<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
                 FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1999

                                       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: 0-11309

                              NETOPTIX CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      04-2526583
       (STATE OR OTHER JURISDICTION OF               (IRS EMPLOYER IDENTIFICATION NO.)
       INCORPORATION OR ORGANIZATION)
</TABLE>

    STURBRIDGE BUSINESS PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 347-9191

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

                              TITLE OF EACH CLASS

                   NAME OF EACH EXCHANGE ON WHICH REGISTERED

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

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

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

     As of December 8, 1999, 11,408,731 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant on such date was $274.0 million.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Registrant's proxy statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report, and
portions of the Registrants Annual Report on Form 10-K for fiscal year ended
September 30, 1998, as amended, are incorporated by reference into Part I of
this report.
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<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

CURRENT BUSINESS

     NetOptix Corporation (the "Company" or "NetOptix"), previously known (until
September 30, 1999) as Galileo Corporation, along with its wholly-owned
subsidiaries, Optical Filter Corporation ("OFC") and Optical Filter Corporation,
GmbH ("OFC GmbH"), a German company formed in the fourth quarter of fiscal year
1999 with manufacturing operations expected to commence in the second quarter of
fiscal year 2000, develops, manufactures and markets a variety of optical
components, optical filters and other systems that incorporate recent advances
in photonic technology and optical coating. The products and business of OFC and
OFC GmbH are further discussed below. During the fiscal year covered by this
Report, which commenced October 1, 1998, through the date of this Report,
NetOptix has substantially restructured and reorganized its business operations,
including disposing of and agreeing to dispose of businesses which generated a
majority of the Company's revenue.

     As a result of certain financial and business reversals suffered by the
Company commencing in its 1997 fiscal year and continuing through its 1998
fiscal year, as discussed below, the Company has gone through a substantial
restructuring process. As a part of that process, the Company has sold
businesses and terminated product lines, has accepted substantial outside
capital, has restructured the Board, has identified and disposed of certain
assets and businesses determined by the Board to be non-strategic, has
refinanced its outstanding bank loans, and has focused its resources on the
development and expansion of its optical components business, all as further
described below.

     Excluding businesses and assets sold or to be disposed, the Company's
business consists principally of the design, manufacture and marketing of a
broad range of optical components and systems, including optical filters,
optical lens coatings for medical devices, laser systems, infrared thermal
imaging devices and optical analytic instruments, as well as one of the world's
largest and most technically advanced diamond point turning facilities, which
manufactures highly sophisticated optical components and systems for industrial
lasers and semiconductor instrumentation (hereinafter referred to as the
"Current Businesses"). During the fiscal year, the Company developed and readied
for commercial production optical filters for use in Dense Wavelength Division
Multiplexing ("DWDM") components of fiberoptic networks serving the
telecommunications industry. The Company believes that these technical advances
will be the basis for significant growth in its DWDM business during the fiscal
year ending September 30, 2000 and beyond. Further information concerning the
Current Businesses is set forth below.

DISCONTINUED BUSINESSES

     During the fiscal year ended September 30, 1999, and since the end of such
fiscal year and through the date of this Report, the Company has sold, or has
agreed to sell, the following businesses (the "Discontinued Businesses"). In the
Consolidated Financial Statements of the Company attached hereto, Medical
Products and Scientific Detector and Spectroscopy Products are treated as
discontinued operations.

     (a) Medical Products.  During the fiscal year ended September 30, 1999, the
Company developed, manufactured and distributed medical products, consisting
primarily of women's health-related products. Sales of medical products
accounted for 43%, 43% and 41% of the Company's net sales before restatement for
the fiscal years 1999, 1998 and 1997, respectively.

     Leisegang Medical, Inc. ("LMI"), Galenica Inc. ("Galenica") and Leisegang
Feinmechanik-Optik GmbH ("Leisegang GmbH") developed, manufactured and
distributed women's health-related medical products, primarily to the OB-GYN
market, including colposcopes, ultrasound devices, rigid and flexible
hysteroscopes, fetal monitors and a variety of surgical and diagnostic
instruments. On December 14, 1999, the Company announced that it had entered
into an agreement with The Cooper Companies, Inc. ("Cooper") for the sale of
substantially all of the women's health-related business to Cooper, as reported
on Form 8-K, filed by the Company on December 16, 1999, which is incorporated
herein by reference. The sale of the women's

                                        1
<PAGE>   3

health-related medical product business is expected to close on or about January
31, 2000. Accordingly, the women's health-related business is treated as
discontinued operations. See Item 7 below, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 5 to the Consolidated
Financial Statements, "Discontinued Businesses."

     (b) Scientific Detector and Spectroscopy Products ("SDP").  SDP sales,
which are described in full in the Form 10-K of the Company for the fiscal year
ended September 30, 1998, filed with the Commission on December 29, 1998, as
amended by Form 10-K(A), filed with the Commission on January 28, 1999, which
Form 10-K, as amended (the "1998 Form 10-K/A") is incorporated herein by
reference. SDP sales accounted for 23%, 29% and 37% of the Company's net sales
for the fiscal years 1999, 1998 and 1997, respectively. In July 1999, the
Company sold its SDP business pursuant to an Asset Purchase Agreement with Burle
Electro-Optics Corporation and Burle Industries, Inc., dated as of July 1, 1999,
as reported in Form 8-K filed by the Company with the Commission on July 12,
1999, and Form 10-Q filed by the Company with the Commission on August 13, 1999,
each of which is incorporated by reference herein.

     (c) Telecommunications Products.  As reported in the 1998 Form 10-K/A, in
October 1998 the Company determined to explore several options regarding its
telecommunications products focused on optical amplification based on fluoride
fiber technology. This business was closed in late 1998, and the intellectual
property and other assets of this telecommunications product line were sold to
IPG Photonics Corporation pursuant to an Asset Purchase Agreement dated as of
July 1, 1999, as reported in Form 8-K filed by the Company on July 12, 1999 and
Form 10-Q filed by the Company with the Commission on August 13, 1999, each of
which is incorporated by reference herein.

OPTICAL SYSTEMS AND COMPONENTS PRODUCTS

     OFC, acquired in January 1998, designs, manufactures and markets a broad
range of optical filters, components and systems that incorporate recent
advances in photonic technology and optical coating. After allowing for the
accounting of discontinued operations, OFC is the only remaining operating
business. OFC's products include optical filters, optical lens coatings for
medical devices, laser systems, infrared thermal imaging devices and optical
analytical instruments.

     The optical filter product line of OFC and OFC GmbH includes DWDM filters,
incorporating proprietary advances in filter technology developed by OFC. The
DWDM filters of OFC are capable, within certain portions of the light wave
spectrum, of dividing a light wave traveling through a fiberoptic network into
many separate beams of light, each capable of carrying traffic over the network.
The Company believes that there is a large and growing marketplace for DWDM
filters. Commercial production of DWDM filters began late in the fourth quarter
of fiscal year 1999 and has continued during the first quarter of fiscal year
2000, with commercial shipments commencing in the first quarter of fiscal year
2000. Commencing in the third quarter of fiscal year 1999, the Company added and
has continued to add substantial production capacity for its DWDM filter
business at its facility in Natick, Massachusetts, and has organized a new
subsidiary in Germany, OFC GmbH, which is in the process of completing a
facility in Waechtersbach, Germany for optical filter technology research and
development as well as commercial production of DWDM filters. The German
facility is expected to begin commercial production and shipments in the second
quarter of fiscal year 2000. The Company expects to continue to expand its
production capacity at its facilities in Natick, Massachusetts and in Germany
during the balance of fiscal year 2000 and has arranged financing for such
capital expenditures. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," below.

     OFC's operations also include a facility in Keene, New Hampshire, which
provides products and services for diamond point turning for highly
sophisticated optical components and systems for industrial lasers and for
semiconductor instrumentation.

RESEARCH AND NEW PRODUCT DEVELOPMENT

     The Company's scientists and engineers currently conduct research and
development in fiberoptic and optical filter technologies, including efforts
relating to the DWDM filter technology. The Company's

                                        2
<PAGE>   4

expenditures for research and development relating to its current business were
approximately $0.2 million, $3.0 million and $3.7 million for the fiscal years
1999, 1998 and 1997, respectively. In addition to the reported research and
development costs reported for fiscal year 1999, other process engineering costs
expended to develop and produce filters are included as part of manufacturing
costs.

     In June 1999, the Company announced that Ralf T. Faber, an expert in
optical filter technology, had joined OFC as President, effective July 1, 1999.
Mr. Faber's previous employer, Leybold Systems GmbH, is a leading optical
manufacturing equipment company.

     Information concerning the research and development efforts and
expenditures of the Discontinued Businesses is excluded as it is no longer
relevant.

MARKETING

     The Company markets its current products (excluding the products of the
Discontinued Businesses) to original equipment manufacturers through marketing
partners, distributors and direct end-users. DWDM filters are sold primarily to
manufacturers of telecommunications components and equipment serving the
fiberoptics telecommunications network operators, and are incorporated into such
equipment.

     Marketing information concerning the Discontinued Businesses is not
included in this Report as it is no longer relevant.

CUSTOMERS

     Export sales to foreign customers (excluding sales of the Discontinued
Businesses) principally in Europe and North America, amounted to approximately
$1.0 million and $1.6 million in fiscal year 1999 and 1998, respectively During
fiscal years 1999 and 1998, one customer of the OFC business amounted to
approximately 16% and 14% of sales, respectively.

     During the first quarter of fiscal year 2000, OFC began commercial
shipments of DWDM filters to three customers. The Company expects to add
additional customers for its DWDM filters as production volume increases and
additional production capacity is added.

     Export information concerning the Discontinued Business is excluded as it
is no longer relevant.

RAW MATERIALS AND SUPPLIES

     The principal raw materials and supplies used by the Company in the optical
components business during fiscal year 1999 (excluding raw materials and
supplies used in the Discontinued Businesses) consisted primarily of optical
substrate materials and chemicals for optical coatings. The Company's optical
components business has not experienced any shortages in the past and does not
anticipate any future shortages or unavailability of these items. Most raw
materials are available from alternative sources.

     Information concerning raw materials and supplies for the Company's
Discontinued Businesses has been excluded as no longer relevant.

PATENTS AND INTELLECTUAL PROPERTY

     Although the Company possesses patents related to its optical components
business, it does not believe that the protection offered by these patents is of
material importance to the success of its continuing businesses. The Company
believes that its success depends primarily on continuing research and
development, as well as its manufacturing and marketing skills. In particular,
production of DWDM filters meeting the required specifications for use in the
fiberoptic networks servicing the telecommunications industry is based on a high
degree of technology, which the Company believes to be trade secrets and
proprietary know-how.

     Information concerning the patents and other intellectual property of the
Discontinued Businesses is excluded as it is no longer relevant.

                                        3
<PAGE>   5

BACKLOG

     At September 30, 1999 and 1998, the sales backlog of the optical components
business was $7.2 million and $8.0 million, respectively. All such backlog is or
was scheduled for shipment during the following fiscal year.

     Backlog information concerning the Company's Discontinued Businesses has
been excluded as it is no longer relevant.

COMPETITION

     The Company's optical components business competes with a variety of
manufacturers and suppliers of optical components and optical filters. The
Company sells a variety of optical components for defense applications. The
Company is currently evaluating the extent of its commitment of resources to the
defense market.

     In fiscal year 1999, the Company re-focused its optical components business
strategy to serve the telecommunications market. The telecommunications market
has experienced rapidly accelerating demand for optical products and OFC today
is a growing part of that supply chain. During fiscal year 1999, there was a
global shortage of telecommunications filters. This shortage resulted in almost
all of the Company's competitors being "sold out," without current excess
capacity. Therefore, while there are several companies that make the same
products as the Company makes, there have only been a few competitors with
capacity to sell. However, this worldwide shortage of filters has invited new
entrants into the marketplace and has also caused the existing producers
(including OFC) to add capacity as well. Today there are several new producers
that are striving for a share of the market. OFC's success will depend on the
technological position of its products, the timing of its new product
introductions, as well as the service, price, quality and delivery lead-time
which it can offer to new customers.

     Information concerning the customers and markets for the Company's
Discontinued Businesses has been excluded as no longer relevant.

EMPLOYEES

     As of September 30, 1999, the Company had 291 full-time employees,
including 168 full-time employees associated with the Discontinued Businesses.
Of these employees, nine were employed at the Company's facilities in
Sturbridge, Massachusetts, 111 were employed at OFC in Natick, Massachusetts and
in Keene, New Hampshire, 90 at Galenica near Montreal, Canada, 39 at Leisegang
GmbH in Berlin, Germany and 42 at LMI, in Boca Raton, Florida. None of these
employees is currently covered by a collective bargaining agreement although the
Galenica hourly employees have recently voted to join a collective bargaining
unit. The Company believes that it has good relations with its employees.

     The employees of the women's health-related medical business, consisting of
the employees of Leisegang GmbH, Galenica and LMI, constituting a total of
approximately 168 employees, will, effective upon the sale of such businesses to
Cooper, either be offered employment by Cooper or will be terminated at or
shortly after the consummation of the sale to Cooper. The anticipated employee
costs related to the period prior to the closing of the sale of such women's
health-related medical business to Cooper, as well as any severance or other
obligations arising as a result of such sale, have been reserved for in the
Consolidated Financial Statements included in this Report.

ITEM 2.  PROPERTIES

     The Company's current corporate headquarters and the former manufacturing
facilities associated with certain of the discontinued operations are located in
Sturbridge, Massachusetts, where the Company owns three buildings, with a total
of 197,000 square feet on a 56-acre tract. Approximately 100,000 square feet of
such facilities have been leased, under leases from one to five years, to third
parties, including a five-year lease (with a right to extend for an additional
five years) with Burle Electroptics, Inc., the purchaser of the SDP business.
The Company believes that the lease payments under all such leases are at
current market rates. The
                                        4
<PAGE>   6

Company has listed the Sturbridge property for sale and such property is
included in the Assets Held for Sale reflected in the Company's Consolidated
Financial Statements included with this Report. The value of the Sturbridge
property on the Consolidated Financial Statements has been written down to $3.0
million as of September 30, 1999.

     The Company's present intention is to locate office space, initially on a
lease basis, for its corporate headquarters operations, in the area of Natick,
Massachusetts, where OFC has its headquarters. No timetable has been set for
this move.

     OFC, a wholly-owned subsidiary, has sales, marketing, administrative and
manufacturing facilities in Natick, Massachusetts and additional manufacturing
facilities in Keene, New Hampshire. OFC leases approximately 55,000 square feet
of space including approximately 25,000 square feet from a related party.

     Galenica, a wholly-owned subsidiary, is located near Montreal, Canada where
the Company owns a facility where it manufactures a majority of the products
produced by this subsidiary and it also leases approximately 6,000 square feet
of space from a related party for sales, marketing and certain manufacturing. In
connection with the sale of the women's health-related medical business, the
purchaser will acquire title to the owned real estate in Montreal, Canada, and
will assume the balance of the lease on the leased facilities.

     Leisegang GmbH, a wholly-owned subsidiary, is located in Berlin, Germany,
and leases approximately 23,000 square feet of space for sales, marketing,
administration and manufacturing. In connection with the sale of the women's
health-related medical business, the purchaser has agreed to purchase the stock
of Leisegang GmbH, in which event the real estate owned by Leisegang GmbH will
no longer be reflected as owned by a subsidiary of the Company.

     LMI, a wholly-owned subsidiary, is located in Boca Raton, Florida, where it
leases approximately 13,000 square feet of space used for sales, service and
marketing and administration. In connection with the sale of the women's
health-related medical business, the purchaser has agreed to sublet
approximately 6,500 square feet of such space for the balance of the lease term,
and additional 5,000 square feet of such space for six months after the closing
anticipated to occur on or about January 31, 2000. The Company will retain
approximately 1,500 square feet for use by its own personnel and will be
responsible for the 5,000 square feet when the sublease to Cooper expires six
months after the closing.

ITEM 3.  LEGAL PROCEEDINGS

     The four class action lawsuits, commenced against the Company and certain
of its former officers during fiscal year 1998, alleging violations of the
federal securities laws, as reported in the 1998 Form 10-K/A, have been
consolidated into a single action pending in the United States District Court
for the District of Massachusetts. The plaintiffs seek damages based upon
certain alleged misstatements or omissions in the Company's public announcements
and filings. The Company has filed a Motion to Dismiss, to which the class
plaintiffs have responded; there has been no ruling on this motion. The Company
intends to continue to vigorously defend these lawsuits. There are no other
material pending legal proceedings to which the Company is a party or to which
any of its property is subject, which are not covered by insurance.

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

     There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year 1999.

                                        5
<PAGE>   7

                                    PART II

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

     The Company's Common Stock is listed on the Nasdaq National Market System
under the symbol OPTX. The following table sets forth, for the periods
indicated, the high and low sales prices for the common stock as reported by
Nasdaq.

<TABLE>
<CAPTION>
                                                             LOW       HIGH
                                                           -------    -------
<S>                                                        <C>        <C>
FISCAL YEAR 1998
  1st Quarter............................................  $ 8.750    $14.750
  2nd Quarter............................................    9.750     17.500
  3rd Quarter............................................   11.125     16.500
  4th Quarter............................................    2.063     13.125
</TABLE>

<TABLE>
<CAPTION>
                                                             LOW       HIGH
                                                           -------    -------
<S>                                                        <C>        <C>
FISCAL YEAR 1999
  1st Quarter............................................    2.750      3.813
  2nd Quarter............................................    3.625      5.750
  3rd Quarter............................................    4.375      7.438
  4th Quarter............................................    7.375     22.250
</TABLE>

     The Company had 394 stockholders of record as of December 8, 1999.

     The Company has not paid dividends since 1979 and does not anticipate
paying cash dividends in the foreseeable future. In fact, the Company has a
retained earnings deficit, and future earnings are expected to be retained for
use in its businesses.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                      YEARS ENDED SEPTEMBER 30,
                                        ------------------------------------------------------
                                          1999        1998        1997       1996       1995
                                        --------    --------    --------    -------    -------
                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>         <C>         <C>         <C>        <C>
Net sales.............................  $ 14,366    $ 14,774    $ 12,816    $42,634    $40,753
Income (loss) from continuing
operations............................   (11,310)    (13,735)    (12,378)     5,527      1,399
Income (loss) from discontinued
  operations, net.....................    (1,567)      1,108       1,194         --         --
Extraordinary gain, net...............        --          --          --        158         --
Net income (loss).....................   (12,877)    (12,627)    (11,184)     5,685      1,399
Earnings (loss) per share from
  continuing operations
  Basic...............................     (1.19)      (1.80)      (1.81)      0.81       0.21
  Diluted.............................     (1.19)      (1.80)      (1.81)      0.80       0.21
Earnings (loss) per share from
  discontinued operations
  Basic...............................     (0.16)       0.15        0.18         --         --
  Diluted.............................     (0.16)       0.15        0.18         --         --
Earnings per share from extraordinary
  gain
  Basic...............................        --          --          --       0.02         --
  Diluted.............................        --          --          --       0.02         --
</TABLE>

                                        6
<PAGE>   8

<TABLE>
<CAPTION>
                                                      YEARS ENDED SEPTEMBER 30,
                                        ------------------------------------------------------
                                          1999        1998        1997       1996       1995
                                        --------    --------    --------    -------    -------
                                            (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>         <C>         <C>         <C>        <C>
Earnings (loss) per share
  Basic...............................     (1.35)      (1.65)      (1.63)      0.83       0.21
  Diluted.............................     (1.35)      (1.65)      (1.63)      0.82       0.21
Total assets..........................    48,365      55,654      42,727     53,064     48,173
Long-term obligations.................     1,210       1,008         956        132        716
</TABLE>

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

Notes: Results of operations and earnings per share data for fiscal years 1997
       through 1999 have been restated to reflect the Company's discontinued
       operations. Since continuing operations principally reflect the business
       of OFC, as it was acquired in January 1998, the periods ended September
       30, 1996 and 1995 were not restated as such information would not be
       meaningful. Balance sheet data for years prior to 1999 have not been
       restated for discontinued operations. See Note 5, "Discontinued
       Businesses," to the Company's Consolidated Financial Statements.

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

     This report contains "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. To identify forward-looking
statements, look for words like "believes," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "estimates" or "anticipates," and
similar words or phrases. Discussion of strategy, plans or intentions often
contain forward-looking statements. These, and all forward-looking statements,
necessarily depend on assumptions, dates or methods that may be incorrect or
imprecise.

     Events, among others, that could cause actual results and future actions to
differ materially from those described by or contemplated in the forward-looking
statements include major changes in business conditions and the economy, loss of
key senior management, major disruptions in the operation of the OFC
manufacturing facilities or delays in delivery of new production equipment, new
competition or technologies, significant disruptions caused by their parties
failing to address the Year 2000 issue or by problems with the Company's Year
2000 compliance program, foreign currency exchange exposure, investments in
research and development and other start-up projects, regulatory issues,
significant environmental clean-up costs above those already accrued, litigation
costs, costs of business divestitures, and other similar factors.

     During fiscal year 1999, the make-up of the Company has changed
dramatically. During the year, the SDP and telecommunications businesses were
sold, the sale proceeds being used to reduce the then outstanding bank debt. As
the Company has decided to focus on a telecommunications strategy, an agreement
was signed on December 14, 1999 to sell LMI and the related women's
health-related business and related assets. The transaction is scheduled to
close on January 31, 2000.

     The Consolidated Statements of Operations of the Company for the three
years ended September 30, 1999 and the consolidated balance sheet and
consolidated statement of cash flow as of September 30, 1999 have been
reclassified to report the net assets and liabilities and result of operations
of the SDP and the LMI Medical businesses as discontinued operations in
accordance with generally accepted accounting principles. Accordingly, the
consolidated results of continuing operations reflect primarily the results of
operations of the remaining operating subsidiary, OFC, and corporate support
costs.

RESULTS OF OPERATIONS

  Fiscal Year 1999 Compared to Fiscal Year 1998

     After reflecting the accounting for medical products and SDP businesses as
discontinued operations during the fourth quarter of 1999, full year net sales
were $0.4 million less than 1998. That decrease was the net result of an
increase in sales at OFC of $2.2 million, offset by a reduction in sales within
previously discontinued businesses, primarily medical endoscope products ($2.2
million), which was discontinued during

                                        7
<PAGE>   9

the fourth quarter of fiscal year 1998. The year over year OFC revenue increase
resulted from the inclusion of OFC revenue in the Consolidated Financial
Statements for all of 1999 as compared to nine months of fiscal year 1998, as it
was acquired in January 1998. Revenue gains (adjusted for acquisition timing)
were realized at OFC's diamond point turning facility as growth of approximately
28% occurred in its commercial sector, partially attributable to increased
capacity. Offsetting those increases was a reduction, primarily related to
government defense work, within OFC's core optical filter coating business. That
reduction was a reflection of a slow-down in defense work opportunities coupled
with a shift in focus and resources to the Company's new telecommunications
strategy and production of DWDM filters.

     The 1999 gross profit (as a percentage of revenues) of the remaining
operating business (OFC) was 33.6% compared to 36.8% for 1998. While there was a
slight increase in the gross profit percentage at OFC's diamond turning business
from productivity improvements, reduced levels of production within the core
optical coating operations resulted in higher costs and an overall net decrease
in the profit percentage. For 1998, the high production costs, in addition to
the $2.9 million reduction in the carrying costs of inventories to fair market
value of its Medical Endoscope Imaging Products business (discontinued in
September, 1998), resulted in a gross loss of $0.1 million for that year.

     Ongoing research and development expenses of the Company amounted to $0.2
million for fiscal year 1999 and were expended on DWDM filter development
activities or approximately $0.1 greater than 1998. In addition to the reported
research and development costs reported for fiscal year 1999, other process
engineering costs expended to develop and produce filters are included as part
of manufacturing costs. While development costs are expected to increase
moderately as DWDM filter requirements change, the Company believes it has both
the personnel and funding required for such efforts. The year over year decrease
in research and development costs resulted from the elimination of programs
associated with the discontinued Medical Endoscope and Telecom businesses.

     After considering one-time operating expenses ($1.6 million) during 1999
and the inclusion of OFC selling and administrative costs for a full year ($0.7
million), the Company's actual selling and administrative spending decreased by
approximately $1.0 million year over year. Severance costs associated with the
resignation of an executive officer, increased legal fees associated with
lawsuits, environmental clean-up costs associated with the Sturbridge facility
and costs associated with the Company's name change comprised the mostly
one-time costs. Whereas selling and administrative costs would be expected to
increase with the planned growth of the DWDM filters business, reductions
realized in Corporate infrastructure costs should remain.

     Included in operating results for the fiscal year ended September 30, 1998
is a charge of $0.6 million related to the potentially uncollectible receivables
(net of recoveries) from a medical endoscope customer. The customer filed for
bankruptcy during fiscal year 1999. The receivables balance as of September 30,
1999 is $0.4 million, which has been fully reserved in the balance sheet as of
that date.

     The Company incurred one-time charges for costs during fiscal 1999 to
reduce the carrying value of certain buildings and equipment to estimated fair
market value. Those charges totaled $6.4 million and were related to the
write-down of the Sturbridge facility ($3.8 million) and equipment ($1.3
million) in addition to the impairment of certain OFC equipment of $1.3 million.
Impairment charges that totaled $1.5 million were incurred during fiscal year
1998.

     Interest costs of $0.9 million for fiscal year 1999 were $0.4 million
greater than 1998 and resulted from borrowings under the Company's revolving
lines of credit with banks as discussed below. The increase is attributable to
borrowings associated with the Company's capital spending for DWDM filter
production equipment.

     Other income for 1999 includes the gain on the sale of the
telecommunications business of $0.6 million.

     For both the current and comparable prior year periods, the Company's
effective tax rate differs from the statutory rate primarily due to the
unrecognized benefit of available tax loss carryforwards. The current year
provision relates principally to foreign, state and franchise taxes.

                                        8
<PAGE>   10

     As mentioned previously, results associated with the SDP and Medical
businesses have been treated as discontinued segments and their results
classified as discontinued operations. For fiscal year 1999, the amount reported
was net income of $0.7 million comprised of net income from the SDP business of
$1.4 million and a loss from the Medical business of $0.7 million. The reported
net loss from disposal of discontinued operations was comprised of a net gain on
the sale of the SDP business of $2.7 million offset by an expected loss on the
sale of the Medical business of $5.0 million. Results from operations of
discontinued operations for 1998 were net income for the SDP business of $1.9
million offset by the loss from the Medical business of $0.8 million.

  Fiscal Year 1998 Compared to Fiscal Year 1997

     With the reclassification of the SDP and Medical (LMI) businesses to
discontinued operations as discussed earlier in this report, the comparison of
continuing operations for the period 1998 and 1997 becomes one driven by the
acquisition of OFC in January 1998, the loss of the Xerox business in the first
quarter of 1997, and the 1998 fourth quarter recognition of one-time charges
associated with exiting the medical endoscope and telecommunications businesses.
Specific comments regarding that comparison are:

     Revenues for fiscal 1998 of $14.8 million increased $2.0 million, or 15.6%,
from revenues of $12.8 million in fiscal 1997. Fiscal year revenues from
acquisitions, particularly OFC of $12.2 million, offset the loss of fiscal year
1997 revenues from Xerox and a sales reduction of medical endoscopes.

     Revenues for Medical Endoscope Imaging Products for fiscal year 1998 of
$2.6 million were negatively impacted by the failure to complete a marketing
relationship for an application-specific endoscope and lower than expected
product requirements by the Company's marketing partners. As a result, during
the fourth quarter of fiscal 1998, the Company terminated its Medical Endoscope
Imaging Products business.

     The gross profit for the fiscal year ended September 30, 1998 had eroded to
a slight loss from fiscal year 1997 of $3.6 million or 28%, due primarily to the
impact of the reduction in the carrying costs of medical endoscope inventories
to fair market value ($2.9 million) and the loss of higher margin Xerox-related
revenues replaced by lower gross margins from the acquired OFC business.

     Research and development expenses decreased to $3.0 million in fiscal year
1998 from $3.7 million in fiscal year 1997 due to reduced spending on the
Company's now terminated investments in the medical endoscope imaging and
telecommunications products businesses.

     Selling and administrative expenses increased from $5.2 million in fiscal
year 1997 to $8.2 million in fiscal year 1998 due to the inclusion of operating
expenses and goodwill amortization from the OFC acquisition and increased
administrative costs associated with the discontinued medical endoscope and
telecommunications businesses.

     Included in operating results for the fiscal year ended September 30, 1998,
is a charge of $0.6 million related to the potential uncollectibility of
receivables (net of recoveries) from a medical endoscope customer that had
experienced severe liquidity issues.

     Interest expense amounted to $0.5 million during fiscal year 1998 compared
with interest income of $0.7 million during fiscal year 1997 due to the
liquidation of short-term investments held during fiscal year 1997 and
borrowings under the Company's revolving line of credit with a bank during
fiscal year 1998 as discussed below.

     For both the current and comparable prior year periods, the Company's
effective tax rate differs from the statutory rate primarily due to the
unrecognized benefit of available tax loss carryforwards. The current year
provision relates principally to foreign, state and franchise taxes.

     The income from discontinued operations of $1.1 million as of September 30,
1998 is comprised of the net income from the SDP business of $1.9 million and a
loss from the Medical business of $0.8 million as compared to 1997 results of
net incomes for the SDP business of $0.8 million and the Medical business of
$0.4 million, respectively.

                                        9
<PAGE>   11

LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION

     On January 26, 1999, pursuant to a previously announced Securities Purchase
Agreement dated December 22, 1998 (the "Purchase Agreement"), Andlinger Capital
XIII LLC, a Connecticut limited liability company ("Andlinger Capital"),
purchased from the Company 2,000,000 shares of the Company's Common Stock
together with warrants to purchase an additional 2,000,000 shares of the
Company's Common Stock for an aggregate purchase price of $6.0 million in a
private transaction. On September 23, 1999, Andlinger Capital exercised its
rights to purchase 1,000,000 of the 2,000,000 shares of Common Stock covered by
the warrants for cash proceeds of $1.5 million.

     During fiscal year 1999, following the restructuring of the Board of
Directors, the Company sought to re-focus its operations through a continuing
cost reduction program, the disposition of non-strategic assets and businesses
and the refinancing of its outstanding bank indebtedness. Accordingly, effective
July 1, 1999, the Company sold the assets related to its SDP business to Burle
Electro-Optics Corporation and Burle Industries, Inc. ("Burle"), and in
connection therewith, leased a substantial portion of its Sturbridge real estate
housing the SDP business to Burle on a five-year lease at market rates. Net
proceeds of the disposition, after transaction costs and retained liabilities,
of approximately $7.1 million, were applied to the reduction of indebtedness
under the then outstanding bank loan.

     Also effective July 1, 1999, the Company sold the intellectual property and
other assets related to its former business in telecommunications products based
upon fluoride fiber technology to IPG Photonics Corporation ("IPG"), and leased
an additional portion of the Sturbridge real property to IPG on a short-term
basis. The transaction with IPG, net of transaction costs and retained
liabilities, produced net proceeds of approximately $1 million, which were
applied to the reduction of the outstanding bank loan.

     During fiscal year 1999, the Company also evaluated its options with
respect to the Sturbridge real estate. In addition to the leases with IPG and
Burle, the Company has entered into other short-term leases with respect to
portions of the Sturbridge real property. The Company has also listed the
Sturbridge property for sale. The Consolidated Financial Statements included
with this Report reflect a reduction in the carrying value of the Sturbridge
real property to approximately $3.0 million as of September 30, 1999, to reflect
estimated realizable value of the Sturbridge real property.

     In September 1999, the Company refinanced its outstanding bank loan through
a new credit facility with Deutsche Financial Services Corporation. This
facility is comprised of a term loan of up to a maximum outstanding of $13
million (of which $5.9 million was outstanding at September 30, 1999) and a
revolving credit facility of up to $12 million (of which $1.2 million was
outstanding at September 30, 1999). The term loan is available for financing
equipment and other capital expenditures for use in the Company's optical
components business in the United States and Germany. The Company believes that
the availability under the term loan and the revolving credit facilities will be
adequate to fund anticipated costs of operations and capital expenditures
through the balance of fiscal year 2000 and beyond.

     The credit facility contains a number of covenants and requirements
concerning financial ratios and other indebtedness, as well as limitations
regarding the payment of dividends. The Company believes that, based upon
anticipated operations, it will meet the covenant requirements and that there
will be continued availability under the credit facility for the balance of
fiscal 2000.

     In December 1999, following the close of fiscal year 1999, the Company
announced that it had entered into an agreement to sell its women's
health-related medical business to The Cooper Companies, Inc. ("Cooper"). The
sale to Cooper is expected to close on or about January 31, 2000. The net
proceeds of the sale, after transaction costs, payment of retained liabilities,
are anticipated to be approximately $6.5 million, which will be applied to
outstanding indebtedness and accordingly, such amounts have been reflected on
the Company's consolidated balance sheet as a current liability. Because of the
agreement to sell the women's health-related medical business, the results of
operations for such business for fiscal year 1999 have been included in
discontinued operations in the Consolidated Financial Statements and the related
assets of such business have been classified as Assets related to discontinued
operations.

                                       10
<PAGE>   12

     Capital expenditures for fiscal year 1999 amounted to $8.9 million versus
$2.9 for fiscal year 1998. Fiscal year 1999 capital expenditures relate
primarily to the addition of production equipment to the OFC facility in Natick,
Massachusetts, supporting the production of DWDM optical filters.

YEAR 2000

     The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Such software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions in the Company's
activities and operations. If the Company, its significant customers, or
suppliers fail to make necessary modifications and conversions on a timely
basis, the Year 2000 issue could have a material adverse effect on Company
operations. However, the impact cannot be quantified at this time. The Company
believes that its competitors face a similar risk.

     In December 1997, the Company established a corporate-wide strategy to
address and remedy technology issues relating to the Year 2000. This strategy
encompasses four areas: internal technology systems and applications used in its
business operations; manufacturing control systems; external systems of vendors
and service providers; and technology systems of existing customers.

     The Company has completed an inventory and assessment of all critical
internal business systems and applications and the majority of remedies
consisting of upgrades or replacements were completed by October 31, 1999. The
Company will continue testing and verification through December 31, 1999.

     The Company has completed the Year 2000 compliance status of vendors and
service providers and is attempting to minimize risk and exposure based on
responses of these critical vendors and service providers through alternative
sources and contingency plans.

     In the event the Company is unable to fully meet Year 2000 compliance,
manufacturing operations will be adversely impacted. Any potential future
business interruptions, costs, damages or losses related thereto, are dependent,
to a significant degree, upon the Year 2000 compliance of third parties, both
domestic and international, such as government agencies, customers, vendors and
suppliers. While efforts will be made to minimize risk, no assurance can be made
that companies in the entire supply chain will not be affected. In that respect,
failures and disruptions of the business process remain a possibility and no
assurance can be provided that Year 2000 compliance can be achieved.

     Previous costs related to Year 2000 compliance were funded through
operating cash flows and the Company's revolving debt facility. Through fiscal
year 1999, the Company expended approximately $0.3 million in remediation
efforts paid to third party consultants and vendors. Internal expenditures are
not tracked separately.

     The Company believes it has taken appropriate steps to achieve Year 2000
compliance. As previously discussed, many of the compliance issues rely on the
uninterrupted delivery of products and services of third parties. Consequently,
there can be no assurance of uninterrupted business processes, or additional
costs, losses, or damages occurring as a result of the Year 2000 compliance.

SIGNIFICANT CUSTOMERS

     Although sales to one OFC non-DWDM filter customer accounts for 16% and 14%
of total Company sales as of September 30, 1999 and 1998, respectively, the loss
of that customer would not have a material adverse effect on the financial
statements. Start-up of commercial shipments of DWDM filters in the first
quarter of fiscal year 2000 and the commitments made to increase manufacturing
capacity throughout that year will require the Company to identify additional
customers. Whereas the Company is in the process of qualifying its filter with
potential customers, there is no assurance that sales will materialize. Although
the demand for filters currently is strong and growth is expect to continue, the
failure to sell a significant portion of that capacity would have a significant
negative impact on the financial condition of the Company.

                                       11
<PAGE>   13

NEW PRODUCT DEVELOPMENT

     The market for the Company's products is characterized by rapidly changing
technology. The Company's future success will continue to depend upon its
ability to enhance its current products and to develop and introduce new
products that keep pace with technological developments and evolving industry
standards, respond to changes in customer requirements and achieve market
acceptance. Any failure by the Company to anticipate or respond adequately to
technological developments and customer requirements, or any significant delays
in product development or introduction, could have a material adverse effect on
the Company's business, financial condition and results of operations. In order
to develop new products successfully, the Company is dependent upon close
relationships with its customers and their willingness to share proprietary
information with the Company. There can be no assurance that the Company's
customers will continue to provide it with timely access to such information or
that the Company will be successful in developing and marketing new or enhanced
products and services in a timely manner and respond effectively to
technological changes or new product announcements by others. In addition, there
can be no assurance that the new products and services or product and service
enhancements, if any, developed by the Company will achieve market acceptance.

POTENTIAL ACQUISITIONS

     The Company regularly reviews various acquisition prospects of businesses,
technologies or products complementary to the Company's business and
periodically engages in discussions regarding such possible acquisitions.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired companies, the ability
effectively to manage geographically remote units, the diversion of management's
attention from other business concerns, risks of entering markets in which the
Company has limited or no direct experience and the potential loss of key
employees of the acquired companies. In addition, acquisitions may result in the
issuance of debt and dilutive equity securities, reduction in existing cash
balances, amortization expenses related to goodwill and other intangible assets
and other charges to operations that may materially adversely affect the
Company's business, financial condition and results of operations. Although
management expects to carefully analyze any such opportunity before committing
the Company's resources, there can be no assurance that the Company will be
successful in making acquisitions, that the prices and terms of any acquisitions
will be favorable to the Company, that any completed acquisition will result in
long-term benefits to the Company or that the Company's management will be able
to manage the resulting businesses effectively.

COMPETITION

     The Company's competitive position in the Current Businesses depends
primarily on the technological development of its products, as well as on
delivery schedules, service, quality and price. Some of the Company's
competitors are major corporations, or divisions of major corporations, which
have greater financial, technological and personnel resources than the Company
and may represent significant competition for the Company. Such companies may
succeed in developing technologies and products that are more effective, more
readily available, or less costly than those that may be developed by the
Company, and such companies may be more successful than the Company in
developing, manufacturing and marketing products. There can be no assurance that
the Company will be able to compete successfully in the future or that
developments by others will not render the Company's products obsolete or
non-competitive or that the Company's customers will not choose to use competing
technologies or products. Further, the entry of new competitors into the markets
for the Company's products could cause downward pressure on the prices of such
products and a material adverse effect on the Company's business, financial
condition and results of operations.

DEPENDENCE ON PROPRIETARY TECHNOLOGY

     Although the Company does not believe that the success of the Current
Businesses is dependent upon the protection offered by patents, the Company
possesses a number of patents that relate to its technology. There can be no
assurance that the steps taken by the Company to protect its proprietary
technology will be adequate
                                       12
<PAGE>   14

to prevent misappropriation of its technology by third parties or will be
adequate under the laws of some foreign countries, which may not protect the
Company's proprietary rights to the same extent as do laws of the United States.
In addition, there remains the possibility that others will "reverse engineer"
the Company's products in order to determine their method of operation and
introduce competing products or that others will develop competing technology
independently. Any such adverse circumstances could have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, some of the markets in which the Company competes are characterized by
the existence of a large number of patents and frequent litigation for financial
gain that is based on patents with broad, and often questionable, application.
As the number of its products increases, the markets in which its products are
sold expands, and the functionality of those products grows and overlaps with
products offered by competitors, the Company believes that it may become
increasingly subject to infringement claims. Although the Company does not
believe any of its products or proprietary rights infringe the rights of third
parties, there can be no assurance that infringement claims will not be asserted
against the Company in the future or that any such claims will not require the
Company to enter into royalty arrangements or result in costly litigation.

     The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and advisors
to execute confidentiality and assignment of invention agreements in connection
with their employment, consulting or advisory relationships with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any breach. Furthermore,
there can be no assurance that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology, or that the Company can
meaningfully protect its rights in unpatented proprietary technology. Several of
the Company's management and scientific personnel were formerly associated with
competitive companies. In some cases, these individuals are conducting research
in similar areas with which they were involved prior to joining the Company. As
a result, the Company, as well as these individuals, could be subject to claims
of violation of trade secrets and similar claims.

     The Company intends vigorously to protect and defend its intellectual
property. Costly and time-consuming litigation brought by the Company may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company, or to determine the enforceability, scope and
validity of the proprietary rights of others.

POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE

     The Company's products, particularly its medical products included among
the Discontinued Businesses, may expose the Company to product liability claims,
and there can be no assurance that the Company will not experience material
product liability losses in the future. In connection with sale of the SDP
business, the telecommunications business and the women's health-related medical
business, the Company has retained the obligations for private product liability
claims arising from the use of products manufactured or shipped prior to the
effective date of such transactions. Accordingly, the Company continues to have
exposure for such product liability claims, notwithstanding that the operating
businesses which produced such products have been sold. The Company currently
has product liability insurance coverage for the commercial sale of its
products. However, a successful claim brought against the Company in excess of
available insurance coverage, or a claim or product recall that results in
significant adverse publicity against the Company, may have a material adverse
effect on the Company's business, financial condition and results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk related to its credit facility as
discussed in the Notes to the Consolidated Financial Statements. The interest on
the credit facility is subject to fluctuations in the market. The Company does
not believe such market risk is material to the Company's Consolidated Financial
Statements.

                                       13
<PAGE>   15

     The Company operates in foreign countries which exposes it to market risk
associated with foreign currency exchange rate fluctuations; however, such risk
is immaterial at this time to the Company's Consolidated Financial Statements.
If the operations of OFC GmbH in Germany grow as anticipated, the market risk
associated with foreign currency exchange rate fluctuation may, during fiscal
year 2000, become material to the Company's financial results.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Financial Statements and Financial Statement Schedule filed as a part
of this Form 10-K are listed on the Index to Consolidated Financial Statements
and Consolidated Financial Statement Schedule on page 15.

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     See information contained in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders (the "Proxy Statement") under the captions
"Election of Directors," "Executive Officers" and "Stock Ownership," which
information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     See the information contained in the Proxy Statement under the captions
"Election of Directors -- Director Compensation" and "Executive Compensation,"
which information is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     See the information contained in the Proxy Statement under the heading
"Stock Ownership," which information is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See information contained in the Proxy Statement under the heading "Certain
Relationships and Related Transactions," which information is incorporated
herein by reference.

                                       14
<PAGE>   16

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
                                   ITEM 14(a)

<TABLE>
<S>                                                           <C>
Consolidated Financial Statements:

Report of Independent Auditors..............................   16

  Consolidated Balance Sheets at September 30, 1999 and
     1998...................................................   17

  Consolidated Statements of Operations for the fiscal years
     ended September 30, 1999, 1998 and 1997................   18

  Consolidated Statements of Changes in Stockholders' Equity
     for the fiscal years ended September 30, 1999, 1998 and
     1997...................................................   19

  Consolidated Statements of Cash Flows for the fiscal years
     ended September 30, 1999, 1998 and 1997................   20

Notes to Consolidated Financial Statements..................   22

Schedule:

  II. Valuation and qualifying accounts for the fiscal years
      ended September 30, 1999, 1998 and 1997...............   35

Schedules Omitted:

  All other schedules are omitted as they are not applicable
     or the information is shown in the financial statements
     or notes thereto.
</TABLE>

                                       15
<PAGE>   17

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
NetOptix Corporation

     We have audited the accompanying consolidated balance sheets of NetOptix
Corporation as of September 30, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NetOptix
Corporation at September 30, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                          ERNST & YOUNG LLP

Providence, Rhode Island
December 21, 1999

                                       16
<PAGE>   18

                              NETOPTIX CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,
                                                              ----------------------
                                                                1999         1998
                                                              ---------    ---------
                                                              (DOLLARS IN THOUSANDS
                                                                EXCEPT SHARE DATA)
<S>                                                           <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  2,117     $    710
  Accounts receivable, less allowances of $507 and $1,265,
     respectively...........................................     2,789        7,952
  Inventories...............................................     1,593        8,828
  Other current assets......................................       389        1,092
  Assets relating to discontinued operations, net...........    14,009           --
  Assets held for sale......................................     3,288           --
                                                              --------     --------
Total current assets........................................    24,185       18,582
Property, plant and equipment, net..........................    10,520       16,128
Excess of cost over the fair value of assets acquired,
  net.......................................................    11,796       19,396
Other assets, net...........................................     1,864        1,548
                                                              --------     --------
Total assets................................................  $ 48,365     $ 55,654
                                                              ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Revolving line of credit..................................  $  1,150     $ 11,846
  Current portion of long term debt.........................     5,350           --
  Current portions of other notes payable...................        --        1,458
  Accounts payable..........................................     3,148        4,283
  Accrued liabilities.......................................     3,590        4,400
  Accrued liabilities, relating to discontinued
     operations.............................................     5,000           --
                                                              --------     --------
Total current liabilities...................................    18,238       21,987
Long-term debt..............................................       550           --
Other liabilities...........................................       660        1,008
                                                              --------     --------
Total Liabilities...........................................    19,448       22,995
Commitments & contingencies (Note 10)
Stockholders' equity:
  Common stock, $0.01 par value, 36,000,000 shares
     authorized, 11,326,481 and 8,052,786 issued and
     outstanding, respectively..............................       113           81
  Additional paid-in capital................................    61,389       52,176
  Accumulated deficit.......................................   (32,422)     (19,545)
  Accumulated other comprehensive loss......................      (163)         (53)
                                                              --------     --------
Total stockholders' equity..................................    28,917       32,659
                                                              --------     --------
Total liabilities and stockholders' equity..................  $ 48,365     $ 55,654
                                                              ========     ========
</TABLE>

                             See accompanying notes

                                       17
<PAGE>   19

                              NETOPTIX CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED SEPTEMBER 30,
                                                             -----------------------------------------
                                                                1999           1998           1997
                                                             -----------    -----------    -----------
                                                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
                                                                               DATA)
<S>                                                          <C>            <C>            <C>
Net Sales..................................................   $ 14,366       $ 14,774       $ 12,816
Cost of sales..............................................      9,536         14,919          9,160
                                                              --------       --------       --------
Gross profit (loss)........................................      4,830           (145)         3,656
Research and development expenses..........................        231          3,032          3,701
Selling & administrative expenses..........................      9,637          8,154          5,237
Provision for uncollectible (recovery of) accounts
  receivable...............................................       (176)           569             --
Reduction in carrying value of certain long-lived assets...      6,360          1,525          2,226
Reorganization costs.......................................         --             --          5,605
                                                              --------       --------       --------
Total operating expense....................................     16,052         13,280         16,769
                                                              --------       --------       --------
Operating loss.............................................    (11,222)       (13,425)       (13,113)
Interest income (expense), net.............................       (912)          (524)           687
Other income, net..........................................        837            162             90
                                                              --------       --------       --------
Loss from continuing operations before income tax..........    (11,297)       (13,787)       (12,336)
Provision for (benefit from) income taxes..................         13            (52)            42
                                                              --------       --------       --------
Loss from continuing operations............................    (11,310)       (13,735)       (12,378)
Discontinued operations:
  Income from operations of discontinued operations, net of
     income taxes..........................................        748          1,108          1,194
  Loss on disposal of discontinued operations, net of
     income taxes..........................................     (2,315)            --             --
                                                              --------       --------       --------
Net loss...................................................   $(12,877)      $(12,627)      $(11,184)
                                                              ========       ========       ========
Net loss per common shares outstanding:
  Loss from continuing operations..........................   $  (1.19)      $  (1.80)      $  (1.81)
  Effect of discontinued operations........................      (0.16)          0.15           0.18
                                                              --------       --------       --------
Net loss...................................................   $  (1.35)      $  (1.65)      $  (1.63)
                                                              ========       ========       ========
</TABLE>

                            See accompanying notes.

                                       18
<PAGE>   20

                              NETOPTIX CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             RETAINED
                                              ADDITIONAL     EARNINGS         OTHER           TOTAL
                                     COMMON    PAID-IN     (ACCUMULATED   COMPREHENSIVE   STOCKHOLDERS'
                                     STOCK     CAPITAL       DEFICIT)         LOSS           EQUITY
                                     ------   ----------   ------------   -------------   -------------
                                                           (DOLLARS IN THOUSANDS)
<S>                                  <C>      <C>          <C>            <C>             <C>
Balance, September 30, 1996........   $ 68     $42,694       $  4,266         $  --         $ 47,028
Net loss...........................     --          --        (11,184)           --          (11,184)
Exercise of stock options and
  related tax benefit..............      1         257             --            --              258
                                      ----     -------       --------         -----         --------
Balance, September 30, 1997........     69      42,951        ( 6,918)           --           36,102
                                      ----     -------       --------         -----         --------
Net loss...........................     --          --        (12,627)           --          (12,627)
Currency translation adjustment....     --          --             --           (53)             (53)
                                      ----     -------       --------         -----         --------
     Comprehensive loss............                                                          (12,680)
                                                                                            --------
Exercise of stock options and
  grants and related tax
  benefits.........................     --         243             --            --              243
Issuance of 1,154,258 shares of
  common stock in connection with
  acquisition......................     12       8,982             --            --            8,994
                                      ----     -------       --------         -----         --------
Balance, September 30, 1998........     81      52,176        (19,545)          (53)          32,659
                                      ----     -------       --------         -----         --------
Net loss...........................     --          --        (12,877)           --          (12,877)
Currency translation adjustment....     --          --             --          (110)            (110)
                                                                                            --------
     Comprehensive loss............                                                          (12,987)
                                                                                            --------
Exercise of stock options and
  grants and related tax
  benefits.........................      2       1,692             --            --            1,694
Issuance of 50,000 shares of common
  stock to the employee pension
  plan.............................     --         623             --            --              623
Issuance of 2,000,000 shares of
  common stock in connection with
  private placement, net of related
  costs............................     20       5,408             --            --            5,428
Exercise of warrants to purchase
  1,000,000 shares of common
  stock............................     10       1,490             --            --            1,500
                                      ----     -------       --------         -----         --------
                                      $113     $61,389       $(32,422)        $(163)        $ 28,917
                                      ====     =======       ========         =====         ========
</TABLE>

                            See accompanying notes.

                                       19
<PAGE>   21

                              NETOPTIX CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEARS ENDED SEPTEMBER 30,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Cash flows from operating activities:
Net loss...................................................  $(12,877)   $(12,627)   $(11,184)
Adjustments to reconcile net loss to net cash provided
  (used) by operating activities:
  Net Loss on discontinued operations......................     2,315          --          --
  Depreciation and amortization............................     1,692       3,388       2,942
  Provision for uncollectible (recovery of) customer
     account...............................................      (176)        569          --
  Provision for other uncollectible (recovery of) accounts
     receivable............................................       (98)        764         100
  Write down of inventory to fair market value.............        --       2,921          --
  Reorganization costs.....................................        --          --       6,451
  Reduction in carrying value of long-lived assets.........     6,360       1,525       2,226
  Non-cash compensation....................................       204          --          --
  Other adjustments, net...................................      (178)         --         100
Increase (decrease) in cash from changes in operating
  assets and liabilities:
  Accounts receivable......................................     1,784        (290)       (129)
  Inventories..............................................     1,309      (1,935)     (1,083)
  Accounts payable.........................................      (939)     (1,206)      1,579
  Accrued liabilities......................................      (624)      1,527        (114)
  Other changes, net.......................................       605         (88)       (267)
                                                             --------    --------    --------
          Total adjustments................................    12,254       7,175      11,805
                                                             --------    --------    --------
          Net cash provided (used) by operating
            activities.....................................      (623)     (5,452)        621
Cash flows from investing activities:
  Acquisitions, net of cash acquired.......................        --     (10,290)     (5,500)
  Capital expenditures.....................................    (8,970)     (2,870)     (3,828)
  Proceeds from sale of assets.............................     8,730          --          --
  Other investing activities, net..........................        --          --        (115)
                                                             --------    --------    --------
          Net cash used in investing activities............      (240)    (13,160)     (9,443)
Cash flows from financing activities:
  Borrowings on note payable...............................    12,298      11,846          --
  Payment of notes payable.................................   (18,554)     (2,260)       (542)
  Proceeds from issuance of common stock, net of
     expenses..............................................     9,041         243         258
  Payment of financing costs...............................      (405)         --          --
                                                             --------    --------    --------
          Net cash provided (used) by financing
            activities.....................................     2,380       9,829        (284)
                                                             --------    --------    --------
Effect of exchange rate changes on cash....................      (110)        (53)         --
                                                             --------    --------    --------
Net increase (decrease) in cash and cash equivalents.......     1,407      (8,836)     (9,106)
Cash and cash equivalents at beginning of year.............       710       9,546      18,652
                                                             --------    --------    --------
Cash and cash equivalents at end of year...................  $  2,117    $    710    $  9,546
                                                             ========    ========    ========
</TABLE>

                                       20
<PAGE>   22

<TABLE>
<CAPTION>
                                                                YEARS ENDED SEPTEMBER 30,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Supplemental cash flow information:
Interest payments..........................................  $    928    $    521    $     --
Income tax payments........................................        43          86         227
Supplemental schedule of non-cash investing and financing
  activities:
</TABLE>

     The Company made certain acquisitions during fiscal years 1998 and 1997 as
described more fully in Note 3 to the Notes to the Consolidated Financial
Statements. In conjunction with the acquisitions, liabilities were assumed as
follows:

<TABLE>
<S>                                                          <C>         <C>         <C>
Fair value of assets acquired..............................  $     --    $ 26,515    $  5,500
Gross cash paid............................................        --      11,003       5,500
Fair value of Company Common Stock issued..................        --       8,994          --
                                                             --------    --------    --------
Liabilities assumed........................................  $     --    $  6,518    $     --
                                                             ========    ========    ========
</TABLE>

                            See accompanying notes.

                                       21
<PAGE>   23

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ACCOUNTING POLICIES

     Organization -- NetOptix Corporation (the "Company" or "NetOptix"),
previously known until September 30, 1999 as Galileo Corporation, along with its
wholly-owned subsidiary, Optical Filter Corporation ("OFC") develops,
manufactures and markets a variety of optical components, optical filters and
other systems that incorporate recent advances in photonic technology and
optical coating. During fiscal 1999 NetOptix has substantially restructured and
reorganized it business operations, including closing, disposing of and agreeing
to dispose of businesses which generated a majority of the Company's revenue for
the prior fiscal year. These businesses consist of the operations of the
Company's wholly-owned subsidiaries, Leisegang Medical Inc., Galenica Inc. and
Leisegang Feinmechanik-Optik GmbH (together "LMI") and its SDP business ("SDP").
See Note 5. The Company's continuing operations are primarily in the United
States.

     Consolidation -- The Consolidated Financial Statements include the accounts
of NetOptix Corporation and its wholly-owned subsidiaries. Intercompany balances
and transactions have been eliminated.

     Revenue Recognition and Credit Risk -- The Company records a sale and
recognizes revenue when title passes to the customer or when services are
performed in accordance with contracts. The Company extends credit to customers
based on evaluating financial condition, and collateral is generally not
required. Credit losses are provided for in the financial statements and
include, in fiscal year 1998, a provision of $569, net of recoveries, for an
uncollectible customer account.

     Export sales relative to continuing operations to various foreign customers
amounted to approximately $977, $1,620 and $0 in fiscal years 1999, 1998 and
1997, respectively.

     Two customers represented 15% and 13% of the accounts receivable balance at
September 30, 1999. One customer represented 13% of the accounts receivable
balance at September 30, 1998. One customer represented 16% and 14% of the net
sales of the Company for the fiscal years ended 1999 and 1998, respectively.

     Cash Equivalents -- The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash
equivalents.

     Inventories -- Inventories are valued at the lower of cost (first in, first
out) or market. Inventory costs include all direct manufacturing costs and
applied overhead.

     Property, Plant and Equipment -- Property, plant and equipment is stated at
cost less accumulated depreciation. Depreciation is computed using either the
straight-line or accelerated methods. Estimated useful lives are as follows:

<TABLE>
<S>                                                           <C>
Buildings and improvements..................................  10-30 years
Machinery, equipment and furniture..........................   3-10 years
</TABLE>

     Stock-Based Compensation -- The Company grants stock options for a fixed
number of shares of Common Stock to employees and directors with an exercise
price equal to the fair value of the shares at the date of the grant. The
Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and,
accordingly, recognizes no compensation expense relating to stock options.

     Goodwill -- The excess of cost over the fair value of assets acquired is
being amortized on a straight-line basis over a period of 30 years. Accumulated
amortization amounted to $740 and $537 as of September 30, 1999 and 1998,
respectively.

     Comprehensive Income -- On October 1, 1997, the Company adopted SFAS No.
130, "Reporting Comprehensive Income," which establishes new rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires items such as foreign currency translation adjustments to be

                                       22
<PAGE>   24
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

included in comprehensive income. However, the adoption of this Statement had no
impact on the Company's net loss or stockholders' equity.

     Segment Reporting -- In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for fiscal years beginning after December 15,
1997. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographical areas, and
major customers. The Company adopted the new requirements in fiscal year 1999.
However, due to the closure of several businesses and the disposal of its
scientific detector and spectroscopy and women's health businesses and the
inactive status of its German subsidiary, the Company is operating only in one
segment.

     Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimates.

     Reclassification -- As stated in Note 5, in December 1999, the Company
announced that it has agreed to sell its Leisegang Medical, Inc. and related
women's health businesses (LMI) and related assets, and on July 1, 1999, the
Company sold SDP. These businesses have been presented as discontinued
operations in the accompanying consolidated financial statements. For
comparative purposes, the statement of operations and related earnings per share
information, for all periods presented, have been restated to reflect the
results of operations for the discontinued businesses in "Income from operations
of discontinued operations, net of income taxes." The consolidated balance sheet
at September 30, 1999 reflects the assets related to LMI as "Assets relating to
discontinued operations, net." The liabilities, estimated loss from operations
and estimated loss on the sale of LMI are reflected on the balance sheet as
"Accrued liabilities related to discontinued operations." The Consolidated
Statements of Cash Flows for the three years ended September 30, 1999 do not
separately reflect cash flows from discontinued operations.

     Certain reclassifications have been made to amounts reported in previous
years in order to conform to the current year presentation.

2. NEW DEVELOPMENTS

     Private Placement -- On January 26, 1999, pursuant to a previously
announced Securities Purchase Agreement dated December 22, 1998 (the "Purchase
Agreement"), Andlinger Capital XIII LLC, a Connecticut limited liability company
("Andlinger Capital"), purchased from the Company 2,000,000 shares of the
Company's Common Stock together with warrants to purchase an additional
2,000,000 shares of the Company's Common Stock for an aggregate purchase price
of $6.0 million in a private transaction. On September 23, 1999, Andlinger
Capital exercised its right to purchase 1,000,000 of the 2,000,000 shares of
Common Stock covered by the warrants for cash proceeds of $1.5 million. The
remaining warrants are exercisable for a period of 7 1/2 years at a price of
$1.50 per share, subject to antidilutive adjustment.

     Sale of Non-Strategic Assets -- During the first quarter of fiscal year
1999, the Company sold certain assets deemed to be non-strategic to the on-going
business operations, including assets associated with the Company's medical
endoscopes and telecommunications business. During the fourth quarter of fiscal
year 1999, the Company sold its scientific detector and endoscope business and
announced that it had entered into an agreement for the sale of substantially
all of the women's health-related products business. See further discussion in
Note 5.

     Cost Reductions -- During the fourth quarter of fiscal year 1998, the
Company terminated its medical endoscope products business. As a result, the
Company instituted a reduction in force of 61 employees during fiscal year 1998.
Subsequent to September 30, 1998, the Company terminated its Telecommunications
business, and further reduced the work force by 57 employees. In connection with
these actions, the Company

                                       23
<PAGE>   25
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred one-time charges of approximately $4,446 for the year ended September
30, 1998 for costs to reduce the carrying value of certain equipment ($1,525)
and inventories ($2,921) to estimated fair market value.

     New Loan Agreement -- On September 30, 1999, the Company refinanced its
outstanding bank loan through a new credit facility with Deutsche Financial
Services Corporation. This facility is comprised of a term loan of up to a
maximum outstanding of $13 million (of which $5.9 million was outstanding at
September 30, 1999) and a revolving credit facility of up to $12 million (of
which $1.2 million was outstanding at September 30, 1999). The term loan is
available for financing equipment and other capital expenditures for use in the
Company's optical components business in the United States and Germany. See Note
6.

3. ACQUISITIONS

OFC CORPORATION

     In January 1998, the Company acquired all of the outstanding shares of OFC
Corporation ("OFC") for approximately $6,518 in cash and 1,154,258 shares of
NetOptix Common Stock. OFC designs, manufactures and markets a broad range of
optical components and systems which incorporate the latest advances in photonic
technology and optical coatings. The acquisition was accounted for using the
purchase method of accounting, and the resulting excess of the cost over the
fair value of net assets acquired of $12,536 is being amortized over 30 years.

     In fiscal years 1998 and 1997, the Company also acquired three companies
(Les Enterprises Galenica, Inc., Leisegang Feinmechanik-Optik, GmbH & Co., KG
("Leisegang GmbH") and Sani-Spec for approximately $11.2 million in cash. The
acquisitions were accounted for using the purchase method of accounting. These
businesses are to be sold as part of the discontinued operations discussed in
Note 5.

4. NONRECURRING CHARGES

  Impairment of Long-Lived Assets

     In fiscal year 1999, the Company recorded non-cash charges of $5,885 to
reflect a write-down of buildings and equipment which are presently held for
sale. Furthermore, an additional charge of $475 was incurred for the abandonment
of certain equipment.

     The consolidated statement of operations for the year ended September 30,
1998, includes nonrecurring, pretax, non-cash charges of approximately $1,525 in
connection with the Company's termination of its Medical Endoscope Products
business.

     For the year ended September 30, 1997, the Company incurred nonrecurring,
pretax, non-cash charges of $2,226, which reduced certain robotic assembly
equipment for the Company's medical products business to its estimated fair
market value.

  Loss of a Major Customer and Related Reorganization

     In February 1997, the Company received written notification from its then
largest customer, Xerox, that it would no longer purchase certain assemblies
from the Company. On March 12, 1997, the Company announced a reorganization plan
in response to this lost business. In connection with this plan, the Company
recorded a nonrecurring charge of $6,872, or $1.01 per share, in the three
months ended March 31, 1997. The charge included a $6,451 non-cash provision for
the impairment of related long-lived assets ($3,946), other assets ($1,238) and
inventory ($1,267), and a $421 provision for related severance and other
obligations. As of September 30, 1998 the entire charge had been utilized and/or
paid.

                                       24
<PAGE>   26
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. DISCONTINUED BUSINESSES

     In December 1999, the Company announced that it has agreed to sell its LMI
and related women's health businesses and related assets. The transaction
includes the Company's operating units in Germany and Canada as well as the LMI
operation in Boca Raton, Florida. The purchase price is approximately $10
million, with a scheduled closing on January 31, 2000. The net proceeds will be
used to reduce debt and accordingly, such amounts have been reflected as a
current liability. The Company anticipates a loss on the sale of approximately
$4.6 million. The estimated loss of the operation of these businesses through
January 31, 2000 is $0.4 million.

     On July 1, 1999, the Company sold its SDP business. The proceeds from the
sale, totaling approximately $7.1 million, was applied to the Company's
outstanding debt. The Company recorded a gain on the sale of approximately $2.7
million.

     The tax benefit associated with the net loss on the sale has been fully
reserved at September 30, 1999.

     The operating results and estimated net loss on the sale of these
businesses have been presented as discontinued operations.

     Summarized information of the discontinued operations is as follows:

<TABLE>
<CAPTION>
                                                         FISCAL YEAR ENDED SEPTEMBER 30,
                                                                      1999
                                                         -------------------------------
                                                           LMI         SDP       TOTAL
                                                         --------    -------    --------
<S>                                                      <C>         <C>        <C>
Income statement data:
Net sales..............................................  $14,925     $7,994     $22,919
  Cost of sales........................................    8,317      5,102      13,419
                                                         -------     ------     -------
  Gross profit.........................................    6,608      2,892       9,500
  Other expenses.......................................    7,003      1,513       8,516
                                                         -------     ------     -------
  Income (loss) before taxes...........................     (395)     1,379         984
  Income taxes.........................................      236         --         236
                                                         -------     ------     -------
  Income (loss) from discontinued operations...........  $  (631)    $1,379     $   748
                                                         =======     ======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                                    1998
                                                        -----------------------------
                                                          LMI        SDP       TOTAL
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Income statement data:
Net sales.............................................  $16,659    $12,873    $29,532
  Cost of sales.......................................    9,121      8,972     18,093
                                                        -------    -------    -------
  Gross profit........................................    7,538      3,901     11,439
  Other expenses......................................    7,921      2,070      9,991
                                                        -------    -------    -------
  Income (loss) before taxes..........................     (383)     1,831      1,448
  Income taxes (benefit)..............................      397        (57)       340
                                                        -------    -------    -------
  Income (loss) from discontinued operations..........  $  (780)   $ 1,888    $ 1,108
                                                        =======    =======    =======
</TABLE>

                                       25
<PAGE>   27
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                     1997
                                                         ----------------------------
                                                          LMI        SDP       TOTAL
                                                         ------    -------    -------
<S>                                                      <C>       <C>        <C>
Income statement data:
  Net sales............................................  $8,562    $12,739    $21,301
  Cost of sales........................................   5,081      9,389     14,470
                                                         ------    -------    -------
  Gross profit.........................................   3,481      3,350      6,831
  Other expenses.......................................   3,041      2,475      5,516
                                                         ------    -------    -------
  Income before taxes..................................     440        875      1,315
  Income taxes.........................................      79         42        121
                                                         ------    -------    -------
  Income from discontinued operations..................  $  361    $   833    $ 1,194
                                                         ======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                                                  1999
                                                              -------------
<S>                                                           <C>
Balance sheet data:
  Cash......................................................     $    75
  Accounts receivable.......................................       1,969
  Inventories...............................................       3,521
  Property, plant and equipment, net........................       1,434
  Goodwill and other........................................       7,010
                                                                 -------
  Total assets of discontinued operations...................     $14,009
                                                                 =======
  Other accrued liabilities.................................     $   414
  Estimated loss on sale....................................       4,586
                                                                 -------
  Total liabilities of discontinued operations..............     $ 5,000
                                                                 =======
</TABLE>

6. REVOLVING CREDIT FACILITY

     On September 30, 1999, the Company refinanced its outstanding bank loan
through a new credit facility ("Credit Facility"). The Credit Facility provides
for a term loan ("Term Loan") of $13.0 million, bearing interest at prime rate
plus 2.0% or LIBOR plus 3.0% (10.25% at September 30, 1999) and a revolving line
of credit ("Revolver") of $12.0 million, bearing interest at prime plus 1.5% or
LIBOR plus 2.5% (9.75% at September 30, 1999). The Term Loan is used to finance
equipment and capital expenditures for use in the Company's optical components
business in the United States and Germany. Such equipment collateralizes the
Term Loan, whereas the Revolver is secured by accounts receivables and
inventory. The borrowings under the Revolver are subject to eligible accounts
receivable and inventory. The Credit Facility includes provisions which require
the Company to remit the net cash proceeds of the LMI sale to the bank.
Therefore, $5.4 million of the $5.9 million outstanding on the Term Loan as well
as the $1.2 million outstanding on the Revolver are stated as current
liabilities as of September 30, 1999. The outstanding balance of the Term Loan
as of September 30, 2000 will become payable in 20 quarterly installments
starting November 1, 2000. The carrying value of this debt as of September 30,
1999 approximated its fair market value. The Credit Facility contains certain
covenants and requirements concerning financial ratios and other indebtedness,
as well as limitations regarding the payment of dividends in fiscal year 2000.

     The Company was in violation of certain of its covenants and therefore the
loan balance of $11,846 is classified as a short-term liability at September 30,
1998.

                                       26
<PAGE>   28
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INVENTORIES

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                              ----------------
                                                               1999      1998
                                                              ------    ------
<S>                                                           <C>       <C>
Finished goods..............................................  $  569    $5,223
Work-in-progress............................................     819     1,819
Raw materials...............................................     205     1,786
                                                              ------    ------
                                                              $1,593    $8,828
                                                              ======    ======
</TABLE>

8. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Land, buildings and improvements............................  $  2,234    $ 19,587
Machinery, equipment and furniture..........................    14,514      28,197
Capital projects in process.................................     5,635         506
                                                              --------    --------
                                                                22,383      48,290
Less: accumulated depreciation..............................   (11,863)    (32,162)
                                                              --------    --------
Property, plant and equipment, net..........................  $ 10,520    $ 16,128
                                                              ========    ========
</TABLE>

9. RETIREMENT PLANS

     Pension Plan -- The Company has a noncontributory pension plan covering
substantially all employees who joined the Company prior to January 1, 1995.
None of the employees of companies acquired subsequent to this date are eligible
to participate in the Pension Plan. The Plan provides pension benefits based
upon years of service and average compensation during the five years preceding
retirement. The Company's policy is to fund the maximum amount that can be
deducted for federal income tax purposes. Plan assets are invested primarily in
U.S. Government Agency obligations, equity securities of U.S. based companies,
corporate bonds and mutual funds. During fiscal year 1999, the Plan purchased
50,000 shares of the Company's common stock for $623.

                                       27
<PAGE>   29
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                              -----------------
                                                               1999       1998
                                                              -------    ------
<S>                                                           <C>        <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.....................  $ 7,948    $6,831
Service cost................................................      199       196
Interest cost...............................................      589       537
Actuarial loss (gain).......................................      753       820
Curtailment.................................................   (1,056)     (190)
Special termination benefit.................................       --        72
Benefits paid...............................................     (344)     (318)
                                                              -------    ------
Benefit obligation at end of year...........................  $ 8,089    $7,948
                                                              =======    ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year..............  $ 8,950    $8,707
Actual return on plan assets................................    3,299       561
Benefits paid...............................................     (344)     (318)
                                                              -------    ------
Fair value of plan assets at end of year....................  $11,905    $8,950
                                                              =======    ======
Funded status...............................................  $ 3,816    $1,002
Unrecognized transition asset...............................     (295)     (341)
Unrecognized prior service cost.............................       --       (49)
Unrecognized net actuarial loss (gain)......................   (2,214)      341
                                                              -------    ------
Prepaid benefit cost........................................  $ 1,307    $  953
                                                              =======    ======
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate...............................................     6.75%     6.75%
Expected return on plan assets..............................     9.00%     9.00%
Rate of compensation increase...............................     4.50%     4.50%
</TABLE>

<TABLE>
<CAPTION>
                                                               YEAR ENDED SEPTEMBER 30,
                                                              --------------------------
                                                               1999      1998      1997
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................  $ 199     $ 196     $ 235
Interest cost...............................................    589       537       517
Expected return on plan assets..............................   (790)     (769)     (673)
Amortization of transition assets...........................    (47)      (47)      (47)
Amortization of prior service cost..........................     (5)       (5)       (5)
Recognized net actuarial loss...............................     13        --        --
                                                              -----     -----     -----
Net periodic benefit cost...................................  $ (41)    $ (88)    $  27
                                                              =====     =====     =====
</TABLE>

     Tax Deferred Savings Plan -- The Company has a tax deferred savings plan
under Section 401(k) of the Internal Revenue Code under which, subject to
certain limitations, each eligible employee may contribute up to 15% of gross
wages per year. The Company matches 50% of the first 6% of employee
contributions. Company contributions to the Plan were approximately $120, $131
and $185 in fiscal years 1999, 1998 and 1997, respectively.

     Other Retirement Plans -- In addition to the Company's defined benefit
pension plan, the Company sponsors a defined benefit post-retirement medical and
life insurance plan. Employees who retire from the Company and who have attained
age 65 with 15 years of service (10 years of service for employees hired before
October 1, 1989) and who were hired prior to October 1, 1993, are eligible.
Employees who retired

                                       28
<PAGE>   30
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prior to October 1, 1989, are not required to contribute; employees who retired
after October 1, 1989, contribute a portion of the cost beyond a Company
subsidy. The Plan is not funded.

     The actuarial and recorded liabilities for the Plan were as follows:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                                              --------------
                                                              1999     1998
                                                              -----    -----
<S>                                                           <C>      <C>
Accumulated post-retirement benefit obligation:
Retirees....................................................  $417     $434
Active plan participants....................................    71      146
                                                              ----     ----
Accumulated post-retirement benefit obligation..............   488      580
Plan assets at fair value...................................    --       --
                                                              ----     ----
Unfunded accumulated benefit obligation in excess of plan
  assets....................................................   488      580
Unrecognized net gain.......................................   114       85
                                                              ----     ----
Accrued post-retirement benefit cost included in other
  liabilities...............................................  $602     $665
                                                              ====     ====
</TABLE>

<TABLE>
<CAPTION>
                                                              YEARS ENDED SEPTEMBER 30,
                                                              -------------------------
                                                              1999      1998      1997
                                                              -----     -----     -----
<S>                                                           <C>       <C>       <C>
Net periodic post-retirement benefit cost includes the
  following components:
Service cost................................................   $ 4       $ 5       $ 6
Interest cost...............................................    35        41        39
Net amortization of unrecognized net gain...................    (5)       (7)       --
                                                               ---       ---       ---
Net periodic post-retirement benefit cost...................   $34       $39       $45
                                                               ===       ===       ===
</TABLE>

     For measurement purposes, an 8.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal year 1999. The rate
was assumed to decrease gradually down to 6.0% for fiscal year 2003 and remain
at that level thereafter. Increasing the assumed health care cost trend rate one
percentage point in each year would increase the accumulated post-retirement
benefit obligation as of September 30, 1999, by $24 and the aggregate of the
service and interest cost components of the net periodic post-retirement benefit
cost for fiscal year 1999 by $2.

     The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 6.75%. As the plan is unfunded, no
assumption was needed as to the long-term rate of return on assets.

10. COMMITMENTS AND CONTINGENCIES

     Legal Proceedings -- The Company is a defendant in four class action law
suits filed in Federal District Court in the Commonwealth of Massachusetts by
stockholders of the Company alleging violations of the federal securities laws
based on alleged misleading statements regarding the Company's financial
performance and other matters. The Company believes these lawsuits are without
merit and intends to defend them vigorously.

     The Company has also entered into a number of operating leases, including
two from related parties, for office and manufacturing facilities located
primarily in the United States as well as in Canada and Germany. Rent expense
paid to related parties amounted to $238 during fiscal year 1999.

                                       29
<PAGE>   31
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Future minimum lease payments under operating leases as of September 30,
1999 are as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $  520
2001........................................................     483
2002........................................................     483
2003........................................................     391
2004 and thereafter.........................................     976
                                                              ------
Total minimum lease obligations.............................  $2,853
                                                              ======
</TABLE>

     Total rental expense for all operating leases was approximately $460, $413
and $118 in fiscal years 1999, 1998 and 1997, respectively.

11. COMMON STOCK

     On September 23, 1999, the Company issued 1,000,000 shares of common stock
to Andlinger & Co. for $1,500 upon their exercise of certain warrants. See Note
2.

     On June 30, 1999, the Company recorded $204 of non-cash compensation
related to the resignation of an officer of the Company.

     Employee Stock Option Plan -- Under the Company's 1991 Stock Option Plan,
which succeeded the 1981 Stock Option Plan, the Plan Administrative Committee of
the Board of Directors may grant options to purchase common stock to officers
and key employees of the Company and its subsidiaries. The stock options are
exercisable at a price not less than the fair market value of the common stock
on the date of grant. The Plan also provides that the Committee may issue stock
appreciation rights. The exercise price of the stock appreciation rights may not
be less than the fair market value of the common stock on the date of grant or
if issued with a stock option, the exercise price of the related option. Stock
appreciation rights provide for the issuance of common stock, or the payment of
cash, or a combination of both equal to the difference between the exercise
price of the stock appreciation right and the fair market value of the common
stock on the date of exercise.

     The following table summarizes stock option plan activity:

<TABLE>
<CAPTION>
                                                                   WEIGHTED
                                                                   AVERAGE     AGGREGATE
                                                        SHARES      PRICE        PRICE
                                                       --------    --------    ---------
<S>                                                    <C>         <C>         <C>
Balance, September 30, 1996..........................   279,000     $ 9.18      $ 2,561
Granted..............................................   267,000       8.17        2,182
Exercised............................................   (33,000)      4.76         (157)
Forfeited............................................   (45,000)      9.38         (422)
                                                       --------     ------      -------
Balance, September 30, 1997..........................   468,000       8.90        4,164
Granted..............................................   211,000      10.68        2,253
Exercised............................................    (5,000)      5.20          (26)
Forfeited............................................   (42,000)      9.98         (419)
                                                       --------     ------      -------
Balance, September 30, 1998..........................   632,000       9.45        5,972
Granted..............................................   611,000       7.23        4,417
Exercised............................................  (171,000)      7.28       (1,245)
Forfeited............................................  (484,000)      7.46       (3,611)
                                                       --------     ------      -------
Balance, September 30, 1999..........................   588,000     $ 9.41      $ 5,533
                                                       ========     ======      =======
</TABLE>

     As of September 30, 1999, no option shares were available for grant under
the 1991 Plan. As of September 30, 1999, 144,350 options, with a weighted
average fair value of $7.43 per share, were exercisable

                                       30
<PAGE>   32
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at prices ranging from $3.88 to $13.625, aggregating approximately $1,073 under
the 1981 and 1991 Plans. The remaining outstanding options are exercisable on
various dates through 2009 at exercise prices ranging from $3.25 to $13.625. The
weighted-average remaining contractual life of outstanding options is 8.0 years.

     Director Stock Option Plan -- On February 23, 1999, the Company amended the
1996 Director Stock Option Plan such that no further grants could be made
thereunder. Under the plan, the Company had granted each non-employee director
options to purchase 2,500 shares of common stock on the director's election at
each Annual Meeting of Stockholders of the Company. Options become exercisable
one year after grant or earlier upon the death or disability of the director and
upon a change in control of the Company, as defined. No option may be exercised
more than one year after the director's termination as a director for any
reason. The option is exercisable at the fair market value of the common stock
on the date of grant.

     Under the Director Stock Option Plan, options to purchase 20,000 shares of
common stock, at a price of $5.25 per share, were granted in fiscal year 1999,
and as of September 30, 1999, 55,000 shares were exercisable at a weighted
average fair value of $11.84 per share, aggregating approximately $651. No
options remain available for grant under the Plan.

     The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for the 1991 Plan and the Director Stock Option
Plan. Accordingly, no compensation expense has been recognized in the
Consolidated Financial Statements. Assuming compensation expense for options
granted under these Plans after September 30, 1995 had been determined based on
the estimated fair value at the grant dates for awards under the Plan, the
Company's pro forma net loss and loss per share would have been $13,192 and
$1.39, respectively for fiscal 1999, $13,107 and $1.71, respectively for fiscal
year 1998 and $11,439 and $1.67, respectively, for fiscal year 1997. The effects
of expensing the estimated fair value of stock options on pro forma net income
and earnings per share are not necessarily representative of the effects on
reported net income for future years because of the potential for issuance of
additional stock options in future years.

     The fair value of options granted after September 30, 1995, under these
Plans, was estimated at the date of grant using the Black-Scholes option-pricing
model. The following weighted-average assumptions were used for fiscal year
1999, 1998 and 1997, respectively: risk-free interest rates of 5.0%, 4.9% and
6.0%; volatility factors of the expected market price of the Company's common
stock of 95%, 89% and 79%; and a weighted-average expected life of the option of
5.0 years for all three years. The Company did not assume a dividend yield for
fiscal year 1999, 1998 or 1997.

     As of September 30, 1999, there are no shares of Company common stock
reserved for issuance under all stock option plans.

     Employee Stock Purchase Plan -- On January 1, 1997, the Company amended the
Employee Stock Purchase Plan (the "Plan"). Under the revised Plan, 100,000
shares of Company Common Stock were made available for purchase by eligible
employees. The purchase price per share of Common Stock under the Plan may not
be less than 85% of the lower of its fair market value at the beginning of an
offering period or the applicable exercise date, payable though payroll
deductions. Since January 1, 1997, 114,026 shares have been purchased at prices
ranging from $2.76 to $10.09 per share. At September 30, 1999, there were 29,569
shares available for issuance under the Plan.

     Prior to being amended, the Company had a Common Stock purchase plan under
which it contributed up to 37.5% of amounts contributed by participating
employees to a combined maximum of $1,375 per calendar year. All contributions
were made to a trust that purchased shares in the open market. The Plan held
21,349 shares, prior to being rolled forward into the amended Plan.

12. INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and tax
reporting purposes.
                                       31
<PAGE>   33
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Significant components of the Company's deferred tax liabilities and assets
as of September 30, 1999 and 1998, respectively, are as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED SEPTEMBER 30,
                                                              --------------------------
                                                                 1999           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
Deferred tax liabilities:
  Pension cost..............................................   $    505       $    380
                                                               --------       --------
          Total deferred tax liabilities....................        505            380
                                                               --------       --------
Deferred tax assets:
  Inventory adjustments.....................................        637          1,672
  Discontinued Operations...................................      4,501             49
  Restructuring accruals....................................        233            180
  Other accruals............................................      1,341          1,330
  Net operating loss carryforwards..........................     10,124          7,865
  Federal and state tax credits.............................      1,400          1,392
                                                               --------       --------
          Total deferred tax assets.........................     18,236         12,488
  Valuation allowance for deferred tax assets...............    (17,831)       (12,208)
                                                               --------       --------
          Net deferred tax assets...........................        405            280
                                                               --------       --------
  Net deferred tax liabilities..............................   $    100       $    100
                                                               ========       ========
</TABLE>

     The net change in the total valuation allowance for the fiscal years ended
September 30, 1999 and 1998, amounted to increases of $5,623 and $4,702,
respectively.

     The components of the Company's loss before income taxes are as follows:

<TABLE>
<CAPTION>
                                                        YEARS ENDED SEPTEMBER 30,
                                                     --------------------------------
                                                       1999        1998        1997
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
  Domestic.........................................  $(12,954)   $(12,895)   $(11,021)
  Foreign..........................................       326         556          --
                                                     --------    --------    --------
          Total....................................  $(12,628)   $(12,339)   $(11,021)
                                                     ========    ========    ========
</TABLE>

     Significant components of the provision for income taxes from continuing
operations are as follows:

<TABLE>
<CAPTION>
                                                                  YEARS ENDED
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Current:
  Federal...................................................  $--     $(21)   $--
  State.....................................................   13       21     19
  Foreign...................................................   --       --     --
                                                              ---     ----    ---
                                                               13       --     19
Deferred:
  Federal...................................................   --      (52)    23
  State.....................................................   --       --     --
                                                              ---     ----    ---
                                                               --      (52)    23
                                                              ---     ----    ---
Total.......................................................  $13     $(52)   $42
                                                              ===     ====    ===
</TABLE>

                                       32
<PAGE>   34
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of the statutory federal income tax rate and the
effective tax rate from continuing operations is as follows:

<TABLE>
<CAPTION>
                                                              YEARS ENDED SEPTEMBER 30,
                                                              --------------------------
                                                               1999      1998      1997
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Income tax per statutory rate...............................  (34.0)%   (34.0)%   (34.0)%
  Utilization of net operating loss carryforwards...........     --        --        --
  Loss on which no income tax benefits were recognized......   34.0      34.0      34.0
  State income taxes, net of federal income tax benefit.....    0.1        --       0.3
  Other.....................................................     --      (0.4)      0.4
                                                              -----     -----     -----
                                                                0.1%     (0.4)%     0.7%
                                                              =====     =====     =====
</TABLE>

     At September 30, 1999, the Company had net operating loss carryforwards of
$26,206 for federal income tax purposes that expire in years 2008 through 2019.

13. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                        YEARS ENDED SEPTEMBER 30,
                                                     --------------------------------
                                                       1999        1998        1997
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Numerator:
Loss from continuing operations....................  $(11,310)   $(13,735)   $(12,378)
Denominator:
Weighted average shares -- basic...................     9,510       7,646       6,851
Dilutive employee stock options....................        --          --          --
                                                     --------    --------    --------
Weighted average shares -- assuming dilution.......     9,510       7,646       6,851
                                                     ========    ========    ========
Net loss per common share -- basic and diluted
Loss from continuing operations....................  $  (1.19)   $  (1.80)   $  (1.81)
Effect of discontinued businesses..................     (0.16)       0.15        0.18
                                                     --------    --------    --------
                                                     $  (1.35)   $  (1.65)   $  (1.63)
                                                     ========    ========    ========
</TABLE>

14. RELATED PARTY TRANSACTIONS

     OFC leases approximately 25,000 square feet of office space from a realty
trust of which the sole beneficiary is John F. Blais, Jr., the former majority
stockholder of OFC and a director of the Company. The lease, which expires in
December 2006, provides for monthly payments of $20 subject to annual adjustment
to reflect changes in the fair market value of the real estate. The Company is
responsible for certain insurance, utilities and other operating costs. Rents
paid to the realty trust during fiscal 1999 were approximately $238.

     Pursuant to a Management Advisory and Consulting Agreement (the "Management
Agreement") dated as of August 31, 1999 by and between the Company and ANC
Management Corp. ("ANC"), Gerhard R. Andlinger, the principal of ANC, serves as
President and CEO of the Company. The Management Agreement provided that ANC
will receive cash compensation at the rate of $250 per annum and non-qualified
options to purchase 100,000 shares of Common Stock at an exercise price of
$11.4375 per share, exercisable at any time until June 30, 2009, as
consideration for Consulting Services (as defined in the Management Agreement).
The Consulting Services include, but are not limited to, the services provided
to the Company by Mr. Andlinger. In addition, the Company will reimburse all
out-of-pocket expenses reasonably incurred by ANC in providing Consulting
Services. The term of the Management Agreement began on July 6, 1999 and will
expire on June 30, 2002, unless sooner terminated by the Board of Directors for
cause, by the Company

                                       33
<PAGE>   35
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

upon Mr. Andlinger's death or disability, or at ANC's election at any time upon
at least ninety days' written notice.

     The Company has agreed to pay ANC Management Corp. a financial advisory fee
of $200, plus the reimbursement of out-of-pocket expenses, for the services
provided by ANC (and specifically Mr. Ball) in connection with the structuring,
negotiation, documentation and closing of the $7.1 million sale of the Company's
SDP business, consummated in July 1999. The Company has also agreed to pay ANC
an additional financial advisory fee in the aggregate amount of $200, plus the
reimbursement of out-of-pocket expenses, for the services provided by ANC (and
specifically Mr. Ball) in connection with (a) the origination, structuring,
negotiation, documentation and closing of the $25.0 million credit facility
obtained by the Company in September 1999 and (b) the structuring, negotiation,
documentation and closing of the $10.0 million sale of the Company's women's
health-related products business, announced in December 1999 and expected to
close in January 2000.

     ANC is controlled by Gerhard R. Andlinger, the Chairman, President and CEO
and a director of the Company. Stephen A. Magida, Secretary of the Company, and
Charles E. Ball, both directors of the Company, are associated with ANC through
their relationships with Mr. Andlinger, Andlinger Capital and Andlinger &
Company, Inc. Neither Mr. Andlinger nor Mr. Ball receives any separate
compensation from the Company for services rendered (other than customary fees
and expenses for services as outside directors). After the end of the 1999
fiscal year, Mr. Magida was engaged by the Company to provide legal services and
services as Secretary of the Company at his customary hourly rate.

                                       34
<PAGE>   36

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A                                 COLUMN B      COLUMN C      COLUMN D      COLUMN E       COLUMN F
--------                                ----------    ----------    ----------    -----------    ----------
                                                      ADDITIONS     ADDITIONS     DEDUCTIONS
                                        BALANCE AT    CHARGED TO    CHARGED TO    WRITTEN OFF    BALANCE AT
                                        BEGINNING      COST AND       OTHER         AGAINST        END OF
DESCRIPTION                             OF PERIOD      EXPENSES      ACCOUNTS       RESERVE        PERIOD
-----------                             ----------    ----------    ----------    -----------    ----------
<S>                                     <C>           <C>           <C>           <C>            <C>
SEPTEMBER 30, 1997:
Allowance for doubtful accounts.......      184           100          --              40            244
SEPTEMBER 30, 1998:
  Allowance for doubtful accounts.....      244         1,333          --             312          1,265
SEPTEMBER 30, 1999:
  Allowance for doubtful accounts.....    1,265          (274)         --             484            507
</TABLE>

                                       35
<PAGE>   37

                                   SIGNATURES

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

                                          NETOPTIX CORPORATION

                                          /s/ GERHARD R. ANDLINGER
                                          --------------------------------------
                                          Gerhard R. Andlinger, President
                                          and Chief Executive Officer

Dated: December 22, 1999

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on December 22, 1999.

                                          /s/ GERHARD R. ANDLINGER
                                          --------------------------------------
                                          Gerhard R. Andlinger, President and
                                          Chief Executive Officer and Director
                                          (Principal Executive Officer)

                                          /s/ THOMAS J. MATHEWS
                                          --------------------------------------
                                          Thomas J. Mathews, Vice President,
                                          Finance and Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)

                                          /s/ CHARLES E. BALL
                                          --------------------------------------
                                          Charles E. Ball, Director

                                          /s/ JOHN F. BLAIS, JR.
                                          --------------------------------------
                                          John F. Blais, Jr., Director

                                          /s/ TODD F. DAVENPORT
                                          --------------------------------------
                                          Todd F. Davenport, Director

                                          /s/ ROBERT D. HAPP
                                          --------------------------------------
                                          Robert D. Happ, Director

                                          /s/ STEPHEN A. MAGIDA
                                          --------------------------------------
                                          Stephen A. Magida, Director

                                       36
<PAGE>   38

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT #
---------
<C>         <S>
   2.1      Asset Purchase Agreement dated as of July 1, 1999 between
            Burle Industries, Inc. as Buyer and the Registrant as Seller
            (See Table of Contents for list of omitted exhibits and
            schedules) (filed as Exhibit 2.1 to the Registrant's Form
            8-K dated June 30, 1999 and incorporated herein by
            reference).

            The Registrant hereby agrees to provide the Commission upon
            request with copies of any omitted exhibits or schedules
            required by Item 601(b)(2) of Regulation S-K.

   2.2      Asset Purchase and Sale Agreement dated as of May 24, 1999
            between the Registrant and IPG Photonics Corporation,
            including a list of omitted exhibits and schedules (filed as
            Exhibit 2.2 to the Registrant's Form 8-K dated June 30, 1999
            and incorporated herein by reference).
            The Registrant hereby agrees to provide the Commission upon
            request with copies of any omitted exhibits or schedules
            required by Item 601(b)(2) of Regulation S-K.

   2.3      Stock and Asset Purchase Agreement dated as of December 14,
            1999 The Cooper Companies, Inc., CooperSurgical Acquisition
            Corp., the Registrant, Leisegang Medical, Inc., Galenica
            Inc. and Leisegang Feinmechanik-Optik GmbH.

   3.1      Registrant's Restated Certificate of Incorporation and
            amendment thereto (filed as Exhibit 4.1 to the Registrant's
            registration statement on Form S-2, File No. 33-13752, and
            incorporated herein by reference).

   3.2      Registrant's amended and restated By-Laws (filed as Exhibit
            4.2 to the Registrant's registration statement on Form S-2,
            File No. 33-13752, and incorporated herein by reference).

   4.1      Specimen Certificate of the Registrant's Common Stock (filed
            as Exhibit 4.1 to the Registrant's registration statement on
            Form S-2, File No. 33-13752, and incorporated herein by
            reference).

   4.2      Loan and Security Agreement dated as of September 30, 1999
            among the Registrant and Certain of its Subsidiaries, the
            Lenders from time to time party thereto and Deutsche
            Financial Services Corporation (filed as Exhibit 4.1 to the
            Registrant's Form 8-K dated September 30, 1999 and
            incorporated herein by reference).
            The Registrant hereby agrees to provide the Commission upon
            request with copies of any omitted exhibits or schedules
            required by Item 601(b)(2) of Regulation S-K.

  10.1      Stock Option Plan adopted October 23, 1991 (filed as an
            exhibit to the Registrant's Proxy Statement dated December
            17, 1991, and incorporated herein by reference).

  10.2      Director Stock Option Plan adopted November 10, 1995 (filed
            as an exhibit to the Registrant's Proxy Statement dated
            December 11, 1995, and incorporated herein by reference).

  10.3      Agreement and Plan of Merger dated July 17, 1996, among the
            Registrant, a wholly-owned subsidiary of the Registrant,
            Leisegang Medical, Inc., and the principal Stockholders of
            Leisegang, under which the Registrant acquired Leisegang,
            effective August 6, 1996 (filed as Exhibit 2.1 to the
            Registrant's Form 8-K dated August 6, 1996, File No.
            33-13752, and incorporated herein by reference).

  10.4      Agreement and Plan of Merger dated as of December 30, 1997,
            among the Registrant, a wholly-owned subsidiary of the
            Registrant, OFC Corporation, and the Principal Stockholders
            of OFC Corporation, under which the Registrant acquired OFC
            Corporation, effective January 30, 1998 (filed as Exhibit
            2.1 to the Registrant's Form 8-K dated December 30, 1997,
            and incorporated herein by reference).

  10.5      Employment Agreement dated January 30, 1998 between the
            Registrant and John F. Blais, Jr., under which Mr. Blais
            agreed to serve as President of Optical Filter Corporation
            (filed as Exhibit 10.5 to the Registrant's Form 10-K405 for
            fiscal year ended September 30, 1998, filed as of December
            29, 1998 and incorporated herein by reference).
</TABLE>

                                       37
<PAGE>   39

<TABLE>
<CAPTION>
EXHIBIT #
---------
<C>         <S>
  10.6      Securities Purchase Agreement dated December 22, 1998
            between the Registrant and Andlinger Capital XIII LLC (filed
            as Exhibit I to the Schedule 13D filed with the Commission
            on December 28, 1998 by Andlinger Capital XIII LLC with
            respect to the Registrant and incorporated herein by
            reference).

  10.7      Registration Rights Agreement dated December 22, 1998 among
            the Registrant, Andlinger Capital XIII LLC, John F. Blais,
            Jr. and W. Kip Speyer (filed as Exhibit II to the Schedule
            13D filed with the the Commission on December 28, 1998 by
            Andlinger Capital XIII LLC with respect to the Registrant
            and incorporated herein by reference).

  10.8      Stockholders' Agreement dated December 22, 1998 among the
            Registrant, Andlinger Capital XIII LLC, John F. Blais, Jr.
            and W. Kip Speyer (filed as Exhibit III to the Schedule 13D
            filed with the Commission on December 28, 1998 by Andlinger
            Capital XIII LLC with respect to the Registrant and
            incorporated herein by reference).

  10.9      Employment Agreement dated as of March 22, 1999 between the
            Registrant and Ralf T. Faber, under which Mr. Faber agreed
            to serve as President and Chief Executive Officer of Optical
            Filter Corporation.

  10.10     Employment Agreement dated as of July 6, 1999 between
            Leisegang Medical, Inc. and John D. Barlow, under which Mr.
            Barlow agreed to serve as President and Chief Executive
            Officer of Leisegang Medical, Inc. (filed as Exhibit 2.2 to
            the Registrant's Form 10-Q for the quarterly period ended
            June 30, 1999 and incorporated herein by reference).

  10.11     Consulting and Settlement Agreement and Full and Final
            Release dated as of July 6, 1999 between the Registrant and
            W. Kip Speyer (filed as Exhibit 2.1 to the Registrant's Form
            10-Q for the quarterly period ended June 30, 1999 and
            incorporated herein by reference).

  10.12     Management Advisory and Consulting Agreement dated as of
            August 31, 1999 between the Registrant and ANC Management
            Corp.

  21        List of Subsidiaries of the Registrant.

  23        Consent of Ernst & Young LLP.

  27.1      Financial Data Schedule for Fiscal Year 1999.

  27.2      Restated Financial Data Schedule for Fiscal Year 1998.

  27.3      Restated Financial Data Schedule for Fiscal Year 1997.
</TABLE>

                                       38