SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K405

         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                       EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended June 30, 1997
Commission file number 0-12944

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

Delaware                                               06-0864500
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(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

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

Registrant's telephone number, including area code                (860) 347-8506
                                                                  --------------
Securities registered pursuant to Section 12(b) of the Act:            None
                                                                  --------------

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

                               Title of each class
                               -------------------
                          Common Stock, $.10 Par Value
                          ----------------------------

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-K405 or any amendment to
this Form 10-K405. _______

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.* The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.

           Aggregate market value at August 29, 1997, was $254,126,530

*Solely for purposes of this calculation affiliates of the registrant have been
deemed to include only Canon, Inc., and the directors and executive officers of
the registrant, and members of their immediate families living in their homes.

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

           10,894,990 Shares of Common Stock, $.10 Par Value, at August 29, 1997


The following documents are incorporated by reference in this Form 10-K405.

                                                                 Part of the
                     Document                                   Form 10-K405
                     --------                                   ------------
     1997 Annual Report - (Specified Portions)                 Parts I and II
     Proxy Statement to be used in connection with the
     Registrant's 1997 Annual Meeting of Stockholders - 
     (Specified Portions)                                      Part III


<PAGE>



                                     PART I

ITEM 1.  BUSINESS

                                   THE COMPANY

         Zygo Corporation, through its divisions and wholly owned subsidiaries,
Middlefield, Technical Instrument Company (TIC), and NexStar Automation, Inc.
(NexStar) designs, develops, manufactures and markets high performance
noncontact electro-optical measuring instruments and systems, automation
systems, and components. The Middlefield division also manufactures optical
components to precise tolerances both for sale and for use as key elements in
its own products. Utilizing proprietary laser and white light optical technology
combined with advanced software and electronics, Zygo's precision noncontact
measuring instruments and systems enable manufacturers in a variety of high
technology industries, including data storage, semiconductor, and precision
optics, to increase operating efficiencies and production yields by identifying
and collecting quantitative data on product defects, both during and after the
manufacturing process. Zygo's interferometric and confocal components are sold
directly to OEMs for incorporation into their products. Zygo's optical
components are used in many applications, including laser fusion research,
semiconductor manufacturing equipment, and aerospace optical systems, as well as
being an integral part of precision optical instruments.

         Predominantly all of Zygo's instruments and systems employ either a
laser or white light source to make noncontact measurements. Zygo is a leader in
interferometric and confocal metrology. Interferometric metrology, utilizing a
process called interferometry, whereby a pattern of bright and dark lines
(called fringes) results from an optical path difference between a reference and
a measurement beam. Zygo's products then analyze these patterns through a series
of steps and generate quantitative three-dimensional surface profiles, which are
used to determine conformity to dimensional specification and, increasingly, to
analyze and enhance manufacturing processes. Interferometric measurement
instruments and systems are used by a variety of industries, including by the
data storage industry to inspect and analyze the surface of computer hard disks
and read/write heads, and by the semiconductor industry for high precision
distance measurement and motion control. Confocal Scanning Optical Microscopy
("CSOM") is a key base technology employed in TIC's products. The majority of
TIC's microscope systems and subsystems employ white light CSOM technology. In a
microscope utilizing white light CSOM imaging, a high-intensity white light
illuminates a section of a spinning disk containing pinholes arranged in
multiple spiral patterns. Acting as point illumination sources, the pinholes
direct light to points on the sample. The reflected light from the sample
returns through the same section of the disk. Only light from points on the
sample near the focal plane will pass through the pinholes for imaging. Zygo's
NexStar Automation unit designs, develops, manufactures, and markets
comprehensive automated system solutions to enable manufacturers in a variety of
high technology industries, including the data storage, semiconductor, and
electronics industries, to enhance operational efficiencies and product yields.
NexStar's high speed production solutions reduce downtimes, especially in
manufacturing processes adaptable to the manufacture of multiple products
differing in size, features, and functionality.

                                   BACKGROUND

         Historically, measurement and inspection instrumentation has consisted
of contact profiling devices and visual qualitative inspection systems.
Advancing technologies have required manufacturers in a variety of industries to
produce smaller products with more precise tolerances and decreased design
geometries, not capable of adequately being measured by the devices and systems
then being utilized. For example, contact profilers and visual qualitative
inspection systems are inadequate for quantitative analysis of critical
dimensions such as air bearing surface geometry and pole-tip recession necessary
in high volume production of read/write heads.

                                        1


<PAGE>



         The demands on these manufacturers to produce more powerful and smaller
products with more precise tolerances have fueled demand for precision
noncontact measuring instruments. In fact, high performance, noncontact
metrology is an enabling technology for the semiconductor, data storage, and
other vital high technology industries. The trend towards miniaturization and
tighter tolerances creates new challenges for manufacturers as they are forced
to handle, measure, and test ever smaller components. As piece part dimensions
and tolerances become smaller, "nano technology scale" precision is
necessitated. Disk drive manufacturers, for example, continue to increase drive
capacity while reducing the size of drives. For this to happen, the recording
head must fly closer to the disk and the head itself must be made smaller and to
greater precision.

         In addition, until recently, noncontact measuring instruments have been
limited almost exclusively to use by quality control laboratories for off-line
inspection on a test basis only. The historical cyclical nature of the
semiconductor industry, the data storage industry, and other capital goods
sector industries, together with increased competitive forces in these
industries, have forced these industries to no longer depend solely on sales
growth to fuel financial performance improvement, but rather to focus greater
attention on the need to reduce production defects and significantly increase
production yields. These pressures on manufacturers to improve productivity and
quality have required integration of process control technologies directly into
the manufacturing process, allowing manufacturers to test a greater percentage
of their components while in production. Instrumentation is increasingly being
sought to more accurately measure the conformity of parts to their
specifications and detect defects directly on the manufacturing line, and to
address other specific needs of the manufacturers to improve production yields.
As the data storage industry, semiconductor industry, and other high technology
industries are forced to install more sophisticated and difficult to manage and
control production and assembly processes, a greater degree of on-line, high
precision, surface metrology and defect detection systems is required.

                                THE ZYGO SOLUTION

         Zygo's instruments and systems provide critical productivity
enhancement capability to the data storage, semiconductor, and other high
technology markets. Zygo has worked closely with leaders of the data storage,
semiconductor, and other capital goods sector industries to help these
manufacturers meet the ever-increasing production demands of their industries.
Utilizing proprietary laser and optical technology combined with advanced
software and electronics, Zygo's precision noncontact measuring instruments and
systems enable manufacturers in a variety of industries to increase operating
efficiencies and product yields by identifying and collecting quantitative data
on product defects, both during and after the manufacturing process.

         A wide range of operational features and data analysis capabilities are
available on Zygo's measurement instruments. Instrumentation has been designed
with maximum flexibility to satisfy a customer's existing needs and to be
adaptable to satisfy expansion and growth. Certain measuring devices can be used
in either the horizontal or vertical configuration, and on the production line
or in the development lab.

         Certain of Zygo's instruments and systems utilize interferometry to
accomplish precise measurement of a variety of surface geometries or to control
motion and minute movements during the manufacturing process. In interferometry,
a pattern of bright and dark lines (fringes) results from an optical path
difference between a reference and a measurement beam. Incoming light is split
inside an interferometer, one beam going to an internal reference surface and
the other to a sample. After reflection, the beams recombine inside the
interferometer, undergo constructive and destructive interference, and produce
the light and dark fringe pattern. The number, shape, and position of the lines
in the fringe patterns can be analyzed to provide quantitative surface structure
analysis. Zygo's interferometric instruments and systems utilize highly
sophisticated subsystems, including: precision optical components such as
beamsplitters, reference optics, and transmission optics; stable and long-life
laser or other light sources; piece part positioning stages; high-powered
workstations or PCs for processing and analyzing fringe pattern data; and a
variety of peripheral components such as monitors and printers.

                                        2


<PAGE>



         Interferometry has certain inherent benefits over other forms of
surface and distance measurement as it provides noncontact, quantitative, full
field of view, ultra-high resolution surface analysis in three dimensions, which
results in higher analysis throughput and lower cost of ownership for the user.
Additionally, interferometric metrology is often an enabling technology as
dimensions and tolerances of many parts in high technology applications have
dimensions below 250 nanometers.

         The majority of TIC's microscope systems and subsystems employ white
light confocal scanning optical microscopy ("CSOM") technology. Over the past
several years, TIC has added other imaging systems to its product offering,
including laser scanning confocal and atomic force microscopy. Today TIC
specializes in integrating imaging modes, viewing accessories, and measurement
tools within its microscopy systems and subsystems for customers in a wide
variety of high technology fields.

         CSOM is a key base technology employed in TIC's products. In a
microscope utilizing white light CSOM imaging, a high-intensity white light
illuminates a section of a spinning disk containing pinholes arranged in
multiple spiral patterns. Acting as point illumination sources, the pinholes
direct light to points on the sample. The reflected light from the sample
returns through the same section of the disk. Only light from points on the
sample near the focal plane will pass through the pinholes for imaging. The
advantage of the white light CSOM technology over other forms of imaging systems
offering sub-micron definition include: high resolution in real time with no
delay for image processing, transverse resolution, and extremely shallow
depth-of-field provide precise imaging of sub-half micron structures and lower
cost of ownership. CSOM imaging is used for both inspection and metrology
measurement in TIC's systems. A laser confocal system employs a laser light
source which causes a sample to fluoresce with the resulting light of a shorter
wavelength which retraces its path to a pinhole. The fluorescent light is split
into two spectral ranges. After an x/y scan the two channels are digitized and
stored in the computer as separate images that can be displayed individually or
overlaid to create a single color image. This results in high resolution and the
ability to display many layers of translucent samples as a live overlay of
bright, perfectly registered optical sections. Atomic force microscopy measures
the atomic and molecular forces between a sample and an ultra-fine silicon tip
mounted on a spring-loaded cantilever. A laser light is focused on the
cantilever and measured by a position sensitive detector which converts
cantilever deflection into an electrical signal. By keeping the deflection of
the cantilever constant, a sensor scans the sample and measures its compensative
movement. With no electrical conductivity requirement, virtually any sample can
be examined in life size with superior image at fine resolution.

         NexStar's automated solutions integrate its own proprietary mechanical
components and applications software with nonproprietary mechanical, software,
and robotics subsystems produced by third parties. NexStar's automated solutions
also enhance production control to ensure consistent high quality. NexStar's
sophisticated automation products and equipment are utilized in many
applications, including media manufacturing, disk drive assembly, semiconductor
manufacturing, and packaging and assembly applications in medical disposables
production.

         To meet the rapidly changing and increasing requirements of
manufacturers, Zygo's business is transforming from that of an off-line quality
control and quality assurance test and measurement instrument supplier to an
on-line production improvement and yield management system provider. Since early
1995, Zygo has introduced several on-line yield improvement systems, including
the AAB, NewView 200, KMS 400, automated disk flatness sorter, automated disk
thickness sorter, and the Pegasus 2000 Flying Height tester.

                                  ZYGO STRATEGY

         Zygo's objective is to expand its position as a leading worldwide
supplier of high performance, noncontact electro-optical measuring, production
control, and yield management improvement instruments, systems and accessories
that improve the performance, quality, reliability, yield and cost of automated
manufacturing processes, and of optical components to precise tolerances. Zygo
dedicates substantial resources to research and product development to enable it
to compete effectively in its market areas.

                                        3


<PAGE>




         Key elements of Zygo's strategy include:

         Maintain Enhanced Leadership Through Innovative Technical Solutions. By
         integrating its proprietary electro-optical technologies, proprietary
         applications software and unique system integration capabilities, Zygo
         provides leading edge automated optical inspection solutions in the
         shortest possible time. Zygo's core technologies of optical
         interferometry, optical metrology, confocal scanning optical metrology,
         system engineering integration, automation systems expertise,
         application software, and precision optical component fabrication and
         coating are directly applied to meet the higher measurement precision,
         accuracy, resolution, data acquisition and data analysis requirements
         in the most demanding manufacturing processes of its customers.
         Throughout its history, Zygo has met its customers' requirements
         through innovation and invention with 68 United States patents and 9
         foreign patents, and has 14 United States patent applications and 7
         foreign patent applications pending.

         Focus on New Market Segments. Zygo's products have applications for a
         wide variety of industries. In the development of these products, Zygo
         focuses on market segments which it believes have growth potential and
         in which Zygo can reasonably expect to become a leading manufacturer.
         Zygo seeks to adapt the noncontact inspection and process control
         technology it develops for one application to other markets.

         Broaden Customer Relationships. Zygo focuses on establishing the
         strongest relationship with major industry leaders in its served
         markets. This is accomplished by working closely with its customers and
         identifying increasing numbers of applications for automated optical
         inspection and yield improvement systems. Zygo also focuses on fully
         integrating its offerings into its customers' manufacturing processes
         through automated parts handling, enhanced product metrology and defect
         analysis, and by more complete integration into the customers'
         workcells by fully integrated process information networking, all
         geared to improve production. Zygo intends, by forming closer customer
         alliances, to better understand the evolving needs of its customers
         and, through the application of innovative technology, to provide high
         performance, high quality, cost effective solutions to the production
         improvement requirements in the shortest possible cycle time. Through
         this solution-sales cycle, which further promotes a closer and longer
         term partnership relationship between Zygo and its customers, Zygo
         intends to attain a preferred position with major industry leaders.

         Supply Quality Solutions Rapidly. Zygo seeks to deliver high quality
         and high reliability system solutions in a minimal cycle time. To this
         end, Zygo has installed an enterprise-wide total quality process where
         employee-led teams work to continuously improve the effectiveness and
         efficiency of its processes while searching out and removing areas of
         poor quality and waste. Zygo's operations strategy focuses on
         internally providing those manufacturing services that add unique value
         in a rapidly changing customer needs environment.

         Provide Uninterrupted Worldwide Service and Support. To support leading
         customers' continuous manufacturing processes, Zygo ensures optimal
         operation and reliable performance of its production control equipment
         through its worldwide customer support service group. Through a
         worldwide network of service representatives, Zygo provides 24-hour
         on-demand maintenance services. Its service engineers have a unique
         skill set, including optical and electrical component repair, software,
         application and system integration diagnostic and problem solution
         capabilities.

         Broaden Product Offerings and Markets Through Internal Developments and
         Acquisitions. Zygo has broadened its product offerings by continuing to
         internally develop additional products and by aggressively pursuing the
         acquisition of companies where synergies can be identified. In 1995,
         Zygo formed a start-up operation in Simi Valley, California, as a way
         to

                                        4


<PAGE>



         broaden its product offering and participation in the data storage
         industry. Zygo has determined that these start-up operations can be an
         effective alternative to an acquisition when the technology resident in
         Zygo is complementary to the market knowledge and expertise resident in
         the individuals hired to manage the start-up. Zygo also maintains an
         active program of investigating and negotiating potential synergistic
         acquisitions which extend Zygo's product lines or markets. Zygo
         believes that its acquisition strategy is an important element of its
         total business strategy. In 1995, Zygo completed the acquisition of a
         small manufacturer of high precision laser tubes, which allowed Zygo to
         bring in-house a technology that is critical to the performance of its
         motion control products. Early in fiscal 1997, Zygo completed the
         acquisition of Technical Instrument Company, a manufacturer of confocal
         microscopy systems and modules, and the acquisition of NexStar
         Automation, Inc., a manufacturer of automation and parts handling
         equipment, and subsequent to the close of fiscal 1997, the Company
         completed the acquisition of Sight Systems, Inc., a manufacturer of
         precision application-specific vision metrology systems, and Syncotec
         Neue Technologien und Instrumente GmbH, a manufacturer of confocal
         modules and other custom metrology products in Germany. Zygo also
         announced the signing of a letter of intent to purchase Digital
         Instruments, Inc. and Digital Instruments GmbH, a leading manufacturer
         of scanning probe microscopes.

                                    PRODUCTS

         Zygo manufactures high performance, noncontact electro-optical
measuring instruments and systems and accessories, and optical components to
precise tolerances both for sale and for use as key elements in its own
products. Zygo operates in a single business segment, electro-optics, and offers
products which fall into two general categories: (1) instruments and systems and
(2) modules and components.

Instruments and Systems

         Zygo's product strategy is to develop its instruments and systems
utilizing modular designs where entire product families share several, if not
all, of the same components, modules and software. Since 1992, Zygo has
redesigned all of its instruments and continues to upgrade its software and
enhance its products by adding features such as automated stages and parts
handling to many of its instruments and systems.

         All of Zygo's instrument products utilize powerful processors that
facilitate high speed data acquisition and data analysis. Zygo's interferometric
surface analysis microscopes and large aperture surface measurement
interferometers utilize Zygo's proprietary MetroPro(R) software, which has a
graphical user interface that makes the product very user friendly. The
MetroPro(R) software, combined with super high-resolution graphics and pull-down
menus, provides the user with engineering solutions without off-line processing.
The software allows the user to record, print, and store measurement data
locally as well as to distribute the data through networks for process
management and further analysis. Zygo's proprietary software provides Zygo with
comparative advantage because of its high speed, powerful analysis capability
based on proprietary algorithms, easily configurable screens, powerful image
analysis modules, and adaptability to new applications.

                                        5


<PAGE>

<TABLE>

SURFACE ANALYSIS MICROSCOPES
<CAPTION>
PRODUCT         PRICE RANGE      TECHNOLOGY                  MEASUREMENT                         APPLICATION
-----------------------------------------------------------------------------------------------------------------------
<S>             <C>            <C>                 <C>                                  <C>
Maxim*GP           $50K        Interferometric     Roughness; Depths; Coplanarity;      Product and Process Development

NewView 100

NewView 200                    Microscopy                                               On-Line Process

AAB System                                         Micro-shape; Lengths; Widths;

AMS 250              to        Confocal                                                 Control/Product

AMS 350                                                                                 Inspection;

KMS 350

KMS 400            $600K       Microscopy                 Area; Volumes                 QC inspection
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

         The surface characteristics of many products in industries such as
semiconductor, data storage, fiber optics, and medical implants, and with
increased applications in the paper, printing plates, coatings, and
pharmaceuticals industries, controls the performance of the product. As a
result, surface structure analysis is fundamental to many facets of research and
industry. The Zygo Maxim*GP, the fully automated AAB System, and NewView
microscopes combine advanced techniques of interferometry, microscopy, and
precision translation stages, to enable high precision surface analysis. Unlike
visual microscopes, Zygo's instruments provide measurement information as
quantitative three-dimensional images, two- and three-dimensional surface maps
with colors and shades representing relative heights of surface features, and
numeric results. The Maxim*GP is based on phase shifting interferometry to
provide very precise, fast measurements of specular ("Mirror-like") or near
specular surfaces. The NewView 100 and NewView 200 use scanning white light
interferometry to measure nonspecular surfaces.

         TIC's AMS and KMS microscope systems represent the majority of its
sales. The KMS group of products are fully automated high-throughput confocal
microscopy systems which provide measurement in three axes and real-time
observation in color. Nondestructive confocal white light imaging permits
measurements which are impossible with other types of critical dimension
measurement instrumentation such as scanning electron microscopes. Positioning,
measurement, and data collection are easily custom-configured and interface to
most networks. The KMS products utilize powerful software which is menu and
script-file driven to allow for ease in program generation. The AMS product is a
manual version of the KMS which is typically used in development centers for low
volume metrology and inspection requirements. The majority of these products are
sold to manufacturers to optically transfer these images onto semiconductor
wafers. As the demands for finer line width geometry's increases, mask
manufacturers must utilize sophisticated metrology and inspection tools as a way
to improve their manufacturing yields.
<TABLE>

               LARGE APERTURE SURFACE MEASUREMENT INTERFEROMETERS
<CAPTION>
PRODUCT         PRICE RANGE      TECHNOLOGY                  MEASUREMENT                         APPLICATION
------------------------------------------------------------------------------------------------------------------------
<S>               <C>          <C>                 <C>                                  <C>
GPI LC            $15K         Large               Flatness; Sphericity;                Product and Process Development;
                                                   Radius of Curvature;
GPI ST             to          Aperture            Optical System                       Off-Line Process Control/Product
                                                   Quality; Transparent Material
GPI XP            $250k        Interferometry      Homogenity                           QC Inspection
------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Zygo's interferometers for large surface measurement, the Growth
Potential Interferometer ("GPI") family of upgradable instruments, basically
consist of enlarged versions of the three-dimensional microscope, designed to
perform surface profile analysis on larger surface areas. Each

                                        6


<PAGE>



member of the GPI interferometer family is designed to address a specific level
of measurement needs. While all GPI models have essentially the same purpose -
noncontact measurement of flat or spherical surfaces and transmitted wavefront
measurement of optics - they differ widely in operational features and data
analysis capabilities. The GPI family of products is used extensively in the
optics industry to measure glass or plastic optical components like flats,
lenses and prisms, and more recently in a growing number of other situations to
measure precision components such as hard disks, bearing and sealing surfaces,
polished ceramics, and contact lens molds.
<TABLE>

                              FLYING HEIGHT TESTER
<CAPTION>
PRODUCT            PRICE RANGE                   MEASUREMENT                          APPLICATION
-----------------------------------------------------------------------------------------------------------
<S>                   <C>                    <C>                                     <C>
Pegasus 2000          $200K                  Read/Write Head Gimbal                  Product Development;

                        to                   Assembly Flying Height             Off-Line Process Control;

                      $250K                                                          QC Inspection
-----------------------------------------------------------------------------------------------------------
</TABLE>

         In September 1995, Zygo introduced the Pegasus 2000, a flying height
tester. The flying height tester measures the height at which a read/write head
flies over the surface of a magnetic disk within the disk drive. The industry
demands for increased storage capacity are compelling manufacturers to reduce
the flying height, as increased amounts of data can be stored on magnetic heads
the closer they fly to the disk. The Pegasus 2000 offers several unique
capabilities to the data storage industry. As flying heights are reduced,
manufacturers require measurement instruments which can measure at near-contact.
Zygo's flying height tester actually increases in accuracy the closer the
read/write head flies over the surface of the disk. Additionally, due to
significant increases in disk storage requirements, manufacturers require
easy-to-use, high throughput testers. The Pegasus 2000 has been designed as a
production oriented tester. For example, the system is capable of having a head
loaded while a second head is being tested. Also, the tester automatically
calibrates the sensor requirements of each head rather than requiring operator
inputs.

AUTOMATION SYSTEMS

         NexStar's automated solutions integrate its own proprietary mechanical
components and applications software with mechanical, software, and robotics
subsystems produced by third parties. NexStar's automated solutions also enhance
production control to ensure consistent high quality. NexStar manufactures
advanced automation systems to load and unload process equipment, enhance the
operation of quality inspection equipment, convey component parts throughout the
factory, and assemble complex products. It is usual for such systems to be built
to stringent environmental requirements such as cleanroom standards, aseptic
medical standards, and for resistance to corrosive conditions. NexStar products
and services fall into four general categories: (1) process equipment
automation, (2) quality inspection enhancement, (3) material transport, and (4)
custom system integration. NexStar's sophisticated automation products and
equipment are utilized in many applications, including media manufacturing, disk
drive assembly, semiconductor manufacturing, and packaging and assembly
applications in medical disposables production.

         The overall growth in high technology fields such as the data storage
and semiconductor industries, combined with the need of manufacturers in those
industries to produce products that are both smaller and more powerful and have
more precise tolerances, has fueled capital expenditures for on-line automation
equipment such as NexStar manufactures. In the data storage market, NexStar's
focus has been the development of automated solutions used in cleanrooms for
media handling, disk drive, and disk cartridge assembly. It has created
proprietary components including robotic arms, parts handling, conveyor systems,
and disk stack assemblies. Similar solutions have been developed for the
semiconductor market. In the medical disposables market, NexStar has
manufactured proprietary automated products to assemble disposables,
subassemblies, and medical tube coiling devices with flexible designs that
permit the handling in a sterile environment of various sizes of corrugated or
smooth bore tubing and small diameter catheters and wires.

                                        7


<PAGE>



COMPONENTS
<TABLE>
            PRECISION DISTANCE AND ANGLE MEASUREMENT INTERFEROMETERS
<CAPTION>
PRODUCT            PRICE RANGE                   MEASUREMENT                          APPLICATION
----------------------------------------------------------------------------------------------------------------
<S>                   <C>                  <C>                                 <C>
ZMI-1000              $15K                 Distance; Angle; Velocity;          Semiconductor and Flat Panel

  and                  to                       Time/Position                     Display Manufacturing;

ZMI-2000              $100K                                                   Product and Process Development;

                                                                                 Precision Machine Tools
----------------------------------------------------------------------------------------------------------------
</TABLE>

         Fast, precise control of machine motion is the primary challenge in
many production processes. Industries as diverse as semiconductor and flat panel
display production and optical component manufacturing require systems to
measure the position of a tool relative to a part under fabrication. Zygo's ZMI
family of Laser Interferometer systems provides the measurements that control
the position of some of the world's most sophisticated machinery. Through the
use of a directed laser beam reflecting from the moving portion of the machine,
the ZMI-1000 can tell the machine's computer control systems about movements as
small as 1.24 nanometers (billionths of a meter). This level of accuracy can be
compared to the finest geometries of semiconductors, which are approximately 350
nanometers. Its design also accommodates fast motions and maintains its
precision at speeds in excess of a meter per second. Applications for these
interferometers include accurately measuring and controlling, while they are in
motion, the x, y, and theta stages in photolithography equipment that is used in
making semiconductors and flat-panel video displays. Although Zygo sells this
instrumentation to a large number of customers, the majority of these
interferometers are sold on an OEM basis to Canon. Zygo is Canon's sole-source
provider of motion control devices for use in Canon's photolithography systems.
These systems perform a critical function in the process of manufacturing
semiconductors.

<TABLE>
                                CONFOCAL MODULES
<CAPTION>
PRODUCT            PRICE RANGE                   MEASUREMENT                          APPLICATION
----------------------------------------------------------------------------------------------------------------
<S>                   <C>                  <C>                                 <C>
ZMI-1000              $15K                 Distance; Angle; Velocity;          Semiconductor and Flat Panel

  and                  to                       Time/Position                     Display Manufacturing;

ZMI-2000              $100K                                                   Product and Process Development;

                                                                                 Precision Machine Tools
----------------------------------------------------------------------------------------------------------------
</TABLE>

         TIC's module products include the K-2 Industrial module, the NCM module
and the PCM module. The K-2 module provides confocal scanning capability to
nearly any modern upright white-light microscope. The product is fitted to the
microscope as a replacement for the vertical illuminator and attaches to the
microscope stand. The K-2 module provides two confocal modes and one brightfield
imaging mode. TIC also offers an optional confocal software package with the K-2
module which makes it possible to precisely layer several two-dimensional
confocal images to create an extremely accurate three-dimensional image. The K-2
module is primarily sold to OEMs. The NCM module is a confocal module, similar
to the K-2 module, which is incorporated into the Nikon IC-200C microscope. The
PCM module was recently developed for an OEM application in the biomedical
field. The module utilizes TIC's laser scanning confocal technology where
fluorescence is used to analyze the subject. This module is incorporated into an
OEM product which is used in research work for analyzing cell structures and
DNA. TIC's principal OEM accounts include Nikon, Leica, Reichert, and Nidek.

                                        8


<PAGE>



                          PRECISION OPTICAL COMPONENTS

          COMPONENT(S)                                       APPLICATION
--------------------------------------------------------------------------------
         Flats; Spheres;                             Laser and White Light Based

      Waveplates; Mirrors;                              Optical Instruments;

 Precision Mechanical Components;                        High Power Lasers;

        Aerospace Windows;                                Photolithography;

     Photolithographic Stages                            Military; Research
--------------------------------------------------------------------------------

         Zygo believes it is a world leader in the design and manufacture of
highly accurate "cosmetically excellent" surfaces and angles on plano components
ranging in size from small prisms to large mirrors, scanners, aerospace windows
and laser amplifier disks. Zygo's precision machining capability is used to make
complex glass and ceramic parts such as stage mirrors and other lightweight
structures. Operations at Zygo's state-of-the-art optical components
manufacturing facility include machining, shaping, generating, grinding,
polishing, and edging. Zygo utilizes technology that it has developed and
incorporated into rotary polishing machines designed and built by Zygo. Zygo's
thin film coating capability includes metallic and high-efficiency dielectric
coatings for transmissive or reflective applications, in the ultraviolet,
visible, and infrared regions of the spectrum. Zygo also applies polarization,
beamsplitter, and anti-reflection coatings. Late in fiscal 1997, Zygo was
selected by Lawrence Livermore National Laboratory to be a primary supplier of
large plano optical components for the National Ignition Facility (NIF), a $1.2
billion Department of Energy project at Livermore to produce the world's largest
laser for nuclear fusion research. The contract is another significant step in
the NIF program for Zygo and provides for the Company to design, manufacture,
and equip a world-class optical fabrication facility at its Middlefield,
Connecticut, operations for a fixed price of nearly $10 million over an 18-month
time period. The contract was funded to slightly in excess of $5.5 million in
the fiscal year ended June 30, 1997. Subsequent to the end of fiscal 1997, the
Company received an additional $4.3 million of funding. Consistent with similar
government contracts, additional appropriations from the U.S. Congress are
required prior to the Company's receiving additional funding. While there is no
guarantee that the NIF program at Livermore will receive additional governmental
funding in future government fiscal years or that the Company's project will be
funded by LLNL beyond the initial $10 million, the contract contemplates the
completion of the Middlefield NIF facility (fully funded) and provides for
additional potential funding covering the increased capacity at the facility as
well as pilot production beginning at the conclusion of the facilitization
contract. The final aspect of the contract contemplates the negotiation, during
the pilot production phase of the contract, of an optical components production
contract which is expected to have a value to Zygo of approximately $15 million
and cover several years.

         To ensure quality control of its products, Zygo maintains complete
control over every facet of manufacturing, from grinding and polishing to mating
and assembly. At each stage of production, opticians test and verify the
components using sophisticated interferometric measuring instruments designed
and manufactured by Zygo. Zygo believes that the production of its precision
optical components gives Zygo a distinct competitive advantage over most of its
competitors.

                                        9


<PAGE>


PERCENTAGE OF CONSOLIDATED SALES

         The following table shows the past three years of relative
contributions of instruments and accessories and precision optical components to
consolidated sales.

        Year ended June 30,              1997            1996              1995
        -----------------------------------------------------------------------
        Instruments and Systems           75%             65%               62%
        Modules and Components            25              35                38
        ----------- -----------------------------------------------------------

               Total                     100%            100%              100%
        ===========================================================+===========

COMPETITION

         Although Zygo believes that its products are unique, competitors offer
technologies, instrumentation, and systems that are capable of performing
certain of the functions performed by Zygo's products. Zygo faces competition
from a number of companies in all its markets, some of which have greater
manufacturing and marketing capabilities, and greater financial, technological,
and personnel resources. In addition, Zygo may compete with the internal
development efforts of its current and prospective customers. Zygo believes that
its systems and components offer several advantages over competitive products in
terms of accuracy, speed, flexibility, cost, and ease of use. Although Zygo has
attempted to protect the proprietary nature of such products, it is possible
that any of Zygo's products could be duplicated by other companies in the same
general market. In addition, there can be no assurances that Zygo would be able
to compete with similar products produced by a competitor.

              PRINCIPAL CUSTOMERS AND OPERATIONS BY GEOGRAPHIC AREA

         The growing need for dimensional control to the subnanometer level has
created a growing need for Zygo's instruments and systems among both OEMs and
end users. Traditionally, Zygo's largest market has been high precision optical
components and systems. As the market demands for greater tolerance control in
the manufacturing process has increased, particularly in the data storage and
semiconductor markets, Zygo has been able to meet these demands with
on-the-production-line process and quality control instruments and systems as
well as with its off-line quality control instruments. As a result, the data
storage and semiconductor industries are now Zygo's largest markets.

         Historically, a relatively limited number of customers have accounted
for a substantial portion of Zygo's revenues. In fiscal years 1997, 1996, and
1995, sales to Zygo's top two customers accounted for approximately 25.5%,
50.3%, and 46.8%, respectively, of Zygo's net sales. During these fiscal years,
sales to Canon, Zygo's largest customer, accounted for approximately 20.1%,
34.4%, and 29.6 %, respectively, of Zygo's net sales. Canon, one of the original
investors in Zygo, is a valuable strategic partner of Zygo and the relationship
is important to both companies for many reasons. Sales to Canon include products
that Canon uses in its manufacturing facilities, such as Zygo's large aperture
surface measurement interferometers, which are used to quantitatively analyze
the surface of optics Canon produces for its photolithographic steppers, and
Zygo's motion measurement components which are incorporated into Canon's
steppers for controlling the x/y stage in that product. Zygo is Canon's sole
source for motion control systems. Sales to Canon also include optical
components and instruments, systems and accessories sold by Canon as a
distributor for certain of the Company's products in Japan. In fiscal 1996 and
1995, Seagate, a leading manufacturer of computer disk drives and related
hardware and software, accounted for an additional approximately 15.8% and
17.2%, respectively, of Zygo's net sales. No other customer accounted for
greater than approximately 10% of Zygo's net sales in fiscal 1997, 1996, or
1995.

                                       10


<PAGE>


         The following is a representative list of end users of Zygo's products:
<TABLE>
<CAPTION>
                                                                                    INDUSTRIAL SURFACES &
SEMICONDUCTOR                DATA STORAGE                   OPTICS                     MACHINE CONTROL
-------------                ------------                   ------                  --------------------
<S>                      <C>                           <C>                          <C>
Canon                    Akashic                       Bausch & Lomb                Anorad
DuPont                   Applied Magnetics             Canon                        Cummins Engine
ESI                      Hitachi                       Corning                      Dover Instruments
ETEC                     Iomega                        Hughes                       General Motors
IBM                      Komag                         Laboratory for               Gerber Scientific
Intel                    Maxtor                        Laser Energetics             Martin Marietta
KLA/Tencor               Quantum                       Lawrence Livermore           National Institute of
Motorola                 Read-Rite                     National Laboratories        Standards & Technology
NEC                      SAE Magnetics                 Melles Griot                 Rank Taylor Hobson
Photronics               Seagate                       Nikon                        Saint-Gobain/Norton
SVG                      Sony                          OCLI                         Sikorsky Aircraft
Sematech                 TDK                           Perkin Elmer                 Stanadyne
Texas Instruments        Toshiba                       Schott Glass                 3-M
Toshiba                                                Vistakon                     TRW
Ultratech Stepper                                      Zeiss
</TABLE>

         Zygo sells its products worldwide through a combination of direct sales
staff and independent distributors and sales representatives. Zygo maintains a
direct sales staff at its headquarters in Middlefield, Connecticut, and in
California, Colorado, Georgia, and Washington for domestic sales. International
sales are made through more than 10 representatives and distributors, covering
sales and service in over 20 countries including Japan, Singapore, Malaysia,
South Korea, Taiwan, Philippines, United Kingdom, Germany, Italy, and France.

         The following table sets forth the percentage of Zygo's total sales
(including sales delivered through distributors) by location during the past
three years:

                                                    YEAR ENDED JUNE 30,
                                            -----------------------------------
                                            1997            1996           1995
                                            ----            ----           ----
        United States                       54.7%           52.6%          53.5%

        Japan                               24.9            34.4           29.9

        Pacific Rim                         14.5             8.3           10.2

        Other (primarily Europe)             5.9             4.7            6.4

         Substantially all of Zygo's export sales are negotiated, invoiced, and
paid in United States dollars. International sales and foreign operations are
subject to certain inherent risks.

         The selling process for Zygo's products frequently involves
participation by sales, marketing, applications specialists, and engineering
personnel. Zygo's marketing activities also include participation in
international standards organizations, trade shows, publication of articles in
trade journals, participation in industry forums, and distribution of sales
literature. In addition, Zygo's strategic relationships with customers serve as
highly visible references.

         Zygo believes that its strong commitment to service is essential, based
on the growing complexity of the equipment used in the manufacturing process by
Zygo's customers. At June 30, 1997, Zygo's customer support and service staff
consisted of 23 persons. In addition, Zygo's distributors and sales
representatives offer a worldwide network for customer support, providing
24-hour on-demand maintenance services. The service engineers are skilled in
optical and electrical component repair, software, application and system
integration, diagnostic and problem solving capabilities. Zygo also offers
training programs and maintenance contracts for its customers.

                                       11


<PAGE>



                                     BACKLOG

         The Company's backlog at June 30, 1997 and 1996, was approximately
$38.7 million and $22.4 million, respectively. The significant increase from the
prior year end resulted primarily from stronger demand for all of the Company's
electro-optical instruments and systems, as well as an increase for custom
optical components driven by the contract awarded to Zygo by Lawrence Livermore
National Laboratory. The backlog of the Company's instruments and systems at
June 30, 1997, increased $8,363,000 (61.3%) from that at June 30, 1996. The
backlog of the Company's modules and components increased by $7,928,000 (90.5%)
from the year earlier. Substantially all of the backlog as of June 30, 1997, is
expected to be shipped in fiscal year 1998. Historically, cancellation or
reduction of orders has not had a significant impact on the Company's results of
operations.

                         RESEARCH AND DEVELOPMENT COSTS

         Information regarding the Company's research and development costs is
set forth in the Consolidated Statements of Earnings on page 15 of the Company's
1997 Annual Report, which statements are herein incorporated by reference. Zygo
operates in an industry that is subject to rapid technological change and
engineering innovation. Zygo distinguishes its instrument products on the basis
of its unique electro-optical sensor technology, its software capability, and
its skill in systems integration. Because Zygo believes that its ability to
compete effectively with its instruments and systems in its markets depends in
part on maintaining its expertise in applying new technologies and developing
new products, Zygo dedicates substantial resources to research and development.
At June 30, 1997, Zygo employed 60 individuals within its R&D operations,
including 18 individuals with advanced degrees of which nine individuals have
earned doctoral degrees. As an integral part of Zygo's product development
strategy, Zygo has formed technical relationships with several customers. Zygo's
strategy is to form close technical working relationships with the leading
suppliers in its markets and thereby develop products and systems which have the
greatest relevancy to the marketplace in general. In connection with its R&D
operations, Zygo also maintains a close working relationship with various
research groups and academic institutions in the United States as well as
abroad.

         Zygo believes that continued enhancement, development, and
commercialization of new and existing products and systems is essential to
maintaining and improving its leadership position. Zygo intends to direct its
research and development activities in several different areas. For example,
Zygo continues to seek to develop products that have greater measurement range
and precision to address new markets. Additionally, Zygo intends to continue to
add products that are automated in-process instruments and systems. There can be
no assurance that these efforts or any other product development efforts of Zygo
will be successful in producing products that respond to technological changes
or new products introduced by others.

                         PATENTS, LICENSES, TRADEMARKS,
                           AND PROPRIETARY INFORMATION

         Zygo relies on a combination of patent, copyright, trademark, and trade
secret laws and license agreements to establish and protect its proprietary
rights in its products. Zygo believes, however, that its success depends to a
greater extent upon innovation, technological expertise, and distribution
strength. Zygo requires each of its employees to enter into standard agreements
pursuant to which the employee agrees to keep confidential all proprietary
information of Zygo and to assign to Zygo all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment or made thereafter as a result of any inventions conceived or work
done during such employment. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use Zygo's products or technology
without authorization or to develop similar technology independently. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in certain foreign countries.

                                       12


<PAGE>



         Zygo has been awarded 68 United States patents and 9 foreign patents
since the Company was founded, and has 14 United States patent applications and
7 foreign patent applications pending. Zygo, the Zygo logo, NexStar, and Sight
Systems are registered trademarks of Zygo Corporation. The Company also holds
several nonregistered trademarks including AAB System, AMS, GAPii, GPI, Growth
Potential Interferometer KMS, Maxim*GP, NewView 100, New View 200, Pegasus 2000,
ROBOii, VAC, ZMI-1000, ZMI-2000.

               MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY

         Zygo's principal manufacturing activities are conducted at its
facilities in Middlefield, Connecticut; Sunnyvale, California; and Longmont,
Colorado. Zygo maintains a state-of-the-art optical components manufacturing
facility in Middlefield, specializing in the fabrication, polishing and coating
of plano (flat) optics for sales to third parties, as well as the manufacturing
of a wide variety of optics that are used in Zygo's instrument and automation
products. Zygo's manufacturing activities for its instruments and system
products consist primarily of assembling and testing components and
subassemblies some of which are supplied from within Zygo and others are
supplied by third party vendors and then integrated into Zygo's finished
products. Many of the components and subassemblies are standard products,
although certain items are made to Company specifications. Zygo also maintains
Computer Numerical Control (CNC) metal fabrication equipment for in-house
production of strategic metal formed components.

         Certain components and subassemblies incorporated into Zygo's systems
are obtained from a single source or a limited group of suppliers. Management
routinely monitors single or limited source supply parts, and Zygo endeavors to
ensure that adequate inventory is available to maintain manufacturing schedules
should the supply of any part be interrupted. Although Zygo seeks to reduce its
dependence on sole and limited source suppliers, it has not qualified a second
source for these products and the partial or complete loss of certain of these
sources could have an adverse effect on Zygo's results of operations and damage
customer relationships. To date, the Company has not experienced a significant
production delay from a parts shortage or loss of a single-source component.

         At its Middlefield operations, Zygo also maintains a state-of-the-art
fully integrated management information system which includes all business
modules (capacity planning, materials requirements planning, order entry,
financials, etc.) necessary to manage Zygo's growing operations there. Plans to
expand the system to Zygo's other operations are being developed.

                                    EMPLOYEES

         At fiscal year end, Zygo employed 399 men and women, including 233 in
manufacturing, 60 in research and development, 46 in sales and marketing, and 23
in customer service. To date, Zygo has been successful in attracting and
retaining qualified technical personnel, although there can be no assurance that
this success will continue. None of Zygo's employees are covered by collective
bargaining agreements or are members of a union. Zygo has never experienced a
work stoppage and believes that its relations with its employees are excellent.

                                SUBSEQUENT EVENTS

         Subsequent to the close of its fiscal 1997, Zygo completed the
acquisition of Sight Systems, Inc., a manufacturer of precision
application-specific machine vision metrology systems and Syncotec Neue
Technologien und Instrumente GmbH, a manufacturer of confocal components and
custom metrology tools for the German market. Zygo also announced the signing of
a letter of intent to acquire Digital Instruments, Inc. A brief description of
these businesses follows:

                                       13


<PAGE>



SIGHT SYSTEMS, INC. ACQUISITION

The Company completed its acquisition of Sight Systems, Inc. ("SSI"), a
privately held California-based business, for 287,400 shares of the Company's
common stock. The transaction will be accounted for as a pooling-of-interests.
SSI is engaged in the business of designing, developing, manufacturing, and
marketing application-specific machine vision systems. SSI serves the data
storage industry and the semiconductor industry with application-specific vision
systems which are primarily used in production by its customers. These vision
systems are unique in that they are configured from a vast collection of
software and hardware components into a system which meets specific customer
requirements. Examples of such applications in the data storage industry where
SSI has sold the majority of its systems to date include: pole geometry
measurements and gap width on various types of read/write heads, straightness,
and measurements of read/write heads mounted on row bars in the manufacturing
process.

SSI, located in Newbury Park, California, employs approximately 20 persons.
Approximately 50% of SSI's employees are engineers and are actively involved in
the design and development of configurable software and hardware components
which are customized into vision systems specific to customer needs. SSI
operates from a leased building where the manufacturing function is essentially
a systems and components integration and assembly function. SSI has a number of
suppliers for its hardware components and material availability has not been a
problem for SSI.

Sales are conducted on a direct basis to data storage industry customers and
through selected representatives, primarily selected for their proximity to key
geographic markets. Integration of the sales and marketing teams of Zygo and SSI
is intended to be accomplished during fiscal 1998.

SSI's sales in its fiscal year ended December 31, 1996 were approximately $3.5
million.

SYNCOTEC NEUE TECHNOLOGIEN UND INSTRUMENTE GMBH ACQUISITION

On June 30, 1997, TIC and Syncotec Neue Technologien und Instrumente GmbH
("Syncotec"), a German-based company, completed all necessary legal requirements
allowing for the appropriate transfer and registration of a 50 percent ownership
interest in Syncotec. The conclusion of this transaction completed commitments
made by the former owners of TIC and enabled the Company to release $440,000 of
contingent proceeds recorded as a liability at the time of the TIC acquisition
by the Company. Effective September 1, 1997, the Company, through TIC, completed
the purchase of the remaining 50 percent of Syncotec for approximately $2.0
million (subject to adjustment based on closing book value) in a combination of
cash and the Company's common stock.

Syncotec, located in Asslar, Germany, is a small manufacturer of confocal
modules and systems principally for the European market. Syncotec has had a
long-term relationship with TIC.

Employing approximately 10 persons, the company is focused on designing
solutions for local customers for their specific measurement problems utilizing
the TIC confocal scanning optical microscopy components, as well as other
locally designed hardware and software.

Syncotec occupies a small leased facility in Asslar, near Frankfurt, Germany.
Syncotec's sales in its fiscal year ended December 31, 1996 were approximately
$2.9 million (DM4.9 million).

DIGITAL INSTRUMENTS, INC. AND DIGITAL INSTRUMENTS GMBH

On July 28, 1997, the Company announced the signing of a letter of intent
providing for the Company's acquisition of Digital Instruments, Inc.
("Digital"), a privately held California-based entity that designs, develops,
and manufactures high precision measurement products and systems which use
scanning probe microscopy imaging and metrology technology. These systems are
used in product research and development applications as well as to improve the
production efficiency

                                       14


<PAGE>



and manufacturing yields within the data storage, semiconductor, and other high
technology industries. It is expected that the Company will acquire all the
outstanding stock of Digital and an affiliated corporation in exchange for
7,000,000 shares of the Company's common stock. Closing of the transaction will
be subject to various conditions, including approval by the stockholders of the
Company. The transaction is expected to be accounted for as a
pooling-of-interests, and is expected to be completed prior to the end of the
calendar year 1997. Digital's revenues for the year ended December 31, 1996 were
approximately $50 million.

         The remainder of this 10-K405 does not include any information
concerning Sight Systems, Inc., Syncotec, or Digital Instruments, Inc..

ITEM 2.  PROPERTIES

         The Company maintains manufacturing facilities in Middlefield,
Connecticut; Sunnyvale, California; and Longmont, Colorado, and maintains its
corporate headquarters on Laurel Brook Road in Middlefield, Connecticut. The
Middlefield facility consists of one 100,000-square-foot building on
approximately 13 acres. This facility is currently being expanded by 35,000
square feet to provide additional optical fabrication capacity and new office
area for sales, service, R&D, and administrative personnel. The Company also
owns 50 acres of undeveloped land adjacent to its principal facility. TIC
maintains its headquarters in a leased 20,000-square-foot building located in a
high technology area in Sunnyvale, California. This facility was recently
renovated to accommodate the additional manufacturing and office personnel.
NexStar's manufacturing activities are carried on from Longmont, Colorado, where
it occupies 21,000 square feet within a new leased facility. NexStar moved into
the facility in April 1997.

ITEM 3.  LEGAL PROCEEDINGS

         On June 29, 1988, Zygo filed suit in the U.S. District Court in Arizona
against WYKO Corporation for patent infringement based on the belief that the
WYKO 6000 interferometer infringed certain patents owned by Zygo. On March 1,
1993, the United States District Court (District of Arizona) rendered a
Memorandum Opinion and Findings of Fact and Conclusions of Law in the matter of
the patent suit. The conclusions of the court were that Zygo's patent is valid,
the WYKO Model 6000 interferometer infringes the Zygo patent, that WYKO
Corporation is liable to Zygo for any damages suffered as a result of WYKO's
infringement of Zygo's patents by making, selling, and using the WYKO Model 6000
interferometer, and that the amount of the monetary judgment and other relief
shall be determined following a trial on the issue of damages. The damage phase
of the trial was held from November 29, 1993 through December 6, 1993. The Court
rendered its judgment on June 2, 1994, awarding Zygo approximately $2.7 million
plus recovery of certain costs to be awarded by the Court which were incurred by
Zygo in connection with the conduct of the trial and entered a permanent
injunction prohibiting further sales of the WYKO Model 6000 interferometers
found to infringe. An appeal of the District Court's decision was filed by WYKO
on August 9, 1994 with the Court of Appeals for the Federal Circuit located in
Washington, D.C. The oral argument of the appeal was heard by the Court of
Appeals on March 9, 1995. On April 1, 1996, the Court of Appeals rendered an
Opinion Announcing Judgment of the Court. The appellate court affirmed-in-part
and reversed-in-part the District Court's earlier findings and remanded the case
to the District Court for a redetermination of the damage award. In its Opinion,
the appellate court reversed the District Court's opinion that certain WYKO
units infringed the Zygo patent on the basis of the doctrine of equivalents,
upheld the validity of Zygo's patent, and affirmed the District Court's opinion
that the original WYKO model 6000 infringed Zygo's patent. Zygo has not recorded
any gain from the District Court's earlier ruling and will not until a final
determination of the award is made.

                                       15


<PAGE>



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

         None

                      EXECUTIVE OFFICERS OF THE REGISTRANT

GARY K. WILLIS - age 52
President and Chief Executive Officer of the Company since August 1993; from
     February 1992 until August 1993, President and Chief Operating Officer
Served as executive officer of the Company since February 1992

AHMAD AKRAMI - age 38
Vice President of the Company since August 1997; President of NexStar
     Corporation, a wholly-owned subsidiary of the Company since September 1996;
     President NexStar Automation, Inc. from January 4, 1993 to September 1996,
     consultant from October 1992 to January 1993; President of TechniStar
     Corporation from March 1989 until October 1992
Elected an executive officer of the Company in August 1997 subsequent to the end
     of fiscal 1996

WILLIAM H. BACON - age 48
Vice President, Director of Corporate Quality of the Company since January 1996;
     from November 1993 until January 1996, Director of Total Quality of the
     Company; from June 1987 until November 1993, Manager of Instrument
     Manufacturing Engineering of the Company
Served as executive officer of the Company since January 1996

MARK J. BONNEY - age 43
Vice President, Finance and Administration and Chief Financial Officer of the
     Company since March 1993 and Treasurer of the Company since November 1993;
     from October 1990 until February 1993, Vice President European Operations
     and Managing Director, Dynapert Limited, a Black & Decker Company
Served as executive officer of the Company since March 1993

FRANCIS E. LUNDY - age 59
Vice President of the Company since August 1997; President Technical Instrument
     Company from January 1985 to August 1996
Elected an executive officer of the Company in August 1997 subsequent to the end
     of fiscal 1996

ROBERT A. SMYTHE - age 46
Vice President, Director of Sales and Marketing of the Company since January
     1996; from June 1993 until January 1996, Director of Sales and Marketing of
     the Company; and from April 1992 until June 1993, served as Manager,
     Industry Marketing of the Company
Served as executive officer of the Company since January 1996

CARL A. ZANONI - age 56
Vice President, Research, Development and Engineering of the Company since
     April 1992
Served as executive officer of the Company since its inception in 1970

         Of the above executive officers, Mr. Willis and Mr. Zanoni are
directors of the Company. Under the By-laws, executive officers serve for a term
of one year and until their successors are chosen and qualified unless earlier
removed.

                                       16


<PAGE>


                                     PART II

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

         Information required by this item is included on page 27 (Stock Data)
and page 28 (Stockholder Information) and in note 1 on page 18 and note 13 on
page 21 in the Notes to Consolidated Financial Statements included in, the
Company's 1997 Annual Report and is herein incorporated by reference. The
Company's common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market. The number of stockholders of record at June 30, 1997,
was 514.

ITEM 6.  SELECTED FINANCIAL DATA

         Information required by this item is included on page 9 (Five-Year
Summary) of the Company's 1997 Annual Report and is herein incorporated by
reference.

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

         Information required by this item is included on pages 10 through 13
(Management's Discussion and Analysis of Results of Operations and Financial
Condition) of the Company's 1997 Annual Report and is herein incorporated by
reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Information required by this item is included on pages 14 through 27
(Consolidated Balance Sheets; Consolidated Statements of Earnings; Consolidated
Statements of Stockholders' Equity; Consolidated Statements of Cash Flows; Notes
to Consolidated Financial Statements; Report of Management; Report of
Independent Auditors; and Selected Consolidated Quarterly Financial Data) of the
Company's 1997 Annual Report and is herein incorporated by reference.

         The consolidated financial schedules of Zygo Corporation and
Consolidated Subsidiaries are filed as part of Item 14 of this Annual Report on
Form 10-K405.

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

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Except for the information concerning executive officers which is set
forth in Part I of this report, information required by this item is included
under the captions "Election of Board of Directors" and "Other Agreements and
Other Matters" in the Proxy Statement to be filed pursuant to Regulation 14A for
use in connection with the Registrant's 1997 Annual Meeting of Stockholders
("the Proxy Statement") and is herein incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

         Information required by this item is included in the Proxy Statement
under the caption "Executive Compensation" and is herein incorporated by
reference.

                                       17


<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information required by this item is included in the Proxy Statement
under the captions "Election of Board of Directors" and "Principal Stockholders"
and is herein incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required by this item is included in the Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is herein
incorporated by reference.

                                     PART IV

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

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

       1. and 2. Financial Statements and Financial Statement Schedules:

                 An index to the financial statements and financial statement
                 schedules filed is located on page F-1.

       3.        EXHIBITS

       3.(i)     Restated Certificate of Incorporation of the Company and
                 amendments thereto (Exhibit 3.(i) to the Company's Annual
                 Report on Form 10-K for its year ended June 30, 1993)*

       3.(ii)    Certificate of Amendment of Certificate of Incorporation, filed
                 June 3, 1996 (Exhibit 3.(ii) to the Company's Annual Report on
                 Form 10-K 405 for its year ended June 30, 1996)*

       3.(iii)   By-laws of the Company (Exhibit (3)(b) to Registration No.
                 2-87253 on Form S-1 hereinafter "Registration No. 2-87253")*

       4.1       Shareholders Agreement dated October 17, 1983, between Canon
                 Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and
                 Sol F. Laufer (Exhibit (4)(a) to Registration 2-87253)*

       10.1      Confidentiality and Non-Competition Agreement dated October
                 25, 1983, between the Company and Carl A. Zanoni (Exhibit
                 (10)(b) to Registration No. 2-87253)*

       10.2      Agreement dated May 27, 1975, between the Company and Canon
                 U.S.A., Inc., regarding information sharing and marketing
                 (Exhibit (10)(x) to Registration No. 2-87253)*

       10.3      Agreement dated November 20, 1980, between the Company and
                 Canon Inc. regarding exchange of information (Exhibit (10)(y)
                 to Registration No. 2-87253)*

       10.4      Zygo Corporation Profit Sharing Plan, as amended effective
                 June 30, 1985 (Exhibit 10.35 to the Company's Annual Report on
                 Form 10-K for its year ended June 30, 1985)*

*Incorporated herein by reference.

                                       18


<PAGE>



         10.5     First Amendment to the Zygo Corporation Profit Sharing Plan
                  (Exhibit 10.28 to the Company's Annual Report on Form 10-K for
                  its year ended June 30, 1989)*

         10.6     Second Amendment to the Zygo Corporation Profit Sharing Plan
                  (Exhibit 10.29 to the Company's Annual Report on Form 10-K for
                  its year ended June 30, 1989)*

         10.7     Third Amendment to the Zygo Corporation Profit Sharing Plan
                  (Exhibit 10.30 to the Company's Annual Report on Form 10-K for
                  its year ended June 30, 1989)*

         10.8     Fourth Amendment to the Zygo Corporation Profit Sharing Plan
                  (Exhibit 10.31 to the Company's Annual Report on Form 10-K for
                  its year ended June 30, 1989)*

         10.9     Amended and Restated Zygo Corporation Profit Sharing Plan
                  (Exhibit 10.15 to the Company's Annual Report on Form 10-K405
                  for its year ended June 30, 1995)*

         10.10    Canon/Zygo Confidentiality Agreement dated March 7, 1990,
                  between the Company and Canon Inc. regarding confidential
                  technical information received from each other (Exhibit 10.42
                  to the Company's Annual Report on Form 10-K for its year ended
                  June 30, 1991)*

         10.11    Employment Agreement dated February 13, 1992, relating to the
                  employment of Gary K. Willis by the Company (Exhibit 10.38 to
                  the Company's Annual Report on Form 10-K for its year ended
                  June 30, 1992)*

         10.12    Amendment, dated August 26, 1993, to the Employment Agreement
                  dated February 13, 1992, between Gary K. Willis and the
                  Company (Exhibit 10.22 to the Company's Annual Report on Form
                  10-K for its year ended June 30, 1993)*

         10.13    Second Amendment, dated March 10, 1995, to the Employment
                  Agreement dated February 13, 1992, between Gary K. Willis and
                  the Company (Exhibit 10.19 to the Company's Annual Report on
                  Form 10-K405 for its year ended June 30, 1996)*

         10.14    Stock Purchase Agreement dated March 4, 1992, relating to the
                  purchase of Company Common Stock by Gary K. Willis from
                  Wesleyan University (Exhibit 10.39 to the Company's Annual
                  Report on Form 10-K for its year ended June 30, 1992)*

         10.15    Services Agreement dated August 26, 1993, between the Company
                  and Paul F. Forman (Exhibit 10.26 to the Company's Annual
                  Report on Form 10-K for its year ended June 30, 1993)*

         10.16    Amendment Agreement dated as of December 31, 1996, between the
                  Company and Paul F. Forman.

         10.17    Non-Competition Agreement dated August 26, 1993, between the
                  Company and Paul F. Forman (Exhibit 10.27 to the Company's
                  Annual Report on Form 10-K for its year ended June 30, 1993)*

         10.18    Zygo Corporation Amended and Restated Non-Qualified Stock
                  Option Plan ratified and approved by the Company's
                  Stockholders on November 19, 1992 (Exhibit 10.30 to the
                  Company's Annual Report on Form 10-K for its year ended June
                  30, 1993)*

*Incorporated herein by reference.

                                       19


<PAGE>



         10.19    Employment Agreement dated March 1, 1993, between Mark J.
                  Bonney and the Company (Exhibit 10.31 to the Company's Annual
                  Report on Form 10-K for its year ended June 30, 1993)*

         10.20    Amendment, dated March 12, 1996, to the Employment Agreement
                  dated March 1, 1993, between Mark J. Bonney and the Company
                  (Exhibit 10.21 to the Company's Annual Report on Form 10-K 405
                  for its year ended June 30, 1996)*

         10.21    Termination Agreement dated November 30, 1993, covering the
                  termination of the Shareholders' Agreement between Canon Inc.,
                  Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol
                  F. Laufer dated October 17, 1983 (Exhibit 10.33 to the
                  Company's Annual Report on Form 10-K for its year ended June
                  30, 1994)*

         10.22    Registration Rights Agreement dated November 30, 1993, between
                  Canon Inc., Wesleyan University, Paul F. Forman, Carl A.
                  Zanoni, Sol F. Laufer, and the Company (Exhibit 10.34 to the
                  Company's Annual Report on Form 10-K for its year ended June
                  30, 1994)*

         10.23    Renewal of Line of Credit dated June 3, 1997, between the
                  Company and Fleet Bank Connecticut, N.A.

         10.24    Zygo Corporation Non-Employee Director Stock Option Plan
                  ratified and approved by the Company's stockholders on
                  November 17, 1994 (Exhibit 10.30 to the Company's Annual
                  Report on Form 10-K405 for its year ended June 30, 1996)*

         10.25    Agreement and Plan of Merger, dated as of August 7, 1996, by
                  and among the Company, Technical Instrument Company, Zygo
                  Acquisition Corporation, Francis E. Lundy, the Lundy 1996
                  Charitable Trust, The Sherman Family Living Trust, Frank J.
                  Scheufele Trust, David Lytle, and Inspectron Development
                  Partners L.P., a California Limited Partnership (Exhibit 2 to
                  the Company's Current Report on Form 8-K dated August 19,
                  1996)*

         10.26    Employment Agreement, dated August 7, 1996, between Technical
                  Instrument Company and Francis E. Lundy (Exhibit 10.27 to the
                  Company's Annual Report on Form 10-K 405 for its year ended
                  June 30, 1996)*

         10.27    Acquisition Agreement, dated August 12, 1996, among the
                  Company, NX Acquisition Corporation, and NexStar Automation,
                  Incorporated (Exhibit 2 to the Company's Current Report on
                  Form 8-K dated September 27, 1996)*

         10.28    Employment Agreement, dated September 12, 1996, between
                  NexStar Corporation and Ahmad Akrami (Exhibit 10.29 to the
                  Company's Annual Report on Form 10-K 405 for its year ended
                  June 30, 1996)*

         10.29    Acquisition Agreement dated August 19, 1997, by and among Zygo
                  Corporation, Sight Systems, Inc., and the Shareholders of
                  Sight Systems, Inc.

         10.30    Stock Purchase Agreement dated September 1, 1997, between
                  Technical Instrument Company and Syncotec Neue Technologien
                  und Instrumente GmbH

         10.31    Subcontract B335188 between The Regents of The University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated May 9, 1997

*Incorporated herein by reference.

                                       20


<PAGE>



         10.32    Agreement between Zygo Corporation and Dacon Corporation
                  covering an addition to the Company's Middlefield,
                  Connecticut, facilities (Project 1774) and the N.I.F.
                  Manufacturing Renovation (Project 1842) dated April 7, 1997

         10.33    Employment Agreement dated August 19, 1997, between Sight
                  Systems, Inc. and David Grant

         11.      For computation of per share earnings see note 1 of the Notes
                  to Consolidated Financial Statements in the 1997 Annual Report
                  included herewith, which note is incorporated herein by
                  reference

         13.      Specified portions of 1997 Annual Report to Stockholders (such
                  portions are furnished solely for the information of the
                  Commission and are not filed herewith, except for those
                  portions expressly incorporated herein by reference.)

         21.      Subsidiaries of Registrant

         23.      Accountants' Consent

         24.      Power of Attorney

         27.      Financial Data Schedule

 (b)     Reports on Form 8-K

No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.

*Incorporated herein by reference.

                                       21


<PAGE>


                                   SIGNATURES

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

       ZYGO CORPORATION
---------------------------------
          Registrant

By /s/ Mark J. Bonney                                    Date September 16, 1997
---------------------------------                             ------------------
      Mark J. Bonney
      Vice President, Finance
      and Administration

     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.

       Signature                     Title
       ---------                     -----

/s/ Gary K. Willis         President, Chief Executive    Date September 16, 1997
-------------------------  Officer and Director               ------------------
    Gary K. Willis         


/s/ Mark J. Bonney         Vice President, Finance and   Date September 16, 1997
-------------------------  Administration, Treasurer,         ------------------
    Mark J. Bonney         and Chief Financial Officer


/s/ Carl A. Zanoni         Vice President, Research,     Date September 16, 1997
-------------------------  Development and Engineering        ------------------
    Carl A. Zanoni         and Director


 Paul F. Forman*           Chairman of the Board
-------------------------  
    (Paul F. Forman)


 Michael R. Corboy*        Director
-------------------------  
    (Michael R. Corboy)


 Seymour E. Liebman*       Director
-------------------------  
    (Seymour E. Liebman)


 Robert G. McKelvey*       Director
-------------------------  
    (Robert G. McKelvey)


 Paul W. Murrill*          Director
-------------------------  
    (Paul W. Murrill)


 John R. Rockwell*         Director
-------------------------  
    (John R. Rockwell)


 Robert B. Taylor*         Director
-------------------------  
    (Robert B. Taylor)

*By /s/  Mark J. Bonney                                  Date September 16, 1997
-------------------------                                     ------------------
      Mark J. Bonney
      Attorney-in-Fact

                                       22
<PAGE>



                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Page

*        Independent Auditors' Report

*        Consolidated balance sheets at June 30, 1997, and 1996

*        Consolidated statements of earnings for the years ended June 30, 1997,
         1996, and 1995

*        Consolidated statements of stockholders' equity for the years ended
         June 30, 1997, 1996, and 1995

*        Consolidated statements of cash flows for the years ended June 30,
         1997, 1996, and 1995

*        Notes to consolidated financial statements

*        Selected consolidated quarterly financial data for the years ended June
         30, 1997, and 1996

Consolidated Schedules

F-2      Independent Auditors' Report on Schedule

F-3      VIII -   Valuation and qualifying accounts

         All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedules or the information required is included in the consolidated financial
statements or notes thereto.

*Incorporated herein by reference to Zygo Corporation 1997 Annual Report to
 Stockholders.

                                       F-1


<PAGE>






                    INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The Board of Directors
Zygo Corporation:

Under date of August 8, 1997, we reported on the consolidated balance sheets of
Zygo Corporation and subsidiaries as of June 30, 1997, and 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1997 as contained in
the 1997 annual report to stockholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K405 for the fiscal year ended June 30, 1997. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG PEAT MARWICK LLP



Hartford, Connecticut
August 8, 1997




                                       F-2


<PAGE>


                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED JUNE 30, 1997, 1996, AND 1995

                               Balance                              Balance
                             at Beginning                           at End
Description                   of Period    Provision   Write-Offs  of Period
-----------                   ---------    ---------   ----------  ---------

YEAR ENDED JUNE 30, 1997*:
  ALLOWANCE FOR DOUBTFUL
    ACCOUNTS                  $  733,000  $   15,146  $   20,146  $  728,000

  INVENTORY RESERVE           $1,321,850  $  395,500  $  239,900  $1,477,450

Year Ended June  30, 1996**:
  Allowance for Doubtful
    Accounts                  $  137,655  $  153,402  $   24,057  $  267,000

  Inventory Reserve           $  419,147  $  581,253  $   85,350  $  915,050

Year Ended June 30, 1995:
  Allowance for Doubtful
    Accounts                  $   70,981  $   74,584  $    7,910  $  137,655

  Inventory Reserve           $  267,183  $  248,576  $   96,612  $  419,147




*Includes opening balances of TIC corporation purchased August 8, 1996
  Allowance for Doubtful
    Accounts                                $466,000

  Inventory Reserves                        $406,800

**1996 restated to include NexStar activity 1996


                                       F-3


<PAGE>


                                  EXHIBIT INDEX

      EXHIBIT
       TABLE                                                        FORM 10-K405
       NUMBER                                                        PAGE NUMBER
       ------                                                        -----------

        10.16   Amendment Agreement dated as of December 31, 1996,
                between the Company and Paul F. Forman.

        10.23   Renewal of Line of Credit dated June 3, 1997, between
                the Company and Fleet Bank

        10.29   Acquisition Agreement dated August 19, 1997, by and
                among Zygo Corporation, Sight Systems, Inc., and the
                Shareholders of Sight Systems, Inc.

        10.30   Stock Purchase Agreement dated September 1, 1997,
                between Technical Instrument Company and Syncotec Neue
                Technologien und Instrumente GmbH

        10.31   Subcontract B335188 between The Regents of The
                University of California Lawrence Livermore National
                Laboratory and Zygo Corporation dated May 9, 1997

        10.32   Agreement between Zygo Corporation and Dacon
                Corporation covering an addition to the Company's
                Middlefield, Connecticut, facilities (Project 1774)
                and the N.I.F. Manufacturing Renovation (Project 1842)
                dated April 7, 1997

        10.33   Employment Agreement dated August 19, 1997, between
                Sight Systems, Inc. and David Grant

        11.     For computation of per share earnings, see note 1 of
                the Notes to Consolidated Financial Statements in the
                1997 Annual Report included herewith, which note is
                incorporated herein by reference

        13.     Specified portions of 1997 Annual Report to
                Stockholders (such portions are furnished solely for
                the information of the Commission and are not filed
                herewith, except for those portions expressly
                incorporated herein by reference.)

        21.     Subsidiaries of Registrant

        23.     Accountants' Consent

        24.     Power of Attorney

        27.     Financial Data Schedule