<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES AND EXCHANGE ACT OF 1934
 
                    FOR FISCAL YEAR ENDED DECEMBER 31, 1997

 
                                    0-27892
                             ----------------------
                            (COMMISSION FILE NUMBER)

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


             MASSACHUSETTS                               04-6135748
         ---------------------                --------------------------------
        (STATE OF INCORPORATION)            (IRS EMPLOYER IDENTIFICATION NUMBER)


            2 LINNELL CIRCLE                               01821
        BILLERICA, MASSACHUSETTS                         ----------
   ---------------------------------                     (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 
                                 (978) 667-8700
                          ----------------------------
                        (REGISTRANT'S TELEPHONE NUMBER)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
 
     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.  [ ]
 
     The aggregate market value of Common Stock held by non-affiliates of the
registrant at March 10, 1998 was approximately $624,296,787 based upon $35.125
per share, the last reported sale price of the Common Stock on The Nasdaq
National Market on that date. The number of shares of the registrant's Common
Stock outstanding at March 10, 1998 was 17,773,574.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Company's Proxy Statement relating to the Company's Annual
Meeting of Shareholders to be held on May 28, 1998 are incorporated by reference
into Part III hereof.
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                                     PART I
 
ITEM 1.  BUSINESS:
 
THE COMPANY
 
     SIPEX Corporation (the "Company" or "Sipex") designs, manufactures, markets
and sells innovative, high performance, high value-added analog integrated
circuits. The Company sells its products to OEM customers either directly
through its direct sales force or with the assistance of a network of
independent sales representatives, or indirectly through independent
distributors. The Company designs, manufactures, markets and sells products
across the analog semiconductor market and has targeted high-growth sectors that
it believes are especially compatible with its design and process capabilities
-- data communications and telecommunications, battery powered/portable products
and industrial controls/instrumentation. The Company's products have been
incorporated into a broad range of electronic systems and products by more than
3,000 customers worldwide.
 
STRATEGY
 
     The Company's strategy is to develop long-term partnering relationships
with leaders in targeted market sectors. This enables the Company to identify
applications and to provide innovative, cost-effective solutions to meet
customers' needs over the life cycles of their products. Sipex serves the broad
analog signal processing market with the following product lines -- interface
circuits, low power and high voltage circuits, electroluminescence circuits,
data converters and power management circuits. The Company utilizes multiple
process technologies to manufacture these products.
 
     In addition to and complementing its strategy of teaming with market
leaders, the Company offers a broad base of manufacturing process technologies
through its own foundry and third-party semiconductor foundries. This enables
the Company to design products for its customers utilizing the optimum process
technology for each application. By combining creative design techniques with a
broad base of process technologies, the Company can develop innovative, high
performance analog circuits that support its customers' requirements. The
Company has also focused on leveraging its specialized dielectrically isolated
("DI") bipolar complementary metal oxide semiconductor ("BiCMOS") technology,
which the Company believes is particularly well-suited to the low power, low
voltage requirements of battery powered/portable products.
 
     The Company's customers, none of which accounted for more than ten percent
of net sales in 1996 or 1997, include Cisco Systems, Inc., Hewlett-Packard Co.,
Motorola, Inc., Philips N.V., Siemens Corporation, Newbridge Networks Corp.,
3Com Corp., U.S. Robotics Corp. and Pairgain Technologies Inc. in the data
communications/telecommunications markets; Cidco, Inc., Elo Touchsystems,
Federal Express Corp., Texas Instruments Incorporated, Timex Corporation,
International Business Machines Corp., Sharp Corp., Mitsubishi Corp. and
Dassault Aviation S.A. in the low power analog and high voltage application
areas; and Andover Controls Corp., LTX Corporation and Honeywell, Inc. in the
industrial controls market.
 
MARKETS
 
     The Company serves a broad range of markets including data communications,
telecommunications, battery powered/portable products, industrial
controls/instrumentation, military and aerospace. The Company believes that its
design and manufacturing process capabilities can address customers' needs in
terms of product features and functionality, integration and overall solution
cost. By working closely and partnering with established market leaders within
these areas, the Company has been able to identify and meet its partners'
complex analog circuit requirements with tailored products that are developed in
conjunction with the customer's own product design team, thus allowing the
Company to address the customer's needs as the customer identifies them. Having
addressed the particular needs of market leaders, the Company is then able to
migrate these solutions into standard products available to other equipment or
device suppliers.
 
     Data Communications and Telecommunications.  The convergence of data
processing and communications technology through the deployment of data and
voice networks has enabled OEM networking equipment
 
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suppliers to achieve dramatic growth in recent years. Within LANs and WANs, a
variety of peripheral devices are linked into the network, including printers,
disk drives, and scanners. Analog integrated circuits are required at each
connection among computers, peripherals and networking interconnect equipment,
such as hubs, routers and bridges. Since no predominant standard has emerged for
the serial interfaces among peripherals, computers and the network equipment
linking them, WAN and LAN systems OEMs must have the ability to support most of
the popular interface standards to maintain compatibility. Wireless
communications such as cellular phones, two-way pagers, or digital radios
require analog-to-digital and digital-to-analog converter products to receive
and transmit signals. The Company believes that trends toward greater
connectivity of computers and peripherals into networks, the interconnection of
remote networks, the emergence of the Internet as both a communications network
and a business tool, as well as the integration of data, video and
telecommunications networks will continue.
 
     Battery Powered/Portable Products.  The rapid growth of sales of portable
products, including computers, hand-held electronic devices, cellular and
portable telephones, pagers and consumer electronic devices and products has
created market opportunities for analog semiconductor devices which can operate
efficiently at low voltages. Battery-powered devices require many of the same
kinds of analog circuits as non-portable equipment, including transceivers,
converters and amplifiers, but these circuits must be functional and efficient
at the low voltages supplied by their power source. Further, battery powered
devices often require high voltage functionality -- such as the ability to drive
an electroluminescent device for a light source for the portable product --
which requires complex analog circuitry. The Company believes that analog
semiconductor manufacturers that can provide solutions which enable portable
equipment and products manufacturers to add functionality and reliability to
their products with low battery usage will be able to expand their markets
substantially.
 
     Industrial Controls/Instrumentation.  The detection and measurement of
analog information such as light, sound, temperature, pressure, position,
velocity, acceleration, angle, angular velocity and speed in industrial
controls, medical equipment, automated test equipment and other measurement
systems have been a traditional focus of analog circuits. As systems grow more
complex and information is processed at higher rates, there is a corresponding
requirement for higher speed analog circuits to process the information in
analog format, as well as for analog-to-digital and digital-to-analog conversion
for digital processing of the information contained.
 
PRODUCTS AND CUSTOMERS
 
     The Company offers a broad range of innovative, high performance, high
value-added analog integrated circuits. The Company's products are principally
networking products, electroluminescence products, power management products and
data converter products. In addition, the Company supplies precision high-
reliability assembled products principally to commercial customers supplying
products for aerospace and military applications.
 
     Networking Products.  Interface products act as an intermediary to transfer
signals between or within electronic systems. A simple example of an interface
application is a personal computer connected to a printer via the RS-232 serial
interface standard. The computer sends information through the connecting cable
which is received by the printer, and additional information can be sent back to
the computer. Serial interface is used in many market segments including
computers, peripherals, data communications, telecommunications, hand-held
instrumentation, medical equipment, test equipment and industrial controls.
 
     In the networking area in particular, serial interface products are of
critical importance because diverse equipment and peripherals must be linked
together to permit data communications across local or remote locations. Because
a multiplicity of communications standards address the diverse requirements of
wide area networking, WAN equipment providers must provide compatibility in
their equipment with different communications standards. WAN equipment OEMs
traditionally addressed this need for systems compatibility through multiple and
often redundant board-level approaches, containing analog circuit designs made
up of many discrete interface drivers and receivers along with switches, jumpers
or relays to steer the appropriate signals to the connector. The Company's
solution was to develop the first single-chip multi-protocol interface
 
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transceiver circuit. These circuits are programmable and dynamically support
signals compliant with up to eight different serial interface standards. The
Company's products provide network suppliers with the ability to replace
multiple chip and discrete device configurations with a single chip solution,
allowing systems designers to reduce space and power requirements in their
equipment. The Company's SP300 series of interface transceivers each support two
protocols, such as RS-232 and AppleTalk, while the Company's SP500 Series is the
industry's first fully integrated transceiver, supporting up to eight of the
most popular serial interface standards for WAN interfaces. The Company
introduced the SP500 Series of products in 1994 and since that time has secured
design wins with many industry leaders in the WAN equipment market. In addition
to expanding its line of programmable serial interface products, the Company's
future interface product strategy includes developing with industry leaders
products involving higher speed interfaces supporting high speed data
communications, video communications and telecommunications interface
requirements.
 
     In addition to its SP300 and SP500 families of multi-protocol transceiver
products, the Company also offers the SP200 and SP400 series of single protocol
serial interface transceiver products, primarily targeted to the personal
computer and peripherals and industrial controls markets.
 
     Electroluminescence Products.  The Company has targeted the battery
powered/portable products market to leverage its design expertise and the
process capability provided by the Company's internal DI wafer fabrication
production line. The DI process allows single chip designs to operate
efficiently with both very low voltage (1V) and very high voltage (160V) without
interference or breakdown between adjacent circuits. The Company's designers, in
cooperation with Timex Corporation ("Timex"), developed a proprietary
electroluminescent ("EL") driver device, which provides the enabling technology
for the Timex Indiglo(TM) Watch. This custom integrated circuit creates a 100V
AC signal from a 3V DC battery within the watch to light the backlight material.
The Company is exploiting this technology and its design-specific resources to
offer low power and high voltage products to a wide variety of market segments,
including providing backlighting solutions for pagers, cell-phones and hand-held
electronic equipment markets. Pursuant to a license agreement with Timex, the
Company pays a royalty to Timex based on sales of the Company's EL products.
 
     The Company intends to continue its focus in this area on high volume
commercial/consumer markets, in which the attributes of the DI BiCMOS
fabrication process or the Company's design capabilities can add value for the
customer.
 
     Data Converter Products.  Data converter products are incorporated into
systems that translate real world (analog) events into digital data which can be
manipulated by a microprocessor. The Company's analog-to-digital and
digital-to-analog products are components that allow microprocessors to monitor
real world conditions, and then control responses to the conditions monitored.
The main focus of the Company's product offerings has been high performance
12-bit analog-to-digital and digital-to-analog converters. The Company believes
that the data converter marketplace for 12-bit products is highly fragmented,
and design wins are characterized by long life cycles. The primary markets
served are industrial controls, instrumentation and test equipment. Future
growth areas for new products involve higher speed 12-bit analog-to-digital
converters targeted for telecommunications applications.
 
     Power Management Products.  The Company's power management products
specialize in the areas of voltage control and measurement, voltage conversion
and battery charging. The purpose of these products is to monitor the power
supplied to digital circuits such as microprocessors and random access memory
("RAM") in battery operated systems. As the main battery voltage to the system
is slowly decreased by usage, a backup battery takes over to keep power to the
system long enough so that the microprocessor instructions and RAM are saved and
powered down in a safe state. If there is no activity from the microprocessor
during a period of time, the microprocessor is reset so that it starts-up at a
known state in case of errors during power-up, power-down, and intermittent
power losses. Any power glitches or faults that can cause harm to the system or
data loss at any time can be minimized by implementing a microprocessor
supervisory circuit. Any portable equipment that uses microprocessors, micro
controllers, or memory in the system will require some kind of detection
circuitry to monitor the power supply and battery output.
 
     Aerospace and Military Products.  The Company's precision high reliability
assembled products are sold to commercial customers engaged in various aerospace
and military programs. Customers incorporating the
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Company's high reliability assembled products for military applications include
Texas Instruments Incorporated, Raytheon Company and Lockheed Martin Corp. The
Company is not currently designing new products for the military market. The
Company expects sales of products for military applications to decline in the
future as the Company continues to focus its resources on its target markets in
the commercial sector. In 1995, 1996 and 1997, sales of high reliability
products for military applications accounted for approximately 20%, 11% and 8%,
respectively, of the Company's net sales.
 
SALES, SUPPORT AND DISTRIBUTION
 
     The Company sells its products to OEM customers either directly through its
direct sales force or with the assistance of a network of independent sales
representatives, or indirectly through independent distributors. The Company is
seeking to broaden its customer base by increasing sales through its distributor
network. In 1997, the Company added additional national distributors and
increased domestic and international distributor sales to approximately 48.0% of
net sales in 1997 from approximately 42.0% in 1996 and 39.6% in 1995.
 
     The Company's direct sales force consists of sales managers and field
application engineers who provide technical and applications support to
customers, independent sales representatives and distributors. The sales staff
and field application engineers are located at the Company's Billerica,
Massachusetts headquarters and in field sales offices in Munich, Paris, Tokyo,
the United Kingdom and California. The Company's sales staff and field
application engineers also manage, train and support the Company's network of
distributors and representatives.
 
     In North America, the Company sells its products through 20 independent
sales representative organizations having a total of 35 offices, and 5
distributors having a total of 157 sales locations. These independent entities
are selected for their ability to provide effective field sales, marketing
communications and technical support to the Company's customers. The Company has
entered into Representative or Distributor Agreements with each of its
independent distributors and sales representatives. These agreements typically
provide for the independent distributor to act as a non-exclusive distributor
for one or more products within a specific territory and also permits sales
representatives to act as an exclusive or a non-exclusive sales representative
in appropriate circumstances. The Company maintains a separate price list for
products sold to distributors, which typically reflects discounts from the
prices charged to customers in direct sales transactions. Sales representatives
directly solicit orders for the Company's products, which the Company fills
directly with the customer, generating a commission from the Company to the
sales representative. On a semi-annual basis, distributors are permitted to
return for credit, against purchases of an equivalent dollar value of products,
up to 10% of their total purchases during the most recent six-month period.
 
     Outside North America, the Company sells its products through 39
distributors having a total of 148 sales locations. International sales in 1995,
1996 and 1997 were approximately $10.6 million, $12.1 million and $19.6 million,
respectively, representing 35.4%, 32.5%, and 38.2% of net sales, respectively.
The Company is seeking to appoint additional distributors internationally to
further expand its geographical markets. In connection with its international
sales, the Company is subject to the normal risks of conducting business
internationally, including exchange rate fluctuations. To date, the Company has
not hedged the risks associated with fluctuations in exchange rates but may
undertake such transactions in the future. The Company currently does not have a
policy relating to hedging.
 
BACKLOG
 
     At December 31, 1997, the Company's product backlog was approximately $24.8
million, compared to $24.0 million at December 31, 1996. The Company generally
includes in backlog all orders scheduled for delivery within one year. However,
the Company's business, and to a large extent the entire semiconductor industry,
is characterized by short-term orders and shipment schedules. The Company
generally permits orders to be canceled or rescheduled without significant
penalty to the customers. As a result, the quantities of the Company's products
to be delivered and their delivery schedules may be revised by customers to
reflect changes in their needs. Since backlog can be canceled or rescheduled,
the Company's backlog at any time is not necessarily indicative of future
revenues.
 
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RESEARCH AND DEVELOPMENT
 
     The Company believes that continued introduction of new products in its
target markets is essential to its growth. As performance demands have increased
the complexity of analog circuits, the design and development process has become
a multi-disciplinary effort, requiring diverse competencies to achieve
customers' desired performance. The Company supports its key designers with an
infrastructure of product and test engineers who perform various support
functions and allow the designer to focus on the core elements of the design.
 
     In 1995, 1996 and 1997, the Company spent approximately $4.4 million, $4.7
million and $5.4 million, respectively, on research and development,
representing 14.7%, 12.7% and 10.6%, respectively, of net sales for such
periods. The Company expects that expenditures in support of research and
development activity will continue to increase in absolute dollars in the near
future.
 
     The Company's ability to compete depends, in part, upon its continued
introduction of technologically innovative products on a timely basis. The
Company's research and development efforts are directed primarily at designing
and introducing new products and technologies. The Company continually upgrades
its internal technology while also working with foundries to develop new
technologies for new generations of products. In addition, the Company
continually refines its manufacturing practices and technology to improve the
yields of its products.
 
     Currently, the Company's major development programs include expanding its
proprietary product offerings of electroluminescent drivers and programmable
dual and multi-mode transceivers, analog-to-digital converters,
digital-to-analog converters, power management, and other application-specific
products.
 
MANUFACTURING
 
     The Company manufactures semiconductor wafers for its dielectric isolation
complementary bipolar products in its own facility to optimize the performance
of these products and maintain a high degree of manufacturing control. The
Company's manufacturing facilities in Milpitas, California include a four-inch
wafer fabrication facility and a clean room. The Company's facilities have been
certified as ISO-9001 compliant. In March 1998, the Company entered into an
Operating Lease Agreement for the construction and lease of a 60,000 square foot
facility in Milpitas, California which is expected to be completed in the first
quarter of 1999. This facility will provide expanded capacity for the
manufacture of wafers.
 
     The Company broadens its manufacturing capabilities by using third-party
foundries to produce junction isolation BiCMOS processed wafers and CMOS
processed wafers. The use of third-party foundries enables the Company to focus
on its design strengths and minimize fixed costs and capital expenditures while
providing access to diverse manufacturing technologies without bearing the full
risk of obsolescence. The Company uses three different third-party foundries to
supply fully processed semiconductor wafers for its junction isolation BiCMOS
and CMOS products, all of which foundries have been certified as IS0-9001
compliant. Sales of these products collectively represented approximately 38.9%
of the Company's net sales in 1995, approximately 41.2% in 1996 and
approximately 38.7% in 1997, and are expected to remain a significant percentage
of net sales in the future. The Company believes it has good long-term
relationships with its third-party foundry suppliers and such relationships are
stable. The Company has qualified or is in the process of qualifying
second-source foundries for each of its current third-party foundries in order
to continue to be able to support its customers' product needs and to reduce the
Company's dependence on any single foundry. However, any sudden demand for
increased amounts of semiconductor devices or elimination of existing sources of
fully processed semiconductor wafers could result in material delays in the
shipment of the Company's products.
 
     The Company tests integrated circuits or "die" on the wafers produced by
the Company and its foundries for compliance with performance specifications
before assembly. Following assembly, the packaged units are returned to the
Company for 100 percent final testing and inspection prior to shipment to
customers.
 
     The Company's commercial products are assembled by a variety of
subcontractors in Malaysia, Indonesia, Thailand and other locations in Asia, all
of which have been certified as ISO-9002 compliant.
 
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These subcontractors may also be subject to capacity, yield and quality problems
or may have difficulty obtaining critical raw materials, which could result in
disruptions in the supply of assembled products. The Company's reliance on
third-party foundries and independent subcontractors involves a number of other
risks, including reduced control over delivery schedules, quality assurance and
costs. The occurrence of any supply or other problems resulting from such risks
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     The Company manufactures its precision high reliability assembled products
in Billerica, Massachusetts. The Company is in conformance with stringent
quality and reliability requirements for military and aerospace applications.
 
     From time to time, the overall semiconductor industry has experienced
significant growth, which creates industry-wide capacity shortages and extended
lead times for contract assembly, raw wafers, capital equipment, foundry wafers
and various other products and services that are critical to the Company's
performance. The Company is seeking to establish and maintain critical
inventories and alternate sources to minimize the impact of its vendors'
capacity limitations and to date has not experienced material shortages or
delays. However, there can be no assurance that there will not be future
shortages of key services that will materially and adversely affect the
Company's business, financial condition and results of operations.
 
     The manufacturing processes utilized by the Company are highly complex and
are continuously being modified in an effort to improve yields and product
performance. Process changes can result in interruptions in production or
significantly reduced yields. In addition, yields can be affected by minute
impurities in the environment or other problems that occur in the complex
manufacturing process. Many of these problems are difficult to diagnose and
time-consuming or expensive to remedy. From time to time, the Company has
experienced yield variances. In particular, new process technologies or new
products can be subject to especially wide variations in manufacturing yields
and efficiency. There can be no assurance that yield variances previously
experienced by the Company will not recur or that the Company and its
independent foundries will not experience other manufacturing problems that
result in product introduction or delivery delays. Although previous
fluctuations in yield variances have not materially affected the Company's
business, financial condition or results of operations, there can be no
assurance that future yield variances and resulting delays would not materially
and adversely affect the Company's business and results of operations.
 
     The Company is subject to a variety of federal, state and local
governmental regulations related to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Although the Company believes that its activities conform to presently
applicable environmental regulations, the failure to comply with present or
future regulations could result in fines being imposed on the Company,
suspension of production or a cessation of operations. Increasing public
attention has been focused on the environmental impact of semiconductor
manufacturing operations, and there can be no assurance that regulatory changes
or changes in regulatory interpretation or enforcement will not render
compliance more difficult and costly. Any failure of the Company to control the
use of, or adequately restrict the discharge of, hazardous substances, or
otherwise comply with environmental regulations, could subject it to significant
future liabilities. In addition, although the Company believes that its past
operations conformed with then applicable environmental laws and regulations,
there can be no assurance that the Company has not in the past violated
applicable laws or regulations, which violations could result in remediation or
other liabilities, or that past use or disposal of environmentally sensitive
materials in conformity with then existing environmental laws and regulations
will not result in remediation or other liabilities under current or future
environmental laws or regulations.
 
     The Company and approximately sixty other potentially responsible parties
("PRPs") received a Notice of Potential Liability from the United States
Environmental Protection Agency in June 1993 concerning the Shaffer Landfill
Operable Unit of the Iron Horse Park Superfund Site (the "Site") located in
Billerica, Massachusetts. In January 1995, federal and Massachusetts
governmental authorities filed suit against ten of the PRPs, alleging
responsibility for remediation and other costs. The ten PRPs named in the
lawsuit, together with a number of other PRPs not named, but not currently
including the Company, have been engaged in settlement discussions with such
authorities. If the PRP group and the governmental agencies reach a
 

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negotiated settlement regarding the clean-up of the Site, there is no assurance
that the Company would join such a settlement. The Company believes that it has
strong defenses to liability; however, there can be no assurance that the
Company will not be pursued with respect to alleged liability for contamination
of the Site. The Company anticipates that it would vigorously defend against any
such claims. There can be no assurance, however, that any such defenses of any
such claims would be successful.
 
     The future costs in connection with the Site are currently indeterminable
due to such factors as the unknown timing and extent of any future remedial
actions which may be required, the extent of any liability of the Company and of
other potentially responsible parties, and the financial resources of the other
potentially responsible parties.
 
PATENTS AND INTELLECTUAL PROPERTY
 
     The Company seeks to protect its proprietary technology through patents and
trade secret protection. Currently, the Company holds six United States patents
expiring on various dates between the years 1999 and 2015 and has additional
pending United States patent applications, although there can be no assurance
that any patents will result from these applications. While the Company intends
to continue to seek patent coverage for its products and manufacturing
technology where appropriate, the Company believes that its success depends more
heavily on the technical expertise and innovative abilities of its personnel
than on its patent position. Accordingly, the Company also relies on trade
secrets and confidential technological know-how in the conduct of its business.
There can be no assurance that the Company's patents or applicable trade secret
laws will provide adequate protection for the Company's technology against
competitors who may develop or patent similar technology or reverse engineer the
Company's products. In addition, the laws of certain territories in which the
Company's products are or may be developed, manufactured or sold, including
Asia, Europe and Latin America, may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.
 
     The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Although the Company is
not aware of any pending or threatened patent litigation except as disclosed
below, there can be no assurance that third parties will not assert claims
against the Company with respect to existing or future products or technologies
and the Company has been subject to such claims in the past. In the event of
litigation to determine the validity of any third-party claims, such litigation,
whether or not determined in favor of the Company, could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks. In the event of an adverse ruling in
such litigation, the Company might be required to discontinue the use of certain
processes, cease the manufacture, use and sale of certain products, expend
significant resources to develop non-infringing technology or obtain licenses to
the infringing technology. There can be no assurance that licenses will be
available on reasonable commercial terms, or at all, with respect to disputed
third-party technology. In the event of a successful claim against the Company
and the Company's failure to obtain a license or to develop or license a
substitute technology at a reasonable cost, the Company's business, financial
condition and results of operations would be materially and adversely affected.
 
     In January 1998, the Company received notice of patent infringement from
the Lemelson Medical, Education and Research Foundation Limited Partnership (the
"Lemelson Foundation") alleging that the Company's activities violate certain
patents issued to the late Jerome H. Lemelson. The Lemelson Foundation has
offered to license the patents at issue. The Company is investigating the claims
made, and has requested further information from the Lemelson Foundation. At
present, the Company has not yet been able to determine whether it is infringing
any valid patents of the Lemelson Foundation.
 
COMPETITION
 
     The analog integrated circuit segment of the semiconductor industry is
intensely competitive, and many major semiconductor companies presently compete
or could compete in some segment of the Company's market. The Company's primary
competitors have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources and broader product lines than
Sipex. The Company's current primary competitors in the high-performance segment
of the analog circuit market are Analog Devices, Inc.,
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Linear Technology Corp. and Maxim Integrated Products, Inc. Although foreign
companies active in the semiconductor market have not traditionally focused on
the high performance analog market, many foreign companies have the financial
and other resources to participate successfully in these markets, and there can
be no assurance that they will not become formidable competitors in the future.
 
     The Company believes that its ability to compete successfully depends on a
number of factors, including the ability to develop and introduce new products
rapidly, product innovation, product quality and reliability, product
performance, the breadth of its product line, price, technical service and
support, adequacy of manufacturing quality and capacity and sources of raw
materials, efficiency of production, delivery capabilities and protection of the
Company's products by intellectual property laws. The Company believes that
product innovation, quality, reliability, performance and the ability to
introduce products rapidly are more important competitive factors than price in
its target markets because the Company competes primarily at the stage when
system manufacturers design analog products into their systems. At the design-in
stage, there is less price competition, particularly when there is only one
source for the product. The Company believes that, by virtue of its analog
expertise and rigorous design methodology, it competes favorably in the areas of
rapid product introduction, product innovation, quality, reliability and
performance, but it may be at a disadvantage in comparison to larger companies
with broader product lines, greater technical and financial resources and
greater service and support capabilities.
 
EMPLOYEES
 
     At December 31, 1997, the Company had 277 full-time employees. The Company
believes that its future success will depend, in part, on its ability to attract
and retain qualified technical and manufacturing personnel. This is particularly
important in the areas of product design and development, where competition for
skilled personnel is intense. None of the Company's employees is subject to a
collective bargaining agreement, and the Company has never experienced a work
stoppage. The Company believes that its relations with its employees are good.
 
ITEM 2.  FACILITIES:
 
     The Company leases approximately 47,600 square feet located in Billerica,
Massachusetts for manufacturing, research and development, and administration.
In addition, the Company leases approximately 30,500 square feet in Milpitas,
California and approximately 12,500 square feet in San Jose, California for
manufacture of its DI products. The Company also leases approximately 2,200
square feet for each of its sales offices in Munich, Paris, Tokyo and the United
Kingdom. The Company is currently planning a 17,000 square foot expansion of its
Billerica facility and in March 1998, the Company entered into an Operating
Lease Agreement for the construction and lease of a 60,000 square foot facility
in Milpitas, California.
 
ITEM 3.  LEGAL PROCEEDINGS:
 
     The Company is not a party to any material legal proceedings. See also Item
1 "Business -- Patents and Intellectual Property".
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
 
     No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1997.
 
EXECUTIVE OFFICERS
 
     Mr. Donegan joined the Company in April 1985 as Chairman of the Board,
Chief Executive Officer and President of the Company. Mr. Donegan currently
serves as a Director Of Genesis Microchip, Inc., a manufacturer of video
semiconductors. Before joining the Company, Mr. Donegan held the position of
Group Vice President of the Electronic Components Group at Midland Ross
Corporation. Prior to Midland Ross Corporation, Mr. Donegan was Vice President
and General Manager at Cameron & Barkley and Company. Prior to working at
Cameron & Barkley and Company, Mr. Donegan spent ten years with the General
Electric Company in various manufacturing positions.
 
                                        8
<PAGE>   10
 
     Mr. DiPietro joined the Company in December 1983 as Chief Financial Officer
and Treasurer. He was appointed Vice President of Finance in January 1985,
Senior Vice President in June 1985 and Executive Vice President in November
1996. From November 1979 to November 1983, Mr. DiPietro served as a Controller
at Digital Equipment Corp.
 
     Mr. Chow joined the Company in October 1988 as Director of Interface
Engineering. He was appointed Senior Vice President of Interface Products in
August 1994. From March 1982 to October 1988, Mr. Chow was President and Chief
Executive Officer of Barvon BiCMOS Technology, Inc. ("Barvon"), a company Mr.
Chow founded in 1982 and which was acquired by SIPEX in October 1988. Prior to
founding Barvon, he served as Director of Engineering at Universal
Semiconductor, Inc. from 1979 to 1982. From 1972 to 1979, Mr. Chow was a Design
Manager at Intersil, Inc. and Senior Design Engineer at Fairchild Semiconductor.
 
     Mr. Cohen has been the Company's Senior Vice President of Technology since
joining the Company in July 1988. Prior to joining SIPEX, Mr. Cohen was a
Division Manager at the Charles Stark Draper Laboratory, formerly the
Instrumentation Laboratory of the Massachusetts Institute of Technology. He has
been a member of several government advisory panels and has designed and
developed numerous circuits and systems.
 
     Mr. Dhuyvetter joined the Company in January 1987. In 1994, he was
appointed Vice President, Application Specific Products and in 1997 he was
appointed Senior Vice President, Low Power Analog Products. He joined the
Company after serving in various engineering positions at Phillips Corporation.
While at Phillips, Mr. Dhuyvetter was awarded three patents in the field of
communications signal processing.
 
                                    PART II
 
ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
     The Company's common stock has been listed for quotation on the Nasdaq
National Market under the symbol SIPX since the Company's initial public
offering of Common Stock on April 2, 1996. The table below sets forth the high
and low sale price of the Company's Common Stock on the Nasdaq National Market
for each of the fiscal quarters of the years ended December 31, 1997 and 1996.
On August 18, 1997, the Company effected a two for one stock split. All share
and per share amounts affected by this split contained in this table have been
retroactively adjusted for all periods presented.
 
<TABLE>
<CAPTION>
                                                                   FISCAL QUARTER
                                                           -------------------------------
                                                           FIRST   SECOND   THIRD   FOURTH
                                                           -----   ------   -----   ------
<S>                                                        <C>     <C>      <C>     <C>
1997
  High...................................................  18 5/8  18 1/2   34 1/2   37
  Low....................................................  13 7/8  11       17 3/8   23 1/2
 
1996
  High...................................................      --  10 3/4   12 1/8   17 5/8
  Low....................................................      --   5 3/8    6 3/4   10 1/8
</TABLE>
 
     On December 31, 1997, there were approximately 63 shareholders of record.
The Company believes that the number of beneficial holders of Common Stock
exceeds 1,200. The last reported sale price of the Common Stock on March 10,
1998 was $35.125 per share. The Company has never declared or paid a cash
dividend on its capital stock. The Company currently intends to retain all of
its earnings to finance future growth and therefore, does not anticipate paying
any cash dividends on its common stock in the foreseeable future.
 
                                        9
<PAGE>   11
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA:
 
     The selected financial data set forth below has been derived from the
audited consolidated financial statements of the Company. This information
should be read in conjunction with the consolidated financial statements and
notes thereto set forth elsewhere herein.
 
<TABLE>
<CAPTION>
                                                          FOR THE YEARS ENDED DECEMBER 31,
                                             -----------------------------------------------------------
                                              1993         1994         1995         1996         1997
                                             -------      -------      -------      -------      -------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>          <C>          <C>          <C>          <C>
STATEMENTS OF OPERATIONS DATA*:
Net sales..................................  $27,533      $22,823      $29,979      $37,311      $51,210
Gross profit...............................    5,148        4,592       10,900       15,873       24,540
Income (loss) from operations..............   (3,340)      (4,340)        (971)       4,484       10,829
Income (loss) before taxes.................   (3,709)      (4,802)      (1,775)       4,431       12,270
Net income (loss)..........................   (3,721)      (4,709)      (1,803)       4,277       13,245
Net income (loss) per common share --
  basic....................................  $ (0.40)     $ (0.50)     $ (0.19)     $  0.32      $  0.76
Net income (loss) per common share --
  assuming dilution........................  $ (0.40)     $ (0.50)     $ (0.19)     $  0.29      $  0.71
Weighted average common shares outstanding
  -- basic.................................    9,362        9,362        9,366       13,284       17,427
Weighted average common shares outstanding
  -- assuming dilution.....................    9,515        9,515        9,519       14,700       18,581

<CAPTION>
                                                                    DECEMBER 31,
                                             -----------------------------------------------------------
                                              1993         1994         1995         1996         1997
                                             -------      -------      -------      -------      -------
                                                                   (IN THOUSANDS)
<S>                                          <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Working capital............................  $ 7,115      $ 5,942      $ 7,307      $49,920      $59,403
Total assets...............................   14,590       13,360       15,870       57,649      $72,982
Long-term debt.............................    6,761        9,613       11,930           43            8
Total shareholders' equity (deficit).......    4,726          (67)      (1,884)      53,409       67,868
</TABLE>
 
* All share data reflects 2 for 1 stock split effected through a 100% dividend
on August 18, 1997.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS:
 
     The following discussion and analysis is qualified by reference to, and
should be read in conjunction with, the consolidated financial statements of
SIPEX Corporation.
 
OVERVIEW
 
     SIPEX Corporation (the "Company") designs, manufactures and markets high
performance and high value added analog integrated circuits using standard
BiCmos and dielectrically isolated BiCmos technologies. Analog integrated
circuits address a wide range of real-world signal processing applications
associated with such naturally occurring physical phenomena as temperature,
pressure, weight, position, light and sound. These circuits play a fundamental
and important role in coupling the real world to the digital computer and vice
versa. The Company's products include single, dual and multi-protocol interface
circuits, data converters, electroluminescent driver circuits, low power and
high voltage application specific circuits and power management products.
 
                                       10
<PAGE>   12

     For the periods indicated, the following table sets forth the percentage of
net sales represented by the respective line items in the Company's consolidated
statements of operations.
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                             -----------------------
                                                              1995    1996    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Net sales...................................................  100.0%  100.0%  100.0%
Cost of sales...............................................   63.6    57.5    52.1
                                                              -----   -----   -----
Gross profit................................................   36.4    42.5    47.9
  Operating expenses:
     Research and development...............................   14.7    12.7    10.6
     Marketing and selling..................................   14.2    12.1    10.2
     General and administrative.............................    6.3     5.7     6.0
     Write-off of intangible assets.........................    4.4      --      --
                                                              -----   -----   -----
Total operating expenses....................................   39.6    30.5    26.8
                                                              -----   -----   -----
Income (loss) from operations...............................   (3.2)   12.0    21.1
Other income/(expense), net.................................   (2.7)   (0.1)    2.8
                                                              -----   -----   -----
Income (loss) before income taxes...........................   (5.9)   11.9    23.9
                                                              =====   =====   =====
</TABLE>
 
Fiscal Year Ended December 31, 1997 compared to Fiscal Year Ended December 31,
1996
 
     Net Sales.  The Company derives its revenues principally from product
sales. Net sales increased 37.3% to $51.2 million for the year ended December
31, 1997 compared to $37.3 million for the year ended December 31, 1996. The
increase in net sales was primarily due to higher unit sales resulting from
increased market acceptance of the Company's proprietary networking,
electroluminescence and application specific products. Domestic sales increased
by 25.7% and international sales increased by 61.3% in 1997 as compared to the
same period in 1996.
 
     Gross Profit.  The Company's cost of sales consists primarily of costs
associated with the manufacture and delivery of the Company's products from its
production facilities, as well as the Company's sub-contract wafer fabrication
and assembly contractors. Gross profit as a percentage of net sales, or gross
margin, increased to 47.9% in 1997 as compared to 42.5% in 1996. The
improvements in 1997 over 1996 were primarily due to the absorption of certain
fixed costs over the increased sales volume and due to increased market
acceptance of the Company's proprietary and application specific products.
 
     Research and Development.  Research and development expenses consist
primarily of salaries and benefits of employees involved in product development
and fees for product development services provided by consultants. The Company
expended 10.6% of net sales in 1997 for the development and introduction of new
products as compared to 12.7% in 1996. In absolute dollars, research and
development increased 15.3% to $5.4 million in 1997 over the $4.7 million
incurred in 1996. The increased spending was due to salary and other expenses
related to the hiring of additional engineering personnel, outside consulting
fees and mask set expenses relating to new product development. The Company
expects research and development expenses to continue to increase in absolute
terms in the near future.
 
     Marketing and Selling.  Marketing and selling expenses consist principally
of salaries, commissions, travel expenses of direct sales and marketing
personnel and costs associated with marketing and advertising programs.
Marketing and selling expenses decreased as a percentage of net sales to 10.2%
or $5.2 million in 1997 from 12.1% or $4.6 million in 1996, but increased 14.6%
in absolute dollars in 1997 over the same period in 1996. The increase in 1997
was due primarily to higher costs associated with marketing and advertising of
new products and increased commissions.
 
     General and Administrative.  General and administrative expenses consist
primarily of personnel costs for administration, finance, human resource and
general management, including legal and auditing expenses.
 

                                       11
<PAGE>   13
 
General and administrative expenses increased to 6.0% of net sales in 1997 from
5.7% in 1996. In absolute dollars, general and administrative expenses increased
to $3.0 million in fiscal 1997 from $2.1 million in 1996. The increase in 1997
was due primarily to increased professional related expenses and travel.
 
     Other Income, Net.  Other income, net consists primarily of interest earned
on investments, net of any interest expense incurred. Other income (expense),
net increased to $1,400,000 of income in 1997 from ($53,000) of expense in 1996
primarily as a result of interest income earned on proceeds of the Company's two
public offerings as well as interest earned on increased cash flow from
operations in 1997.
 
     Income Taxes.  The Company recorded an income tax benefit of ($975,000) for
1997 and income tax expense of $154,000 for 1996, resulting in an effective
income tax benefit of (7.9%) in 1997 compared to an effective tax rate of 3.5%
in 1996. These effective rates differed from the statutory rates due to the
Company's utilization of its net operating loss carryforwards which were
previously reserved and additionally in 1997 to the reduction of a portion of
the valuation allowance for future tax benefits expected to be realized in the
future. See also Notes To the Consolidated Financial Statements.
 
Fiscal Year Ended December 31, 1996 compared to Fiscal Year End December 31,
1995
 
     Net Sales.  Net sales increased 24.5% to $37.3 million in 1996 from $30.0
million in 1995. The increase in net sales was principally due to the growing
acceptance of the Company's proprietary interface and low power commercial
products. The increase in net sales was primarily due to higher unit sales
resulting from increased market acceptance of the Company's proprietary and
application specific products. Domestic and international sales increased 30%
and 14.3%, respectively, in 1996 as compared to the same period in 1995.
 
     Gross Profit.  Gross profit as a percentage of net sales, or gross margin,
increased to 42.5% in 1996 from 36.4% in 1995. The improvements in 1996 over
1995 were primarily due to the absorption of certain fixed costs over the
increased sales volume and due to increased market acceptance of the Company's
proprietary and application specific products.
 
     Research and Development.  Research and development expenses increased 7.4%
to $4.7 million in 1996 from $4.4 million in 1995 and decreased as a percentage
of net sales to 12.7% in 1996 from 14.7% in 1995. The increased spending was due
to salary and other expenses related to hiring of additional engineering
personnel, outside consulting fees and mask set expenses relating to new product
development.
 
     Marketing and Selling.  Marketing and selling expenses increased 7.2% to
$4.6 million in 1996 from $4.2 million in 1995, but decreased as a percentage of
net sales to 12.1% in 1996 from 14.2% in 1995. The increase in 1996 was
primarily due to higher costs associated with marketing and advertising of new
products and increased commissions.
 
     General and Administrative.  General and administrative expenses increased
10.8% to $2.1 million in 1996 and decreased as a percentage of net sales to 5.7%
in 1996 from 6.3% in 1995. The increase in 1996 was due primarily to increased
travel and professional related expenses.
 
     Write-off of Intangible Assets.  As a result of the acquisition of certain
businesses involved in the development and design of custom and standard
products with military applications, the Company had intangible assets of $1.4
million as of December 31, 1994 which were being amortized on a straight line
basis over ten years. In the quarter ended July 1, 1995, the Company wrote-off
the unamortized balance of intangible assets. The Company wrote-off this amount
as a result of its increased focus on commercial products and review of actual
and expected revenues and cash flows from specific military products related to
the acquired technology. These amounts are included in 1995 results.
 
     Other Expense, Net.  These expenses decreased to $53,000 in 1996 from
$805,000 in 1995. The decrease in 1996 was primarily due to the repayment of the
revolving line of credit and subordinated notes to affiliates and interest
income earned on the Company's two public offering proceeds which offset
interest expense.
 
                                       12
<PAGE>   14
 
LIQUIDITY AND CAPITAL RESOURCES
 
     In April 1996, the Company raised net proceeds of approximately $18.0
million by issuing common stock in its initial public offering. In November
1996, the Company raised net proceeds of approximately $33.0 million from the
issuance of common stock. The proceeds will be primarily used for capital
equipment relating to expansion of facilities and general corporate purposes
including working capital. A portion of the April 1996 proceeds were applied to
pay the $7.5 million in outstanding borrowings to Generale Bank and $4.8 million
of indebtedness to affiliates.
 
     At December 31, 1997, the Company had working capital of $59.4 million and
available funds of $40.0 million consisting of cash, cash equivalents and
short-term U.S. Government-backed investments. Up to $35,000,000 of this amount
was pledged in March 1998 as security for a lease which the Company entered into
for the construction and lease of a new facility in Milpitas, California. Net
cash generated in operating activities was $8.2 million, ($60,000) and
($893,000) in 1997, 1996 and 1995, respectively. Net cash provided by operating
activities in 1997 consisted primarily of $13.2 million of net income partially
offset by a $4.3 million increase in accounts receivable and a $2.4 million
increase in inventories.
 
     In 1996 and 1995, the use of cash supported research and development costs
associated with its commercial products and sales and marketing expenses. Net
cash used in 1996 was due primarily to a $4.2 million increase in inventory and
a $1.3 million decrease in accounts payable offset by $4.3 million of net income
and a $500,000 reduction in accounts receivable. In 1995, cash used was due to a
$1.8 million net loss, a $1.2 million increase in accounts receivable and a $2.0
million increase in inventory partially offset by $2.3 million in depreciation
and amortization and a $1.7 million increase in liabilities.
 
     Net cash used in investing activities for property, plant and equipment
were $6.5 million, $1.9 million and $1.2 million in 1997, 1996 and 1995,
respectively. The growth in 1997 investment related to the expansion of wafer
manufacturing in San Jose, California and equipment upgrades in all facilities.
 
     Net cash provided by financing activity was $802,000, $39.1 million and
$2.2 million in 1997, 1996 and 1995, respectively. In 1997, $982,000 was
provided by the issuance of common stock on the exercise of options pursuant to
the Company's stock plans offset partially by the repayments of approximately
$180,000 of capital lease obligations. In 1996, $51.0 million was provided by
the issuance of common stock in two public offerings offset partially by the
repayments of approximately $12.0 million of long-term debt. In 1995, cash
provided by financing activities was primarily the result of proceeds from
long-term debt and the issuance of subordinated debts to affiliates.
 
     At December 31, 1997, the Company had U.S. net operating loss carryforwards
of approximately $32,923,000, which are available to offset future Federal
taxable income. These losses expire during the years 2002 through 2010. In
addition, the Company had Massachusetts and California net operating loss
carryforwards of approximately $5,571,000 and $2,165,000, respectively, which
are available to offset future Massachusetts and California taxable income.
These state losses expire in the years 1999 through 2000. The tax benefit of
utilization of approximately $9,000,000 of these net operating loss
carryforwards will result in an increase in additional paid-in capital when
realized. As of December 31, 1997, utilization of these net operating loss
carryforwards is subject to an annual limitation of approximately $7,400,000 as
a result of an ownership change which occurred on September 30, 1996.
 
     The Company anticipates that the available funds and cash provided from
operations will be sufficient to meet cash and working capital requirements
through at least the end of 1998.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its year ending
 
                                       13
<PAGE>   15
 
December 31, 1998, is not expected to have a material impact on the consolidated
financial statements of the Company.
 
     In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is currently not expected to have a material
impact on the Company's consolidated financial statements and footnote
disclosures.
 
FACTORS AFFECTING FUTURE OPERATING RESULTS
 
     From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including statements in this Form 10-K) may contain
statements which are not historical facts, so called "forward-looking
statements", and are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 and releases of the Securities and
Exchange Commission. In particular, certain statements contained in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations which are not historical facts (including, but not limited to,
statements concerning anticipated availability of capital for working capital
and for capital expenditures) constitute "forward-looking" statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below and the other risks
discussed in the Company's Prospectuses dated April 2, 1996 and October 31, 1996
included in its Registration Statements on Form S-1 (Reg. Nos. 333-1328 and
333-14639, respectively) and from time to time in the Company's other filings
with the Securities and Exchange Commission.
 
SUPPLY AND MANUFACTURING RISKS
 
     The Company currently relies on three outside foundries to supply fully
processed semiconductor wafers. There are significant risks associated with
reliance on outside foundries, including the lack of assured wafer supply and
control over delivery schedules, the unavailability of or delays in obtaining
access to key process technologies and limited control over quality assurance,
manufacturing yields and production costs. The Company is also subject to
significant manufacturing risks including yield variances which the Company or
its outside foundries may experience.
 
INTELLECTUAL PROPERTY RIGHTS
 
     The Company relies on certain intellectual property protections to preserve
its intellectual property rights. Any invalidation of these intellectual
property rights or lengthy and expensive defense of these rights could have a
material adverse effect on the Company.
 
DEPENDENCE ON NEW PRODUCTS
 
     The Company's success will depend upon its ability to develop new
semiconductor devices for existing and new markets, to introduce such products
in a timely manner and to have such products selected for design into new
products of its customers. Successful product development and introduction
depends on a number of factors, including accurate new product definition,
timely completion and introduction of new product designs, availability of
foundry capacity, achievement of manufacturing yields and market acceptance of
the Company's and its customers' products.
 
COMPETITION; THE SEMICONDUCTOR INDUSTRY
 
     The Company competes with several domestic semiconductor companies, most of
which have substantially greater financial, technical, manufacturing, marketing,
distribution and other resources and broader
                                       14
<PAGE>   16
 
product lines than the Company. The Company believes that its ability to compete
successfully depends on a number of factors, including the breadth of its
product line, the ability to develop and introduce new products rapidly, product
innovation, product quality and reliability, product performance, price,
technical service and support, adequacy of manufacturing quality and capacity
and sources of raw materials, efficiency of production, delivery capabilities
and protection of the Company's products by intellectual property laws. The
semiconductor industry has been highly cyclical and is subject to significant
economic downturns at various times, characterized by diminished product demand,
accelerated erosion of average selling prices and production over-capacity. The
Company may experience substantial period-to-period fluctuation in future
operating results due to general semiconductor industry conditions and overall
economic conditions.
 
INTERNATIONAL SALES
 
     The Company derives a significant portion of its net sales from
international sales, including Asia, which are subject to certain risks,
including unexpected changes in legal and regulatory requirements, changes in
tariffs, exchange rates and other barriers, political and economic instability,
difficulties in accounts receivable collection, difficulties in managing
distributors or representatives, difficulties in staffing and managing
international operations, difficulties in protecting the Company's intellectual
property overseas, seasonality of sales and potentially adverse tax
consequences. There can be no assurance that recent economic troubles in certain
Asian countries will not have a material adverse effect on the Company's
business, results of operations and financial condition.
 
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
 
     The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect net sales and
profitability from period-to-period, including competitive pressures on selling
prices; the timing and cancellation of customer orders; availability of foundry
capacity and raw materials; fluctuations in yields; changes in product mix; the
Company's ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its customers' products; the level of orders
received which can be shipped in a quarter; the timing of investments in
research and development, including tooling expenses associated with product
development, process improvements and production; and the cyclical nature of the
semiconductor industry. Due to the absence of substantial noncancellable
backlog, the Company typically plans its production and inventory levels based
on internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. Because the Company is continuing to increase its
operating expenses for personnel and new product development and for inventory
in anticipation of increasing sales levels, operating results would be adversely
affected if increased sales are not achieved. In addition, the Company is
limited in its ability to reduce costs quickly in response to any revenue
shortfalls. As a result of the foregoing or other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect its business, financial
condition and operating results.
 
     Historically, the Company has also experienced quarterly fluctuations in
net sales and gross profit, principally arising from the amount and timing of
orders of products for military applications. These sales generally result in
lower gross margins than sales of commercial products. The Company anticipates a
continuing decline in sales of products for military applications as part of its
transition from a supplier of product with military applications to a supplier
of commercial products. Should sales of these products decline more rapidly than
the Company anticipates in the near future, such decline could have the effect
of causing further fluctuations in quarterly or annual operating results.
 
STOCK PRICE VOLATILITY
 
     The trading price of the Company's common stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, general conditions in the semiconductor manufacturing and
electronic markets, changes in earnings estimates by analysts, or other events
or factors. In addition, the public stock
                                       15
<PAGE>   17
 
markets have experienced extreme price and trading volume volatility in recent
months. This volatility has significantly affected the market prices of
securities of many technology companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Company's common stock.
 
YEAR 2000 ISSUE
 
     The Company has recently commenced a Year 2000 date conversion project to
assess the possible impact of Year 2000 issues on its business. The Company is
looking at (a) its internal information and operating systems, (b) possible
effects on the Company of third parties' failure to fix their own Year 2000
Issues, and (c) whether any material contingencies may exist related to products
sold by the Company. The Company expects that these assessments will enable it
to develop plans for any required changes, testing and implementation; to make
estimates of likely time involved, and costs of any required changes; and to
determine whether Year 2000 issues are likely to have a material impact on
future financial results or financial condition.
 
                                       16
<PAGE>   18
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
 
     The Company's Consolidated Financial Statements and related Independent
Auditors' Report are presented in the following pages.
 
     Independent Auditors' Report
 
     Consolidated Financial Statements:
 
        Consolidated Balance Sheets at December 31, 1996 and 1997
 
        Consolidated Statements of Operations for the year ended December 31,
        1995, 1996 and 1997
 
        Consolidated Statements of Shareholders' Equity (Deficit) for the year
        ended December 31, 1995, 1996 and 1997
 
        Consolidated Statements of Cash Flows for the year ended December 31,
        1995, 1996 and 1997
 
        Notes to Consolidated Financial Statements
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE:
 
     Not applicable.
 


                                       17
<PAGE>   19
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
 
     The information required by this item, with respect to the directors of the
registrant and the filing of reports under Section 16(a) of the Securities
Exchange Act of 1934, is incorporated by reference from the Company's definitive
proxy statement in connection with its Annual Meeting of Shareholders to be held
on May 28, 1998, to be filed with the Commission not later than 120 days after
the close of the fiscal year ended December 31, 1997, in the table under the
captions "Election of Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934."
 
ITEM 11.  EXECUTIVE COMPENSATION:
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 28, 1998, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 1997,
under the caption "Compensation and Other Information Concerning Directors and
Officers."
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT:
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 28, 1998, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 1997,
in the tables under the captions "Principal Shareholders" and "Election of
Directors."
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
 
     The information required by this item is incorporated by reference from the
Company's definitive proxy statement in connection with its Annual Meeting of
Shareholders to be held on May 28, 1998, to be filed with the Commission not
later than 120 days after the close of the fiscal year ended December 31, 1997,
under the caption "Certain Transactions."
 
                                       18
<PAGE>   20
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
 
     (a) The following documents are filed as part of this Annual Report on Form
10-K:
 
     1. Consolidated Financial Statements. The following consolidated financial
statements of the Company and Independent Auditors' Report are incorporated in
Item 8 of this report.
 
     Independent Auditors' Report
 
     Consolidated Balance Sheets at December 31, 1996 and 1997
 
     Consolidated Statements of Operations for the Year Ended December 31, 1995,
     1996 and 1997
 
     Consolidated Statements of Shareholders' Equity (Deficit) for the Year
     Ended December 31, 1995, 1996 and 1997
 
     Consolidated Statements of Cash Flows for the Year Ended December 31, 1995,
     1996 and 1997
 
     Notes to Consolidated Financial Statements
 
     2. Consolidated Financial Statement Schedules. Consolidated financial
statement schedules have been omitted because the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
 
     3(a). The exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as a part of this Annual Report on Form 10-K.
 
     3(b). Reports on Form 8-K: No reports on Form 8-K were filed by the Company
during the fiscal quarter ended December 31, 1997.
 
                                       19
<PAGE>   21
 
                                   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.
 
                                            SIPEX CORPORATION
 
                                            By:    /s/ JAMES E. DONEGAN
                                              ----------------------------------
                                              James E. Donegan
                                              Chairman of the Board of
                                              Directors, Chief Executive 
                                              Officer, President and Clerk
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                       NAME                                        TITLE                     DATE
                       ----                                        -----                     ----
<C>                                                  <S>                                <C>
 
               /s/ JAMES E. DONEGAN                  Chairman of the Board of
---------------------------------------------------  Directors, Chief Executive
                   James E. Donegan                  Officer, President (principal
                                                     executive officer) and Clerk       March 23, 1998
 
               /s/ FRANK R. DIPIETRO                 Executive Vice President, Chief
---------------------------------------------------  Financial Officer and Treasurer
                   Frank R. DiPietro                 (principal financial officer and
                                                     accounting officer)                March 23, 1998
 
                 /s/ DANIEL DEROUX                   Director
---------------------------------------------------
                     Daniel Deroux                                                      March 23, 1998
 
                 /s/ MANFRED LOEB                    Director
---------------------------------------------------
                     Manfred Loeb                                                       March 23, 1998
 
                /s/ LIONEL H. OLMER                  Director
---------------------------------------------------
                    Lionel H. Olmer                                                     March 23, 1998
 
                /s/ JOHN L. SPRAGUE                  Director
---------------------------------------------------
                    John L. Sprague                                                     March 23, 1998
 
            /s/ DR. STEWARD S. FLASCHEN              Director
---------------------------------------------------
                Dr. Steward S. Flaschen                                                 March 23, 1998
 
               /s/ DR. WILLY SANSEN                  Director
---------------------------------------------------
                   Dr. Willy Sansen                                                     March 23, 1998
</TABLE>
 
                                       20
<PAGE>   22
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION                           PAGE
-------                           -----------                           ----
<C>       <S>                                                           <C>
   3.1    Restated Articles of Organization of the Company, as amended
          (filed as Exhibit 3.1 to the Company's Registration
          Statement on Form S-1 (File No. 333-1328, and incorporated
          herein by reference).

   3.2    Restated By-Laws of the Company, as amended (filed as
          Exhibit 3.2 to the Company's Registration Statement on Form
          S-1, File No. 333-1328, and incorporated herein by
          reference).

   4.2    Form of Indemnification Agreement for directors and officers
          (filed as Exhibit 4.2 to the Company's Registration
          Statement on Form S-1, File No. 333-1328, and incorporated
          herein by reference).

  10.1    1988 Non-Statutory Stock Option Plan (filed as Exhibit 10.1
          to the Company's Registration Statement on Form S-1, File
          No. 333-1328, and incorporated herein by reference).

  10.2    1991 Non-Statutory Stock Option Plan (filed as Exhibit 10.2
          to the Company's Registration Statement on Form S-1, File
          No. 333-1328, and incorporated herein by reference).

  10.3    1993 Stock Option and Incentive Plan (filed as Exhibit 10.3
          to the Company's Registration Statement on Form S-1, File
          No. 333-1328, and incorporated herein by reference).

  10.4    1994 Stock Option and Incentive Plan (filed as Exhibit 10.4
          to the Company's Registration Statement on Form S-1, File
          No. 333-1328, and incorporated herein by reference).

  10.5    1996 Incentive Stock Option Plan (filed as Exhibit 10.5 to
          the Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

  10.6    1996 Non-Employee Director Stock Option Plan (filed as
          Exhibit 10.6 to the Company's Registration Statement on Form
          S-1, File No. 333-1328, and incorporated herein by
          reference).

  10.7    1996 Employee Stock Purchase Plan (filed as Exhibit 10.7 to
          the Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

  10.8    Agreement of Lease, dated January 31, 1996, between the
          Company and ATC Billerica Corporation pertaining to 22
          Linnell Circle, Billerica, Massachusetts (filed as Exhibit
          10.8 to the Company's Registration Statement on Form S-1,
          File No. 333-1328, and incorporated herein by reference).

  10.9    Lease Agreement, as amended, dated June 12, 1986, between
          the Company and Greenback Associates (filed as Exhibit 10.9
          to the Company's Registration Statement on Form S-1, File
          No. 333-1328, and incorporated herein by reference).

 10.10    Employment Agreement, dated January 1, 1988, between the
          Company and James E. Donegan (filed as Exhibit 10.10 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

 10.11    Employment Agreement, dated January 1, 1988, between the
          Company and Frank R. DiPietro (filed as Exhibit 10.11 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

 10.12    Employment Agreement, dated January 1, 1996, between the
          Company and Raymond W.B. Chow (filed as Exhibit 10.12 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).
</TABLE>
 
                                       21
<PAGE>   23
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION                           PAGE
-------                           -----------                           ----
<C>       <S>                                                           <C>
 10.13    Employment Agreement, dated July 18, 1988, between the
          Company and Sanford Cohen (filed as Exhibit 10.13 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

 10.14    Form of Sales Representative Agreement (filed as Exhibit
          10.15 to the Company's Registration Statement on Form S-1,
          File No. 333-1328, and incorporated herein by reference).

 10.15    Form of Distributor Agreement (filed as Exhibit 10.16 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

 10.16    1997 Incentive Stock Option Plan (filed as Appendix A to the
          Company's definitive Proxy Statement for the Special Meeting
          In Lieu Of Annual Meeting Of Shareholders held May 30,
          1997).

 10.17    Promissory Note dated July 31, 1997 by and between the
          Company and Timothy J. Dhuyvetter (filed as Exhibit 10.1 to
          the Company's Quarterly Report on Form 10-Q for the
          quarterly period ended September 30, 1997 and incorporated
          herein by reference).

 10.18    Pledge and Security Agreement dated July 31, 1997 by and
          between the Company and Timothy J. Dhuyvetter (filed as
          Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
          for the quarterly period ended September 30, 1997 and
          incorporated herein by reference).

10.19*    License Agreement between Timex Corporation and SIPEX
          Corporation dated July 1, 1997.

  11.1    Computation of earnings per share.

  21.1    Subsidiaries of the Company (filed as Exhibit 21.1 to the
          Company's Registration Statement on Form S-1, File No.
          333-1328, and incorporated herein by reference).

  23.1    Consent of KPMG Peat Marwick LLP, independent accountants.

  27.1    Financial Data Schedule.
</TABLE>
 
---------------
 
* Confidential treatment as to certain portions has been requested pursuant to
  Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
 
                                       22
<PAGE>   24
 
                               SIPEX CORPORATION
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
                                    CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................  F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1997...  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1995, 1996 and 1997..........................  F-4
Consolidated Statements of Shareholders' Equity (Deficit)
  for the years ended December 31, 1995, 1996, and 1997.....  F-5
Consolidated Statements of Cash Flows for the year ended
  December 31, 1995, 1996 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>
 

                                       F-1
<PAGE>   25
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board Of Directors and Shareholders
SIPEX Corporation
 
     We have audited the accompanying consolidated balance sheets of SIPEX
Corporation (the Company) as of December 31, 1996 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the years in the three year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 SIPEX
Corporation as of December 31, 1996 and 1997 and the consolidated results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
 
Boston, Massachusetts
February 13, 1998
 

                                       F-2
<PAGE>   26
 
                               SIPEX CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                              ----------------------------
                                                                  1996            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 15,114,538    $ 23,886,793
  Short-term investment securities..........................    22,358,992      16,098,556
  Accounts receivable, less allowances of $255,000 and
     $596,000 at December 31, 1996 and 1997, respectively...     4,810,162       8,693,271
  Inventories...............................................    11,624,830      13,988,374
  Deferred income taxes.....................................            --       1,342,999
  Prepaid expenses..........................................       208,296         499,008
                                                              ------------    ------------
     Total current assets...................................    54,116,818      64,509,001
Property, plant, and equipment, net.........................     3,312,552       8,345,348
Other assets................................................       219,524         127,405
                                                              ------------    ------------
          Total assets......................................  $ 57,648,894    $ 72,981,754
                                                              ============    ============
 
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt.........................  $    189,720    $     45,118
  Accounts payable..........................................     2,570,888       2,771,244
  Accrued expenses..........................................     1,436,372       2,289,877
                                                              ------------    ------------
     Total current liabilities..............................     4,196,980       5,106,239
Long-term debt..............................................        42,940           7,904
                                                              ------------    ------------
          Total liabilities.................................     4,239,920       5,114,143
                                                              ------------    ------------
Shareholders' equity:
  Preferred stock, $.01 par value, 1,000,000 shares
     authorized and no shares issued or outstanding at
     December 31, 1996 and 1997.............................            --              --
  Common stock, $.01 par value, 40,000,000 shares authorized
     and 17,068,398 and 17,711,422 shares issued and
     outstanding at December 31, 1996 and 1997,
     respectively...........................................        85,342         177,114
  Additional paid-in capital................................    96,471,596      97,586,345
  Accumulated deficit.......................................   (43,304,185)    (30,058,981)
  Cumulative translation adjustment.........................       156,221         163,133
                                                              ------------    ------------
     Total shareholders' equity.............................    53,408,974      67,867,611
                                                              ------------    ------------
          Total liabilities and shareholders' equity........  $ 57,648,894    $ 72,981,754
                                                              ============    ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>   27
 
                               SIPEX CORPORATION
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1995          1996          1997
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net sales.............................................  $29,978,525   $37,310,910   $51,209,737
Cost of sales.........................................   19,078,986    21,437,878    26,670,273
                                                        -----------   -----------   -----------
          Gross profit................................   10,899,539    15,873,032    24,539,464
Operating expenses:
  Research and development............................    4,399,490     4,724,652     5,448,183
  Marketing and selling...............................    4,244,872     4,551,842     5,215,424
  General and administrative..........................    1,905,849     2,112,290     3,047,118
  Write-off of intangible assets......................    1,319,970            --            --
                                                        -----------   -----------   -----------
          Total operating expenses....................   11,870,181    11,388,784    13,710,725
                                                        -----------   -----------   -----------
Income (loss) from operations.........................     (970,642)    4,484,248    10,828,739
Other income (expense):
  Interest income (expense), net......................     (909,894)      144,430     2,012,222
  Other, net..........................................      105,144      (197,390)     (570,757)
                                                        -----------   -----------   -----------
                                                           (804,750)      (52,960)    1,441,465
                                                        -----------   -----------   -----------
Income (loss) before income taxes.....................   (1,775,392)    4,431,288    12,270,204
Income tax expense (benefit)..........................       27,287       154,169      (975,000)
                                                        -----------   -----------   -----------
Net Income(loss)......................................  $(1,802,679)  $ 4,277,119   $13,245,204
                                                        ===========   ===========   ===========
Net income (loss) per common share -- basic...........  $     (0.19)  $      0.32   $      0.76
                                                        ===========   ===========   ===========
Net Income (loss) per common share -- assuming
  dilution............................................  $     (0.19)  $      0.29   $      0.71
                                                        ===========   ===========   ===========
Weighted average common shares outstanding -- basic...    9,366,492    13,284,026    17,427,068
                                                        ===========   ===========   ===========
Weighted average common shares -- assuming dilution...    9,519,454    14,699,912    18,581,062
                                                        ===========   ===========   ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>   28
 
                               SIPEX CORPORATION
 
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                                       COMMON STOCK                                                       TOTAL
                                   ---------------------   ADDITIONAL                   CUMULATIVE    SHAREHOLDERS'
                                   NUMBER OF    $.01 PAR     PAID-IN     ACCUMULATED    TRANSLATION      EQUITY
                                     SHARES      VALUE       CAPITAL       DEFICIT      ADJUSTMENT      (DEFICIT)
                                   ----------   --------   -----------   ------------   -----------   -------------
<S>                                <C>          <C>        <C>           <C>            <C>           <C>
Balance at December 31, 1994.....   4,681,186   $ 46,812   $45,466,202   $(45,778,625)   $198,223      $   (67,388)
Acquisition of treasury stock....      (3,378)       (34)       (1,316)                                     (1,350)
Issuance of common stock under
  option plans...................       7,498         75         2,772                                       2,847
Net loss.........................                                          (1,802,679)                  (1,802,679)
Currency translation
  adjustment.....................                                                         (15,401)         (15,401)
                                   ----------   --------   -----------   ------------    --------      -----------
Balance at December 31, 1995.....   4,685,306     46,853    45,467,658    (47,581,304)    182,822       (1,883,971)
                                   ==========   ========   ===========   ============    ========      ===========
Issuance of common stock under
  option plans...................     238,178      2,382        92,893                                      95,275
Issuance of common stock through
  public offerings...............   3,610,715     36,107    50,911,045                                  50,947,152
Net income.......................                                           4,277,119                    4,277,119
Currency translation
  adjustments....................                                                         (26,601)         (26,601)
                                   ----------   --------   -----------   ------------    --------      -----------
Balance at December 31, 1996.....   8,534,199   $ 85,342   $96,471,596   $(43,304,185)   $156,221      $53,408,974
                                   ==========   ========   ===========   ============    ========      ===========
Issuance of common stock under
  option plans...................     407,307      4,073     1,202,448                                   1,206,521
2:1 split effected through a 100%
  stock dividend.................   8,769,916     87,699       (87,699)                                          0
Net income.......................                                          13,245,204                   13,245,204
Currency translation
  adjustment.....................                                                           6,912            6,912
                                   ----------   --------   -----------   ------------    --------      -----------
Balance at December 31, 1997.....  17,711,422   $177,114   $97,586,345   $(30,058,981)   $163,133      $67,867,611
                                   ==========   ========   ===========   ============    ========      ===========
</TABLE>
 
          See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>   29
 
                               SIPEX CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1995           1996           1997
                                                      -----------   ------------   ------------
<S>                                                   <C>           <C>            <C>
Operating activities:
  Net income (loss).................................  $(1,802,679)  $  4,277,119   $ 13,245,204
  Adjustments to reconcile net income (loss) to net
     cash (used in) provided by operating
     activities:
     Allowance for receivables......................      166,000          8,326        283,279
     Depreciation and amortization..................    2,297,550        985,990      1,467,706
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable...   (1,248,355)       499,383     (4,271,068)
       (Increase) decrease in inventories...........   (1,951,792)    (4,240,764)    (2,370,709)
       Increase in prepaid expenses.................      (74,598)       (66,308)      (210,289)
       Increase in deferred taxes...................           --             --     (1,342,999)
       Decrease in other assets.....................        3,818         57,290         43,225
       Increase (decrease) in accounts payable......    1,274,176     (1,330,303)       242,500
       Increase (decrease) in accrued expenses......      442,646       (250,975)     1,131,936
                                                      -----------   ------------   ------------
     Net cash (used in) provided by operating
       activities...................................  $  (893,234)  $    (60,242)  $  8,218,785
                                                      -----------   ------------   ------------
Investing activities:
  Proceeds from maturity of investment securities...           --      2,962,754     76,500,000
  Purchase of investment securities.................           --    (25,321,746)   (70,239,564)
  Purchase of property, plant, and equipment........   (1,213,760)    (1,852,166)    (6,505,140)
                                                      -----------   ------------   ------------
     Net cash used in investing activities..........   (1,213,760)   (24,211,158)      (244,704)
                                                      -----------   ------------   ------------
Financing activities:
  Proceeds from issuance of common stock, net.......        1,497     51,042,427        982,010
  Proceeds from (payments of) long-term debt........      786,819    (11,709,710)            --
  Payment of capital lease and other debt
     obligations....................................     (105,074)      (197,431)      (179,638)
  Proceeds from issuance of subordinated debt.......    1,509,710             --             --
                                                      -----------   ------------   ------------
     Net cash provided by financing activities......    2,192,952     39,135,286        802,372
                                                      -----------   ------------   ------------
Effect of foreign currency exchange rate changes on
  cash and cash equivalents.........................       (4,392)        (6,697)        (4,199)
                                                      -----------   ------------   ------------
Increase in cash and cash equivalents...............       81,566     14,857,189      8,772,255
Cash and cash equivalents at beginning of period....      175,783        257,349     15,114,538
                                                      -----------   ------------   ------------
Cash and cash equivalents at end of period..........  $   257,349   $ 15,114,538   $ 23,886,793
                                                      ===========   ============   ============
Supplemental cash flow disclosure:
  Cash paid during the period for:
     Income taxes...................................  $    11,755   $     78,169   $     36,800
     Interest.......................................  $   817,697   $    427,735   $     11,535
                                                      ===========   ============   ============
Supplemental disclosure of non-cash investing
  activities:
  Acquisition of assets under capital lease
     obligations....................................  $   252,080   $     12,463   $     27,508
                                                      ===========   ============   ============
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                       F-6
<PAGE>   30
 
                               SIPEX CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                       DECEMBER 31, 1995, 1996, AND 1997
 
1.  DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
     SIPEX Corporation (the "Company") designs, manufacturers and markets high
performance and high value added standard analog integrated circuits and
application specific circuits. Applications for the Company's products include
telecommunications, personal computers and peripherals, battery powered handheld
devices, cellular telephones, test equipment, factory automation, networking,
process controls and satellites. The Company operates in the analog segment of
the semiconductor industry.
 
BASIS OF PRESENTATION
 
     The consolidated financial statements include the accounts of SIPEX
Corporation and all of its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
REVENUE RECOGNITION
 
     Revenue from product sales is recognized at the time of shipment. Revenue
from engineering service contracts is recorded as performance or other
contractually specified milestones are attained. Additionally, the Company
accrues for estimated sales returns upon shipment.
 
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
     For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of 90 days or
less to be cash equivalents. Short-term investments consist of U.S. Government
securities and municipal bond obligations. The Company's investments in debt
securities were classified as available-for-sale which means that although the
Company principally holds securities until maturity, they may be sold under
certain circumstances.
 
CONCENTRATION OF CREDIT RISK
 
     Financial instruments of the Company consist of cash, short-term
securities, accounts receivable, accounts payable and capitalized leases. The
carrying amounts of these financial instruments approximate their fair value.
 
INVENTORIES
 
     Inventories are stated at the lower of cost or market. Costs are determined
using the first-in, first-out method.
 
                                       F-7
<PAGE>   31
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment are stated at cost. Depreciation is provided
by using the straight-line method over their useful lives as follows:
 
<TABLE>
<CAPTION>
                                                              USEFUL LIVES
                                                              ------------
<S>                                                           <C>
Machinery and Equipment.....................................  2-10 years
Furniture, fixtures and office equipment....................  5-10 years
Building and leasehold improvements.........................  Lease term
</TABLE>
 
     The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that the carrying amount of an asset cannot
be fully recovered, an impairment loss is recognized.
 
FOREIGN CURRENCY TRANSLATION
 
     Foreign currency assets and liabilities are translated into dollars at
current rates, and revenues, costs and expenses are translated at average rates
during each reporting period. Gains or losses resulting from foreign currency
transactions are included in earnings currently, while those resulting from
translation of financial statements are shown as a separate component of
shareholders' equity. Such transaction gains and losses are immaterial for all
periods presented.
 
INCOME TAXES
 
     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period that includes the
enactment date.
 
NET INCOME (LOSS) PER SHARE
 
     Basic income (loss) per share is based upon the weighted average number of
common shares outstanding. Income per share is based upon the weighted average
number of common and common equivalent shares outstanding assuming dilution.
Dilutive potential common shares outstanding at December 31, 1995, 1996 and 1997
were approximately 159,000, 1,600,000 and 1,700,000, respectively.
 
2.  INVENTORIES
 
     Inventories were as follows:
 
<TABLE>
<CAPTION>
                                                   1996           1997
                                                -----------    -----------
<S>                                             <C>            <C>
Raw materials.................................  $ 5,142,409    $ 6,424,191
Work-in-process...............................    3,626,720      4,236,586
Finished goods................................    2,855,701      3,327,597
                                                -----------    -----------
                                                $11,624,830    $13,988,374
                                                ===========    ===========
</TABLE>
 

                                       F-8
<PAGE>   32
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment were as follows:
 
<TABLE>
<CAPTION>
                                                   1996           1997
                                                -----------    -----------
<S>                                             <C>            <C>
Machinery and equipment.......................  $24,465,817    $29,470,964
Furniture, fixtures and office equipment......    1,324,588      2,351,873
Leasehold improvements........................    2,020,794      2,274,898
                                                -----------    -----------
                                                $27,811,199    $34,097,735
Less accumulated depreciation and
  amortization................................   24,498,647     25,752,387
                                                -----------    -----------
                                                $ 3,312,552    $ 8,345,348
                                                ===========    ===========
</TABLE>
 
4.  ACCRUED EXPENSES
 
     Accrued expenses were as follows:
 
<TABLE>
<CAPTION>
                                                   1996           1997
                                                -----------    -----------
<S>                                             <C>            <C>
Accrued compensation and benefits.............  $   687,485    $ 1,138,680
Accrued commissions...........................      390,220        335,049
Accrued royalties.............................      234,125        419,000
Accrued taxes.................................           --        160,000
Other.........................................      124,542        237,148
                                                -----------    -----------
                                                $ 1,436,372    $ 2,289,877
                                                ===========    ===========
</TABLE>
 
5.  LONG-TERM DEBT
 
     The Company's long-term debt is summarized as follows:
 
<TABLE>
<CAPTION>
                                                   1996           1997
                                                -----------    -----------
<S>                                             <C>            <C>
Capital lease obligations.....................  $   224,965    $    53,022
Other.........................................        7,695             --
                                                -----------    -----------
                                                $   232,660    $    53,022
Less current portion..........................      189,720         45,118
                                                -----------    -----------
                                                $    42,940    $     7,904
                                                ===========    ===========
</TABLE>
 
     Equipment held under capital leases were as follows:
 
<TABLE>
<CAPTION>
                                                   1996           1997
                                                -----------    -----------
<S>                                             <C>            <C>
Cost..........................................  $   743,335    $   770,843
Less:  Accumulated depreciation...............      451,486        646,723
                                                -----------    -----------
                                                $   291,849    $   124,120
                                                ===========    ===========
</TABLE>

 
                                       F-9
<PAGE>   33
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following is a schedule of principal payments on capital lease
obligations:
 
<TABLE>
<CAPTION>

YEAR ENDING
DECEMBER 31,
------------
<S>                                                           <C>
     1998...................................................  $ 49,165
     1999...................................................     9,772
     2000...................................................        --
                                                              --------
                                                              $ 58,937
                                                              ========
</TABLE>
 
6.  INCOME TAXES
 
     Total income tax expense (benefit) for the years ended December 31, 1995,
1996 and 1997 was allocated as follows:
 
<TABLE>
<CAPTION>
                                                    1995       1996         1997
                                                  --------   ---------   -----------
<S>                                               <C>        <C>         <C>
Income from continuing operations...............  $ 27,287   $ 154,169   $  (975,000)
Shareholders' equity for compensation expense
  for tax purposes in excess of amounts
  recognized for financial statement purposes...        --          --      (226,000)
                                                  --------   ---------   -----------
                                                  $ 27,287   $ 154,169   $(1,201,000)
                                                  ========   =========   ===========
</TABLE>
 
     Total federal, state and foreign income tax expense (benefit), consists of
the following:
<TABLE>
<CAPTION>
                                   1995                               1996                             1997
                       ----------------------------   ------------------------------------   -------------------------
                       DEFERRED   CURRENT    TOTAL    DEFERRED     CURRENT        TOTAL       DEFERRED       CURRENT
                       --------   -------   -------   --------   -----------   -----------   -----------   -----------
<S>                    <C>        <C>       <C>       <C>        <C>           <C>           <C>           <C>
Federal..............  $     --   $   --    $    --   $     --   $ 1,762,027   $ 1,762,027   $(1,342,999)  $ 4,145,342
Loss carryforward....        --                  --         --   $(1,618,158)  $(1,618,158)           --    (3,887,363)
State................        --   (3,365)    (3,365)        --       463,411       463,411            --       932,013
Loss carryforward....        --                  --         --      (453,111)     (453,111)           --      (838,993)
Foreign..............        --   30,652     30,652         --            --            --            --            --
                       --------   -------   -------   --------   -----------   -----------   -----------   -----------
                       $     --   $27,287   $27,287   $     --   $   154,169   $   154,169   $(1,342,999)  $   350,999
                       ========   =======   =======   ========   ===========   ===========   ===========   ===========
 
<CAPTION>
                          1997
                       -----------
                          TOTAL
                       -----------
<S>                    <C>
Federal..............  $ 2,819,343
Loss carryforward....   (3,887,363)
State................      932,013
Loss carryforward....     (838,993)
Foreign..............           --
                       -----------
                       $  (975,000)
                       ===========
</TABLE>
 
     The actual tax expense (benefit) differs from the "expected" tax expense as
follows:
 
<TABLE>
<CAPTION>
                                                             1995         1996          1997
                                                           ---------   -----------   -----------
<S>                                                        <C>         <C>           <C>
Computed "expected" tax expense (benefit)................  $(603,633)  $ 1,506,638   $ 4,294,571
State income tax, net of federal income tax benefit and
  utilization of loss carryforward.......................     (2,221)        6,798        60,463
Alternative minimum tax..................................         --        19,304            --
Intangibles amortization.................................    269,213                          --
Non-deductible expenses..................................         --        22,377       125,100
Non-deductible foreign losses............................         --       116,666       (10,594)
Change in valuation allowance for loss carryforward......    345,890            --    (1,325,999)
Utilization of net operating losses......................         --    (1,618,158)   (3,887,363)
Utilization of R&D credits...............................                               (230,273)
Other....................................................     18,038       100,544          (905)
                                                           ---------   -----------   -----------
                                                           $  27,287   $   154,169   $  (975,000)
                                                           =========   ===========   ===========
</TABLE>
 
                                      F-10
<PAGE>   34
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The tax effects of temporary differences that give rise to significant
portion of the deferred tax assets and liabilities at December 31, 1996 and 1997
are presented below:
 
<TABLE>
<CAPTION>
                                                                  1996            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
Deferred tax assets
     Net operating loss carryforwards.......................  $ 14,628,395    $ 12,000,949
     Tax credit carryforwards, including alternative minimum
       tax..................................................       739,582       1,127,455
     Inventories, primarily non-deductible reserves.........       361,729         409,141
     Accounts receivable, primarily allowances..............       102,190         245,337
     Accrued expenses, principally provisions not currently
       deductible...........................................       248,463         182,142
     Fixed assets, due to differences in depreciation.......     1,401,659       1,285,328
                                                              ------------    ------------
          Total gross deferred tax assets...................    17,482,018      15,250,352
     Valuation allowance....................................   (17,482,018)    (13,907,353)
                                                              ------------    ------------
          Net deferred taxes................................  $         --    $ (1,342,999)
                                                              ============    ============
</TABLE>
 
     At December 31, 1997, the Company has U.S. net operating loss carryforwards
of approximately $32,923,000, which are available to offset future Federal
taxable income. These losses expire during the years 2002 through 2010. As of
December 31, 1997, utilization of these net operating loss carryforwards is
subject to an annual limitation of approximately $7,400,000 as a result of an
ownership change which occurred on September 30, 1996. In addition, the Company
has Massachusetts and California net operating loss carryforwards of
approximately $5,571,000 and $2,165,000, respectively, which are available to
offset future Massachusetts and California taxable income. These state losses
expire during the years 1999 through 2002. The Federal tax benefit from the
utilization of approximately $9,000,000 of net operating loss carryforwards will
result in an increase in additional paid-in capital when recognized.
 
     The Company also has general business tax credit carryforwards for Federal
and State income tax purposes of approximately $1,100,000 which are available to
reduce future Federal and State income taxes. The general business credits
expire during the years 2001 through 2012.
 
     The valuation allowance for deferred tax assets as of December 31, 1996 and
1997 was $17,482,018 and $12,870,105, respectively. Based on the Company's level
of net income and projected future earnings, the Company believes that it is
more likely than not that a portion of the deferred tax asset at December 31,
1997 will be realized in the future.
 
7.  SHAREHOLDERS' EQUITY
 
     Effective April 8, 1996, the number of authorized shares of Common Stock
was increased pursuant to an Amended and Restated Articles of Organization and
the Board of Directors were authorized to issue up to 1,000,000 shares of
preferred stock with terms to be established by the Board at the time of
issuance. In addition, the Company's shareholders' approved a 1 for 4 reverse
split of its issued and outstanding Common Stock. Effective August 18, 1997, the
Company approved a 2 for 1 split of its issued and outstanding common stock. All
shares and per share data presented in the accompanying consolidated financial
statements have been restated to reflect the change in number of authorized and
outstanding shares of Common Stock.
 
     On April 8, 1996 and November 5, 1996, the Company closed the sale, through
an initial and secondary public offering, of 2,160,715 and 1,450,000 shares of
Common Stock, respectively. The proceeds to the Company from the offerings were
$19.1 million and $33.0 million before deducting expenses from the offerings of
approximately $800,000 and $450,000, respectively.
 
     The Company currently maintains six stock option plans. The 1991
Non-Statutory Plan, 1993 Incentive Stock Option Plan, 1994 Stock Option and
Incentive Plan, 1996 Stock Option Plan, 1996 Non-Employee Director Stock Option
Plan and the 1997 Stock Option Plan have had 744,308, 265,818, 1,187,900,
1,200,000,
 
                                      F-11
<PAGE>   35
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
300,000 and 1,200,000 shares reserved for issuance, respectively. All plans
allow for options which vest ratably over five years from the date of grant and
expire ten years from the date of grant. Options for 1,535,110 shares are
outstanding as of December 31, 1997 under these plans.
 
     In January 1996, the Board Of Directors approved the 1996 Employee Stock
Purchase Plan, pursuant to which the Company is authorized to issue up to
500,000 shares of Common Stock to its full-time employees, nearly all of whom
are eligible to participate. Under the terms of the Plan, employees can choose
each year to have up to 10 percent of their annual base earnings withheld to
purchase the Company's Common Stock. The purchase price of stock is 85 percent
of the lower of its beginning-of-period or end-of-period market price. Under the
Plan, the Company sold 17,740 shares to employees since inception of the plan.
 
     The Company applies APB Opinion 25 and related interpretations in
accounting for these plans. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined pursuant to SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would have been
adjusted to the pro forma amounts indicated in the table below. The effects on
pro forma net income (loss) obtained from applying SFAS No. 123 may not be
representative of the effects on reported net income for future years.
 
<TABLE>
<CAPTION>
                                                      1995          1996         1997
                                                      ----          ----         ----
<S>                                <C>             <C>           <C>          <C>
Net income (loss)................  As Reported     $(1,802,679)  $4,277,119   $13,245,204
                                   Pro forma        (1,804,437)   3,583,713    11,948,012

Net income (loss)................  As Reported           (0.19)        0.32          0.76
  per share - basic..............  Pro forma             (0.19)        0.27          0.69

Net income (loss)................  As Reported           (0.19)        0.29          0.71
  per share - assuming...........  Pro forma             (0.19)        0.24          0.64
  dilution
</TABLE>
 
     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997 respectively; no dividend
yield; expected volatility of 45 percent and expected option lives of six years.
The risk free interest rate assumed was 7.0 percent for 1995 and 1996 and 5.65
percent for 1997. The weighted-average fair value of options granted during
1995, 1996 and 1997 was $0.11, $6.00 and $9.54, respectively.
 
     A summary of the status of the Company's stock option plans as of December
31, 1995 1996 and 1997 and changes during the years then ended is presented
below:
 
<TABLE>
<CAPTION>
                                            1995                    1996                    1997
                                    ---------------------   ---------------------   ---------------------
                                                WEIGHTED                WEIGHTED                WEIGHTED
                                     NUMBER      AVERAGE     NUMBER      AVERAGE     NUMBER      AVERAGE
                                       OF       EXERCISE       OF       EXERCISE       OF       EXERCISE
                                     SHARES       PRICE      SHARES       PRICE      SHARES       PRICE
                                     ------     --------     ------     --------     ------     --------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at beginning of
  year............................  1,586,294     $0.23     1,625,410    $ 0.23     1,922,475    $ 0.21
Granted...........................    159,350      0.20       880,304     10.09       639,260     18.19
Exercised.........................    (14,974)     0.20      (476,372)     0.20      (622,414)     1.33
Forfeited.........................   (105,260)     0.20      (106,867)     1.58      (404,211)    10.30
                                    ---------     -----     ---------    ------     ---------    ------
Outstanding at end of year........  1,625,410     $0.23     1,922,475    $ 4.65     1,535,110    $10.19
                                    =========     =====     =========    ======     =========    ======
Options exercisable at year-end...    576,962     $0.23       425,192    $ 0.21       116,006    $ 2.71
                                    =========     =====     =========    ======     =========    ======
</TABLE>
 
                                      F-12
<PAGE>   36
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table summarizes information about the Company's stock
options outstanding at December 31, 1997:
 
<TABLE>
<CAPTION>
                                                                 OPTIONS
                             OPTIONS OUTSTANDING               EXERCISABLE
                    -------------------------------------   -----------------
                         NUMBER         WEIGHTED AVERAGE         NUMBER
                     OUTSTANDING AT         REMAINING        EXERCISABLE AT
  EXERCISE PRICES   DECEMBER 31, 1997   CONTRACTUAL LIFE    DECEMBER 31, 1997
  ---------------   -----------------   ----------------    -----------------
  <S>               <C>                 <C>                 <C>
      $ 0.20              445,400             6.88                81,312
        4.75               68,000             8.12                 4,000
        5.50                4,250             1.13                 4,250
        7.19               80,000             8.58                     0
       7.375              105,000             8.54                11,400
        7.75               52,000             8.64                 4,000
        8.56               10,000             8.66                 2,000
       12.44              256,620             9.34                     0
       13.63              147,940             8.91                 9,044
       15.00               95,990             9.41                     0
       16.81               51,200             9.13                     0
       21.25               40,000             9.55                     0
       21.50               10,000             9.55                     0
      23.625               10,000             9.58                     0
       23.63               70,640             9.58                     0
       24.00                1,800             9.60                     0
       33.00               86,270             9.83                     0
                        ---------                                -------
                        1,535,110                                116,006
                        =========                                =======
</TABLE>
 
8.  EMPLOYEE BENEFIT PLAN
 
     The Company has a defined contribution retirement plan (401(k)) covering
substantially all employees. The Company matches 50% of the contributions made
by employees up to 6% of their annual compensation. The Company can also make a
discretionary contribution to the plan. Employee contributions vest immediately,
and employer contributions vest ratably over five years. Participants are
entitled, upon termination or retirement, to their vested portion of retirement
fund assets which are held by a corporate trustee. During 1995, 1996 and 1997,
Company contributions to the plan were $171,000, $173,000 and $201,000,
respectively.
 
9.  COMMITMENTS AND CONTINGENCIES
 
     The Company leases facilities under operating leases expiring through 2000.
Rent expense was approximately $450,000, $498,000 and $619,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
 
     The following is a schedule of future minimum lease commitments under
operating leases with terms in excess of one year at December 31, 1997:
 
<TABLE>
<CAPTION>

CALENDAR YEAR
-------------
<S>                                                   <C>
   1998.............................................  $  708,108
   1999.............................................     708,171
   2000.............................................     736,930
                                                      ----------
                                                      $2,153,209
                                                      ==========
</TABLE>
 
     The Company received a Notice of Potential Liability from the Environmental
Protection Agency ("EPA") in June 1993 concerning a landfill identified as a
Superfund Site. The Company has denied any
 
                                      F-13
<PAGE>   37
                               SIPEX CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
liability and believes the ultimate outcome of this matter will not have a
material impact on the consolidated financial statements.
 
     Also, the Company is party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve such amounts,
that unfavorable disposition would not have a material effect on the
consolidated results of operations and cash flows of the Company.
 
10.  EXPORT SALES AND MAJOR CUSTOMERS
 
     Revenues by geographic area are summarized as follows:
 
<TABLE>
<CAPTION>
                                         1995           1996           1997
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
United States.......................  $19,368,000    $25,183,000    $31,649,000
Europe..............................    7,408,000      7,925,000      9,475,000
Far East............................    1,867,000      2,417,000      5,143,000
Japan...............................    1,336,000      1,786,000      4,943,000
                                      -----------    -----------    -----------
                                      $29,979,000    $37,311,000    $51,210,000
                                      ===========    ===========    ===========
</TABLE>
 
11.  SUBSEQUENT EVENT (UNAUDITED)
 
     In March, 1998, the Company entered into a five-year operating lease
agreement, including a one-year construction period, with one five year renewal
option for the construction and lease of a wafer manufacturing facility,
including all necessary machinery and equipment ("the facility"). The total cost
of the facility is limited to $40,000,000. The lease provides for a substantial
residual value guarantee by the Company at the end of the initial lease term and
includes a purchase option equal to the total cost of the facility. The lease
provides for monthly lease payments which are estimated to be $160,000. At the
end of the lease term, the Company is obligated to purchase the facility or
remarket it for the benefit of the lessor. The Company expects the fair market
value of the facility, subject to the purchase option or sale to a third party,
to substantially reduce or eliminate the Company's payment under the residual
value guarantee. The residual value guarantee relative to the assets to be
leased will approximate 85% of their total cost.

 
                                      F-14