UNITED STATES 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 (FEE REQUIRED)

For the fiscal year ended  SEPTEMBER 28, 1996
                                       OR
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from
                            to
Commission file number             0-11360

                              ILC TECHNOLOGY, INC.
            (Exact name of registrant as specified in its charter)
CALIFORNIA                                             94-1655721
(State or other jurisdiction of               (IRS Employer Identification No.)
  incorporation or organization)

                   399 JAVA DRIVE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code       (408) 745-7900
                  --------------------------------------------

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

         Title of each class                Name of each exchange on
                                             which registered
               NONE

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

                                  COMMON STOCK
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. [ ]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant, based upon the closing price of the Common Stock on December 16,
1996, was approximately $50,929,417. Shares of Common Stock held by each officer
and  director and by each person who owns 5% or more of the  outstanding  Common
Stock have been  excluded in that such  persons may be deemed to be  affiliates.
This   determination  of  affiliate  status  is  not  necessarily  a  conclusive
determination  for  other  purposes.  The  number of  outstanding  shares of the
registrant's Common Stock on December 16, 1996 was 4,782,508.

     Parts of the following  documents are  incorporated  by reference into Part
III of this Annual Report and Form 10-K:  (1) Proxy  Statement for  registrant's
1996 Annual Meeting of Shareholders.



<PAGE>






                                TABLE OF CONTENTS

ITEM   DESCRIPTION                                                    PAGE

       PART I

1      Business                                                       1  - 7

2      Properties                                                     6  - 7

3      Legal Proceedings                                                7

4      Submission of Matters to a Vote of Security Holders              7


       PART II

5      Market for the Registrant's Common Equity and
       Related Stockholder Matters                                       8

6      Selected Financial Data                                           9

7      Management's Discussion and Analysis of Financial
       Condition and Results of Operations                             9 - 13

8      Financial Statements and Supplementary Data                    14 - 32

9      Changes in and Disagreements with Accountants on
       Accounting and Financial Disclosure                               33


       PART III

10     Directors and Executive Officers of the Registrant                33

11     Executive Compensation                                            33

12     Security Ownership of Certain Beneficial Owners
       and Management                                                    33

13     Certain Relationships and Related Transactions                    33


       PART IV

14     Exhibits, Financial Statement Schedule, and Reports
       on Form 8-K                                                       34

       Signatures                                                        35




<PAGE>



                                     PART I

ITEM 1.  BUSINESS
-------  --------

GENERAL
-------

     ILC  Technology,  Inc.  ("ILC" or the  "Company")  designs,  develops,  and
manufactures  high  intensity  lamps  and  lighting  products  for the  medical,
industrial,  communication,  aerospace,  scientific,  entertainment and military
industries. ILC Technology, Inc. was incorporated under the laws of the State of
California on September  15, 1967.  Its  principal  manufacturing  and executive
facilities  are  located at 399 Java Drive,  Sunnyvale,  California  94089.  The
Company's telephone number is (408) 745-7900.

     In September  1996, the Board of ILC voted to proceed with the  divestiture
of the Company's  Precision  Lamp,  Inc.  (PLI)  subsidiary and therefore PLI is
reported as discontinued  operations in the accompanying  consolidated financial
statements.  PLI is a manufacturer of miniature incandescent surface-mount lamps
as well as liquid crystal  display (LCD) backlight  panels that  incorporate the
technology of the surface mount lamps.

BUSINESS STRATEGY
-----------------

     The Company uses a market focused business  strategy.  ILC targets selected
high  growth  markets  which  most  closely  match the  Company's  technological
expertise and  manufacturing  strengths.  With a strong emphasis on research and
development,  ILC achieves and  maintains a leadership  position in these market
segments  through  advanced   technology,   engineering  design  capability  and
attentive customer support.

PRODUCTS - FLASHLAMPS
---------------------

     The flashlamp line of products was ILC's  founding  product line. In August
1991,  ILC purchased  Q-Arc,  Ltd., an arc lamp  manufacturing  company based in
Cambridge, England.

     The Company makes pulsed and direct  current arc lamps that are designed to
satisfy a wide variety of laser and industrial  applications requiring rigorous,
high-performance  standards. The primary source of sales, of which approximately
80% are  for the  replacement  market,  derives  from  industrial  uses  such as
materials  aging (solar  simulation) and laser cutting,  drilling,  scribing and
marking.  Ancillary  sales are  generated by the medical  field where lasers are
utilized in cataract surgery and other exacting procedures. Production is highly
labor-intensive  and  requires  a lengthy  training  period to achieve a quality
product.  ILC  anticipates  that the market for  flashlamps in low-energy  laser
pumping applications will erode as alternative  technologies such as laser diode
pumps  become  increasingly  cost-effective;   however,  in  high-powered  laser
applications,  flashlamps  remain more  efficient  at less than 50% of the total
life  cycle  cost of laser  diodes.  

     The  Company  believes  that  growth in the  flashlamp  business  is highly
dependent on its ability to develop new applications  for flashlamp  technology.
ILC  continues  to develop  high  growth arc lamp  markets  outside of the laser
industry.   Some  of  these  include  material  aging  (solar  simulation),   UV
sterilization and curing,  machine vision and  spectrofluoroscopy.  During 1996,
sales  of  flashlamps  to  non-laser  markets  were  approximately  11% of total
flashlamp sales.

PRODUCTS - CERMAX(R) AND EQUIPMENT
----------------------------------

     The Company provides short arc xenon lamps that are optically  pre-aligned,
encased in a very safe ceramic body bonded to a metallized  sapphire window, and
are capable of transmitting the full

                                        1

<PAGE>



PRODUCTS - CERMAX(R) AND EQUIPMENT (CONTINUED)
----------------------------------------------

spectrum from infrared to  ultra-violet  wavelengths.  In addition,  the Company
also manufactures fully- encased and open frame power supplies, lamp holders and
other accessories to support the Cermax(R)  product line.  Products also include
complete fiber-optic lightsources that are private labelled for manufacturers of
medical equipment.  Currently, the primary market is in fiber optic illumination
for medical procedures such as endoscopy.

     The  market  for  Cermax(R)  lightsources  and  related  equipment  used in
endoscopy is composed of two segments - a high-intensity or critical segment and
a low-intensity or non-critical segment. Critical endoscopy applications require
high-intensity Cermax(R) lightsources with specialized power supplies due to the
small size of the  fiberoptic  lightguide.  Furthermore,  as these  applications
often use video  displays,  high-intensity  lightsources  are  required for good
color  rendition.  The  low-intensity  market is dominated by  manufacturers  of
halogen  lightsources.  Ancillary  industrial  uses for  Cermax(R)  lightsources
include  illuminating  areas  that are  difficult  to  inspect  such as  nuclear
reactors  or  jet  engines.  The  Company  has  also  targeted  new  non-medical
lightsource  markets  which  include  analytical  instruments,  spot  UV  curing
lightsources and Flash-Cermax(R) machine vision systems.

     During fiscal 1995, ILC announced the release of new high  intensity  lamps
for  video  projection  utilizing  ILC's  proprietary  Daymax(R)  and  Cermax(R)
technologies.  During 1996,  several of ILC's  products were  incorporated  into
high-end/professional and mid-range/business video projection systems of several
original  equipment   manufacturers   (OEMs),   including   Hughes-JVC,   Ampro,
Electrohome  and  Rank  Brimar.  Sony  and  Mitsubishi  have  also  demonstrated
preliminary  versions of ILC's video  projection  lamps.  ILC's video projection
lamps are compatible with the key imaging devices including light valves,  LCD's
(Liquid  Crystal  Displays) or Texas  Instrument's  DMD's  (Digital  Micromirror
Devices).  ILC has also  developed  lamps  for the  low-end/commercial  business
segment  which are now being  evaluated by several OEMs.  The  Company's  future
growth will depend to a large extent on the successful  introduction,  marketing
and commercial viability of video projection systems that will use the Company's
products.

     The factors that may  adversely  affect the  Company's  Cermax(R)  business
include the expected entry of competitors into the market. The Company's primary
patent on the  Cermax(R)  lightsource  expired in 1991 and the  Company  expects
competition from established and emerging companies. Increased competition could
result in price  reductions,  which in turn  could  generate  lower net sales on
stable unit volume.  Increased  competition  could also result in fewer customer
orders, reduced gross margins and loss of market share.

PRODUCTS - MERCURY XENON SHORT ARC LAMPS ("STEPPER LAMPS")
----------------------------------------------------------

     In fiscal 1995, the Company began commercial shipment of a new product, the
mercury xenon short arc lamp ("stepper lamp"),  which is used to expose patterns
during the  fabrication of  semiconductor  wafers.  ILC is currently  shipping a
complete line of 1,000 and 2,000 watt stepper lamps.  Each lamp, fully utilized,
lasts for  approximately 1-2 months.  Accordingly,  the Company expects that the
product will generate a high repeat business.

     The  market  for  stepper  lamps  is  currently  dominated  by  a  Japanese
competitor of the Company.  ILC has invested  heavily in ensuring the quality of
its  stepper  lamps  since  end users  perceive  substantial  risk in  switching
suppliers.  In  addition,  ILC's  stepper  lamp does not require the end user to
modify any of its  maintenance  procedures.  The Company has worked  extensively
over the last four  years with major  U.S.  end users of  stepper  equipment  to
qualify its stepper lamps at the major semi-conductor fabrication facilities.


                                        2

<PAGE>



PRODUCTS - MERCURY XENON SHORT ARC LAMPS ("STEPPER LAMPS") (CONTINUED)
----------------------------------------------------------------------

     During fiscal 1995, ILC  established  itself as the only  qualified  United
States  supplier  of  short  arc  stepper  lamps  used  in  semiconductor   chip
manufacturing   equipment,   a  market  that  has  been   dominated  by  foreign
manufacturers.  In 1996, ILC's lamps were qualified by a number of key customers
including IBM, Intel, Integrated Solutions,  Inc. (ISI), and others. The failure
of the Company's stepper lamp to achieve or sustain market acceptance would have
a material adverse effect on the Company's results of operations.

     In October  1994,  the Company  purchased  a 20,000  square foot office and
manufacturing facility in Santa Clara, California for the Company's stepper lamp
operations.  The move to the new  facility is expected  to be  completed  in the
second quarter of fiscal 1997.  There can be no assurance that the move will not
result in a short-term disruption in stepper lamp operations.  In addition,  the
success of the  Company's  stepper  lamp  business  depends in large part on the
ability of the Company to  manufacture  stepper lamps  efficiently  and reliably
over  time.  There can be no  assurance  that the  Company  will not  experience
manufacturng problems in the future that would result in product delivery delays
or quality problems.

PRODUCTS - MERCURY CAPILLARY LAMPS
----------------------------------

     Mercury  capillary lamps are  manufactured  using  technology and processes
that are similar to those  developed for stepper  lamps.  The  applications  for
capillary  lamps  include  the  photolithography  of grid  patterns  on color TV
screens and printed circuit boards for computers.

PRODUCTS - DAYMAX(R) METAL HALIDE
---------------------------------

     Daymax(R) lamps simulate stable daylight  conditions.  Originally developed
for use in the space program,  these products are now widely used throughout the
entertainment  business.  Applications include:  indoor and outdoor lighting for
motion  picture  and  television  productions,  high speed and  special  effects
lighting, concert, disco and stadium lighting and theatrical lighting. Daymax(R)
lamps are also used for solar simulation in certain scientific applications.

     The Company has developed DTI, a series of integral  low-power metal halide
lamps  (less  than 500  watts)  for  commercial  projection,  stage and  medical
applications.  DTI lamps, using a rugged ceramic reflector,  have been qualified
for use in video projection systems and architectural lighting.

PRODUCTS - AEROSPACE
--------------------

     ILC offers standard,  modified,  and customer systems covering the visible,
infrared, and ultraviolet spectrum to meet each space lighting requirement.  The
Company's  lighting  systems  are key  elements of NASA's  Space  Transportation
System.  These systems are installed in the Space Shuttle interior and exterior,
on the Manned Maneuvering Unit, on Spacelab and in several  experiments  carried
aboard the shuttle  orbiters.  Other ILC systems are being  designed  for use on
International  Space Station Alpha,  in future shuttle  experiments  and payload
packages and space robotic  vehicles.  ILC is the only domestic  manufacturer of
space lighting  qualified to serve NASA and other  government  agencies in Japan
and Europe.

     ILC aerospace lighting systems feature efficiency, reliability, ruggedness,
light  weight and full space  qualification.  New  systems  aimed to meet unique
requirements   can  often  be   developed   from  ILC's   large   selection   of
space-qualified designs and components, substantially reducing development costs
and lead times.


                                        3

<PAGE>



PRODUCTS - MILITARY
-------------------

     These  products  include  infrared  lamps used by the military on tanks and
aircraft to deflect  offensive  heat seeking  missiles.  During fiscal 1996, the
Company  received a contract for  approximately  $1 million for a  multi-faceted
Cermax(R) high intensity  discharge lamp which is used in the infrared  guidance
system of the TOW (Tube Launched  Optically Guided Wire Controlled)  missile for
Hughes Aircraft.

PRODUCTS - CONVERTER POWER
--------------------------

     ILC acquired  Converter Power, Inc. (CPI) in January 1993. CPI is a leading
producer of high  efficiency,  small form factor lamp power sources built to fit
compactly into a variety of systems. The Company designs and manufactures a full
family of UL and TUV-approved  power supplies which can be incorporated into OEM
equipment.  In addition,  CPI has one OEM customer that  purchases  custom power
supplies  for  equipment   which   services  the  ion  implant   sector  of  the
semiconductor  equipment manufacturing industry. In the fourth quarter of fiscal
1996, CPI experienced a significant reduction in orders from this customer.  CPI
must reduce its reliance on this major customer through  additional sales of new
products to other customers.

     CPI also provides power supplies  which have been  specifically  engineered
for ILC's  Cermax(R)  and metal  halide  lamps.  This  effort has enabled CPI to
provide power sources which will be sold to OEMs.

MARKETING AND SALES
-------------------

     ILC sells its  products  through a direct  sales force to OEMs and sells to
end users through sales representatives and distributors. The sales organization
includes Regional Sales Managers and a team of Market Development  Managers with
global  responsibilities  aligned along specific markets such as  semicondcutor,
video projection and medical. In addition, ILC maintains customer service groups
at its facilities in California, Massachusetts and Cambridge, England to provide
sales and customer  service  support to its customer base and network of foreign
and domestic distributors.

     The European  sales office located at the facilities of Q-Arc in Cambridge,
England,  sells and markets the complete line of lamp and equipment products and
provides local support for European customers.

     For fiscal 1996, approximately 37.1% of the Company's net sales represented
international  sales,  primarily  in the  Pacific  Rim and  Europe.  Information
regarding the Company's export sales and major customers is incorporated  herein
by reference to Note 3 of Notes to Consolidated Financial Statements.

BACKLOG
-------

     As  of  September  28,  1996,   ILC's   backlog  of  unfilled   orders  was
approximately  $28,091,000  ($26,839,000  relating to continuing  operations) as
compared  to  approximately  $33,767,000  ($27,168,000  relating  to  continuing
operations)  at  September  30, 1995.  The Company  includes in its backlog only
orders which have been released by the customer for shipment  within the next 12
months.  Due to the  possibility  of customer  changes in delivery  schedules or
cancellations  of  orders,  backlog  as  of  any  particular  date  may  not  be
representative of actual sales for any succeeding period.




                                        4

<PAGE>



MANUFACTURING
-------------

     ILC's lamp groups have built substantial expertise in the fields of sealing
technology  (ceramic-to-  metal,  quartz-to-metal,  vacuum  sealing),  materials
research, plasma physics, electrical engineering, optoelectronics, and electrode
technology.  With  CPI,  ILC  obtained  the  essential  power  supply  expertise
necessary for providing OEMs with integrated  solutions.  The  manufacturing  of
most of the  Company's  lamp and power  supply  products  is labor  and  capital
intensive,  and accordingly,  the labor force is highly skilled and experienced.
The combination of ILC's technical and  manufacturing  expertise  enables ILC to
dominate its selected market niches for specialty lighting.

     ILC designs,  develops,  and manufactures a majority of its products in two
facilities  totaling 97,000 square feet. These adjoining  buildings include lamp
development  laboratories,  separate  manufacturing  facilities  for  xenon  and
krypton arc lamps,  Cermax(R) lamps, Daymax(R) metal halide lamps, mercury short
arc  ("stepper")  lamps,  mercury  capillary  lamps,   Cermax(R)  equipment  and
Aerospace products.  The Company also purchased,  in October 1994, a facility in
Santa  Clara,   California   totalling   approximately  20,000  square  feet  to
accommodate stepper lamp manufacturing.

     The need for more production  capacity for the subsidiaries of ILC prompted
expansion of existing manufacturing  facilities.  Q-Arc purchased a new facility
of  approximately  36,000 square feet in June 1994 and occupied the new facility
in early fiscal  1995.  Q-Arc  currently  occupies  approximately  25,000 of the
36,000  square feet and has available  11,000 square feet for future  expansion.
Converter  Power  recently  occupied a 32,000  square foot  facility in Beverly,
Massachusetts.


     Q-Arc  received  ISO9002  certification  in fiscal  1995 and ILC  Sunnyvale
became certified in fiscal 1996. CPI excepts to be certified in fiscal 1997. ISO
certification  ensures  customers that ILC has a quality system that will result
in continuous product quality  improvement.  It is a recognition of a commitment
to quality throughout all sections of the organization.

PATENTS AND TRADEMARKS
----------------------

     The Company holds  approximately  45 patents related to the key features of
several of its  products  and  several  applications  are  pending.  While these
patents tend to enhance the Company's competitive position,  management believes
that the Company's success depends primarily upon its proprietary technological,
engineering,  production  and  marketing  skills  and the  high  quality  of its
products.  The names of two of the Company's  products,  Cermax(R) and Daymax(R)
are  registered as  trademarks in the United States Patent and Trademark  Office
and in many other countries in which the Company's products are sold.

     The Company's  patents expire at various dates between 1997 and 2013. There
can be no assurance  that any patents held by the Company will not be challenged
and  invalidated,  that  patents  will issue from any of the  Company's  pending
applications or that any claims allowed from existing or pending patents will be
of  sufficient  scope or  strength  or be  issued  in all  countries  where  the
Company's  products  can  be  sold  to  provide  meaningful  protection  or  any
commercial advantage to the Company. Competitors of the Company also may be able
to design around the Company's patents.

COMPETITION
-----------

     ILC competes on the basis of product performance, applications engineering,
customer service,  reputation and price. The Company competes in many markets in
which technology  develops and improves rapidly,  stimulating ILC to enhance the
capability of its products and technologies.  Competitors  consist of both large
and small companies located in the United States, Japan and Europe. 
                                        

                                       5

<PAGE>



COMPETITION (CONTINUED)
-----------------------

They include EG&G Inc., Osram,  Philips,  Ushio,  Optical Radiation  Corporation
(ORC),  Koto  and  Wolfram.  In  many  market  segments,   the  competition  has
established the bench mark for product acceptance at a very high level,  causing
ILC  to   continuously   improve  all  phases  of  its  processes  for  customer
satisfaction.  The Company believes that by exploiting segmented market areas in
which ILC has  technological,  manufacturing  and marketing  strengths,  ILC can
compete  effectively.  At the same time, by focusing its product development and
acquisition  activities in these areas, the Company can defend its strengths and
maintain its leadership in selected markets.

ENGINEERING AND RESEARCH
------------------------

     ILC's engineering,  research, and development efforts consist of three main
activities.  The first area of activity is extensive application  engineering in
response to customer requirements.  These activities result in customer specific
products  and  modifications  to  existing  products to satisfy the needs of the
customers.  The second area is that of joint  engineering and  development  work
made in connection with customer production  contracts.  The third area includes
those projects  funded by the Company to develop new products and  technologies.
The Company spent $4,534,000, $4,497,000 and $3,998,000 in fiscal 1996, 1995 and
1994,  respectively,  for Company funded research and  development  ($4,320,000,
$4,279,000 and $3,694,000 in fiscal 1996, 1995 and 1994, respectively, spent for
research and development in continuing  operations).  The Company's  engineering
and research personnel are engineers and scientists,  all of whom have technical
degrees.

EMPLOYEES
---------

     As of  September  28,  1996,  the  Company  had  616  full-time  employees,
comprised of 64 in research and  engineering,  24 in marketing and sales, 485 in
manufacturing  and  43  in  general  and  administrative   positions.  Of  these
employees,  52 in research and  development,  22 in marketing and sales,  389 in
manufacturing and 33 in general and administrative positions are associated with
the continuing  operations of the Company.  ILC believes that its future success
depends  upon its  continued  ability to recruit  and  maintain  highly  skilled
employees in all disciplines.  Although  competition for qualified  personnel is
strong,  ILC has been successful in attracting and retaining skilled  employees.
None of the Company's  employees is  represented  by a labor union.  The Company
believes that its relations with its employees are good.

ITEM 2.  PROPERTIES
-------  ----------

     The  Company  owns and leases an  aggregate  of  approximately  153,000 and
56,000  square  feet,  respectively,  of office and  manufacturing  space in six
separate buildings in Sunnyvale,  Santa Clara and Cotati,  California;  Beverly,
Massachusetts;  and Cambridge,  England.  In Sunnyvale,  the Company owns 97,000
square feet in two adjacent  buildings.  These buildings were constructed by the
Company in 1977 and 1979, sold in 1982 and leased back from the new owners,  and
re-purchased  from the landlord in August 1993. The Company leases to one tenant
approximately  9,000 square feet of its space in  Sunnyvale  under a lease which
expires in March 1997.  In early  October  1994,  the Company  purchased  20,000
square feet of office and  manufacturing  space in Santa Clara,  California.  In
June 1994, the Company  purchased 36,000 square feet of office and manufacturing
space in Cambridge,  England.  Q-Arc  currently  occupies  approximately  25,000
square  feet  with  approximately   11,000  square  feet  available  for  future
expansion.  Precision Lamp moved into a new facility in July 1993. The lease for
the 24,000  square feet of office and  manufacturing  space,  located in Cotati,
California,  expires  in 2003.  The  operations  of  Precision  Lamp  have  been
reclassified  as discontinued  operations.  See Note 12 of Notes to Consolidated
Financial  Statements appearing elsewhere herein.  Finally,  Converter Power, in
late fiscal 1995,  entered into a lease to occupy  approximately  32,000  square
feet of office and manufacturng  space in  Beverly, Massachusetts.  This  lease

                                        6

<PAGE>




ITEM 2.  PROPERTIES (CONTINUED)
-------  ----------------------

     expires in September 2000.  Converter Power moved into this new facility in
the first quarter of fiscal 1996. CPI  previously  occupied a 15,000 square foot
facility in Ipswich,  Massachusetts.  For a discussion  of the  Company's  lease
commitments,  see Note 8 of Notes to Consolidated Financial Statements appearing
elsewhere herein.

ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

        
 None

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

     There were no matters  submitted to a vote of the security  holders  during
the fourth quarter of fiscal 1996.



                                        7

<PAGE>



                                     PART II



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


     ILC's common stock is traded in the Nasdaq  National  Market (symbol ILCT).
The high  and low  closing  sales  prices  for the  common  stock on the  Nasdaq
National Market, are set forth below for the quarters as indicated:





          FISCAL 1996                                 HIGH              LOW
          -----------                                 ----              ---
         1st Quarter                                 111/2              83/4
         2nd Quarter                                 117/8              87/8
         3rd Quarter                                 14                1011/16
         4th Quarter                                 131/2             107/8


         FISCAL 1995                                 HIGH              LOW

         1st Quarter                                 103/8              71/2
         2nd Quarter                                 103/4              8
         3rd Quarter                                 111/8              83/4
         4th Quarter                                 111/4              9



     There were approximately 2,000 institutional and individual stockholders as
of December  16, 1996.  The closing  sales price of the common stock on December
16,  1996 as  reported  by Nasdaq  was  $117/8.  The  Company  intends to retain
earnings for use in its  business  and does not expect to pay cash  dividends in
the foreseeable  future. The Company's credit agreement with Union Bank provides
that the Company shall not declare or pay any dividend or other  distribution on
its Common Stock (other than a stock  dividend) or purchase or redeem any Common
Stock, without the bank's prior written consent.


                                        8

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------

     The following selected  consolidated  financial data of the Company,  which
has been  reclassified  to  reflect  the  continuing  operations  of ILC and the
discontinuted  operations  of  PLI,  should  be  read in  conjunction  with  the
Consolidated Financial Statements and notes thereto and Management's  Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.

                                           FISCAL YEAR ENDED
                                  (in thousands except per share data)

                            1996       1995       1994       1993       1992
                          --------   --------  --------    --------   --------

Net sales ................$ 54,206   $ 49,496   $ 44,331   $ 42,250   $ 38,727

Income from continuing
 operations ..............   4,546      4,637      3,727      4,509      4,757

Income (loss) from
 discontinued operations .  (4,239)       (99)    (3,536)       250        193

Net income ...............     307      4,538        191      4,759      4,950


Earnings (loss) per share:
 Continuing operations ...     .92        .97        .77        .91        .96
  Discontinued operations     (.86)      (.02)      (.73)       .05        .04
                            -------    -------     ------    ------    -------
     Net income per share   $  .06     $  .95      $ .04     $  .96    $  1.00



Weighted average
  shares outstanding .....   4,923      4,765      4,825      4,980      4,956

Working capital ..........$ 15,155   $ 14,618   $ 11,366   $ 17,543   $ 16,399


Total assets .............  48,594     46,726     41,312     39,703     28,645

Total long-term debt .....   7,576      6,592      6,421      5,805      2,193

Total stockholders'
  equity .................$ 29,791   $ 28,802   $ 23,624   $ 24,565   $ 19,578




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

GENERAL

         In September  1996, the Company's  Board of Directors  voted to proceed
with the divestiture of the Company's Precision Lamp subsidiary based in Cotati,
California.   The  accompanying  consolidated  financial  statements  have  been
restated to reflect the discontinued  operations of the Precision Lamp business.
Refer to Note 12 of Notes to  Consolidated  Financial  Statements  for a further
discussion of discontinued operations. Accordingly, the following discussion and
analysis  of  financial   condition  and  results  of  operations  reflects  the
activities of ILC Technology, Inc., Converter Power, Inc.
and Q-Arc, Ltd.

                                        9

<PAGE>



GENERAL (CONTINUED)
-------------------

     During  fiscal  1996,  1995 and 1994,  the  Company  derived  approximately
39%,40% and 52%, respectively,  of its net sales from the medical market. During
fiscal  1996,  1995 and  1994,  the  Company's  sales in the  industrial  market
accounted  for 46%,  47% and 34%,  respectively,  of net  sales.  In each of the
fiscal years 1996,  1995 and 1994, the Company's  sales in the aerospace  market
accounted  for  8% of  net  sales.  Products  sold  in the  medical  market  are
incorporated  into products sold into the health-care  and  health-care  related
industries.   These   industries  have  recently  been  subject  to  significant
fluctuations  in demand which in turn have  affected  the demand for  components
used in these  products.  The Company  expects  sales to the  medical  market to
continue to decrease as a percentage  of net sales for the  foreseeable  future.
aerospace  sales  have  remained  relatively  constant  over the last two fiscal
years.  Due to the  continuing  slowdown in military and defense  spending,  the
Company does not expect aerospace sales to grow  significantly  from fiscal 1996
and 1995 levels.

     This  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of  Operations  includes a number of  forward-looking  statements  which
reflect the Company's  current views with respect to future events and financial
performance.  These forward-looking  statements are subject to certain risks and
uncertainties,  including  those discussed below that could cause actual results
to differ  materially  from  historical  results or those  anticipated.  In this
report,  the words  "believes",  "expects",  "future",  "may  have",  "will take
place", and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.

CONTINUING OPERATIONS
---------------------

FISCAL 1996 COMPARED TO FISCAL 1995
-----------------------------------

     Net sales for fiscal 1996 were $54,206,000, an increase of 9.5% over fiscal
1995  net  sales  of   $49,496,000.   The  $4,710,000   increase  was  primarily
attributable  to a $3.4 million sales  increase in Cermax and related  equipment
sales,  a $1.7 million  sales  increase in Quartz  lamps and a $1 million  sales
increase in  Flashlamps.  These sales gains were offset by a $1.4 million  sales
decrease in Aerospace and at Converter  Power.  In the fourth  quarter of fiscal
1996, Converter Power experienced a significant reduction in orders from a major
customer  that  provides  equipment  to the  semiconductor  equipment  industry.
Converter Power must continue to reduce reliance on this major customer  through
additional  sales of new  products to other  customers.  This change in customer
base and mix may have an unfavorable impact on gross margins in future quarters.

     Cost of sales as a  percentage  of net  sales was  66.7%  for  fiscal  1996
compared to 64.2% for fiscal 1995. The percentage  increase was due primarily to
the sales decline from Converter Power's major customer  discussed above coupled
with cost  revisions  for a fixed price  contract  in  Aerospace.  In  addition,
although there was some  improvement in the gross margin  associated with Quartz
lamp  products in fiscal 1996 over fiscal 1995,  the gross margin in both fiscal
years remained negative. The ratio of inventory reserve to year end inventory in
fiscal 1996, 1995 and 1994 was 18.6%, 20.0% and 26.3%, respectively.

     Research and development expense, 8.0% of net sales in fiscal 1996 compared
to 8.6% of net sales in fiscal 1995,  remained  unchanged at approximately  $4.3
million.  In both fiscal years, the majority of the spending was concentrated in
Quartz for the  development  of lamps used in the  processing  of  semiconductor
materials,  in Cermax for lamps for video  projection and at Converter Power for
the design of new power supplies to compliment the lamps for video projection.



                                       10

<PAGE>



FISCAL 1996 COMPARED TO FISCAL 1995 (CONTINUED)
-----------------------------------------------

     Marketing  expenses,  4.9% of net  sales  in both  fiscal  1996  and  1995,
increased  $241,000 between the two fiscal years. The increase was the result of
personnel additions and more travel and trade show attendance.

     As a percentage of net sales, general and administrative expenses were 8.1%
in fiscal 1996 and 9.0% in fiscal  1995.  In absolute  dollars,  the general and
administrative  spending  level has  remained  constant  at  approximately  $4.4
million.

     Amortization  of intangibles of $120,000 in fiscal 1996 and 1995 represents
the amortization of the covenant-not-to-compete  arising from the acquisition of
Q-Arc in 1991.

     Interest income was $80,000 in fiscal 1996,  compared to interest income of
$265,000 in fiscal 1995 which amount included approximately $235,000 of interest
income from an income tax refund in the third  quarter of fiscal 1995.  Interest
expense  associated  with  continuing  operations,  $542,000  in fiscal  1996 as
compared to $589,000 in fiscal 1995, decreased approximately $47,000 between the
two fiscal years due to a slightly  lower  interest  rate.  Interest  expense is
associated  with a term loan  obtained to purchase the  Company's  two operating
facilities  in  Sunnyvale,  a line of credit for  working  capital  needs and an
equipment line of credit for capital equipment acquisitions.

     The Company reported income from continuing operations before provision for
income taxes of  $6,061,000  in fiscal 1996  compared to income from  continuing
operations  before  provision for income taxes of $6,109,000 in fiscal 1995. The
fiscal 1996 effective tax rate was 25% compared with a fiscal 1995 effective tax
rate of 28%,  exclusive  of a $238,000  income tax refund  received in the third
quarter of fiscal 1995.

     As previously discussed,  the Company's Board of Directors voted to proceed
with the  divestiture  of Precision  Lamp based in Cotati,  California.  The net
operating  results of this  subsidiary  have been reported as a $4,239,000  loss
from  discontinued  operations in fiscal 1996. This amount includes the $840,000
operating  loss of Precision  Lamp for fiscal 1996 and an estimated loss for the
disposal of  discontinued  operations of $3,399,000.  The estimated loss for the
disposal  includes  asset write  downs of $3.3  million,  a $500,000  charge for
anticipated  losses during the final disposition of the subsidiary and the write
off of the unamortized balance of the Precision Lamp covenant-not-to- compete of
approximately $470,000. The combined loss from discontinued operations is net of
a $1,413,000 income tax benefit.  Company management  believes that the carrying
value of the net assets  from  discontinued  operations  will be  realized  upon
disposition through either a sale to a qualified buyer or an orderly liquidation
of the business. The disposition of the business will take place in fiscal 1997.
The Company  believes that the disposition  will improve cash flows,  strengthen
its financial position and provide the basis for improved financial  performance
in the future. (See Note 12 of Notes to Consolidated Financial Statements.)

     The Company  believes that inflation and changing prices had no significant
impact on sales or costs during fiscal 1996 and 1995.

FISCAL 1995 COMPARED TO FISCAL 1994
-----------------------------------

     Net sales for  fiscal  1995 were  $49,496,000,  an  increase  of 11.7% over
fiscal 1994 net sales of  $44,331,000.  The  $5,165,000  increase was  primarily
attributable  to a $4 million sales increase at Converter Power and a $1 million
sales increase at Q-Arc.  Although  total net sales at ILC  Technology  remained
unchanged  between  the two fiscal  years,  Cermax and related  equipment  sales
decreased  $2.4  million due to a reduction  in the  medical  market.  Flash and
quartz  lamp sales  increased  $1 million and  Aerospace  sales  increased  $1.4
million.



                                       11

<PAGE>



FISCAL 1995 COMPARED TO FISCAL 1994 (CONTINUED)
-----------------------------------------------

     As a  percentage  of net sales,  cost of sales  remained  constant  between
fiscal  1995  and  1994 at  64.2%  and  64.6%,  respectively.  The  ratio of the
inventory reserve to year end inventory in fiscal 1995, 1994 and 1993 was 20.0%,
26.3% and 16.5% respectively.

     Research  and  development  expenses,  8.6% of net  sales  in  fiscal  1995
compared to 8.3% of net sales in fiscal 1994, increased $584,000 between the two
fiscal  years.  The  majority of the  increase  was  concentrated  in the Quartz
stepper lamp product.

     Marketing  expenses,  4.9% of net sales in fiscal 1995  compared to 4.1% of
net sales in fiscal  1994,  increased $ 609,000.  The  increase  between the two
fiscal years was  primarily due to the addition of personnel and more travel and
trade show attendance.

     As a percentage of sales, general and administrative  expenses were 9.0% in
fiscal  1995 and 10.3% in  fiscal  1994.  The  $87,000  decrease  was due to the
accrual in the  second  quarter of fiscal  1994 for early  exit  incentives  for
various  long  time  ILC  employees  ($500,000)  and  the  write  off  of a note
receivable,  doubtful of  collection  ($250,000).  This  decrease was  partially
offset  by  expenses  incurred  by Q-Arc  in its move to a larger  manufacturing
facility  and by personnel  additions  and other  expenses at  Converter  Power,
totalling approximately $650,000, in fiscal 1995.

     Amortization  of intangibles of $120,000 in fiscal 1995 and 1994 represents
the amortization of the covenant-not-to-compete arising from the acquisitions of
Q-Arc in 1991.

     Interest  income  was  $265,000  in  fiscal  1995,  which  amount  included
approximately $235,000 of interest income from an income tax refund in the third
quarter of fiscal 1995.  Interest  income in fiscal 1994 was $170,000.  Interest
expense  associated  with  continuing  operations was $589,000 in fiscal 1995 as
compared to $289,000  in fiscal  1994.  The  $300,000  increase  between the two
fiscal years was due to additional  borrowings  on the Company's  line of credit
and equipment purchases.

     Due to the  Company's  decision  in 1996 to  divest of the  Precision  Lamp
subsidiary,  the Consolidated  Statements of Operations for fiscal 1995 and 1994
were  restated to reflect the  discontinued  operations of Precision  Lamp.  The
Company reported income from continuing  operations  before provision for income
taxes of $6,109,000 in fiscal 1995 compared to income from continuing operations
before  provision for income taxes of $5,402,000 in fiscal 1994. The fiscal 1995
provision  for income  taxes on  continuing  operations  was 28% of income  from
continuing  operations before provision for income taxes exclusive of a $238,000
income tax refund  received in the third  quarter of fiscal 1995.  This compares
with a fiscal 1994 provision for income taxes on continuing operations of 31% of
income from continuing  operations  before  provision for income taxes.  The net
loss from  discontinued  operations  of $99,000 in fiscal  1995  represents  the
operating  results  of  Precision  Lamp and is net of an income  tax  benefit of
$32,000. The net loss from discontinued  operations of $3,536,000 in fiscal 1994
is net of a $523,000  income tax benefit and includes a $3.4 million  write down
of intangibles  generated from the Precision Lamp acquisition.  In assessing the
recoverability of the unamortized goodwill and covenant-not-to-compete generated
from the  acquisition,  management  determined  that an impairment  occurred and
recorded the $3.4 million charge.

     The Company  believes that inflation and changing prices had no significant
impact on sales or costs during fiscal 1995 and 1994.





                                       12

<PAGE>



LIQUIDITY AND FINANCIAL POSITION
--------------------------------

     Cash and cash  equivalents  increased  to  $1,829,000  in fiscal  1996 from
$1,530,000 in fiscal 1995. Cash provided from operations  amounted to $1,597,000
in fiscal 1996, a decrease of $952,000 from  $2,549,000  in fiscal 1995.  During
fiscal 1996,  the Company made capital  equipment  purchases of  $3,187,000.  In
fiscal 1996, the Company  increased its net borrowings  under its line of credit
by $3,000,000,  increased its net borrowings under an equipment line by $180,000
and paid down a term loan by  $1,584,000.  In fiscal 1995, the Company used cash
of $1,745,000 to purchase land and a new manufacturing  facility in Santa Clara,
California and made capital equipment acquisitions of $2,518,000.  During fiscal
1995,  the  Company  increased  its net  borrowings  under its line of credit by
$2,000,000, increased its net borrowings under an equipment line by $670,000 and
paid down a term loan by  $1,578,000.  In fiscal 1994,  the Company used cash of
$2,701,000  to purchase a new office and  manufacturing  facility in  Cambridge,
England,  deposited  $1,300,000  for the  purchase  of land and a  manufacturing
facility  in Santa  Clara,  California  and paid  $312,000  for land in  Cotati,
California.   Capital   equipment   acquisitions  in  fiscal  1994  amounted  to
$1,672,000.  In fiscal 1994, the Company  increased its net  borrowings  under a
term  loan for real  estate  acquisitions  by  $800,000  and  increased  the net
borrowings under an equipment line by $591,000. In addition, in fiscal 1994, the
Company also repurchased, on the open market, 204,000 shares of its common stock
for $1,556,000.

     The Company has working  capital of $15,155,000 and a current ratio of 2.45
to 1.0 at September 28, 1996.  This compares with working capital of $14,618,000
and a current  ratio of 2.29 to 1.0 at September  30, 1995.  As of September 28,
1996, the Company had $1,000,000 unused on a $6,000,000 bank line of credit with
interest  at 2% above the LIBOR rate  (London  Interbank  Offer  Rate)  (7.4% at
September 28, 1996).  The Company also has  available  approximately  $1,100,000
remaining on a $2,200,000  equipment credit facility at the above interest rate.
This credit facility can be increased to accommodate the capital equipment needs
of the Company.  In fiscal 1997, ILC anticipates making capital  expenditures of
approximately $2.5 million. These financial resources, together with anticipated
additional resources to be provided from continuing operations,  are expected to
be adequate to meet the  Company's  working  capital  needs,  capital  equipment
requirements and debt service obligations at least through fiscal 1997.

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation."  The  Company is not  required  to adopt the  provisions  of this
statement  until its fiscal year 1997.  The provisions of this statement must be
made  on a  prospective  basis.  The  Company  plans  to  adopt  the  disclosure
provisions of this  statement in 1997, and therefore the effect on its financial
position and results of operations, upon adoption, will not be significant.



                                       13

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------  -------------------------------------------



         TABLE OF CONTENTS                                           PAGE
         -----------------                                           ----
         
        


Consolidated Balance Sheets - September 28,
  1996 and September 30, 1995                                       15 - 16

Consolidated Statements of Operations for the Three
  Fiscal Years Ended September 28, 1996                                17

Consolidated Statements of Stockholders' Equity
  for the Three Fiscal Years Ended September 28, 1996                  18

Consolidated Statements of Cash Flows for the Three
  Fiscal Years Ended September 28, 1996                              19 - 20

Notes to Consolidated Financial Statements                           21 - 30

Form 10-K Schedule                                                      31
Report of Independent Public Accountants                                32




                                       14

<PAGE>





                              ILC TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995




                                     ASSETS
                                     ------




                                                        1996            1995
                                                        ----            ----

Current assets:

 Cash and cash equivalents .....................     $ 1,828,807     $ 1,529,863

 Accounts receivable, less allowance
  for doubtful accounts of $312,358
  and $409,440, respectively ...................       9,494,246       8,450,977



 Receivable from long-term contracts ...........         861,427         610,122

 Inventories ...................................       8,901,528       7,533,090

 Deferred tax asset ............................       2,158,000       1,454,000

 Prepaid expenses ..............................         208,320         122,244

 Net assets from discontinued operations .......       2,178,383       6,249,401
                                                     -----------     -----------

        Total current assets ...................      25,630,711      25,949,697
                                                     -----------     -----------


Property and equipment, net ....................      21,176,431      19,560,683

Covenants-not-to-compete, net of
 accumulated amortization and
 writedown of $3,195,524 and
 $2,435,354, respectively ......................         356,641         475,521

Other assets ...................................         680,013         739,836
                                                     -----------     -----------

                                                     $48,593,796     $46,725,737
                                                     ===========     ===========


















     The accompanying notes are an integral part of these financial statements.

                                       15

<PAGE>



                              ILC TECHNOLOGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995



                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------






                                                          1996          1995
                                                          ----          ----

Current liabilities:

   Accounts payable ................................   $ 3,643,496   $ 3,763,998
   Accrued payroll and related items ...............     1,263,741     1,601,111
   Other accrued liabilities .......................     1,146,822     1,121,321
   Current portion of non-compete obligation .......       390,000       520,000
   Current portion of long-term debt ...............     2,545,600     2,455,500
   Accrued income taxes payable ....................     1,486,518     1,869,494
                                                       -----------   -----------

         Total current liabilities .................    10,476,177    11,331,424
                                                       -----------   -----------

Long-term liabilities, net of current portion:

   Long-term debt ..................................     7,370,164     5,898,040
   Non-compete obligation ..........................          --         390,000
   Other accruals ..................................       206,235       304,074
                                                       -----------   -----------

         Total long-term liabilities ...............     7,576,399     6,592,114
                                                       -----------   -----------

Commitments and contingencies (Note 7)

Stockholders' equity:

   Common stock, no par value; 10,000,000
     shares authorized; 4,782,508 shares and
     4,683,174 shares outstanding, respectively ....     6,815,109     6,132,914

   Retained earnings ...............................    22,976,111    22,669,285
                                                       -----------   -----------

         Total stockholders' equity ................    29,791,220    28,802,199
                                                       -----------   -----------

                                                       $48,593,796   $46,725,737
                                                       ===========   ===========
















     The accompanying notes are an integral part of these financial statements.


                                       16

<PAGE>



                              ILC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996







                                               1996        1995        1994
                                               ----        ----        ----

Net sales .................................$54,206,424  $49,496,029  $44,331,237

Costs and expenses:
  Cost of sales ........................... 36,180,448   31,799,916   28,654,362
  Research and development ................  4,319,650    4,278,697    3,694,392
  Sales and marketing .....................  2,645,952    2,404,856    1,795,930
  General and administrative ..............  4,417,446    4,459,726    4,546,290
  Amortization of intangibles .............    120,000      120,000      120,000
                                           -----------   ----------  -----------
                                            47,683,496   43,063,195   38,810,974

Income from continuing operations before
 provision for income taxes and interest
 expense ..................................  6,522,928    6,432,834    5,520,263


Interest expense, net .....................    461,898      323,757      118,597
                                            ----------   ----------   ----------

Income from continuing operations before
 provision for income taxes ...............  6,061,030    6,109,077    5,401,666

Provision for income taxes on continuing
 operations ...............................  1,515,000    1,472,000    1,675,000
                                            ----------  -----------   ----------

Income from continuing operations .........  4,546,030    4,637,077    3,726,666

Discontinued operations:
  Operating loss net of tax benefit of
   $280,004, $32,000 and $523,000 in
   1996, 1995 and 1994, respectively ......   (840,217)     (99,143) (3,536,053)

  Estimated loss on disposal, including
   $500,000 for operating losses during the
   phase out, net of tax benefit of
   $1,132,996                               (3,398,987)          --          --
                                           -----------   ----------    ---------

  Loss from discontinued operations ....... (4,239,204)     (99,143) (3,536,053)
                                           -----------   ----------- -----------

Net income ............................... $   306,826   $4,537,934  $  190,613
                                           ===========   ==========  ===========



Earnings (loss) per share:
 Earnings from continuing operations ......$      0.92    $    0.97  $     0.77
 Loss from discontinued operations ........      (0.86)       (0.02)      (0.73)
                                           -----------    ---------- -----------

Net income per share
                                           $      0.06    $    0.95  $     0.04
                                           ===========    =========  ===========


Weighted average shares outstanding used
 to compute net income (loss) per share ...  4,923,132    4,764,989   4,825,009
                                           ===========    =========   =========







     The accompanying notes are an integral part of these financial statements.

                                       17

<PAGE>





                              ILC TECHNOLOGY, INC.
                           CONSOLIDATED STATEMENTS OF
                              STOCKHOLDERS' EQUITY
               FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996






                                           Common
                                Common      Stock      Retained
                                Shares     Amount      Earnings        Total

Balance at October 2, 1993 ..  4,619,476  $ 6,623,828  $17,940,738  $24,564,566

  Net income ................          -            -      190,613      190,613

  Issuance of common stock
    under stock purchase plan     25,475      196,590            -      196,590

  Exercise of stock options .     82,000      227,420            -      227,420

  Repurchase of common stock    (204,000)  (1,555,500)           -   (1,555,500)
                              ----------   -----------  ----------   -----------



Balance at October 1, 1994 ..  4,522,951    5,492,338   18,131,351   23,623,689

  Net income ................          -            -    4,537,934    4,537,934

  Issuance of common stock
    under stock purchase plan     37,973      266,575            -      266,575

  Exercise of stock options .    132,250      450,751            -      450,751

  Repurchase of common stock     (10,000)     (76,750)           -      (76,750)
                               ----------  -----------  ----------  ------------



Balance at September 30, 1995  4,683,174    6,132,914   22,669,285   28,802,199

  Net income ................          -            -      306,826      306,826

  Issuance of common stock
    under stock purchase plan     34,209      279,068            -      279,068

  Exercise of stock options .     65,125      403,127            -      403,127
                              ----------   ----------   ----------   ----------




Balance at September 28, 1996  4,782,508   $6,815,109  $22,976,111  $29,791,220
                              ==========   ==========  ===========  ===========















                    The  accompanying  notes  are  an  integral  part  of  these
financial statements.

                                       18

<PAGE>



                              ILC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996






                                           1996          1995          1994
                                           ----          ----          ----

Cash flows from operating activities:

  Net Income .......................   $   306,826    $4,537,934    $ 190,613

  Adjustments to reconcile net income
   to net  cash  provided  by  
   operating activities:

     Depreciation and 
      amortization ..................    1,570,809     1,450,597      948,313

    Provision for doubtful accounts
     and note .......................       38,804       102,861      383,902

    Provision for inventory 
     obsolescence ...................      520,006       169,034    1,772,346

    Net loss on property and equipment
     sold or retired .................           -        26,367            -

    Amortization of non-compete 
     agreements ......................     118,880       118,881      118,880

    Changes in assets and liabilities:
      Decrease in marketable 
       securities ....................           -       998,129      438,078

      (Increase) decrease in accounts
       receivable ....................  (1,333,378)   (2,467,329)     167,344

      Increase in inventories ........  (1,888,444)   (1,685,743)  (1,846,314)

      (Increase) decrease in deferred
       tax asset .....................    (704,000)      951,000   (1,016,000)

      (Increase) decrease in prepaid 
       expenses ......................     (86,076)      406,556     (229,338)

      (Increase) decrease in other 
       assets ........................      59,823       (98,397)     183,044

      Increase (decrease) in accounts
       payable .......................    (120,502)      300,709       21,467

      Increase (decrease) in accrued
       liabilities ...................    (956,660)     (637,731)   1,657,530

     Net changes in assets and 
      liabilities from discontinued
      operations .....................   4,071,018    (1,623,516)   2,850,679
                                       -----------    -----------  ----------

         Total adjustments ...........   1,290,280    (1,988,582)   5,449,931
                                       -----------    -----------  ----------

         Net cash provided by 
          operating activities .......   1,597,106     2,549,352    5,640,544
                                       -----------   -----------   ----------

Cash flows from investing activities:

  Purchase of land and real 
   estate ............................          -     (3,045,412)  (3,012,844)

  (Increase) decrease in deposit on
   land and building purchase ........          -      1,300,000   (1,300,000)

  Investment in joint venture ........          -       (450,000)           -

  Capital expenditures ............... (3,186,557)    (2,517,541)  (1,671,942)
                                      -----------    -----------   ----------

         Net cash used in 
          investing activities ....... (3,186,557)    (4,712,953)  (5,984,786)
                                      -----------    -----------  -----------












     The accompanying notes are an integral part of these financial statements.

                                       19

<PAGE>



                              ILC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 28, 1996

                                   (CONTINUED)




                                         1996           1995           1994
                                         ----           ----           ----

Cash flows from financing activities:

  Principal borrowings under line
   of credit ........................$ 9,500,000    $ 8,450,000    $      -

  Principal repayments under line
   of credit ........................ (6,500,000)    (6,450,000)           -

  New borrowings under equipment 
   line .............................  1,555,000      1,720,089      1,090,702

  Principal repayments under 
   equipment line ................... (1,374,800)    (1,049,958)      (499,225)

  Principal borrowings under
   term loan ........................          -              -      1,333,333

  Principal repayments under
   term loan ........................ (1,584,000)    (1,578,000)      (533,333)

  Payments under non-compete
   agreement ........................   (390,000)      (520,000)      (520,000)

  Proceeds from issuance of 
   common stock .....................    682,195        717,326        424,010

  Repurchase of common stock ........          -        (76,750)    (1,555,500)
                                      ----------    -----------    -----------

    Net cash provided by (used in)
     financing activities............  1,888,395      1,212,707       (260,013)
                                     -----------    -----------    -----------

    Net increase (decrease) in 
     cash and cash equivalents.......    298,944       (950,894)      (604,255)


Cash and cash equivalents at 
 beginning of year ..................  1,529,863      2,480,757      3,085,012
                                     -----------    -----------    -----------

Cash and cash equivalents at 
 end of year ........................$ 1,828,807    $ 1,529,863    $ 2,480,757
                                     ===========    ===========    ===========






                                          1996        1995         1994
                                          ----        ----         ----

Supplemental disclosures of cash flow information:


Cash paid during the year for:
  Interest - continuing operations .   $  542,061   $589,200   $  288,669
  Interest - discontinued operations       77,714    106,341       50,082
  Income taxes .....................    1,055,000    909,000    2,500,539







Supplemental disclosures of noncash investing and financing activities:

A capital  lease  obligation  of $174,268  was  incurred in fiscal 1994 when the
Company entered into a capital lease for new computer equipment.








     The accompanying notes are an integral part of these financial statements.

                                       20

<PAGE>



                              ILC TECHNOLOGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 1996



1.  THE COMPANY
    -----------

     ILC  Technology,  Inc. (the  "Company") was  incorporated  on September 15,
1967. The Company designs,  develops and  manufactures  high intensity lamps and
lighting products the medical, industrial, communication, aerospace, scientific,
entertainment and military industries. The Company develops and manufactures the
majority of its products at its  headquarter  facilities in  California  and the
remainder at its subsidiary facilities in Massachusetts and the United Kingdom.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    ------------------------------------------

BASIS OF PRESENTATION
---------------------

     The financial  statements include the accounts of ILC Technology,  Inc. and
its  wholly  owned  subsidiaries.  All  significant  intercompany  balances  and
transactions have been eliminated.

     Fiscal years 1995 and 1994 were restated to reflect the Company's  decision
to  discontinue  the operations of Precision  Lamp,  Inc. (see Note 12). None of
these restatements had any impact on net income in any of the prior years.

     The Company's fiscal year end is the Saturday closest to September 30.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
-------------------------------------------------------

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

CASH AND CASH EQUIVALENTS
-------------------------

     For the purpose of the statement of cash flows,  the Company  considers all
highly liquid  investments with an original  maturity of three months or less at
the time of issue to be cash equivalents.


INVENTORIES
-----------

     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
market, and include material,  labor and manufacturing overhead.  Inventories at
September  28,  1996 and  September  30,  1995,  net of  inventory  reserves  of
$2,034,258 and $1,881,026, respectively, consisted of:






                                       21

<PAGE>



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ------------------------------------------------------

INVENTORIES (CONTINUED)
-----------------------


                                             1996                     1995
                                             ----                     ----

Raw materials ........................   $4,802,839                $4,398,553
Work-in-process ......................    2,549,805                 1,981,414
Finished goods .......................    1,548,884                 1,153,123
                                         ----------                ----------
Total inventories.....................   $8,901,528                $7,533,090
                                         ==========                ==========



DEVELOPMENTAL AND MANUFACTURING CONTRACTS
-----------------------------------------

     The Company contracts with the U.S.  Government and other customers for the
development and manufacturing of various products under both cost-plus-fixed-fee
and fixed-price  contracts.  Revenues are recognized under these contracts using
the  percentage  of  completion  method,  whereby  revenues  are reported in the
proportion  that  costs  incurred  bear to the  total  estimated  costs for each
contract.  Periodic  reviews of estimated  total costs during the performance of
such  contracts  may result in  revisions of contract  estimates  in  subsequent
periods. Any loss contracts are reserved at the time such losses are determined.
Revenues from these  contracts  were less than 10% of net revenues  during 1996,
1995 and 1994.

DEPRECIATION AND AMORTIZATION
-----------------------------

     Depreciation  and  amortization on property and equipment are provided on a
straight-line  basis over estimated useful lives of 3 to 31.5 years,  except for
leasehold improvements which are amortized over the terms of the leases.

NET INCOME (LOSS) PER SHARE
---------------------------

     Net  income  (loss) per share is  computed  based on the  weighted  average
number of common shares and common  equivalent shares (using the treasury stock)
outstanding during the period.  Fully diluted net income (loss) per share is not
significantly different from net income (loss) per share as reported.

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,  "Accounting  for  Stock-Based
Compensation."  The  Company is not  required  to adopt the  provisions  of this
statement  until its fiscal year 1997.  The provisions of this statement must be
made  on a  prospective  basis.  The  Company  plans  to  adopt  the  disclosure
provisions of this  statement in 1997, and therefore the effect on its financial
position and results of operations, upon adoption, will not be significant.

COVENANTS-NOT-TO-COMPETE
------------------------

     The  covenant-not-to-compete  relates  to the Q-Arc  acquisition  that took
place in 1991. This is being amortized over the period of the covenant.

     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long- Lived  Assets to be  Disposed  Of." The Company
adopted the  provisions  of this  statement  in fiscal  1996.  The effect on its
financial position and results of operations were not significant. The Company

                                       22

<PAGE>



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ------------------------------------------------------

COVENANTS-NOT-TO-COMPETE (CONTINUED)
------------------------------------

quarterly  evaluates whether later events and  circumstances  have occurred that
indicate the remaining  estimated useful lives of these  intangibles may warrant
revision or that the remaining  balances of intangibles  may not be recoverable.
When  factors  indicate  that  intangibles  should  be  evaluated  for  possible
impairment,   the  Company   uses  an  estimate  of  the  related   subsidiary's
undiscounted  cash flow over the remaining life of the  intangibles in measuring
whether the intangibles are  recoverable.  As part of the Company's  decision to
discontinue  the operations of its Precision Lamp  subsidiary,  the  unamortized
balance of the covenant-not-to-compete  ($470,000) was written off in the fourth
quarter of fiscal 1996.

INVESTMENT IN JOINT VENTURE
---------------------------

     In February  1995,  the Company  invested  $450,000 in a lamp  manufacturer
located in Japan. The Company's  investment  represents a 49% ownership interest
in the  equity  of the  investee,  consequently  the  Company  accounts  for its
investment  using the equity method of accounting.  The Company's  investment is
included in Other Assets in the accompanying consolidated balance sheets and its
proportionate  interest in the income of the  investee of $20,000 and $89,000 in
fiscal 1996 and 1995, respectively, is included in the accompanying consolidated
statements of operations.


3.  REVENUES
    --------

     The Company  recognizes  revenue on all product  sales upon shipment of the
product.  The Company accrues for estimated warranty  obligations at the time of
the sale of the related product based upon its past history of claims experience
and costs to discharge its obligations.

     The  Company  operates  in  a  single  industry  segment,   the  designing,
developing,  manufacturing  and  marketing  of  high  performance  light  source
products.  Revenues from continuing operations are geographically  summarized as
follows (in thousands):


                                       1996             1995            1994
                                       ----             ----            ----

United States ....................   $34,088            32,533         $26,966
Europe ...........................     6,920             5,964           4,380
Asia .............................    12,700            10,951          12,819
Other international...............       498                48             166
                                     -------           -------         -------
                                     $54,206           $49,496         $44,331
                                     =======           =======         =======



Customers  comprising more than 10% of net sales from continuing  operations are
as follows:


                                    1996           1995            1994
                                    ----           ----            ----

Customer A.....................     15.0%          12.2%           17.8%
Customer B.....................     11.5%          12.0%            *


*less than 10% of net sales


                                       23

<PAGE>



3.  REVENUES (CONTINUED)
    --------------------

     The Company provides credit in the form of trade accounts receivable to its
customers. The Company does not generally require collateral to support customer
receivables.  The Company performs  ongoing credit  evaluations of its customers
and maintains  allowances which  management  believes are adequate for potential
credit losses.

     Approximately  39%, 40% and 52% of the Company's sales in fiscal 1996, 1995
and 1994, respectively, were to customers in the medical industry. This industry
has experienced significant fluctuations in demand and the Company expects sales
to  the  medical  market  to  decrease  as a  percentage  of  net  sales  in the
foreseeable  future.  Customer  B,  referred to above,  is in the  semiconductor
equipment  industry and is a major  customer of Converter  Power.  In the fourth
quarter of fiscal 1996,  Converter Power experienced a significant  reduction in
orders from this customer. Management believes that inventory at Converter Power
is stated at the lower of cost or net realizable value.

4.  PROPERTY AND EQUIPMENT
    ----------------------

     Property  and  equipment  at  September  28,  1996 and  September  30, 1995
consisted of:


                                         1996            1995
                                         ----            ----

Property and equipment, at cost:
   Machinery and equipment ......   $ 15,047,138    $ 13,705,702
   Land and buildings ...........     14,955,738      14,504,768
   Furniture and fixtures .......        601,822         617,800
   Equipment under capital lease         174,268         174,268
   Leasehold improvements .......        598,814          95,536
   Construction-in-progress .....      1,011,601         172,951
                                    ------------    ------------
                                      32,389,891      29,271,025
Less accumulated depreciation and
   amortization .................    (11,212,950)     (9,710,342)
                                    ------------    ------------

Property and equipment, net .....   $ 21,176,431    $ 19,560,683
                                    ============    ============



5.  BANK BORROWINGS
    ---------------

     As of September  28, 1996 and September  30, 1995,  borrowings  outstanding
under the Company's credit facilities consisted of:

                               1996           1995
                               ----           ----

Line of credit .........   $ 5,000,000    $ 2,000,000
Term note ..............     2,638,000      4,222,000
Equipment line of credit     2,191,200      2,011,000
Other capital lease ....        86,564        120,540
                           -----------    -----------
                             9,915,764      8,353,540

Less: current portion ..    (2,545,600)    (2,455,500)
                           -----------    -----------

Long-term debt .........   $ 7,370,164    $ 5,898,040
                           ===========    ===========





                                       24

<PAGE>



5.  BANK BORROWINGS (CONTINUED)
    ---------------------------

     Aggregate  maturities  for  long-term  debt  during the next five years are
approximately:  1997 - $2,545,600, 1998 - $2,283,600, and none in 1999, 2000 and
2001.

     All of the above  credit  facilities  are secured by all of the property of
the Company.

     The Company  has a $6 million  line of credit  available  with a bank which
expires in March 1998. Borrowings under this line are at 2% above the LIBOR rate
(London  Interbank  Offer Rate) (7.4% at September  28, 1996) and are limited to
75% of eligible accounts receivable.  Under the covenants of the loan agreement,
unless  written  approval  from the bank is obtained,  the Company is restricted
from  entering  into certain  transactions  and is required to maintain  certain
specified financial  covenants and profitability.  As of September 28, 1996, the
Company was not in compliance  with all covenants but has obtained a waiver from
the bank.

     The average  balance  outstanding  (based on month-end  balances) under the
line of credit in 1996 was $2,595,833. The maximum borrowings were $5,000,000 at
an average interest rate of 7.4% for 1996. At September 30, 1995, $2 million was
outstanding  under the line of credit.  As of September 28, 1996, $1 million was
available for future borrowings under this line of credit.

     In addition, in connection with the purchase of its Sunnyvale manufacturing
facilities,  the Company  entered into a term note with a bank for $5,000,000 in
1993, which was  subsequently  increased to $6,333,333 in 1994. The note matures
in August 1998.  The term loan  requires  monthly  principal  payments  equal to
one-forty-eighth  of the  principal  amount plus  interest at 2% above the LIBOR
rate (London  Interbank Offer Rate) (7.4% at September 28, 1996).  The term loan
is a reducing revolving credit facility which allows for principal  pre-payments
and the  flexibility  for  re-borrowing  up to the maximum  amount that would be
outstanding  under  the  term  loan  given  normal  amortization  to the date of
re-borrowing.

     The Company also has available a $2.2 million  equipment line of credit for
100% of the  purchase  cost of new  equipment,  which  expires  in  March  1997.
Borrowings  under  this line bear  interest  at 2% above the LIBOR rate (7.4% at
September 28, 1996), with principal  balances amortized over a 2 year period. At
September  28, 1996,  the Company had  approximately  $1,096,000  available  for
future borrowings under this line of credit.

6.  INCOME TAXES
    ------------

     The Company  accounts for income taxes under SFAS No. 109,  "Accounting for
Income  Taxes".  SFAS No.  109  requires  an asset  and  liability  approach  to
accounting for income taxes.

     Income  from  continuing  operations  before  provision  for  income  taxes
consists of the following for fiscal 1996, 1995 and 1994, respectively:


                                  1996             1995              1994
                                  ----             ----              ----

U.S. ......................   $4,897,389        $5,588,040        $5,030,336
Foreign....................    1,163,641           521,037           371,330
                              ----------        ----------        ----------
                              $6,061,030        $6,109,077        $5,401,666
                              ==========        ==========        ==========






                                       25

<PAGE>



6.  INCOME TAXES (CONTINUED)
    ------------------------

The components of the provision for income taxes on continuing operations are as
follows:


                                       1996           1995           1994
                                       ----           ----           ----

Federal -
         Current ...............   $ 1,559,000    $   833,000    $ 2,373,000
         Deferred ..............      (600,000)       581,500       (902,000)
                                   -----------    -----------    -----------
                                       959,000      1,414,500      1,471,000
                                   -----------    -----------    -----------
Foreign -
         Current ...............       384,000           --             --

State -
         Current ...............       276,000        199,000        493,000
         Deferred ..............      (104,000)        96,500       (289,000)
                                   -----------    -----------    -----------
                                       172,000        295,500        204,000
                                   -----------    -----------    -----------

Federal refund received ........          --         (238,000)          --
                                   -----------    -----------    -----------

Total provision for income taxes
 on continuing operations ......   $ 1,515,000    $ 1,472,000    $ 1,675,000
                                   ===========    ===========    ===========



The major  components  of the deferred tax account,  as computed  under SFAS No.
109, are as follows:

                                                     1996           1995
                                                     ----           ----

Reserve for loss on disposal of discontinued
  operations, not currently deductible for tax
  purposes ...................................   $ 1,133,000    $       -
Inventory reserve ............................       877,000        838,000
Bad debt reserve .............................        92,000        271,000
Warranty reserve .............................       128,000        105,000
Accruals not currently deductible for
  tax purposes ...............................       381,000        448,000
Amortization of covenant-not-to-compete ......       202,000        278,000
Excess of tax over book depreciation .........      (988,000)      (801,000)
Other items, individually insignificant ......       333,000        315,000
                                                 -----------    -----------

                                                 $ 2,158,000    $ 1,454,000
                                                 ===========    ===========


The provision for income taxes on continuing operations differs from the amounts
which would result by applying the applicable  statutory Federal income tax rate
to income from continuing opertions before taxes as follows:


                                  1996            1995          1994
                                  ----            ----          ----

Computed expected provision   $ 2,121,000    $ 2,138,000    $ 1,891,000
State tax .................       364,000        367,000        324,000
FSC commission ............      (181,000)      (216,000)      (259,000)
General business credits ..      (218,000)      (203,000)       (72,000)
Refund received ...........          --         (238,000)          --
Other items, indivdually
 insignificant ............      (571,000)      (376,000)      (209,000)
                              -----------    -----------    -----------
                              $ 1,515,000    $ 1,472,000    $ 1,675,000
                              ===========    ===========    ===========



                                       26

<PAGE>



6.  INCOME TAXES (CONTINUED)
    ------------------------

     During the second quarter of fiscal 1995, the Company  received a refund of
$238,000 from the Internal Revenue Service (IRS) related to tax returns filed in
previous  years,  which were  examined by the IRS. This amount was recorded as a
reduction  of the fiscal  1995 tax  provision  upon  receipt of the  refund.  An
additional  $235,000 of interest  related to the refund  amount was received and
was included in interest income in fiscal 1995.

7.  EMPLOYEE RETIREMENT PLAN
    ------------------------

     On January 1, 1984,  the Company  adopted a thrift  incentive  savings plan
(the "Plan"). The Plan is qualified under section 401(k) of the Internal Revenue
Code and is  available  to all  full-time  employees  with one or more  years of
employment  with  the  Company.  Under  the  terms  of the  Plan,  participating
employees  must  contribute  at least 2% of their  salary to the  Plan,  and the
Company contributes (as a matching contribution) 100% of this amount.  Employees
may also contribute an additional  amount up to 13% of their salary to the Plan,
with no further  contributions by the Company. The Company's  contributions vest
at a rate of 20% per year,  commencing on the first  anniversary  of employment.
Total employer matching  contributions  under the Plan were $226,000,  $212,000,
and $163,000 for the fiscal years 1996, 1995 and 1994, respectively. The expense
to continuing  operations  was $188,000,  $171,000 and $138,000 for fiscal years
1996, 1995 and 1994, respectively.

8.  COMMITMENTS AND CONTINGENCIES
    -----------------------------

     At  September  28,  1996,  the future  minimum  rental  payments  under all
building  leases  for  fiscal  1997  through  2001 are  approximately  $423,000,
$424,000,   $444,000,   $444,000  and  $226,000,   respectively,   and  $434,000
thereafter. The amounts total $2,395,000. The future minimum rental payments for
continuing  operations,  under all building leases for fiscal 1997 through 2001,
are approximately $207,000,  $207,000,  $218,000, $218,000 and none in 2001. The
amounts total $850,000.

     For fiscal  years 1996,  1995 and 1994,  rental  expense was  approximately
$442,000,  $277,000 and $318,000  respectively.  Rental  expense for  continuing
operations  was $226,000,  $61,000 and $102,000 for fiscal years 1996,  1995 and
1994, respectively.

9.  STOCK OPTION AND PURCHASE PLANS
    -------------------------------

     Under the 1992 Stock Option Plan ("Plan"), the Company may grant options to
employees and  directors.  The Company has reserved  400,000 shares for issuance
under  the  Plan.  In  November  1996,  the  Board of  Directors  authorized  an
additional  175,000 shares for issuance  under the Plan,  subject to shareholder
approval. The exercise price per share for stock options cannot be less than the
fair market value on the date of grant.  Options granted are for a ten-year term
and generally vest ratably over a period of four years commencing one year after
the date of grant.  The Plan provides for the automatic  grant of a nonstatutory
stock  option  to  purchase  shares  of Common  Stock to each  outside  Director
annually  during the Company's  third fiscal  quarter.  During fiscal 1996, each
outside  Director was granted an  automatic  option to purchase a total of 5,000
shares of the  Company's  Common  Stock.  The  Company's  1983 Stock Option Plan
expired in 1993 and no further  options have been granted  under this Plan since
then. A summary of the option transactions is as follows:


                                       27

<PAGE>



9.  STOCK OPTION AND PURCHASE PLANS (CONTINUED)
    -------------------------------------------

                                              OPTIONS OUTSTANDING
                                              -------------------

                                 Options         Number
                                Available          of            Price per
                                Fof Grant        Shares            Share

Balance at October 2, 1993 ..    159,624         746,027       $ 1.09-11.50

 Granted ....................    (74,000)         74,000       $ 7.38-11.00
 Canceled ...................     18,000         (18,000)      $ 3.75-11.50
 Exercised ..................          -         (82,000)      $ 1.09 -8.75
                                --------        --------       ------------


Balance at October 1, 1994 ..    103,624         720,027       $ 1.09-11.50

 Granted ....................    (28,000)         28,000       $       9.50
 Canceled ...................     34,000         (34,000)      $ 8.75-11.50
 Exercised ..................          -        (132,250)      $ 2.13 -8.75
                                --------        --------       ------------


Balance at September 30, 1995    109,624         581,777       $1.09 -11.50

 Additional shares approved .    200,000               -                  -
 Granted ....................   (205,000)        205,000       $ 9.00-11.25
 Canceled ...................     92,125         (92,125)      $ 8.75-11.50
 Exercised ..................          -         (65,125)      $ 1.09-11.50
                                --------        --------       ------------


Balance at September 28, 1996    196,749         629,527       $ 1.09-11.50
                                ========        ========       ============

Options exercisable at
 September 28, 1996 .........                    416,965       $ 1.09-11.50
                                                ========       ============



     If all options outstanding at September 28, 1996 were exercised,  the total
proceeds to the Company would be approximately $4.7 million (unaudited).

     Under the Company's  Employee Stock Purchase Plan, the Company has reserved
300,000 shares of common stock for issuance to participating  employees who have
met certain eligibility  requirements.  In November 1996, the Board of Directors
authorized an additional  50,000 shares for issuance under the Plan,  subject to
shareholder  approval.  The  number of shares  available  for  purchase  by each
participant  is based upon annual base earnings and at a purchase price equal to
85% of the fair  market  value at the  beginning  or the end of the  quarter  of
purchase,  whichever is lower.  As of September  28,  1996,  61,588  shares were
available for future purchase.

10.  OTHER INCOME/EXPENSE
     --------------------

Other (income) expense consists of the following:

                                     1996        1995          1994
                                     ----        ----          ----


Interest income ...............   $ (80,163)   $(265,443)   $(170,072)
Interest expense ..............     542,061      589,200      288,669
                                  ---------    ---------    ---------

Net interest expense related to
 continuing operations ........   $ 461,898    $ 323,757    $ 118,597
                                  =========    =========    =========



                                       28

<PAGE>



11.  ACQUISITIONS
     ------------

     In August 1991,  the Company  acquired all the  outstanding  stock of Q-Arc
Ltd. of Cambridge,  England for $1,400,000 in cash and the assumption of certain
liabilities.  Q-Arc is a manufacturer of specialty lamps for laser and non-laser
applications.  This transaction was accounted for as a purchase and accordingly,
all assets were revalued to their respective fair values.  The acquisition price
was equal to the fair  value of net  assets  acquired.  Net  assets  included  a
covenant-not-to-compete   of  approximately  $951,000.  The  covenant  is  being
amortized  over an eight year period.  At September  28, 1996,  the  unamortized
balance of the Q-Arc covenant-not-to-compete is approximately $357,000.

12.  DISCONTINUED OPERATIONS
     -----------------------

     In September  1996, the Company's  Board of Directors voted to proceed with
the  divestiture  of the Company's  Precision Lamp  subsidiary  based in Cotati,
California. The Company plans to dispose of Precision Lamp either through a sale
to a qualified buyer or by an orderly liquidation of the business if no buyer is
located within one year. As a result of the Company's plan, an estimated loss on
disposal of $3,399,000,  net of a tax benefit of $1,133,000, was recorded in the
fourth quarter of fiscal 1996.  This loss on disposal  included  $500,000 as the
estimated  operating losses through the final  disposition of the subsidiary and
the write off of the unamortized balance of the Precision Lamp  covenant-not-to-
compete of approximately $470,000.

     Continuing  operations,  as  reclassified  for fiscal years 1996,  1995 and
1994,  consist of the  activities of ILC  Technology,  Inc.  based in Sunnyvale,
California,  Converter  Power,  Inc. based in Beverly,  Massachusetts  and Q-Arc
based in Cambridge, England. The Consolidated Statements of Operations have been
reclassified   to  report   separately  the  activities  of  Precision  Lamp  as
discontinued   operations.   Revenues  from  Precision  Lamp  were   $7,772,000,
$8,933,000 and $7,691,000 for fiscal 1996, 1995 and 1994, respectively.  The net
loss after tax from the discontinued  operations of Precision Lamp was $840,000,
$99,000 and $3,536,000  for fiscal 1996,  1995 and 1994,  respectively.  The net
loss from  discontinued  operations  of  $3,536,000  in fiscal  1994 is net of a
$523,000  income  tax  benefit  and  includes  a  $3.4  million  write  down  of
intangibles  generated  from the Precision  Lamp  acquisition.  A portion of net
interest expense of approximately $66,000,  $58,000 and $21,000 for fiscal years
1996,  1995 and  1994,  respectively,  has been  allocated  to the  discontinued
operations.  Net interest has been allocated to discontinued operations based on
the ratio of the net assets to be  discontinued to the  consolidated  net assets
plus  consolidated  debt  other  than debt  which is  directly  attributable  to
continuing operations.

     The net assets of Precision Lamp of $2,178,383 as of September 28, 1996 are
shown  in the  accompanying  balance  sheet  as  net  assets  from  discontinued
operations.   These  assets  were  written  down  to  a  value  that  represents
management's   best   estimate  of  the  amount  that  could  be  realized  upon
disposition.

13.  RIGHTS AGREEMENT AND OTHER MATTERS
     ----------------------------------

     On September 19, 1989, the Company's Board of Directors declared a dividend
of one common share purchase right for each  outstanding  share of common stock,
no par value, of the Company. The dividend was payable on October 2, 1989 to the
shareholders of record on that date.  Each right entitles the registered  holder
to purchase from the Company one share of common stock of the Company at a price
of $15.00 per common  share.  The rights will not be  exercisable  until a party
either  acquires  beneficial  ownership of 20% of the Company's  common stock or
makes a tender  offer for at least  30% of its  common  stock.  In the event the
rights become  exercisable and thereafter a person or group acquires 30% or more
of the Company's  stock, a 20% shareholder  ("Acquiring  Person") engages in any
specified  self-dealing  transaction,  or, as a result of a recapitalization  or
reorganization,

                                       29

<PAGE>



13.  RIGHTS AGREEMENT AND OTHER MATTERS (CONTINUED)
     ----------------------------------------------

an Acquiring  Person's  shareholdings  are increased by more than 3%, each right
will entitle the holder to purchase  from the Company,  for the exercise  price,
common stock having a market value of twice the exercise price of the right.  In
the event the rights become  exercisable  and thereafter the Company is acquired
in a merger or other business combination,  each right will enable the holder to
purchase from the surviving  corporation,  for the exercise price,  common stock
having a market value of twice the exercise price of the right. At the Company's
option,  the  rights  are  redeemable  in  their  entirety,  prior  to  becoming
exercisable,  at $.01 per right. The rights are subject to adjustment to prevent
dilution and expire September 29, 1999.

     In November 1996, the Board of Directors  authorized  severance  agreements
for  certain key  managers  in the event that a change of control  occurs at the
Company.

14.  REPURCHASE OF COMMON STOCK
     --------------------------

     In  November  1996,  the  Board of  Directors  authorized  the  Company  to
repurchase up to 1,000,000 shares of the Company's issued and outstanding common
stock. Purchases can be made for up to two years from the date of authorization.





                                       30

<PAGE>





                                                                 SCHEDULE VIII

                              ILC TECHNOLOGY, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                      FOR FISCAL YEARS 1996, 1995 AND 1994




                                 Balance       Charged
                                   at         (Credited) Deductions    Balance
                               Beginning     to Cost and    and       at end of
                               Of Period       Expenses   Write Offs    Period
                               ---------       --------   ----------    ------

ALLOWANCE FOR
  DOUBTFUL ACCOUNTS:


Year ended
  October 1, 1994..............$  208,787   $  383,902   $260,017   $  332,672


Year ended
  September 30, 1995.......    $  332,672   $  102,861   $ 26,093   $  409,440


Year ended
  September 28, 1996.......    $  409,440   $   38,804   $135,886   $  312,358



RESERVE FOR INVENTORY
  OBSOLESCENCE:


Year ended
  October 1, 1994 ..........   $1,177,080   $1,772,346   $807,434   $2,141,992


Year ended
  September 30, 1995........   $2,141,992   $  169,034   $430,000   $1,881,026


Year ended
  September 28, 1996........   $1,881,026   $  520,006   $366,774   $2,034,258






                                       31

<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ILC Technology, Inc.


     We  have  audited  the  accompanying  consolidated  balance  sheets  of ILC
Technology, Inc. (a California Corporation) and subsidiaries as of September 28,
1996  and  September  30,  1995,  and the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the period ended September 28, 1996. These financial statements and the schedule
referred  to below  are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule 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  financial  statements  referred to above  present
  fairly, in all material respects, the consolidated financial position of ILC
Technology,  Inc. and  subsidiaries  as of September  28, 1996 and September 30,
1995 and the  results of their  operations  and their cash flows for each of the
three years in the period ended  September 28, 1996 in conformity with generally
accepted accounting principles.

      Our audit was made for the purpose of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  presented on page 31 is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules  and is not  part of the  basic  financial  statements.  The
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.




                                                         ARTHUR ANDERSEN LLP



San Jose,  California
November 22, 1996



                                       32

<PAGE>



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

                None


                                    PART III

     Certain  information  required  by Part III is omitted  from this Report in
that  registrant will file a definitive  proxy statement  pursuant to Regulation
14A (the "Proxy  Statement")  for its Annual Meeting of  Shareholders to be held
February  12,  1997,  not later than 120 days  after the end of the fiscal  year
covered by this Report,  and the  information  included  therein is incorporated
herein by reference.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  regarding directors required by this item appearing in the
Company's   1996   Proxy    Statement    under   the   caption    "Election   of
Directors-Nominees" is incorporated herein by reference.

     The information  regarding  executive  officers of the Company  required by
this item  appearing in the  Company's  1996 Proxy  Statement  under the caption
"Executive Officers" is incorporated herein by reference.

     The information required by this item appearing in the Company's 1996 Proxy
Statement  under the caption  "Compliance  Under Section 16(a) of the Securities
Exchange Act of 1934" is incorporated herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item appearing in the Company's 1996 Proxy
Statement  under the  captions  "Election of  Directors-Director  Compensation",
"Executive  Compensation"  and  "Compensation  Committee  Interlocks and Insider
Participation in Compensation Decisions" is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item appearing in the Company's 1996 Proxy
Statement  under the captions  "Election of  Directors-Nominees"  and  "Security
Ownership of Certain Beneficial Owners" is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item appearing in the Company's 1996 Proxy
Statement  under the  captions  "Election of  Directors-Director  Compensation",
"Executive  Compensation" and "Certain  Transactions" is incorporated  herein by
reference.


                                       33

<PAGE>





                                     PART IV


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

(a)      The following documents are filed as part of this report:

         1.  FINANCIAL STATEMENTS

         The Consolidated  Financial  Statements,  notes thereto,  and Report of
Independent Public  Accountants  thereon are included in Part II, Item 8 of this
report.

                                                                PAGE IN
         2.  FINANCIAL STATEMENT SCHEDULE                       FORM  10-K

         Schedule VIII     Valuation and Qualifying
                           Accounts and Reserves                    31



         All other schedules have been omitted since the required information is
not present in amounts  sufficient to require  submission  of the  schedule,  or
because the  information  required is  included  in the  Consolidated  Financial
Statements or notes thereto.


         3.  EXHIBITS

         The exhibits  listed in the Index to Exhibits  following  the signature
page are filed as part of this Report.

(b)      REPORTS ON FORM 8-K

     No reports on Form 8-K were filed during the last quarter of fiscal 1996. .




                                       34

<PAGE>


                                   SIGNATURES

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

                                               ILC TECHNOLOGY, INC.


                                               By: /S/ HENRY C. BAUMGARTNER
                                                    Henry C. Baumgartner
                                                   (Chairman of the Board and
                                                    Chief Executive Officer)


Dated: December 24, 1996


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



           SIGNATURES                 TITLE                        DATE
           ----------                 -----                        ----

/S/ HENRY C. BAUMGARTENER      Chairman of the Board and    December 24, 1996
-------------------------      Chief Executive Officer
(Henry C. Baumgartner)         (Principal Executive
                               Officer and Director)

/S/ RICHARD D. CAPRA           President and Chief          December 24, 1996
-------------------------      Operating Officer
(Richard D. Capra)                



/S/ RONALD E. FREDIANELLI      Chief Financial Officer      December 24, 1996
-------------------------      and Secretary
(Ronald E. Fredianelli)        (Principal Financial and
                               Accounting Officer)

/S/ HARRISON H. AUGUR          Director                     December 24, 1996
-------------------------
(Harrison H. Augur)

                                       

--------------------           Director                     December   , 1996
(Arthur L. Schawlow)



---------------------          Director                     December   , 1996
(Wirt D. Walker, III)



                                       35

<PAGE>



                                INDEX TO EXHIBITS

EXHIBIT
NUMBER            DESCRIPTION

3.1      (A)      Restated Articles of Incorporation of ILC Technology, Inc. as
                   filed in the Office of the California Secretary of State on 
                   March 8, 1991.

3.2               Amended and Restated Bylaws as of November 21, 1996

4.1      (C)      Certificate evidencing shares of Common Stock without par 
                   value, ILC Technology, Inc.

10.1     (E)      ILC Technology, Inc. 1983 Employee Incentive and Nonstatutory
                   Stock Option Plan, as amended, together with related form of
                   Stock Option Agreement.

10.2     (B)      Rights Agreement between ILC Technology, Inc. and Security 
                   Pacific National Bank dated as of September 29, 1989.

10.3     (D)      Employment Agreement between ILC Technology, Inc. and Richard
                   E. DuNah dated July 1, 1992. *

10.4     (E)      ILC Technology, Inc. 1992 Stock Option Plan, as amended, and 
                   related form of Option Agreement. *

10.5     (D)      Form of Officer and Director Indemnification Agreement *

10.6     (G)      Credit Agreement dated March 2, 1995, by and between Union 
                   Bank and ILC Technology, Inc.

10.7     (E)      Standard Industrial/Commercial Single-Tenant Lease between 
                   ILC Technology, Inc. (720 Portal Street, Cotati, California)
                   and John Gary Taylor, dated December 29, 1992.

10.8     (F)      Purchase and Sale  Agreement  dated June 24, 1994,  by and
                   between UCB Bank PLC and Q-Arc,  Limited  relating to 
                   property on the south side of Saxon Way, Bar Hill, Cambridge,
                   England.

10.9     (F)      Asset Purchase Agreement dated September 16, 1994, by and 
                   between ILC Technology, Inc. and UVP, Inc.

10.10    (G)      Lease Agreement between Converter Power, Inc. (150 Sohier 
                   Road, Beverly, Massachusetts) and Communications & Power 
                   Industries, Inc., dated September 15, 1995

10.11             Credit agreement dated March 25, 1996 by and between Union 
                   Bank and ILC Technology, Inc. along with first amendment 
                   dated July 18, 1996.

10.12             Form of Management Compensation Agreement*

21.1     (F)      Subsidiaries of Registrant

23.1              Consent of Arthur Andersen LLP

27.1              Financial Data Schedule



<PAGE>



                          INDEX TO EXHIBITS (CONTINUED)




99.1              Proxy  Statement  for the  Company's  1996  Annual  Meeting of
                  Shareholders  (to be deemed filed only to the extent  required
                  by General Instruction H to Form 10-K)

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

(A)               Incorporated  by reference  from the Exhibits to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended September
                  28, 1991.

(B)               Incorporated  by reference  from the Exhibits to  Registrant's
                  Current Report on Form 8-K dated September 19, 1989.

(C)               Incorporated  by reference  from the Exhibits to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended September
                  30, 1988.

(D)               Incorporated  by reference  from the Exhibits to  Registrants'
                  Annual  Report on Form 10-K for the fiscal year ended  October
                  3, 1992.

(E)               Incorporated  by reference  from the  Exhibits to  Registrants
                  Annual  Report on Form 10-K for the fiscal year ended  October
                  2, 1993.

(F)               Incorporated  by reference  from the Exhibits to  Registrants'
                  Registration Statement on Form 10-K for the year ended October
                  1, 1994.

(G)               Incorporated  by reference  from the Exhibits to  Registrants'
                  Registration  Statement  on  Form  10-K  for  the  year  ended
                  Setpember 30, 1995.

*                 Management contract or compensatory plan or arrangement.