<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the quarterly period ended March 28, 2003

or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from ____________________ to ____________________

Commission File Number 0-12944

                                Zygo Corporation
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                  06-0864500
--------------------------------------------------------------------------------
(State or other jurisdiction of                  (I.R.S. Employer
incorporation or organization)                  Identification No.)

Laurel Brook Road, Middlefield, Connecticut             06455
--------------------------------------------------------------------------------
 (Address of principal executive offices)             (Zip Code)

                                 (860) 347-8506
--------------------------------------------------------------------------------
               Registrant's telephone number, including area code

                                       N/A
--------------------------------------------------------------------------------
   (Former name, former address, and former fiscal year, if changed from last
                                     report)

Indicate by check mark whether the registrant 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).              YES [ ] NO [X]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

       17,562,712 shares of Common Stock, $.10 Par Value, at May 02, 2003







<PAGE>

                           FORWARD LOOKING STATEMENTS

All statements other than statements of historical fact included in this Form
10-Q Quarterly Report, regarding the Company's financial position, business
strategy, plans, and objectives of management of the Company for future
operations are forward-looking statements. Forward-looking statements are
intended to provide management's current expectations or plans for the future
operating and financial performance of the Company, based upon information
currently available and assumptions currently believed to be valid.
Forward-looking statements can be identified by the use of words such as
"anticipate," "believe," "estimate," "expect," "intend," "plans," "strategy,"
"project," and other words of similar meaning in connection with a discussion of
future operating or financial performance. Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors. Among the important factors that could cause actual events
to differ materially from those in the forward-looking statements are
fluctuations in capital spending in the semiconductor industry, fluctuations in
net sales to our major customer, manufacturing and supplier risks, dependence on
new product development, rapid technological and market change, international
operations, dependence on proprietary technology and key personnel, length of
the sales cycle, environmental regulations and changes in expected costs of
discontinued operations. Further information on potential factors that could
affect Zygo Corporation's business is described in the Company's reports on file
with the Securities and Exchange Commission, including its Form 10-K for the
fiscal year ended June 30, 2002.


                                        2





<PAGE>

                         PART I - Financial Information

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      Three Months Ended       Nine Months Ended
                                                     ---------------------   ---------------------
                                                     March 28,   March 31,   March 28,   March 31,
                                                       2003      2002 (1)      2003      2002 (1)
                                                     ---------   ---------   ---------   ---------
<S>                                                   <C>         <C>         <C>         <C>
Net sales
      Products                                        $22,450     $20,185     $ 62,003    $ 57,757
      Development services                              6,560          --       13,726          --
                                                      -------     -------     --------    --------
                                                       29,010      20,185       75,729      57,757
                                                      -------     -------     --------    --------
Cost of goods sold
      Products                                         14,250      13,162       38,906      38,537
      Development services                              5,258          --       10,960          --
                                                      -------     -------     --------    --------
                                                       19,508      13,162       49,866      38,537
                                                      -------     -------     --------    --------
      Gross profit                                      9,502       7,023       25,863      19,220

Selling, general, and administrative expenses           5,716       6,022       16,470      17,380
Research, development, and engineering expenses         2,510       4,457        8,696      14,262
Amortization of intangibles                                --         185          104         555
Exit costs for Automation Systems Group                    --          --           --       1,920
                                                      -------     -------     --------    --------
      Operating profit (loss)                           1,276      (3,641)         593     (14,897)
                                                      -------     -------     --------    --------

Gain on sale of Automation Systems Group                   --          --           --       6,117

Other income (expense):
      Interest income                                     220         281          712       1,124
      Miscellaneous income (expense), net                (108)         74         (275)       (106)
                                                      -------     -------     --------    --------
      Total other income                                  112         355          437       1,018
                                                      -------     -------     --------    --------
      Earnings (loss) from continuing operations
         before income taxes and minority interest      1,388      (3,286)       1,030      (7,762)

Income tax (expense) benefit                             (515)      1,446         (384)      3,449
Minority interest                                          93          94          324         246
                                                      -------     -------     --------    --------
      Earnings (loss) from continuing operations          780      (1,934)         322      (4,559)
                                                      -------     -------     --------    --------

Discontinued TeraOptix operations, net of tax            (338)     (1,788)      (2,482)     (4,553)
Charges and related adjustments on the disposal of
   TeraOptix, net of tax                                   39          --       (9,079)         --
                                                      -------     -------     --------    --------
      Loss from discontinued operations                  (299)     (1,788)     (11,561)     (4,553)
                                                      -------     -------     --------    --------
Net earnings (loss)                                   $   481     $(3,722)    $(11,239)   $ (9,112)
                                                      =======     =======     ========    ========

Basic - Earnings (loss) per share:
      Continuing operations                           $  0.04     $ (0.11)    $   0.02    $  (0.26)
      Discontinued operations                           (0.01)      (0.10)       (0.66)      (0.26)
                                                      -------     -------     --------    --------
      Net earnings (loss)                             $  0.03     $ (0.21)    $  (0.64)   $  (0.52)
                                                      =======     =======     ========    ========

Diluted - Earnings (loss) per share:
      Continuing operations                           $  0.04     $ (0.11)    $   0.02    $  (0.26)
      Discontinued operations                           (0.01)      (0.10)       (0.66)      (0.26)
                                                      -------     -------     --------    --------
      Net earnings (loss)                             $  0.03     $ (0.21)    $  (0.64)   $  (0.52)
                                                      =======     =======     ========    ========

Weighted average shares outstanding:
      Basic                                            17,560      17,434       17,527      17,404
                                                      =======     =======     ========    ========
      Diluted                                          17,738      17,434       17,527      17,404
                                                      =======     =======     ========    ========
</TABLE>

(1)  The consolidated statements of operations for the three and nine
     month-periods ended March 31, 2002 have been reclassified to conform with
     the current period presentations of the loss from discontinued operations.

See accompanying notes to consolidated financial statements.


                                        3





<PAGE>

CONSOLIDATED BALANCE SHEETS
(Thousands)

<TABLE>
<CAPTION>
                                                            March 28, 2003
                                                             (Unaudited)     June 30, 2002
                                                            --------------   -------------
<S>                                                            <C>              <C>
Assets
Current assets:
      Cash and cash equivalents                                $ 35,321         $ 28,513
      Restricted cash                                                --            1,225
      Marketable securities                                      11,057            8,734
      Receivables                                                19,405           21,241
      Income tax receivable                                       2,072               --
      Inventories                                                19,238           23,612
      Prepaid expenses                                              857            1,444
      Deferred income taxes                                       4,579            4,899
      Assets of discontinued unit held for sale                  11,919               --
                                                               --------         --------
         Total current assets                                   104,448           89,668

Property, plant, and equipment, net                              26,053           55,045
Deferred income taxes                                            25,756           19,981
Intangible assets, net                                            5,010            4,507
                                                               --------         --------
Total assets                                                   $161,267         $169,201
                                                               ========         ========

Liabilities and Stockholders' Equity
Current liabilities:
      Current portion of long-term debt                        $ 11,583         $    837
      Accounts payable                                            6,922            5,020
      Progress payments received from customers                   3,503              368
      Accrued salaries and wages                                  3,475            3,451
      Other accrued liabilities                                   4,167            5,132
      Income taxes payable                                           --              929
                                                               --------         --------
         Total current liabilities                               29,650           15,737

Long-term debt, excluding current portion                            --           11,374
Other long-term liabilities                                       1,026            1,115
Minority interest                                                 1,026              970
                                                               --------         --------
   Total liabilities                                             31,702           29,196
                                                               --------         --------

Stockholders' equity:
   Common Stock, $.10 par value per share:
      40,000 shares authorized;
      18,009 shares issued (17,892 at June 30, 2002)
      17,562 shares outstanding (17,445 at June 30, 2002)         1,801            1,789
   Additional paid-in capital                                   138,172          137,390
   Retained earnings (accumulated deficit)                       (3,258)           7,981
   Accumulated other comprehensive income (loss):
      Currency translation effects                               (1,062)          (1,369)
      Net unrealized loss on swap agreement                        (832)            (515)
      Net unrealized gain on marketable securities                   31               16
                                                               --------         --------
                                                                134,852          145,292
   Less treasury stock of 447 common shares, at cost:             5,287            5,287
                                                               --------         --------
      Total stockholders' equity                                129,565          140,005
                                                               --------         --------
Total liabilities and stockholders' equity                     $161,267         $169,201
                                                               ========         ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       4





<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands)

<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                        -------------------------------
                                                                        March 28, 2003   March 31, 2002
                                                                        --------------   --------------
<S>                                                                        <C>              <C>
Cash provided by (used for) operating activities:
   Net loss                                                                $(11,239)        $ (9,112)

   Adjustments to reconcile net loss to cash provided by
      (used for) operating activities:
      Loss from discontinued operations                                      11,561            4,553
      Depreciation and amortization                                           4,277            4,577
      Gain on sale of Automation Systems Group                                   --           (6,117)
      Loss on disposal of assets                                                740              435
      Deferred income taxes                                                     234           (1,754)
      Non-cash compensation charges related to stock options                     57               64
      Changes in operating accounts:
         Receivables                                                            230            3,017
         Costs in excess of billings                                             --           (1,772)
         Inventories                                                          3,559               29
         Prepaid expenses                                                       567              (15)
         Accounts payable and accrued expenses                                3,794           (5,531)
         Minority interest                                                      324              246
                                                                           --------         --------
      Net cash provided by (used for) continuing operations                  14,104          (11,380)
      Net cash used for discontinued operations                              (4,522)          (3,578)
                                                                           --------         --------
      Net cash provided by (used for) operating activities                    9,582          (14,958)
                                                                           --------         --------
Cash used for investing activities:
   Additions to property, plant, and equipment                               (3,446)          (8,381)
   Investment in marketable securities                                       (5,019)          (7,512)
   Investments in other assets                                                 (893)            (303)
   Proceeds from sale of Automation Systems Group, net of cash sold              --           12,077
   Interest and restricted cash from sale of Automation Systems Group         1,225           (1,221)
   Proceeds from the sale or maturity of marketable securities                2,696            5,998
                                                                           --------         --------
      Net cash provided by (used for) continuing operations                  (5,437)             658
      Net cash provided by (used for) discontinued operations                 2,822           (6,826)
                                                                           --------         --------
      Net cash used for investing activities                                 (2,615)          (6,168)
                                                                           --------         --------
Cash provided by financing activities:
   Employee stock purchase                                                      731            1,098
   Exercise of employee stock options                                             6               23
   Dividend payments to minority interest                                      (268)            (131)
   Issuance and repurchase of common stock                                       --             (270)
                                                                           --------         --------
      Net cash provided by continuing operations                                469              720
      Net cash used for discontinued operations                                (628)            (140)
                                                                           --------         --------
      Net cash provided by (used for) financing activities                     (159)             580
                                                                           --------         --------
Net increase (decrease) in cash and cash equivalents                          6,808          (20,546)
Cash and cash equivalents, beginning of period                               28,513           52,630
                                                                           --------         --------
Cash and cash equivalents, end of period                                   $ 35,321         $ 32,084
                                                                           ========         ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       5





<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("Company"). All material transactions and
accounts with the subsidiaries have been eliminated from the consolidated
financial statements. The results of operations for the periods ended March 28,
2003 are not necessarily indicative of the results to be expected for the full
fiscal year.

The Consolidated Balance Sheet at March 28, 2003, the Consolidated Statements of
Operations for the three and nine months ended March 28, 2003 and March 31,
2002, and the Consolidated Statements of Cash Flows for the nine months ended
March 28, 2003 and March 31, 2002 are unaudited but, in the opinion of the
Company, include all adjustments, consisting only of normal recurring accruals,
necessary for a fair statement of the results of the interim periods. The
accompanying consolidated financial statements should be read in conjunction
with the financial statements and notes included in the Company's June 30, 2002
Annual Report on Form 10-K including items incorporated by reference therein.

Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."

The following table sets forth the reconciliation of weighted average shares
outstanding and diluted weighted average shares outstanding:

<TABLE>
<CAPTION>
                                     Three Months Ended         Nine Months Ended
                                   -----------------------   -----------------------
                                    March 28,    March 31,    March 28,    March 31,
                                      2003         2002         2003         2002
                                   ----------   ----------   ----------   ----------
<S>                                <C>          <C>          <C>          <C>
Basic weighted average shares
   outstanding                     17,560,000   17,434,000   17,527,000   17,404,000
Dilutive effect of stock options      178,000           --           --           --
                                   ----------   ----------   ----------   ----------
Diluted weighted average shares
   outstanding                     17,738,000   17,434,000   17,527,000   17,404,000
                                   ==========   ==========   ==========   ==========
</TABLE>

For the nine months ended March 28, 2003 and the three and nine months ended
March 31, 2002, the Company recorded net losses. Due to these net losses, stock
options to acquire 325,000 shares of common stock for the three months ended
March 31, 2002, and 181,000 shares and 327,000 shares of common stock for the
nine months ended March 28, 2003 and March 31, 2002, respectively, were excluded
from the computation of diluted earnings per share because of the anti-dilutive
effect on loss per share.

Stock Compensation Plans

As of March 28, 2003, the Company has three stock-based compensation plans,
which are described below. The Company applies Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Since all options were granted with
an exercise price equal to the fair market value on the date of grant, no
compensation cost has been recognized for its fixed option plans. Pro forma


                                       6





<PAGE>

information regarding net income and earnings per share is required by SFAS No.
123 "Accounting for Stock-Based Compensation," which requires that the
information be determined as if the Company has accounted for its stock options
granted in fiscal years beginning after December 15, 1994 under the fair value
method of the Statement.

The Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan
permitted the granting of non-qualified options to purchase a total of 4,850,000
shares (adjusted for splits) of common stock at prices not less than the fair
market value on the date of grant. Options generally became exercisable at the
rate of 25% of the shares each year commencing one year after the date of grant.
The Plan, as amended, expired on September 3, 2002.

The Zygo Corporation Amended and Restated Non-Employee Director Stock Option
Plan permits the granting of non-qualified options to purchase a total of
620,000 shares (adjusted for splits) of common stock at prices not less than the
fair market value on the date of grant. Under the terms of the Plan, as amended
on September 24, 1999, each new non-employee director (other than a person who
was previously an employee of the Company or any of its subsidiaries) is granted
an option to purchase 8,000 shares of common stock, generally, on his or her
first day of service as a non-employee director; and each other non-employee
director is granted an option to purchase 3,000 shares of common stock on an
annual basis. All options are fully exercisable on the date of grant and have a
10-year term. The Plan, as amended, will expire on November 17, 2009.

The Zygo Corporation 2002 Equity Incentive Plan permits the granting of
incentive stock options, non-qualified stock options, or restricted stock to
purchase a total of 1,500,000 shares of common stock. The exercise price per
share of common stock covered by an option may not be less than the par value
per share on the date of grant, and in the case of an incentive stock option,
the exercise price may not be less than the fair market value per share on the
date of grant. The Plan will expire on August 27, 2012. The Board of Directors
may also amend the Plan to authorize the grant of other types of equity-based
awards, without further action by our stockholders.

The fair value of options at date of grant was estimated using the Black-Scholes
model. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                   Three Months Ended      Nine Months Ended
                                                  ---------------------   --------------------
                                                  March 28,   March 31,   March 28,   March 31,
                                                     2003       2002        2003        2002
                                                  ---------   ---------   ---------   --------
<S>                                                 <C>        <C>         <C>         <C>
Net earnings (loss), as reported                    $ 481      $(3,722)    $(11,239)   $(9,112)
Deduct: Total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax
   effects                                           (111)        (144)        (335)      (286)
                                                    -----      -------     --------    -------
Pro forma net (loss) earnings                       $ 370      $(3,866)    $(11,574)   $(9,398)
                                                    =====      =======     ========    =======

Net earnings (loss) per share
   Basic - as reported                              $0.03      $ (0.21)    $  (0.64)   $ (0.52)
                                                    =====      =======     ========    =======
   Basic - pro forma                                $0.02      $ (0.22)    $  (0.66)   $ (0.54)
                                                    =====      =======     ========    =======

   Diluted - as reported                            $0.03      $ (0.21)    $  (0.64)   $ (0.52)
                                                    =====      =======     ========    =======
   Diluted - pro forma                              $0.02      $ (0.22)    $  (0.66)   $ (0.54)
                                                    =====      =======     ========    =======
</TABLE>


                                       7





<PAGE>

Comprehensive Income (Loss)

The Company's total comprehensive income (loss) was as follows:

<TABLE>
<CAPTION>
                                       Three Months Ended       Nine Months Ended
                                      ---------------------   ---------------------
                                      March 28,   March 31,   March 28,   March 31,
                                        2003        2002        2003        2002
                                      ---------   ---------   ---------   ---------
<S>                                      <C>       <C>        <C>          <C>
Net income (loss)                        $481      $(3,722)   $(11,239)    $(9,112)
Unrealized gain (loss) on marketable
   securities, net of tax                 (21)        (151)         15        (122)
Unrealized gain (loss) on swap
   agreement, net of tax                   29          282        (317)       (311)
Foreign currency translation effect,
   net of tax                            (221)        (248)        307         144
                                         ----      -------    --------     -------
Comprehensive income (loss)              $268      $(3,839)   $(11,234)    $(9,401)
                                         ====      =======    ========     =======
</TABLE>

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. At March 28, 2003 and June 30, 2002, inventories were as
follows:

<TABLE>
<CAPTION>
                                       March 28,   June 30,
                                         2003        2002
                                       ---------   --------
<S>                                     <C>         <C>
Raw materials and manufactured parts    $12,118     $15,114
Work in process                           6,754       8,477
Finished goods                              366          21
                                        -------     -------
                                        $19,238     $23,612
                                        =======     =======
</TABLE>

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Costs of additions,
replacements, and improvements are capitalized. Maintenance and repairs are
charged to expense as incurred. At March 28, 2003 and June 30, 2002, property,
plant, and equipment were as follows:

<TABLE>
<CAPTION>
                                             March 28,   June 30,
                                               2003       2002
                                             ---------   --------
<S>                                          <C>         <C>
Land and land improvements                   $  1,460    $  3,822
Buildings and building improvements             9,705      25,252
Machinery, equipment, and office furniture     39,348      47,640
Leasehold improvements                            167         237
Construction in progress                        1,873       2,878
                                             --------    --------
                                               52,553      79,829
Accumulated depreciation                      (26,500)    (24,784)
                                             --------    --------
                                             $ 26,053    $ 55,045
                                             ========    ========
</TABLE>

Depreciation is based on the estimated useful lives ranging from 3-40 years for
the various classes of assets and is computed using the straight-line method.
During the nine months ended March 28, 2003, the Company reclassified $14,178 of
property, plant, and equipment to current assets, as assets of discontinued unit
held for sale, of which $11,919 is remaining at March 28, 2003 (See note 3).


                                       8





<PAGE>

Warranty

A limited warranty is provided on the Company's products for periods ranging
from 3-27 months and allowances for estimated warranty costs are recorded during
the period of sale. The determination of such allowances requires management to
make estimates of product return rates and expected costs to repair or replace
products under warranty. If actual return rates or repair and replacement costs,
or both, differ significantly from management's estimates, adjustments to
recognize additional expense may be required.

The following is a reconciliation of the beginning and ending balances of the
Company's accrued warranty liability, which is included in the "Other accrued
liabilities" line item in the Company's Consolidated Balance Sheet:

<TABLE>
<CAPTION>
                                                               Three Months Ended   Nine Months Ended
                                                                 March 28, 2003      March 28, 2003
                                                               ------------------   -----------------
<S>                                                                 <C>                  <C>
Beginning balance                                                   $1,364               $  701
Reductions for payments made                                          (235)                (722)
Changes  in  accruals  related to  warranties  issued in the
   current period                                                      162                1,098
Changes in accrual related to pre-existing warranties                   54                  268
                                                                    ------               ------
Ending Balance                                                      $1,345               $1,345
                                                                    ======               ======
</TABLE>


                                       9





<PAGE>

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets" which addresses financial accounting
and reporting for acquired goodwill and other intangible assets and supersedes
APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible
assets that are acquired individually or with a group of other assets should be
accounted for in financial statements upon their acquisition and after they have
been initially recognized in the financial statements. SFAS No. 142 requires
that goodwill and intangible assets that have indefinite useful lives not be
amortized but rather tested at least annually for impairment, and intangible
assets that have finite useful lives be amortized over their useful lives. SFAS
No. 142 provides specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. In addition, SFAS No. 142 expands the
disclosure requirements for goodwill and other intangible assets in the years
subsequent to their acquisition. SFAS No. 142 is effective for our fiscal year
2003. The adoption of SFAS No. 142 did not have a material effect on our results
of operations or statements of financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for retirement
obligations associated with the retirement of tangible long-lived assets and for
the associated asset retirement costs. SFAS No. 143 requires a company to record
the fair value of an asset retirement obligation in the period in which it is
incurred. When the retirement obligation is initially recorded, the company also
records a corresponding increase to the carrying amount of the related tangible
long-lived asset and depreciates that cost over the useful life of the tangible
long-lived asset. The retirement obligation is increased at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the initial fair value measurement. Upon settlement of the
retirement obligation, the company either settles the retirement obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 with earlier
application encouraged. The adoption of SFAS No. 143 in our fiscal 2003 did not
have a material effect on our results of operations or statements of financial
position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and also affects
certain aspects of accounting for discontinued operations. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, " and certain aspects of APB No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. See note 3 for discontinued operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with the exit or disposal activities. SFAS No.
146 nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
companies to record liabilities for exit or disposal activities in the period in
which they are incurred, except for certain types of transactions. SFAS No. 146
is effective for exit or disposal


                                       10





<PAGE>

activities that are initiated after December 31, 2002. The adoption of SFAS No.
146 did not have a material effect on our results of operations or statements of
financial position.

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees that have been
issued. The recognition provisions of FIN 45 are effective for any guarantees
issued or modified after December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material effect on our
results of operations or statements of financial position.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which addresses the alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. If a company adopts the recognition provisions of SFAS
No. 148 in a fiscal year beginning before December 16, 2003, that change in
accounting principle must be reported using one of three methods: Prospective
Method, Modified Prospective Method or Retroactive Restatement Method. If a
company adopts the recognition provisions of SFAS No. 148 for fiscal years
beginning after December 15, 2003, only the Modified Prospective Method and
Retroactive Restatement Method may be used. In the absence of a single
accounting method for stock-based employee compensation, SFAS No. 148 requires
disclosure of comparable information for all companies regardless of whether,
when, or how a company adopts the fair value based method of accounting. SFAS
No. 148 is effective for fiscal years ending after December 15, 2002 and interim
periods beginning after December 15, 2002. The Company has adopted the
disclosure requirements of this SFAS.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities". In general, a variable interest entity is a corporation, partnership,
trust, or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements apply to older entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The adoption of
FIN 46 did not have a material affect on our results of operations or statements
of financial position.


                                       11





<PAGE>

NOTE 3: DIVESTITURES AND DISCONTINUED OPERATIONS

On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. ("Brooks") of Chelmsford, Massachusetts in
a cash transaction for $12,165. Substantially all of the assets were sold to
Brooks and substantially all the liabilities were assumed by Brooks. The gain on
the sale was $6,117 before related exit costs of $1,920, inventory write-downs
of $808, and tax expense of $1,288. In February 2003, a final settlement on the
sale was reached, which resulted in additional charges to costs of sales of
$142.

In September 2002, the Company recognized an after-tax loss of $9,352 (net of a
tax benefit of $5,870) for the planned disposition of its TeraOptix business
unit ("TeraOptix"). The charges related to the disposal of TeraOptix consisted
of impairment charges recorded on the equipment and facility of $13,349,
estimated severance payments of $850, a write-down to fair market value of the
inventory of $650, and $373 of other costs and write-downs related to the
disposition of the remaining assets. During the second quarter of fiscal 2003,
the Company reduced reserves associated with selling costs of the equipment and
facility by $469. The remaining value of the equipment and facility of $11,919
at March 28, 2003 represents the estimated fair market value, based on
third-party appraisals, for the remaining assets to be disposed of, which is
primarily the building. The estimated fair market value is subject to future
market conditions. The assets are classified under current assets as assets of
discontinued unit held for sale. The Company is presently marketing the facility
for sale and proceeds from any sale of the facility will be used to pay down a
related mortgage loan and swap agreement, which are described below. The
mortgage loan and swap agreement have been classified as current liabilities
based on the Company's intention to pay down the debts with the sale proceeds.
The value of the facility is estimated at $11,844, which is net of estimated
selling expenses. As of March 28, 2003, the mortgage balance was $11,583 and the
swap agreement liability was $1,343. If the Company is able to sell the facility
for its estimated value, an additional $1,082 of cash on hand would be used to
pay down the related debts. Factors which could influence the actual amount of
cash used to pay the related debts include a selling price which differs from
the current estimated value, the timing of the sale of the facility, and changes
in the value of the swap agreement, which is based on financial market
conditions.

The mortgage, which has an interest rate of LIBOR plus 150 basis points
(approximately 2.8% in total at March 28, 2003), is payable in full on May 14,
2007. Interest only payments were made through February 14, 2002. The mortgage
principal is amortizing on a 15-year level amortization schedule requiring
monthly principal and interest payments through May 2007. Future mortgage
principal payments by fiscal years ended June 30 will total $209 for 2003; $837
for each year 2004-2006; and $698 for the first 10 months of 2007 with a final
payment of $8,165 in May 2007. The mortgage loan agreement contains financial
covenants, which among others relate to debt service and consolidated debt
ratios. As of March 28, 2003, the Company is in compliance with the financial
covenants.

In conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of approximately 7% for the
duration of the mortgage. As of March 28, 2003, the market value of the
agreement is ($1,343) and is recorded as a current liability with a
corresponding charge to stockholders' equity, net of taxes.

The results and loss on disposal of the TeraOptix business unit have been
presented as separate line items in the accompanying consolidated statements of
operations as discontinued


                                       12





<PAGE>

operations, net of tax, for all periods presented. The components of cash flow
from discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                                                      Nine Months Ended
                                                                                    ---------------------
                                                                                    March 28,   March 31,
                                                                                       2003        2002
                                                                                    ---------   ---------
<S>                                                                                  <C>         <C>
Cash flow from operating activities from discontinued operations:
Loss from discontinued operations                                                    $(2,482)    $(4,553)
Depreciation and amortization                                                             --         835
Deferred income taxes                                                                     --         172
Receivables                                                                              662         (95)
Income taxes                                                                          (1,311)         --
Inventories                                                                              165        (170)
Prepaid expenses                                                                          20          32
Accounts payable and accrued expenses                                                 (1,576)        201
                                                                                     -------     -------
Net cash used for operating activities from discontinued operations                  $(4,522)    $(3,578)
                                                                                     -------     -------
Cash flow from investing activities from discontinued operations:
Additions to property, plant, and equipment                                          $    --     $(6,826)
Proceeds from sale of assets                                                           2,822          --
                                                                                     -------     -------
Net cash provided by (used for) investing activities from discontinued operations    $ 2,822     $(6,826)
                                                                                     -------     -------
Cash flow from financing activities from discontinued operations:
Payment of long-term debt                                                            $  (628)    $  (140)
                                                                                     -------     -------
Net cash used for financing activities from discontinued operations                  $  (628)    $  (140)
                                                                                     -------     -------
</TABLE>

NOTE 4: SEGMENT INFORMATION

FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards, using a management approach, for reporting
information regarding operating segments in annual financial statements. The
management approach designates the internal reporting that is used by the chief
operating decision-maker when making operating decisions and assessing
performance as the source of the Company's reportable segments. The Company's
president has been determined to be its chief operating decision-maker, as
defined under Statement 131.

The Company operates in two principal business segments globally: Semiconductor
and Industrial. The segment data is presented below in a manner consistent with
management's internal measurement of the business. Segment data for fiscal year
2002 periods was restated to reflect the Company's exit from the
telecommunications segment.


                                       13





<PAGE>

<TABLE>
<CAPTION>
                                   Three Months Ended       Nine Months Ended
                                  ---------------------   ---------------------
                                  March 28,   March 31,   March 28,   March 31,
                                    2003         2002        2003       2002
                                  ---------   ---------   ---------   ---------
<S>                                <C>         <C>         <C>          <C>
Semiconductor
   Sales                           $17,793     $ 8,599     $44,132     $27,102
   Gross profit                      4,773       2,808      14,939       8,468
   Gross profit as a % of sales         27%         33%         34%         31%

Industrial
   Sales                           $11,217     $11,586     $31,597     $30,655
   Gross profit                      4,729       4,215      10,924      10,752
   Gross profit as a % of sales         42%         36%         35%         35%

Total
   Sales                           $29,010     $20,185     $75,729     $57,757
   Gross profit                      9,502       7,023      25,863      19,220
   Gross profit as a % of sales         33%         35%         34%         33%
</TABLE>

Separate financial information by segment for total assets, capital
expenditures, and depreciation and amortization is not available and is not
evaluated by the chief operating decision-maker of the Company. See note 5 for
additional information regarding sales in the semiconductor segment.

Substantially all of the Company's operating expenses, assets, and depreciation
and amortization are U.S. based. The Company's sales by geographic area were as
follows:

<TABLE>
<CAPTION>
                                       Three Months Ended      Nine Months Ended
                                      ---------------------   ---------------------
                                      March 28,   March 31,   March 28,   March 31,
                                        2003        2002        2003        2002
                                      ---------   ---------   ---------   ---------
<S>                                    <C>         <C>         <C>         <C>
Americas (primarily United States)     $ 9,124     $11,356     $23,379     $30,592
Far East:
   Japan                                16,127       4,236      39,601      13,721
   Pacific Rim                           1,118       1,550       5,230       4,316
                                       -------     -------     -------     -------
Total Far East                          17,245       5,786      44,831      18,037
Europe and Other (primarily Europe)      2,641       3,043       7,519       9,128
                                       -------     -------     -------     -------
Total                                  $29,010     $20,185     $75,729     $57,757
                                       =======     =======     =======     =======
</TABLE>

NOTE 5: RELATED PARTY TRANSACTIONS

Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of
certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to $15,606 (54% of net sales) and $38,640 (51% of net sales), for the
three and nine months ended March 28, 2003, respectively, as compared to $3,764
(19% of net sales) and $10,942 (19% of net sales) for the comparable prior year
periods. Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc.
are based, generally, on the terms customarily given to distributors. Revenues
generated from a development contract are recorded on a cost-plus basis. At
March 28, 2003 and June 30, 2002, there were, in the aggregate, $7,790 and
$3,849, respectively, of trade accounts receivable from Canon Inc. and Canon
Sales Co., Inc.


                                       14





<PAGE>

In September 2002, the Company and Canon Inc. entered into a contract related to
the development of certain interferometers. The contract currently has a value
of $29,690 and is expected to continue through June 2004, subject to meeting
certain milestones during that period. During the three and nine months ended
March 28, 2003, the Company recognized revenue in the semiconductor segment of
$6,560 and $13,726, respectively, for this contract.


                                       15





<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

       CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosures at the date of our
consolidated financial statements. On an on-going basis, management evaluates
its estimates and judgments, including those related to bad debts, inventories,
warranty obligations, income taxes, and long-lived assets. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The
Company considers certain accounting policies related to revenue recognition and
allowance for doubtful accounts, inventory valuation, warranty costs, accounting
for income taxes, and valuation of long-lived assets to be critical policies due
to the estimates and judgments involved in each.

Revenue Recognition and Allowance for Doubtful Accounts

The Company recognizes revenue based on guidance provided in Securities and
Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." The Company recognizes revenue when
persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, there is no significant risk pertaining to customer
acceptance, our price is fixed or determinable, and collectibility is reasonably
assured.

The Company maintains an allowance for doubtful accounts based on a continuous
review of customer accounts, payment patterns, and specific collection issues.
We perform on-going credit evaluations of our customers and do not require
collateral from our customers. For many of our international customers, we
require an irrevocable letter of credit to be issued by the customer before a
shipment is made. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances would be required.

Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on
a first-in, first-out basis. Management evaluates the need to record adjustments
for impairment of inventory on a monthly basis. The Company's policy is to
assess the valuation of all inventories, including raw materials,
work-in-process, and finished goods. Obsolete inventory or inventory in excess
of management's estimated future usage is written down to its estimated market
value, if less than its cost. Contracts with fixed prices are evaluated to
determine if estimated total costs will exceed revenues. A loss provision is
recorded when the judgment is made that actual costs incurred plus estimated
costs remaining to be incurred will exceed total revenues from the contract.
Inherent in the estimates of market value are management's estimates related to
current economic trends, future demand for the Company's products, and
technological obsolescence.


                                       16





<PAGE>

Significant management judgments must be made when establishing the reserve for
obsolete and excess inventory and losses on contracts. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs and loss accruals may be required.

Warranty Costs

The Company provides for the estimated cost of product warranties at the time
revenue is recognized. The Company considers historical warranty costs actually
incurred to establish the warranty liability. The warranty liability is reviewed
on a quarterly basis. Should actual costs differ from management's estimates,
revisions to the estimated warranty liability would be required.

Accounting for Income Taxes

Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases, and operating loss and tax credit carryforwards. SFAS No. 109,
"Accounting for Income Taxes," requires the establishment of a valuation
allowance to reflect the likelihood of the realization of deferred tax assets.
The Company records a valuation allowance to reduce its deferred tax assets to
an estimated amount based on historical and forecasted results. While management
has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event management were to determine that it would be able to realize its deferred
tax assets in the future in excess of its net recorded amount, an adjustment to
the valuation allowance would increase income in the period such determination
was made. Likewise, should management determine that it would not be able to
realize all or part of its net deferred tax asset in the future, an adjustment
to the valuation allowance would be charged to income in the period such
determination was made. Our effective tax rate may vary from period to period
based on changes in estimated taxable income or loss, changes to the valuation
allowance, changes to federal, state or foreign tax laws, and deductibility of
certain costs and expenses by jurisdiction.

Valuation of Long-Lived Assets

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. Some
factors we consider important, which could trigger the impairment review,
include a significant decrease in the market value of an asset, a significant
change in the extent or manner in which an asset is used, a significant adverse
change in the business climate that could affect the value of an asset, an
accumulation of costs for an asset in excess of the amount originally expected,
a current period operating or cash flow loss combined with a history of
operating or cash flow losses or a projection that demonstrates continuing
losses, and a current expectation that, more likely than not, a long-lived asset
will be disposed of significantly before the end of its estimated useful life.

If such circumstances exist, we evaluate the carrying value of long-lived assets
to determine if impairment exists based upon estimated undiscounted future cash
flows over the remaining useful life of the assets and comparing that value to
the carrying value of the assets. If the carrying value of the assets is greater
than the estimated future cash flows, the assets are written down to the
estimated fair value. We determine the estimated fair value of the assets based
on a


                                       17





<PAGE>

current market value of the assets. If a current market value is not readily
available, a projected discounted cash flow method is applied using a discount
rate determined by management to be commensurate with the risk inherent in the
current business model. Our cash flow estimates contain management's best
estimates, using appropriate and customary assumptions and projections at the
time.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance
sheet entities for the purpose of raising capital, incurring debt or operating
parts of our business that are not consolidated into our financial statements.
We have not guaranteed any obligations of a third party.

                              RESULTS OF OPERATIONS

As previously announced, the Company has discontinued its
telecommunications-focused TeraOptix business unit and is disposing of its
equipment and facility located in Westborough, Massachusetts. Accordingly, the
results of TeraOptix have been presented as a separate line item on the
consolidated statements of operations as discontinued TeraOptix operations, net
of tax, for all periods presented. In addition, the loss on disposal of the
business, net of tax, including adjustments to original estimates, has been
recorded as a separate line item for the third quarter and first nine months of
fiscal 2003. The consolidated statements of operations for the third quarter and
first nine months of fiscal 2002 have been reclassified to conform with the
current period presentations of the discontinued operations and loss on disposal
of TeraOptix.

Net sales of $29.0 million for the third quarter of fiscal 2003 increased by
$8.8 million, or 44%, from the comparable prior year period's $20.2 million. Net
sales included $6.6 million from a development services agreement, representing
75% of the $8.8 million increase in sales. Net sales of $75.7 million for the
first nine months of fiscal 2003 increased by $17.9 million, or 31%, from the
comparable prior year period's $57.8 million. Net sales included $13.7 million
from a development services agreement, representing 77% of the $17.9 million
increase in sales. There were no comparable sales from the development services
agreement in the prior year periods. The development services agreement is
expected to continue through June 2004. Revenue under this agreement can vary
significantly from quarter to quarter.

For the third quarter of fiscal 2003, net sales in the semiconductor segment
were $17.8 million, or 61% of total net sales, as compared to $8.6 million, or
43%, in the prior year period and net sales in the industrial segment were $11.2
million, or 39% of total net sales, as compared to $11.6 million, or 57%, in the
prior year period. The increase in net sales in the semiconductor segment was
primarily due to $6.6 million of sales from the development services agreement.

For the first nine months of fiscal 2003, net sales in the semiconductor segment
were $44.1 million, or 58% of total net sales, as compared to $27.1 million, or
47%, in the prior year period and net sales in the industrial segment were $31.6
million, or 42% of total net sales, as compared to $30.7 million, or 53%, in the
prior year period. The increase in net sales in the semiconductor segment was
primarily due to $13.7 million of sales from the development services agreement.

Sales in the Americas, substantially all of which are in the United States,
amounted to $9.1 million in the third quarter of fiscal 2003, a decrease of $2.3
million, or 20%, from the third quarter of fiscal 2002 levels of $11.4 million.
This decrease was primarily due to continued


                                       18





<PAGE>

weakness in the semiconductor sector. The Company's sales outside the Americas
amounted to $19.9 million in the third quarter of fiscal 2003, an increase of
$11.1 million, or 126%, from the third quarter of fiscal 2002 levels of $8.8
million. Sales in Japan during the third quarter of fiscal 2003 amounted to
$16.1 million, an increase of $11.9 million, or 283%, from the third quarter of
fiscal 2002 sales levels. This increase was primarily due to increased sales to
Canon Inc. (see related party transactions), including revenues of $6.6 million
generated from the development services agreement. Sales in Europe/Other,
primarily Europe, amounted to $2.7 million, a decrease of $0.3 million, or 10%,
from the third quarter of fiscal 2002. Sales in the Pacific Rim, excluding
Japan, amounted to $1.1 million, a decrease of $0.5 million, or 31%, from the
third quarter of fiscal 2002 sales levels.

Sales in the Americas, substantially all of which are in the United States,
amounted to $23.4 million in the first nine months of fiscal 2003, a decrease of
$7.2 million, or 24%, from the first nine months of fiscal 2002 levels of $30.6
million. This decrease was primarily due to continued weakness in the
semiconductor sector. The Company's sales outside the Americas amounted to $52.3
million in the first nine months of fiscal 2003, an increase of $25.1 million,
or 92%, from the first nine months of fiscal 2002 levels of $27.2 million. Sales
in Japan during the first nine months of fiscal 2003 amounted to $39.6 million,
an increase of $25.9 million, or 189%, from the first nine months of fiscal 2002
sales levels. This increase was primarily due to increased sales to Canon Inc.
(see related party transactions), including revenues of $13.7 million generated
from the development services agreement. Sales in Europe/Other, primarily
Europe, amounted to $7.5 million, a decrease of $1.6 million, or 18%, from the
first nine months of fiscal 2002. Sales in the Pacific Rim, excluding Japan,
amounted to $5.2 million, an increase of $0.9 million, or 21%, from the first
nine months of fiscal 2002 sales levels.

Sales in U.S. dollars, for the three and nine months ended March 28, 2003, were
$25.8 million, or 89%, and $67.1 million, or 89%, respectively, of all net sales
for both periods. Significant changes in the values of foreign currencies
relative to the value of the U.S. dollar can impact the sales of our products in
export markets, as would changes in the general economic conditions in those
markets. The impact of such changes in foreign currency values on our sales
cannot be measured.

Gross profit for the third quarter of fiscal 2003 totaled $9.5 million, an
increase of $2.5 million, or 36%, from $7.0 million in the third quarter of
fiscal 2002. Gross profit as a percentage of sales for the third quarters of
fiscal 2003 and fiscal 2002 were 33% and 35%, respectively. The decrease in the
gross profit as a percentage of sales was primarily due to the gross margin on
development services sales, which is lower than the gross margin on product
sales. Gross profit for the first nine months of fiscal 2003 totaled $25.9
million, an increase of $6.7 million, or 35%, from $19.2 million in the first
nine months of fiscal 2002. Gross profit as a percentage of sales for the first
nine months of fiscal 2003 and fiscal 2002 was 34% and 33%, respectively. Gross
profit included $1.3 million and $2.8 million for the third quarter and first
nine months of fiscal 2003, respectively, from a development services agreement
with Canon Inc. (see Related Party Transactions later in this Item 2).

Selling, general and administrative expenses ("SG&A") in the third quarter of
fiscal 2003 amounted to $5.7 million, a decrease of $0.3 million, or 5%, from
$6.0 million in the third quarter of fiscal 2002. The decrease is primarily due
to a reduction in selling expenses, including commissions to outside sales
representatives, trade show expenses, and personnel costs. As a percentage of
net sales, SG&A for the third quarter of fiscal 2003 and fiscal 2002 were 20%
and


                                       19





<PAGE>

30%, respectively. SG&A in the first nine months of fiscal 2003 amounted to
$16.5 million, a decrease of $0.9 million, or 5%, from $17.4 million in the
first nine months of fiscal 2002. As a percentage of net sales, SG&A for the
first nine months of fiscal 2003 and fiscal 2002 were 22% and 30%, respectively.
The decrease in SG&A for the nine months is primarily due to SG&A costs
eliminated as a result of the sale and closing of certain locations and a
reduction in selling expenses, including commissions to outside sales
representatives and personnel costs.

Research, development, and engineering expenses ("R&D") for the third quarter of
fiscal 2003 totaled $2.5 million, a decrease of $2.0 million, or 44%, from $4.5
million in the comparable prior year period. R&D for the first nine months of
fiscal 2003 totaled $8.7 million, a decrease of $5.6 million, or 39%, from $14.3
million in the comparable prior year period. The decreases were primarily
related to the completion of several large research and development projects in
the semiconductor segment in the prior year and the transfer of engineering
resources to revenue producing projects in the current fiscal year.

The Company recorded operating profit of $1.3 million in the third quarter of
fiscal 2003, as compared to an operating loss of $3.6 million in the third
quarter of fiscal 2002. The operating profit as a percentage of sales in the
third quarter of fiscal 2003 was 4%, as compared to an operating loss as a
percentage of sales of 18% in the third quarter of fiscal 2002. The Company
recorded an operating profit of $0.6 million in the first nine months of fiscal
2003, as compared to an operating loss of $14.9 million in the first nine months
of fiscal 2002. The operating profit as a percentage of sales in the first nine
months of fiscal 2003 was 1%, as compared to an operating loss as a percentage
of sales of 26% in the first nine months of fiscal 2002.

The income tax expense from continuing operations in the third quarter of fiscal
2003 totaled $0.5 million, or 37% of pretax profits, which compares with an
income tax benefit of $1.4 million, or 44% of pretax losses, in the third
quarter of fiscal 2002. The income tax expense from continuing operations in the
first nine months of fiscal 2003 totaled $0.4 million, or 37% of pretax profits,
which compares with $3.4 million, or 44% of pretax losses, in the first nine
months of fiscal 2002. The change in tax rates for the third quarter and first
nine months of fiscal 2003 is primarily attributable to a decrease in expected
R&D credits and anticipated taxable income in fiscal 2003. The income tax
benefit from discontinued operations in the third quarter of fiscal 2003 totaled
$0.2 million, or 40% of pretax losses, which compares with $0.8 million, or 31%
of pretax losses, in the third quarter of fiscal 2002. The income tax benefit
from discontinued operations in the first nine months of fiscal 2003 totaled
$1.3 million, or 34% of pretax losses, which compares with $2.0 million, or 31%
of pretax losses, in the first nine months of fiscal 2002. The income tax
benefit associated with the change in the valuation of the assets and other
charges related to the discontinued TeraOptix unit in the first nine months of
fiscal 2003 totaled $5.7 million, or 39% of pretax losses.

The Company recorded net earnings of $0.5 million for the third quarter of
fiscal 2003 as compared to a net loss of $3.7 million for the third quarter of
fiscal 2002. On a diluted per share basis, the net earnings was $0.03 per share
for the third quarter of fiscal 2003 as compared to a net loss of $0.21 per
share for the third quarter of fiscal 2002. The net earnings for the third
quarter of fiscal 2003 includes losses related to the operations of our
discontinued TeraOptix unit, net of tax ($0.3 million), and income related to
the disposal of our discontinued TeraOptix unit, net of tax ($39,000). The
earnings from continuing operations for the third quarter of fiscal 2003 was
$0.8 million, or $0.04 per share, compared to a loss of $1.9 million, or $0.11
per share, for the third quarter of fiscal 2002. The Company recorded a net loss
of $11.2 million for the first


                                       20





<PAGE>

nine months of fiscal 2003 as compared to a net loss of $9.1 million for the
first nine months of fiscal 2002. On a diluted per share basis, the net loss was
$0.64 per share for the first nine months of fiscal 2003 as compared to a net
loss of $0.52 per share for the first nine months of fiscal 2002. The net loss
for the first nine months of fiscal 2003 includes losses related to the
operations of our discontinued TeraOptix unit, net of tax ($2.5 million), and
charges related to the disposal of our discontinued TeraOptix unit, net of tax
($9.1 million). The earnings from continuing operations for the first nine
months of fiscal 2003 was $0.3 million, or $0.02 per share, as compared to a
loss of $4.6 million, or $0.26 per share, for the first nine months of fiscal
2002. The net loss for the first nine months of fiscal 2002 includes an
operating loss of $0.6 million for the Automation Systems Group in Longmont,
Colorado, which was sold in December 2001.

Backlog at March 28, 2003 totaled $41.4 million, a decrease of $5.4 million, or
12%, from $46.8 million at December 27, 2002. Both the semiconductor and
industrial segments contributed to the decrease. Backlog at March 28, 2003
decreased $3.1 million, or 7%, from $44.5 million at March 31, 2002, primarily
due to a decrease in the semiconductor segment. Orders for the third quarter of
fiscal 2003 totaled $23.6 million. Orders by segment for the third quarter of
fiscal 2003 consisted of $15.5 million, or 66%, in the semiconductor segment and
$8.1 million, or 34%, in the industrial segment.

                           RELATED PARTY TRANSACTIONS

Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of
certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to $15.6 million (54% of net sales) and $38.6 million (51% of net
sales), for the three and nine months ended March 28, 2003, respectively, as
compared to $3.8 million (19% of net sales) and $10.9 million (19% of net sales)
for the comparable prior year periods. Selling prices of products sold to Canon
Inc. and Canon Sales Co., Inc. are based, generally, on terms customarily given
to distributors. Revenues generated from a development contract are recorded on
a cost-plus basis. At March 28, 2003 and June 30, 2002, there were, in the
aggregate, $7.8 million and $3.8 million, respectively, of trade accounts
receivable from Canon Inc. and Canon Sales Co., Inc.

In September 2002, the Company entered into a contract with Canon Inc. related
to the development of certain interferometers. The contract currently has a
value of $29.7 million and generally covers the period through June 2004,
subject to meeting certain milestones during this period. During the three and
nine months ended March 28, 2003, the Company recognized revenue of $6.6 million
and $13.7 million, respectively, for this contract in the semiconductor segment.

                         LIQUIDITY AND CAPITAL RESOURCES

At March 28, 2003, working capital was $74.8 million, an increase of $0.9
million from $73.9 million at June 30, 2002. The Company maintained cash, cash
equivalents, restricted cash, and marketable securities at March 28, 2003
totaling $46.4 million. This represents an increase of $7.9 million from June
30, 2002. The increase was primarily due to progress payments received from
customers and reductions in inventory and accounts receivable.


                                       21





<PAGE>

The Company is in the process of disposing of the facility and equipment of the
discontinued TeraOptix unit located in Westborough, Massachusetts. The assets
have been reclassified to current assets as assets of discontinued unit held for
sale. The Company intends to use the proceeds from the sale of the facility to
pay down the mortgage loan and swap agreement described below. The facility has
been valued at an estimated fair market value based on third party appraisals.
The value of the facility is estimated at $11.8 million, which is net of
estimated selling expenses. As of March 28, 2003, the mortgage balance was $11.6
million and the swap agreement liability was $1.3 million. If the Company is
able to sell the facility for its estimated value, an additional $1.1 million of
cash on hand would be used to pay down the related debts. Factors which could
influence the actual amount of cash used to pay the related debts include a
selling price which differs from the current estimated value, the timing of the
sale of the facility, and changes in the value of the swap agreement, which is
based on financial market conditions.

The mortgage on the Westborough facility, which has an interest rate of LIBOR
plus 150 basis points (approximately 2.8% in total at March 28, 2003), is
payable in full on May 14, 2007. Interest only payments were made through
February 14, 2002. The mortgage principal is amortizing on a 15-year level
amortization schedule requiring monthly principal and interest payments. The
Company is presently marketing the facility for sale. Future mortgage principal
payments by fiscal years ended June 30, to be paid until the mortgage is paid
with the proceeds from the sale if any of the facility, will total $0.2 million
for 2003; $0.8 million for each year 2004-2006; and $0.7 million for the first
10 months of 2007 with a final payment of $8.2 million in May 2007. In
conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of approximately 7% for the
duration of the mortgage.

There were no borrowings outstanding under the Company's $3.0 million bank line
of credit at March 28, 2003.

Acquisitions of property, plant, and equipment were $3.4 million for the nine
months ended March 28, 2003.

Although cash requirements will fluctuate based on the timing and extent of
various factors, management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and borrowing
capability, will be sufficient to satisfy the Company's liquidity requirements
for the next 12 months.

                   RISK FACTORS THAT MAY IMPACT FUTURE RESULTS

Risk factors that may impact future results include those disclosed in our Form
10-K for the year ended June 30, 2002.


                                       22





<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The following discussion about our market risk involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates, foreign currency exchange rates, and real estate and equipment
valuations. We do not use derivative financial instruments for speculative or
trading purposes.

Interest Rate Sensitivity

We maintain a portfolio of cash equivalents and marketable securities including
institutional money market funds (which may include commercial paper,
certificates of deposit, and U.S. treasury securities), government agency
securities, and corporate bonds. Our interest income on our variable rate
investments is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our investments are short-term instruments.
The impact of interest rate changes on the Company's results cannot be measured.

During fiscal 2001, the Company entered into a mortgage on its Westborough
facility of $12.6 million at an interest rate of LIBOR plus 150 basis points
(2.8% in total at March 28, 2003) which is payable in full on May 14, 2007. As
of March 28, 2003, the mortgage loan had a balance of $11.6 million. In
conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of approximately 7% for the
duration of the mortgage. Due to the existence of the swap agreement, we do not
believe that a material interest rate risk exposure exists with respect to the
mortgage loan.

Exchange Rate Sensitivity

Approximately 89% of the Company's sales for both the three and nine months
ended March 28, 2003 were in U.S. dollars. At March 28, 2003, the Company's
backlog included orders in U.S. dollars of $38.5 million, or 93% of the total
backlog. Substantially all of the Company's costs are negotiated and paid in
U.S. dollars. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can impact the sales of the Company's products
in its export markets as would changes in the general economic conditions in
those markets. The impact of such changes in foreign currency values on the
Company's sales and backlog cannot be measured.

Costs of Discontinued Operations

The Company has exited the telecommunications segment of its business and is
closing the TeraOptix facility in Westborough, Massachusetts. The facility,
which is financed with a mortgage note, and equipment are being actively
marketed. The mortgage note payable has a balance at March 28, 2003 of $11.6
million and a swap agreement to fix the interest rate on the mortgage at 7% has
a balance at March 28, 2003 of $1.3 million. The Company intends to use the
proceeds from the sale of the facility to pay down the mortgage note and swap
agreement. The facility has been valued at an estimated fair market value based
on third party appraisals. The value of the facility is estimated at $11.8
million, which is net of estimated selling expenses. If the Company is able to
sell the facility for its estimated value, an additional $1.1 million of cash on
hand would be used to pay down the related debts. Factors which could influence
the actual amount of cash used to pay the related debts include a selling price
which differs from the current estimated value, the timing of the sale of the
facility, and changes in the value of the swap agreement, which is based on
financial market conditions.


                                       23





<PAGE>

The Company recorded an impairment charge to reduce the value of the facility
and equipment to the fair market value. The facility has been valued at $11.8
million, which is net of estimated selling expenses, and the remaining equipment
has a fair market value of $70,000. To the extent the final selling price of the
facility and equipment is lower than the fair market value, the Company would
have to record a loss on the sale of the facility and equipment. If, prior to
the sale of the facility and equipment, the Company determines that the
estimated fair market value has decreased, the Company will need to take an
additional impairment charge at that time.

Item 4. Controls and Procedures

During the 90-day period prior to the filing date of this report, management,
including the Corporation's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Corporation's
disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed in the reports the
Corporation files and submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and reported as and when required.

There have been no significant changes in the Corporation's internal controls or
in other factors known to us that could significantly affect internal controls
subsequent to the date of such evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


                                       24





<PAGE>

                           PART II - Other Information

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

     99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.

(b)  None.


                                       25





<PAGE>

                                    SIGNATURE

Pursuant to the requirements 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.

                                        Zygo Corporation
                                ------------------------------------------------
                                        (Registrant)


                                /s/ J. BRUCE ROBINSON
                                ------------------------------------------------
                                J. Bruce Robinson
                                President, Chairman, and Chief Executive Officer


                                /s/ RICHARD M. DRESSLER
                                ------------------------------------------------
                                Richard M. Dressler
                                Vice President, Finance, Chief Financial
                                Officer, and Treasurer

Date: May 7, 2003


                                       26





<PAGE>

                                 CERTIFICATIONS

I, J. Bruce Robinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zygo Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003


                                                    /s/ J. Bruce Robinson
                                                    ----------------------------
                                                    J. Bruce Robinson
                                                    Chairman, President, and
                                                    Chief Executive Officer







<PAGE>

                                 CERTIFICATIONS

I, Richard M. Dressler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zygo Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003


                                                    /s/ Richard M. Dressler
                                                    ----------------------------
                                                    Richard M. Dressler
                                                    Vice President, Finance
                                                    Chief Financial Officer