                                           -              (56)            --
    Depreciation and amortization of property and equipment                      2,240            4,072          5,182
    Other amortization                                                             689              855          1,022
    Deferred income taxes                                                          907            1,058         (5,542)
    Minority interest in subsidiary loss                                           (64)            (223)          (244)
    Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                                  (951)          (3,195)         2,641
      (Increase) decrease in inventories                                        (2,784)          (2,298)         1,994
      (Increase) decrease in prepaid expenses and other current assets            (321)            (322)           539
      Increase (decrease) in accounts payable                                    1,209            3,210         (2,136)
      Increase in accrued expenses                                                 298            1,000            107
      Increase (decrease) in income taxes payable                                1,186           (1,497)            --     
----------------------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                                6,214            6,397            872
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Purchase of property and equipment                                            (7,943)         (13,119)        (3,063)
  Payments for acquisition of subsidiaries, net of cash acquired                (8,111)         (14,939)            --
  Payment for technology rights                                                      -             (400)            --
  Proceeds from sale of property and equipment                                       -              278              -
  Increase in other assets                                                        (277)            (873)           129 
  Investment in joint venture by minority interest (Note 2)                      1,996                -              -
----------------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                                  (14,335)         (29,053)        (2,934)
----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Proceeds from exercise of warrants                                                 2                -              -
  Proceeds from exercise of stock options                                          627              131              -
  Net proceeds under revolving credit                                                -            6,875          4,925
  Payments under capital leases                                                   (937)          (1,617)        (2,222)
  Payments under long-term debt                                                   (721)          (4,263)        (3,371)
  Proceeds from long-term debt                                                   7,760           20,343          1,796
  Purchase of treasury stock                                                         -                -           (212)
  Cash received from equipment financing                                           677                -              -
----------------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                                7,408           21,469            916
----------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash                                                -              (84)            27 
----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                         (713)          (1,271)        (1,119)
Cash and cash equivalents at beginning of year                                   4,244            3,531          2,260
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                     $   3,531        $   2,260      $   1,141
======================================================================================================================

Supplemental disclosures of cash flow information: 
  Cash paid during the year for:
    Interest                                                                 $     935        $   2,654      $   3,623
======================================================================================================================
    Income taxes                                                             $     307        $   2,849      $     285
======================================================================================================================

Supplemental schedule of noncash investing and financing activities:
  Machinery and equipment, net of trade-in, acquired under capital lease     $   3,523        $   4,271      $   3,078
======================================================================================================================
  Issuance of common stock in connection with the acquisition of a
   subsidiary                                                                $     146               --             --
======================================================================================================================
  Accrued amounts relating to acquisition of subsidiary                             --        $     621             --
======================================================================================================================
  Notes payable in connection with the acquisition of a subsidiary                  --        $   2,000             --
======================================================================================================================
</TABLE>

                 The accompanying notes are an integral part of these statements

                                                                            F-6
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

1.   PRINCIPAL                The accompanying consolidated financial statements
     BUSINESS                 include the accounts of SEMX Corporation ("SPM")  
     ACTIVITIES AND           and its wholly owned and majority-owned           
     SUMMARY OF               subsidiaries (collectively the "Company"). All    
     SIGNIFICANT              significant intercompany transactions and balances
     ACCOUNTING               have been eliminated. As further described in Note
     POLICIES:                2, on January 2, 1996, the Company acquired       
                              Retconn Incorporated ("Retconn"). Additionally, as
                              described in Note 2, on August 28, 1996 the       
                              Company established International Semiconductor   
                              Products Pte Ltd. ("ISP"), a joint venture with an
                              unrelated third party. As further described in    
                              Note 2, on January 23, 1997 the Company acquired  
                              certain assets and assumed certain liabilities of 
                              Silicon Materials Service and the common stock of 
                              Silicon Materials Service, B.V. (collectively     
                              "SMS") and on July 30, 1997, the Company acquired
                              S.T. Electronics Inc. ("ST"). The results of
                              operations of Retconn, SMS and ST are included in
                              the Company's consolidated financial statements
                              from the dates of acquisition and the results of
                              operations of ISP are included in the Company's
                              consolidated financial statements from the date of
                              its formation. On February 19, 1999, the Company
                              completed the sale of its Retconn and ST
                              businesses as described in Note 15.

                              The Company primarily provides specialty materials
                              and services to the microelectronic and
                              semiconductor industries and operates in two
                              business segments consisting of the Materials
                              Group and the Services Group. The Materials Group
                              includes the Company's SPM, Polese Company, Inc.
                              ("Polese") and Retconn business units. The
                              Services Group includes the Company's American
                              Silicon Products, Inc. ("ASP") and ISP business
                              units.

                              Revenue from the sale of products is generally
                              recognized at the date of shipment to customers.
                              Service revenue is recognized when the services
                              are performed.

                              The Company considers all investments purchased
                              with an original maturity of three months or less
                              to be cash equivalents.

                              The Company maintains cash in bank accounts which,
                              at times, may exceed federally insured limits. The
                              Company has not experienced any loss on these
                              accounts.

                              The financial position and results of operations
                              of the Company's foreign subsidiaries are measured
                              using local currency as the functional currency.
                              Assets and liabilities of these subsidiaries have
                              been translated at current exchange rates, and
                              related revenue and expenses have been translated
                              at average monthly exchange rates. The aggregate
                              effect of translation adjustments net of deferred
                              taxes is reflected as a separate component of
                              stockholder's equity until there is a sale or
                              liquidation of the underlying foreign investment.

                              Inventories, which consist principally of
                              work-in-process inventory, include raw materials,
                              labor and manufacturing expenses and are stated at
                              the lower of cost, determined by the first-in,
                              first-out method, or market.

                              Deferred income taxes arise from differences in
                              bases between tax reporting and financial
                              reporting (see Note 8).

                              Depreciation and amortization of property and
                              equipment is provided for by the straight-line
                              method over the estimated useful lives of the
                              related assets.

                              The preparation of financial statements in
                              conformity with generally accepted accounting
                              principles requires the use of estimates by
                              management affecting the reported amounts of
                              assets and liabilities and revenue and expenses
                              and the 

                                                                             F-7
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              disclosure of contingent assets and liabilities.
                              Actual results could differ from those estimates.

                              The excess of cost over fair value of net assets
                              acquired (goodwill), amounting to approximately
                              $21,615 and $18,281 at December 31, 1997 and 1998,
                              respectively, is being amortized over periods
                              ranging from 25 to 40 years using the
                              straight-line method (see Note 2). Accumulated
                              amortization at December 31, 1997 and 1998 was
                              approximately $1,827 and $2,343, respectively. The
                              Company reviews the carrying value of goodwill for
                              impairment, periodically or whenever events or
                              changes in circumstances indicate that the amounts
                              may not be recoverable. The review for
                              recoverability includes an estimate by the Company
                              of the future undiscounted cash flows expected to
                              result from the use of the assets acquired and
                              their eventual disposition. An impairment will be
                              recognized if the carrying value of the assets
                              exceeds the estimated future undiscounted cash
                              flows of those assets (see Note 13).

                              Certain technology rights, proprietary rights and
                              intellectual property, amounting to approximately
                              $1,350 and $1,311 at December 31, 1997 and 1998,
                              respectively, are being amortized over periods
                              ranging from 11 to 17 years using the
                              straight-line method. Accumulated amortization at
                              December 31, 1997 and 1998 was approximately $273
                              and $348, respectively.

                              The Company elected to measure compensation cost
                              using APB Opinion No. 25 as is permitted by
                              Statement of Financial Accounting Standards
                              ("SFAS") No. 123, Accounting for Stock-Based
                              Compensation, and has elected to comply with other
                              provisions and the disclosure-only requirements of
                              SFAS No. 123 (see Note 10).

                              Basic earnings per common share is computed using
                              the weighted-average number of shares outstanding.
                              Diluted earnings per common share is computed
                              using the weighted-average number of shares
                              outstanding adjusted for the incremental shares
                              attributed to outstanding options and warrants to
                              purchase common stock. Incremental shares of
                              $201,747 and $162,536 in 1996 and 1997,
                              respectively, were used in the calculation of
                              diluted earnings per common share. No incremental
                              shares were used in the 1998 calculation of
                              diluted earnings per common share since they would
                              have had an antidilutive effect.

                              In 1998, the Company adopted SFAS No. 130,
                              Reporting Comprehensive Income. This statement
                              establishes rules for the reporting of
                              comprehensive income and its components.
                              Comprehensive income consists of net income and
                              foreign currency translation adjustments and is
                              presented in the consolidated statement of
                              shareholders' equity. The adoption of SFAS 130 had
                              no impact on total shareholders' equity.
                              Prior-year financial statements have been
                              reclassified to conform with SFAS 130
                              requirements.

                              The Company does not believe that any recently
                              issued but not yet effective accounting standards
                              will have a material effect on the Company's
                              consolidated financial position, results of
                              operations or cash flows.

                                                                             F-8
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

2.   ACQUISITIONS             In connection with the Company's acquisition of   
     AND INVESTMENTS:         Polese in 1993, for a period of 10 years from the 
                              date of acquisition, the former sole shareholder  
                              of Polese is entitled to receive 10% of (i) the   
                              pretax profit from the Company's copper/tungsten  
                              product line after allocating operating costs, and
                              (ii) the proceeds of the sale, if any, by the     
                              Company of the powdered metal technology. Amounts 
                              due pursuant to this agreement will be charged to 
                              operations as incurred. Through December 31, 1998,
                              no amounts have been charged to operations        
                              pursuant to this agreement.                       
                              
                              Effective January 2, 1996, the Company acquired
                              all of the common stock of Retconn for $5,933 in
                              cash. This business combination was accounted for
                              as a purchase. In addition, the Company incurred
                              approximately $1,132 in costs associated with the
                              acquisition of Retconn, which included the
                              issuance of 15,000 shares of the Company's common
                              stock. The fair value of assets acquired,
                              including approximately $4,696 allocated to
                              goodwill, amounted to approximately $8,033 and
                              liabilities assumed amounted to approximately
                              $968. As described in Note 15, the Company sold
                              its Retconn and ST businesses on February 19,
                              1999.

                              On August 28, 1996, the Company invested $2,004 in
                              ISP, a joint venture located in Singapore, for a
                              50.1% ownership interest. On May 12, 1998 the
                              Company invested an additional $385 as a
                              redeemable convertible bond ("RCB"). The RCB bears
                              interest at the rate of 8% per annum and matures
                              in April 2001. The Company may convert the RCB at
                              any time into ordinary shares of par value S$1.00
                              (Singapore Dollar) at the rate of one ordinary
                              share for every S$3.00 worth of RCB plus accrued
                              interest. The RCB instrument ranks senior to all
                              other existing shareholder loans. If the RCB was
                              converted on December 31, 1998 the Company's
                              ownership interest would have increased to 69%.

                              Effective January 23, 1997, the Company acquired
                              SMS for approximately $10,400 in cash plus the
                              working capital of SMS as of January 23, 1997,
                              approximating $2,572, in a business combination
                              accounted for as a purchase. In addition, the
                              Company incurred approximately $2,000 in costs in
                              connection with the acquisition of SMS. The fair
                              value of assets acquired, including approximately
                              $2,923 allocated to goodwill, which is being
                              amortized over 25 years, amounted to approximately
                              $15,609 and liabilities assumed amounted to
                              approximately $637. SMS provides silicon wafer
                              polishing and reclamation services to the
                              semiconductor industry.

                              On July 30, 1997, the Company acquired ST for
                              $1,000 in cash plus approximately $54 based on
                              ST's closing net worth and $2,000 in
                              interest-bearing notes payable to the former
                              shareholders of ST (see Note 6), in a business
                              combination accounted for as a purchase. In
                              addition, the Company incurred approximately $300
                              in costs associated with the acquisition of ST.
                              The fair value of assets acquired, including
                              approximately $2,788 allocated to goodwill,
                              amounted to approximately $4,231 and liabilities
                              assumed amounted to $877. As described in Note 15,
                              the Company sold its Retconn and ST businesses on
                              February 19, 1999.


                                                                             F-9
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

3. INVENTORIES:               The components of inventories are as follows:

<TABLE>
<CAPTION>
                              December 31,                                                   1997                 1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                        <C>                  <C>     
                              Precious metals                                            $  1,675             $  1,245
                              Nonprecious metals                                           10,694                9,202

                              ----------------------------------------------------------------------------------------
                                                                                          $12,369              $10,447
                              ========================================================================================
</TABLE>

                              The Company has a consignment arrangement with a
                              bank, as described in Note 9, which provides for
                              the leasing of precious metals by the Company. The
                              Company pays for these precious metals based on
                              actual usage.


4. PROPERTY PLANT AND         Property plant and equipment, at cost, consist of 
   EQUIPMENT:                 the following:

<TABLE>
<CAPTION>
                                                                                                            Estimated 
                              December 31,                                      1997          1998         Useful Life
                              ----------------------------------------------------------------------------------------
                              <S>                                          <C>           <C>           <C>
                              Land                                         $     642     $     642
                              Buildings and leasehold improvements             8,051        10,301     1.5 to 39 years
                              Machinery and equipment                         39,131        40,387       3 to 15 years
                              Construction-in-progress                         4,370           996
                              -----------------------------------------------------------------------------------------

                                                                              52,194        52,326
                              Less accumulated depreciation                   10,163        13,974

                              ----------------------------------------------------------------------------------------
                              Property, plant and equipment, net             $42,031       $38,352
                              ========================================================================================
</TABLE>

                              Included in machinery and equipment and
                              construction-in-progress is approximately $44
                              and $200, respectively, of capitalized
                              interest for the year ended December 31, 1997.

                              Included in machinery and equipment are
                              approximately $11,587 at December 31, 1997 and
                              approximately $15,531 at December 31, 1998 of
                              property acquired under capital leases.
                              Amortization of these assets is included in
                              depreciation and amortization expense. Accumulated
                              amortization of these assets amounted to
                              approximately $2,340 and $3,929 at December 31,
                              1997 and 1998, respectively. The property held
                              under these leases is collateral for the related
                              capital lease obligations described in Note 7.

                                                                            F-10
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

5. ACCRUED                    Accrued expenses consist of the following:
   EXPENSES:

<TABLE>
<CAPTION>
                              December 31,                                                   1997                 1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                          <C>                 <C>    
                              Accrued payroll bonuses and vacations                        $1,062              $   801
                              Other (all amounts are less than 5% of
                               total current liabilities)                                   1,540                2,146
                              ----------------------------------------------------------------------------------------
                                                                                           $2,602               $2,947
                              ========================================================================================
</TABLE>

6. LONG-TERM DEBT AND         Long-term debt and short-term obligations consist
   SHORT-TERM OBLIGATIONS:    of the  following: 

<TABLE>
<CAPTION>
                              December 31,                                                   1997                1998
                              ---------------------------------------------------------------------------------------
                              <S>                                                         <C>                  <C>    
                              Term loan (a) (g)                                           $17,500              $16,050
                              Line of credit (b) (g)                                        6,875               11,800
                              Term loan (c) (h)                                             4,041                4,578
                              Term loan (d) (h)                                             1,900                1,482
                              Term loan (e) (h)                                             1,569                1,393
                              Term loan (f) (h)                                                 -                  684
                              Other                                                           729                   63
                              ----------------------------------------------------------------------------------------

                              Total long-term debt and short-term obligations              32,614               36,050
                              Less current maturities                                       5,944               29,393

                              ----------------------------------------------------------------------------------------
                              Long-term debt                                              $26,670             $  6,657
                              ========================================================================================
</TABLE>

                              (a)   In January 1996, in conjunction with the
                                    acquisition of Retconn (see Note 2), the
                                    Company entered into a $6,000 term loan with
                                    a bank (the "Bank"). This loan was
                                    refinanced in January 1997 when, in
                                    conjunction with the acquisition of SMS (see
                                    Note 2), the Company entered into a new
                                    $21,000 term loan with the Bank. The loan
                                    bears interest at the Eurodollar rate (5.6%
                                    at December 31, 1998) plus 2.25% and is
                                    payable in 60 consecutive monthly
                                    installments of $350, plus interest, which
                                    commenced on March 1, 1997. On June 19,
                                    1998, the Company entered into a note for
                                    $1,000 ("Interim Term Loan") with the Bank
                                    to supplement the Company's working capital
                                    requirements. The Interim Term Loan note
                                    provided for the payment of interest monthly
                                    at the Bank's prime rate and for the
                                    repayment of principal on October 1, 1998.

                                    In August 1998, the Bank extended a previous
                                    waiver of the Term Loan's financial ratio
                                    covenants, agreed to waive principal
                                    payments of $350 per month from August 1
                                    through December 31, 1998 and extended the
                                    maturity of the Interim Term Loan (the
                                    "Forbearance Agreement"). In January 1999,
                                    the Bank extended the Forbearance Agreement
                                    through April 1, 1999. On February 19, 1999,
                                    in conjunction with the sale of Retconn and
                                    ST and the repayment of $15,050 of Bank Term
                                    Debt, the Bank extended the Forbearance
                                    Agreement through June 30, 1999. 


                                                                            F-11
<PAGE>
                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================


                              (b)   In January 1997, the Company entered into a
                                    $15,000 line of credit ("Line of Credit")
                                    with the Bank. The Line of Credit originally
                                    was to expire in February 1999 and includes
                                    a standby letter of credit guaranteeing
                                    certain ISP debt in the amount of S$5,000
                                    (approximately $3,000 at December 31, 1998).
                                    Interest is payable monthly at the lower of
                                    the Eurodollar rate plus 2.25% or the Bank's
                                    loan pricing rate (7.75% at December 31,
                                    1998). To support its working capital
                                    requirements and for general corporate
                                    purposes, the Company borrowed $11,800 under
                                    its Line of Credit and did not have any
                                    drawings under the standby letter of credit
                                    at December 31, 1998. The remaining
                                    availability at December 31, 1998 was $200.
                                    In conjunction with the Forbearance
                                    Agreement described above, the Bank extended
                                    the maturity of the Line of Credit through
                                    June 30, 1999. On February 19, 1999, the
                                    Company repaid an amount of $7,141 of
                                    principal outstanding under the Line of
                                    Credit. 

                                    As of December 31, 1998 and January 31, 1999
                                    the Company was in default of certain
                                    financial ratio covenants with the Bank. The
                                    Bank has agreed to grant a waiver for these
                                    periods in exchange for a fee from the
                                    Company, which fee has not been paid. With
                                    respect to this default, the Company
                                    believes that the Bank will not call the
                                    Term Loan and the Line of Credit prior to
                                    June 30, 1999. The Company continues to make
                                    monthly interest payments and is currently
                                    pursuing a number of courses of action to
                                    restructure or refinance its debt with the
                                    Bank and the Consignment Agreement described
                                    in Note 9. These include continuing
                                    negotiations with the Bank, discussions with
                                    other prospective lenders and investigating
                                    the sale of an additional subsidiary as a
                                    means of paying its debt obligations.

                              (c)   In 1997, ISP entered into a S$19,700
                                    (approximately $11,600 at December 31, 1998)
                                    credit facility with a Singapore financial
                                    institution in order to acquire certain
                                    equipment, acquire a building, provide for
                                    an overdraft facility and to provide a
                                    multi-currency letter of credit facility.
                                    Amounts borrowed under the facility are
                                    subject to availability restrictions and
                                    bear interest at an average rate of
                                    approximately 6.75%. As described above, up
                                    to S$5,000 (approximately $3,000) of this
                                    credit facility is guaranteed by a standby
                                    letter of credit with the Bank. At December
                                    31, 1998, ISP has outstanding S$7,554
                                    (approximately $4,578) under the facility.
                                    ISP is currently in discussions with its
                                    bank regarding a possible restructuring of
                                    these facilities due to difficulties in
                                    meeting the repayment terms through cash
                                    flow from operations.

                              (d)   As described in Note 2, the Company issued
                                    notes payable to the former shareholders of
                                    ST. The notes bear interest, payable
                                    quarterly, at 7% per annum. The principal on
                                    the notes is payable in 20 consecutive
                                    quarterly installments of $100, which
                                    commenced November 1, 1997. These notes were
                                    assumed by the purchaser of the Company's
                                    Retconn and ST businesses on February 19,
                                    1999, as described in Note 15.

                              (e)   In conjunction with the acquisition of a
                                    building, the Company entered into a term
                                    loan with the Bank on November 4, 1996 in
                                    the principal amount of $1,760. The loan
                                    bears interest at the Bank's loan pricing
                                    rate and is payable in 120 consecutive
                                    monthly installments of $15, plus interest,
                                    which commenced on December 1, 1996.

                              (f)   In conjunction with the acquisition of a
                                    building, the Company entered into a term
                                    loan with a foreign bank in August 1998 in
                                    the principal amount of 1,300 Dutch Guilders
                                    (approximately $693 as of December 31,
                                    1998). The loan bears interest at 5.25% for
                                    three years which increases to 5.5% for the
                                    remaining life of the loan and is payable in
                                    quarterly installments of approximately $9,
                                    plus interest, which commenced on December
                                    15, 1998. In addition, the Company entered
                                    into a 1,000 Dutch Guilder (approximately
                                    $531 as of December 31, 1998) overdraft
                                    facility with the foreign bank which is
                                    collateralized by accounts receivable.
                                    Interest is payable monthly at the rate of
                                    1.75% plus the central banks' promissory
                                    note discount rate. At December 31, 1998
                                    there were no amounts outstanding under this
                                    facility.

                                                                            F-12
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              (g)   Because the interest rates will change with
                                    changes in the prime rate and the Eurodollar
                                    rate, the fair value of the bank debt is
                                    equal to the carrying amount.

                              (h)   Based on market rates currently available to
                                    the Company for loans with similar terms and
                                    maturities, the fair value of the long-term
                                    debt does not vary significantly from the
                                    carrying amount.

                              Maturities of long-term debt and short-term
                              obligations are as follows:

<TABLE>
<CAPTION>
                              Year ending December 31,
                                       <S>                             <C>    
                                          1999                         $29,393
                                          2000                           1,480
                                          2001                           1,480
                                          2002                           1,480
                                          2003                             567
                                       Thereafter                        1,650

                              ------------------------------------------------
                                                                       $36,050
                              ================================================
</TABLE>

                              The above bank loan agreements provide, among
                              other things, that the Company is subject to
                              restrictions related to the issuance of additional
                              indebtedness, additional liens and security
                              interests, capital expenditures and the payment of
                              dividends. In addition, the above loans are
                              collateralized by a blanket lien on substantially
                              all the Company's assets. In addition, the loan
                              agreements provide that the Company maintain
                              certain financial ratios.


7.   OBLIGATIONS UNDER        The Company is the lessee of property and  
     CAPITAL LEASES:          equipment acquired under capital leases         
                              expiring in various years through 2003.    
                              

                              Future lease payments under capital leases are as
                              follows:

<TABLE>
<CAPTION>
                              Year ending December 31,
                                          <S>                          <C>     
                                          1999                         $  3,254
                                          2000                            3,032
                                          2001                            2,341
                                          2002                            1,358
                                          2003                              476
                              -------------------------------------------------

                                                                         10,461
                              Less amount representing interest           1,415
                              -------------------------------------------------

                                                                          9,046
                              Less current portion                        2,648

                              -------------------------------------------------
                                                                       $  6,398
                              =================================================
</TABLE>

                                                                            F-13
<PAGE>
                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              Interest rates on these capital leases range from
                              7.4% to 11% per annum.


8.   INCOME TAXES:            The provision (benefit) for income taxes for the
                              years ended December 31, 1996, 1997 and 1998
                              consists of the following components:

<TABLE>
<CAPTION>
                              Year ended December 31,                               1996            1997          1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                 <C>            <C>           <C>   
                              Current:
                                Federal                                           $1,349         $   907             -
                                State                                                190             249       $    42
                              Deferred:
                                Federal                                              742             948        (4,876)
                                State                                                164             210          (113)
                                Foreign                                                -            (100)         (553)
                              ----------------------------------------------------------------------------------------
                                                                                  $2,445          $2,214       $(5,500)
                              ========================================================================================
</TABLE>

                              The provision (benefit) for income taxes for the
                              years ended December 31, 1996, 1997 and 1998
                              differs from the amount computed using the federal
                              statutory rate of 34% as a result of the
                              following:

<TABLE>
<CAPTION>
                              Year ended December 31,                               1996            1997          1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                   <C>            <C>           <C>    
                              Tax at federal statutory rate                         34.0%          34.0 %        (34.0)%
                              Change in valuation allowance                            -              -            4.3
                              State tax credits                                        -              -           (1.5)
                              State income tax provision (benefit), net 
                                of federal tax effect                                3.8            5.0           (3.3)
                              Effect of permanent differences                        1.1            1.4            1.8
                              Other                                                   .6           (2.1)           1.6
                              ----------------------------------------------------------------------------------------
                                                                                    39.5%          38.3%         (31.1)%
                              ========================================================================================
</TABLE>

                              The tax effects of available tax carryforwards and
                              temporary differences that give rise to the net
                              short-term deferred income tax asset are presented
                              below:

<TABLE>
<CAPTION>
                              December 31, 1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                                               <C>   
                              Federal net operating loss carryforward                                           $5,334
                              Other                                                                                309
                              ----------------------------------------------------------------------------------------
                                                                                                                $5,643
                              ========================================================================================
</TABLE>

                                                                            F-14
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              The tax effects of available tax carryforwards,
                              temporary differences and foreign currency 
                              translation adjustments that give rise to the net
                              long-term deferred income tax liabilities are
                              presented below:

<TABLE>
<CAPTION>
                              December 31,                                                       1997             1998
                              ----------------------------------------------------------------------------------------
                              <S>                                                              <C>              <C>   
                              Deferred income tax liabilities:
                                Accelerated depreciation                                       $1,674           $3,151
                                Basis difference in amortization of intangibles                   954              920
                              ----------------------------------------------------------------------------------------
                                      Total deferred income tax liabilities                     2,628            4,071
                              ----------------------------------------------------------------------------------------
                              Deferred income tax assets:
                                Net loss in foreign subsidiaries                                  100              686
                                State tax, net operating loss carryforward                          -              649
                                State investment tax credit carryforward                            -              790
                                Accumulated translation adjustment                                385              300
                                Other                                                               -               74
                              ----------------------------------------------------------------------------------------
                                      Total deferred income tax asset                             485            2,499

                              Less valuation allowance                                              -             (757)
                              ----------------------------------------------------------------------------------------
                                      Net deferred income tax asset                               485            1,742
                              ----------------------------------------------------------------------------------------
                                      Net long-term deferred income tax liabilities            $2,143           $2,329
                              ========================================================================================
</TABLE>

                              At December 31, 1998, the Company has a $15,689
                              federal net operating loss carryforward available
                              to offset future taxable income through 2013. The
                              Company also has state net operating loss
                              carryforwards aggregating $14,106 which expire in
                              2003. State investment tax credit carryforwards
                              aggregating $790 at December 31, 1998 expire at
                              various dates from 2003 through 2013. A valuation
                              allowance has been established for the tax effect
                              of those state net operating loss carryforwards
                              and state investment tax credit carryforwards
                              which are not expected to be realized.

                              The Company files a consolidated federal income
                              tax return which includes the results of all its
                              domestic subsidiaries and separate state and local
                              income tax returns.

                              For the year ended December 31, 1996, the Company
                              recognized for income tax purposes a tax benefit
                              of $97 for compensation expense related to its
                              incentive stock option plan for which no
                              corresponding charge to operations has been
                              recorded. Such amount has been added to additional
                              paid-in capital for the year ended December 31,
                              1996. No tax benefit was recorded for the years
                              ended December 31, 1997 and 1998.


9.   COMMITMENTS,             The Company has noncancelable operating leases    
     CONTINGENCIES AND        expiring through 2004 for the rental of office and
     RELATED PARTY            manufacturing facilities. The leases also require 
     TRANSACTIONS:            payments for real estate taxes and other operating
                              costs. The Company also leases land at one of its 
                              foreign subsidiaries. This lease expires in       
                              January 2026 with an option to renew for an       
                              additional 29 years.                              

                                                                            F-15
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              Approximate minimum future rental payments,
                              exclusive of payments for real estate taxes and
                              other operating costs under these leases, are as
                              follows:

<TABLE>
<CAPTION>
                              Year ending December 31,
                                        <S>                                                                    <C>    
                                          1999                                                                 $   665
                                          2000                                                                     497
                                          2001                                                                     510
                                          2002                                                                     524
                                          2003                                                                     538
                                       Thereafter                                                                1,519
                              ----------------------------------------------------------------------------------------
                                                                                                                $4,253
                              ========================================================================================
</TABLE>


                              The amounts reflected in the above table exclude
                              commitments which were eliminated upon the sale of
                              Retconn and ST, described in Note 15.

                              Rent expense charged to operations for the years
                              ended December 31, 1996, 1997 and 1998 amounted to
                              approximately $466, $669, and $853, respectively.

                              During 1997, a company owned by the former sole
                              shareholder of Polese acquired machinery and
                              equipment from the Company for $254. The Company
                              recognized a $46 gain on this sale.

                              The Company has employment agreements with 5
                              shareholders (the "Shareholders"), and 10 other
                              employees, expiring in various years through 2003.
                              The approximate aggregate commitment for future
                              salaries, excluding bonuses, under these
                              employment agreements is as follows:

<TABLE>
<CAPTION>
                                Year ending December 31,
                                        <S>                                                                    <C>    
                                          1999                                                                  $1,402
                                          2000                                                                     416
                                          2001                                                                     120
                                       Thereafter                                                                  187
                              ----------------------------------------------------------------------------------------
                                                                                                                $2,125
                              ========================================================================================
</TABLE>

                              The amounts reflected in the above table exclude
                              commitments which were eliminated upon the sale of
                              Retconn and ST, described in Note 15.

                              The Shareholders have agreed not to engage in a
                              business that is competitive with the Company
                              during the term of their agreement and for a
                              period of one year thereafter.

                              In 1996, the Company entered into a consignment
                              agreement (the "Consignment Agreement") with a
                              bank. The Consignment Agreement, which was
                              subsequently amended, expires June 30, 1999. Under
                              the Consignment Agreement, the Company purchases
                              gold used in its manufacturing of materials.

                                                                            F-16
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              The Consignment Agreement provides for gold on
                              consignment not to exceed the lesser of 5,000 troy
                              ounces of gold or gold having a market value of
                              $1,870. At December 31, 1998, the Company's
                              obligation under the Consignment Agreement was
                              approximately 3,927 troy ounces of gold valued at
                              approximately $1,130. The Consignment Agreement
                              requires the Company to pay a consignment fee of
                              5% per annum based upon the value of all gold
                              consigned to the Company.

                              The Company has capital commitments at December
                              31, 1998 of approximately $1,121 for the
                              acquisition of machinery and equipment.

                              The Company received notice on January 5, 1998
                              that a shareholder class action lawsuit was filed
                              during 1997 against the Company, its chief
                              executive officer and its then chief financial
                              officer. The complaint alleges, among other
                              things, that the Company, intentionally or
                              recklessly, failed to disclose adverse material
                              financial information regarding its business in
                              the fourth quarter of 1996. On May 5, 1998, the
                              United States District Court for the Eastern
                              District of Pennsylvania dismissed the case. An
                              appeal of the order dismissing this lawsuit was
                              not filed within the period permitted for such
                              appeal.

                              Separately, the Securities and Exchange Commission
                              (the "SEC") is conducting a private investigation
                              pursuant to a formal order to determine whether
                              any persons may have violated the federal
                              securities laws in connection with the purchase or
                              sale of the Company's securities prior to the
                              December 30, 1996 announcement relating to its
                              anticipated financial results for the fourth
                              quarter of fiscal 1996. As a general matter, the
                              SEC takes the position that its investigation
                              should not be construed as an indication that any
                              violations of law have occurred or as an adverse
                              reflection upon any person or security. The
                              Company is cooperating fully with the SEC in its
                              investigation which commenced in early 1998. Since
                              June 1998, the Company has not received any
                              additional requests for information or
                              communications from the SEC concerning this
                              matter.


10. CAPITAL TRANSACTIONS:     The Company has an incentive stock option plan
                              (the "Incentive Plan"), as amended, under which
                              900,000 common shares have been reserved for
                              future issuance. The Incentive Plan provides for
                              the sale of shares to employees of the Company at
                              a price not less than the fair market value of the
                              shares on the date of the option grant, provided
                              that the exercise price of any option granted to
                              an employee owning more than 10% of the
                              outstanding common shares of the Company may not
                              be less than 110% of the fair market value of the
                              shares on the date of the option grant. The term
                              of each option and the manner of exercise is
                              determined by the board of directors, but in no
                              case can the options be exercisable in excess of
                              10 years beyond the date of grant. In May 1995,
                              the Company adopted a nonqualified stock option
                              plan (the "Nonqualified Plan"), as amended, under
                              which 300,000 shares have been reserved for future
                              issuance.

                              At December 31, 1998, options to purchase 495,025
                              and 85,000 shares of common stock (excluding
                              lapsed shares) have been granted under the
                              Incentive Plan and the Nonqualified Plan,
                              respectively, since the inception of both plans.
                              In addition, at December 31, 1998, options to
                              purchase 188,750 shares of 

                                                                            F-17
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              common stock have been granted outside the
                              Incentive Plan and the Nonqualified Plan at a
                              price equal to the fair market value of the shares
                              at the date of grant.

                              A summary of the status of the Company's options
                              as of December 31, 1996, 1997 and 1998, and
                              changes during the years then ended is presented
                              below:


<TABLE>
<CAPTION>
                              Year Ended December 31,           1996                   1997                   1998
                              ----------------------------------------------------------------------------------------
                                                              Weighted-              Weighted-              Weighted-
                                                               Average                Average                Average
                                                              Exercise               Exercise                Exercise
                                                   Shares       Price     Shares       Price      Shares      Price
                              ----------------------------------------------------------------------------------------
                              <S>                  <C>          <C>        <C>         <C>        <C>            <C> 
                              Outstanding at
                              beginning of
                               year                 408,000     $4.86      510,000     $7.00       644,950       $7.69
                              Canceled               (5,500)     7.84      (23,000)     8.06      (555,550)       7.73
                              Granted               256,750      8.81      178,050      9.55       403,525        4.48
                              Exercised            (149,250)     4.22      (20,100)     6.37             -         N/A
                              ----------------------------------------------------------------------------------------
                              Outstanding at
                               end of year          510,000     $7.00      644,950     $7.69       492,925       $5.01
                              ========================================================================================

                              Options exercisable
                               at year-end          332,250                499,900                 386,050
                              ========================================================================================

                              Weighted-average
                               fair value of
                               options granted
                               during the year                  $4.39                  $4.88                     $4.49
                              ========================================================================================
</TABLE>

                              The Board of Directors approved a stock option
                              exchange and repricing program pursuant to which,
                              on December 1 and December 10, 1998, certain
                              holders of qualified and nonqualified options were
                              eligible to reduce by 1/2 the number of their
                              existing shares under option in exchange for
                              repriced options at a price of $3.00 per share.
                              The market price of the underlying shares was
                              $2.47 and $2.94 on December 1 and December 10,
                              respectively, and therefore, no compensation
                              expense has been recorded by the repricing. The
                              repriced options under the program continued the
                              terms and vesting periods as the underlying
                              exchanged options. Of the 695,700 options
                              outstanding as of December 1, 1998 approximately
                              491,800 shares were eligible for the exchange and
                              repricing program. Holders exchanged a total of
                              403,550 shares under option resulting in a total
                              of 201,775 repriced shares which are included for
                              purposes of the accompanying table as shares
                              canceled and granted, respectively, during 1998.

                                                                            F-18
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              The following table summarizes information about
                              fixed stock options outstanding at December 31,
                              1998:


<TABLE>
<CAPTION>
                                                             Options Outstanding                Options Exercisable   
                                                -----------------------------------------   --------------------------
                                                   Number         Weighted-                    Number
                                                 Outstanding       Average      Weighted-    Exercisable     Weighted-
                                                     at           Remaining      Average         at           Average
                                   Range of     December 31,     Contractual    Exercise    December 31,     Exercise
                              Exercise Prices       1998            Life          Price         1998           Price
                              ----------------------------------------------------------------------------------------
                              <S>                   <C>              <C>        <C>             <C>            <C>
                              $  1.85 - $  3.88     242,025          6.8        $  2.99         200,650        $  2.99
                              $  4.26 - $  6.63     140,500          4.9           5.40          80,000           4.80
                              $  7.69 - $  8.25      57,400          4.2           8.06          52,400           8.10
                              $  8.88 - $  9.88      43,000          4.6           9.52          43,000           9.52
                                     $11.63          10,000          8.6          11.63          10,000          11.63
                              ----------------------------------------------------------------------------------------
                              $1.85 - $11.63        492,925          5.8        $  5.01         386,050         $ 5.01
                              =========================================================================================
</TABLE>

                              The Company has elected, in accordance with the
                              provisions of SFAS No. 123, to apply the current
                              accounting rules under APB Opinion No. 25 and
                              related interpretations in accounting for its
                              stock options and, accordingly, has presented the
                              disclosure-only information as required by SFAS
                              No. 123. If the Company had elected to recognize
                              compensation cost based on the fair value of the
                              options granted at the grant date as prescribed by
                              SFAS No. 123, the Company's net income and
                              earnings per common share for the years ended
                              December 31, 1996, 1997 and 1998 would approximate
                              the pro forma amounts indicated in the table
                              below.

<TABLE>
<CAPTION>
                              Year ended December 31,                              1996            1997           1998
                              ----------------------------------------------------------------------------------------

                              <S>                                                <C>             <C>          <C>      
                              Net income (loss) - as reported                    $3,805          $3,793       $(11,958)
                              =========================================================================================

                              Net income (loss) - pro forma                      $3,117           3,245       $(12,111)
                              =========================================================================================

                              Earnings (loss) per share - as reported:
                                Basic                                           $   .64          $  .62       $  (1.98)
                                Diluted                                         $   .62          $  .61       $  (1.98)
                              =========================================================================================

                              Earnings (loss) per share - pro forma:
                                Basic                                           $   .52          $  .53       $  (2.00)
                                Diluted                                         $   .51          $  .52       $  (2.00)
                              =========================================================================================
</TABLE>

                              The fair value of each option grant is estimated
                              on the date of grant using the Black-Scholes
                              option-pricing model with the following
                              weighted-average assumptions used for the years
                              ended December 31, 1996, 1997 and 1998,

                                                                            F-19
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

                              respectively: expected volatility of 56.9%, 57%
                              and 66.6%, respectively; risk-free interest rates
                              5.8%, 6.3% and 5.6%, respectively; and expected
                              lives of 4.2 years, 3.5 years and 4.9 years,
                              respectively.

11. SEGMENT INFORMATION:      In fiscal 1998, the Company adopted SFAS No. 131 
                              "Disclosure about Segments of an Enterprise and
                              Related Information". The accounting policies of
                              the segments are described in Note 1, "Principal
                              Business Activities and Summary of Significant
                              Accounting Policies". The Company evaluates
                              performance of its segments and allocates
                              resources to them based on sales and operating
                              income. The Company operates primarily in two
                              industry segments, the Materials Group and the
                              Services Group. The tables below present
                              information about reported segments:
    
<TABLE>
<CAPTION>
                                                                        Materials     Services       Corporate and     Consolidated
                              Year Ended December 31, 1996                Group         Group       Reconciling Items     Total
                              ----------------------------              ---------     --------      -----------------  ------------
                              <S>                                       <C>           <C>           <C>                <C>
                              Revenue                                   33,140        12,887                 -             46,027 
                              Cost of Goods Sold and Services           23,552         7,165                 -             30,717 
                                Performed
                                                                                         
                              Gross Profit                               9,588         5,722                 -             15,310 
                              Operating Expenses                         6,448         1,755                 -              8,203 
                                                                                                                                  
                              Income from Operations                     3,140         3,967                 -              7,107 
                                                                                                                                  
                              Segment Assets                            52,841        25,571           (21,923)            56,489 
                              Capital Expenditures                       3,671         4,272                 -              7,943 
                              Depreciation Expense                       1,540           700                 -              2,240

<CAPTION>
                                                                        Materials     Services       Corporate and     Consolidated
                              Year Ended December 31, 1997                Group        Group        Reconciling Items     Total
                              ----------------------------              ---------     --------      -----------------  ------------
                              <S>                                       <C>           <C>           <C>                <C>
                              Revenue                                   48,029        23,047                 -             71,076 
                              Cost of Goods Sold and Services           33,185        17,514                 -             50,699 
                                Performed
                                                                                                                                  
                              Gross Profit                              14,844         5,533                 -             20,377 
                              Operating Expenses                         8,311         3,681                 -             11,992 
                                                                                                                                  
                              Income from Operations                     6,533         1,852                 -              8,385 
                                                                                                                                  
                              Segment Assets                            71,844        47,390           (27,369)            91,865 
                              Capital Expenditures                       2,734        10,385                 -             13,119 
                              Depreciation Expense                       1,935         2,137                 -              4,072

<CAPTION>
                                                                        Materials     Services       Corporate and     Consolidated
                              Year Ended December 31, 1998                Group        Group        Reconciling Items     Total
                              ----------------------------              ---------     --------      -----------------  ------------
                              <S>                                       <C>           <C>           <C>                <C>
                              Revenue                                   47,524        18,379                 -             65,903
                              Cost of Goods Sold and Services           37,982        15,143                 -             53,125
                                Performed
                                                                                                          
                              Gross Profit                               9,542         3,236                 -             12,778
                              Operating Expenses                        12,319        14,686                 -             27,005
                                                                                                         
                              Loss from Operations                      (2,777)      (11,450)                -            (14,227)
                                                                                                             
                              Segment Assets                            76,688        36,641           (31,005)            82,324
                              Capital Expenditures                       2,036         1,027                 -              3,063
                              Depreciation Expense                       2,460         2,722                 -              5,182

</TABLE>

                              The Company's areas of operation are principally
                              in the United States. Operations outside the
                              United States are worldwide but are primarily in
                              Europe, North Africa and Asia. No single foreign
                              country or geographic area is significant to the
                              consolidated operations. Revenue from a single
                              customer accounted for 11% of the Company's total
                              revenue for the years ended December 31, 1996 and
                              1997. Revenue from a different customer accounted
                              for approximately 10% of the Company's total
                              revenue for the year ended December 31, 1998.

                                                                            F-20
<PAGE>

12. EXPORT REVENUE:           For the years ended December 31, 1996, 1997 and
                              1998, export revenue to unaffiliated customers
                              amounted to approximately 10%, 15% and 15%,
                              respectively, of the Company's total revenue.

13. SPECIAL CHARGES:          In 1998, the Company recorded special charges of
                              $11,217 ($7,740 after tax or $1.28 per share). The
                              Company recorded $1,950 of this charge during the
                              first quarter and the balance of $9,267 during the
                              fourth quarter of the year. The majority of this
                              charge relates to a review of the carrying values
                              of the Company's services group assets and the
                              closing of a services group plant in the first
                              quarter of 1998.

                              During the first quarter of 1998, the Company
                              recorded this charge of $1,950 in conjunction with
                              a restructuring of the Services Group that
                              included closing its Texas operation and
                              consolidating domestic business and equipment into
                              the Group's Rhode Island facility. During 1998,
                              the Company paid all of the $1,950 charges
                              recorded in the first quarter. The Company
                              recorded an additional $230 of charges in the
                              fourth quarter related to a leased facility for
                              costs which continued after the Texas facility was
                              vacated.

                              As a result of the Services Group's inability to
                              achieve the improvements anticipated by the
                              restructuring plan, primarily due to a more severe
                              than anticipated market decline, the division
                              continued operating at a loss in 1998. This
                              triggered an impairment and utilization review of
                              the Services Group's long-lived assets. The
                              Company prepared revised projections by customer
                              and product line which provided the basis for
                              determining the continued usability and carrying
                              value of its long-term assets. The Company
                              identified approximately $4,700 of excess services
                              group equipment that was written down to estimated
                              fair value, less cost of disposal. In addition,
                              the Company wrote down approximately $2,700 of
                              goodwill associated with the Texas facility
                              customers and lines of business that have been
                              eliminated. Due to continuing financial problems
                              of the Services Group's 51%-owned Singapore
                              operation, the Company recorded an asset
                              impairment of $1,000 in response to uncertainty
                              regarding the ultimate recoverability of its
                              investment.

                              The Company's Materials Group recorded a special
                              charge of $620 in the fourth quarter, consisting
                              of a write-down of $473 in goodwill associated
                              with a line of business that has been eliminated
                              and the write-down of $147 of unusable equipment.

                                                                            F-21
<PAGE>

                                               SEMX CORPORATION AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          (dollars in thousands)
================================================================================

14. ALLOWANCE FOR             Information relating to the allowance for doubtful
    DOUBTFUL                  accounts is as follows:                           
    ACCOUNTS:                 

<TABLE>
<CAPTION>
                                                               Balance at      Charged to                      Balance
                                                                Beginning       Costs and                      at End
                              Description                        of Year        Expenses      Deductions       of Year
                              ---------------------------------------------------------------------------------------
                              Year ended December 31,
                                          <S>                     <C>              <C>         <C>                <C> 
                                          1996                    $ 86             $ 66        $   9 (a)          $143
                              =========================================================================================

                                          1997                    $143             $103        $  65 (a)          $181
                              =========================================================================================

                                          1998                    $181             $188         $124 (a)          $245
                              =========================================================================================
</TABLE>
                              (a) Write-off of uncollectible accounts
                              receivable.


15. SUBSEQUENT EVENTS:        In February 1999, the Company sold its connector
                              businesses, Retconn and ST, to Litton Corporation
                              ("Litton"). Litton acquired the specified assets
                              and assumed certain liabilities of Retconn, as
                              defined in the purchase agreement, in
                              consideration for a cash payment to the Company of
                              $23,871. The liabilities assumed by Litton
                              amounted to approximately $3,500. The purchase
                              price is subject to adjustment for changes in
                              Retconn's closing date balance sheet. In addition,
                              the Company is prevented from directly competing
                              in the connector business for a period of three
                              years.

                              On February 19, 1999, the Company entered into an
                              agreement with the Bank concerning the
                              distribution of $23,871 in proceeds from the sale
                              of Retconn. Pursuant to the agreement, the Company
                              repaid $15,050 of term indebtedeness and $7,141 of
                              revolving credit borrowings. In addition, the
                              Company paid approximately $1,680 of
                              transaction-related fees and severance payments.
                              The agreement also provided for the Bank's
                              forbearance of noncompliance with certain existing
                              covenants and an extension of its revolving credit
                              and interim term loan facilities through June 30,
                              1999.

                              The accompanying pro forma balance sheet presents
                              the financial position of the Company as it would
                              have appeared on December 31, 1998 had the sale of
                              Retconn and the repayment of debt occurred on that
                              date.

                                                                            F-22