UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

    For the fiscal year ended June 30, 2002

Or

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

    For the transition period from               to
                                  ---------------   ----------------

                         Commission file number 0-12944
                                                -------

                                ZYGO CORPORATION

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

         Delaware                                          06-0864500
-------------------------------             ------------------------------------
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

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

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

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

                                      None

           Securities registered pursuant to Section 12(g) of the Act:
           -----------------------------------------------------------
                          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 [ ] NO [ X ] (1)

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

State the aggregate market value of the voting stock held by non-affiliates 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 September 18, 2002, was $87,039,362


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

    17,509,427 Shares of Common Stock, $.10 Par Value, at September 18, 2002

Documents incorporated by reference: Specified portions of the registrant's
Proxy Statement related to the registrant's 2002 Annual Meeting of Stockholders,
to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, are incorporated by reference into
Part III of this Annual Report on Form 10-K.


(1) The Company erroneously omitted to file by EDGAR with the Securities and
Exchange Commission a copy of the Company's proxy statement dated October 6,
2001, in connection with the Annual Meeting of Stockholders held on November 14,
2001. The proxy and the consequent amendment to the Company's Annual Report on
Form 10-K dated June 30, 2001 were filed by the Company on February 13,
2002.


<PAGE>






                           FORWARD LOOKING STATEMENTS

All statements other than statements of historical fact included in this Annual
Report regarding the Company's financial position, business strategy, plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward looking statements include without
limitation statements under "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Risk Factors."
Forward-looking statements are intended to provide management's current
expectations or plans for the future operating and financial performance of the
Company based upon information currently available and assumptions currently
believed to be valid. Forward-looking statements can be identified by the use of
words such as "anticipate," "believe," "estimate," "expect," "intend," "plans,"
"strategy," "project," and other words of similar meaning in connection with a
discussion of future operating or financial performance. Actual results could
differ materially from those contemplated by the forward-looking statements as a
result of certain factors such as those disclosed under "Risk Factors." Such
statements reflect the current views of the Company with respect to future
events and are subject to these and other risks, uncertainties and assumptions
relating to the operations, results of operations, and growth strategy of the
Company.



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<PAGE>



                                     PART I

ITEM 1. BUSINESS

                                    OVERVIEW

Zygo Corporation ("Zygo" or "Company") is a leading designer, developer and
manufacturer of optics, metrology and on-line yield enhancement solutions for
the semiconductor and industrial manufacturing markets, as well as a supplier of
optical components and modules for the telecommunications market. We have
achieved our leadership position through 30 years of understanding, utilizing
and developing applications related to the physics of light. We intend to
leverage this knowledge and expertise in on-line yield enhancement, namely
metrology and automation, to provide innovative solutions and advanced optical
components, optical assemblies and modules to customers in the semiconductor,
and industrial market. We believe this knowledge of optics and associated
metrology, optical assembly and automation, combined with our vertical
manufacturing capabilities, position us to continue our growth in these markets.
Selected semiconductor customers include Canon, IBM, KLA-Tencor, and Nikon.
Selected industrial customers include Bosch, Siemens, Caterpillar, Corning,
Lockheed, and Raytheon.

Our metrology unit manufactures noncontact optical measurement instruments and
products. We are one of the largest and most experienced manufacturers of
interferometric products that inspect and analyze surfaces of objects. Zygo is
also a leader in displacement interferometry, which is used to achieve highly
accurate distance measurement and motion control. These products enable
lithography tool and semiconductor chip manufacturers to increase yield and
semiconductor chip capacity. These interferometric measurement instruments are
sold to customers in the semiconductor and industrial manufacturing markets and
are used by us in our manufacture of optical components, assemblies, and
modules.

Our optics unit manufactures high performance macro-optics components, optical
coatings, and optical system assemblies. We are a leader in the manufacture of
plano-optics that are used in applications such as, laser fusion research,
semiconductor manufacturing equipment, and aerospace optical systems. Optical
assemblies are manufactured in our optical assembly center in Tucson, Arizona.
These optical systems are used in applications such as laser fusion research and
semiconductor manufacturing equipment. These components and assemblies are also
an integral part of our own optical measurement instruments and systems.

Our Automation Group, located in Delray Beach, Florida, designs, develops,
manufactures, and markets automated system solutions to reduce downtime and to
enhance operational efficiencies and product yields by building metrology into
the production process. These automation systems are used in the manufacture of
high precision components. We are currently shipping automation systems to
semiconductor and industrial manufacturers.

Our telecommunications unit develops and manufactures micro-optic components and
modules for the telecommunications industry and macro-optic components for the
telecommunications, semiconductor, and industrial manufacturing markets. As a
result of the decline in the telecommunications industry, our telecommunications
unit has become a significantly smaller source of our revenues. Management is
reviewing various options to reduce the effect on the ongoing negative impact on
the financial results resulting from this business.



                                       3
<PAGE>




                        INDUSTRY BACKGROUND AND SOLUTIONS

PRECISION MANUFACTURING INDUSTRY

Manufacturers in the semiconductor and industrial industries continue to
redesign their processes in order to compete more effectively in an increasingly
competitive marketplace. These changes are necessitated by:

     o decreasing product geometries;

     o increasing complexity of manufacturing processes;

     o shortening product life cycles;

     o declining product prices; and

     o intensifying global competition.


Precision metrology is an enabling technology for the semiconductor and
industrial markets. The pressures on manufacturers to improve productivity and
quality have fueled demand for precision noncontact optical metrology, and
required integration of high precision metrology directly into the manufacturing
process in order to increase yields and quality control.

Advancing technologies have required manufacturers in a variety of industries to
produce smaller products with more precise tolerances and increased complexity
of design geometries. These components cannot be adequately measured by the
metrology devices and systems historically utilized. For example, contact
profilers and visual qualitative inspection systems are inadequate for
quantitative analysis of critical dimensions such as semiconductor line widths,
photomask surface quality, and flat panel displays. Additionally, precision
machined part tolerances now required in high-performance automotive engines are
approaching dimensions that require manufacturers to implement sophisticated
metrology and inspection tools.

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,
"nanotechnology scale" precision is necessary and, to a greater extent than
ever, manufacturers require automated measurement and control.

With on-line process control and yield improvement metrology solutions being
enabling factors for manufacturers of precision components, the growth for yield
enhancement solutions is expected to continue. Our growth is driven by both
projected number of steppers to be sold, and an increase in the number of axes
per stepper as the need for precision requirements and throughput increases.
Shortening product lifecycles, increased competition and declining product
prices in these industries have forced manufacturers no longer to 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. While the semiconductor market is rather mature in
its use of these types of tools, the industrial manufacturing markets'
requirement for on-line automated metrology solutions is at an early stage of
penetration, since manufacturers are just beginning to measure critical
dimensions and surface topography of smaller parts to tighter tolerances.

OUR HIGH PRECISION MANUFACTURING SOLUTIONS

A significant problem facing the precision manufacturing industry today is an
increased requirement for in-production automated measurement systems. The
precision tolerances that are required today make historical methods of
measuring sample parts obsolete. We believe that we are able to address this
problem for our customers by virtue of the following:



                                       4
<PAGE>


History of innovation and commercialization. Throughout our history, we have met
our customers' requirements through innovation and commercialization. Since we
introduced the first optical interferometer in 1972, we have been issued 98
United States patents, of which 93 are currently active, and 50 foreign patents,
and we have 152 United States and 110 foreign patent applications pending. Our
intellectual property has been the foundation and driver for our yield
enhancement solutions over the last 30 years.

We have received numerous achievement awards, including:

     o    R&D Magazine 100 Award in 2002, for the Simetra, 3D Relational
          Metrology System and R&D 100 Awards in 1978, 1982, 1988 (three
          awards), 1994, 1996, 1997 and 1998;

     o    Laser Focus World Commercial Technology Award in 2001;

     o    Photonics Spectra Circle of Excellence Awards in 1988, 1994, 1996,
          1997, 1998 and 2001;

     o    American Machinist Excellence in Manufacturing Technology Achievement
          Award for Technology & Reliability in 2000;

     o    1998 R&D Magazine 100 and Photonics Spectra Circle of Excellence Award
          for MESA Interferometric System; and

     o    1997 R&D Magazine 100 and Photonics Spectra Circle of Excellence Award
          for ZMI 2001 Displacement Measuring Interferometer.

Integration of our metrology and automation capabilities. We can provide yield
enhancement solutions integrating our metrology and automation capabilities. For
example, our automation unit has built systems that enable manufacturers of flat
panel LCD screens to automatically handle and measure critical dimensions in a
continuous manufacturing process. As a result, these manufacturers can now
measure critical dimensions on these substrates prior to assembly into the final
product, resulting in increased yields and cost effectiveness.

                          INTEGRATED CORE COMPETENCIES

OPTICAL COMPONENTS, ASSEMBLIES AND MODULES

As illustrated in the following chart, we combine our expertise in optics, our
capabilities in design and manufacturing and our expertise in metrology to
manufacture semiconductor and industrial optical components and optical
assemblies.

                                --[FLOW CHART]--

Optics

           Design &                                 Optical Components
        Manufacturing                                   & Assemblies
         Capabilities                               for Semiconductor,
                                                         Industrial
Metrology



                                       5
<PAGE>



METROLOGY AND AUTOMATION: YIELD ENHANCEMENT SOLUTIONS

As illustrated in the following chart, the combination of our high precision
metrology systems and our parts handling automation solutions results in on-line
yield enhancement solutions for our customers. These solutions can be customized
to a customer's specific application.


                                --[FLOW CHART]--

High Precision
   Metrology
   Solutions

                                                          On-Line Yield
                                                      Enhancement Solutions

Parts Handling
  Automation
  Solutions



                                  OUR STRATEGY

Our objective is to:

     o    continuously improve our customers' competitiveness by providing
          on-line yield enhancement metrology and automation solutions for the
          semiconductor and other high-precision industrial markets; and

     o    become a significant provider of cost-effective optical components,
          and optical assemblies on a volume basis for the semiconductor and
          high-precision industrial markets.

Our strategy to accomplish these objectives has the following elements:

Continued emphasis in the semiconductor market. Our precision measurement
technology enables us to focus on the semiconductor market. Due to the
technological complexities of measuring sub-nanometer stage positioning and
sub-micron features few industry players have the required technology portfolio
to meet this industry's needs. We are able to compete in this market because of
our skilled employee base which encompasses a wide range of scientific
disciplines and technical capabilities.

Maintain strong manufacturing capability in the optics business. Optical
manufacturing is a key enabling technology for the semiconductor and industrial
markets. With the nanometer tolerances in optical components and sub-micron
tolerances in optical assemblies, few industry players are able to provide the
needed combination of the required technical capability and metrology. This
combination of metrology and optical manufacturing technology will allow us to
make better products and reduce manufacturing costs. We will continue to expand
our technical capabilities in optical manufacturing and optical system assembly
to meet this market need.

Continue to diversify customer base and products. We believe that diversifying
the customer base we serve as well as the products we manufacture will enable us
to minimize the traditional cyclical effects of the semiconductor industry on
our business. We have a significant market presence in North America, Asia, and
Europe. Moreover, our products are used in a broad range of applications which
reduces our reliance



                                       6
<PAGE>

on sales to any particular industry. This ability to leverage our intellectual
property across markets allows us to diversify our investment in research and
design.

Develop long-term and significant customer relationships. We seek to enter into
collaborative arrangements with existing and potential customers in attractive
end-user markets in order to jointly develop and optimize our products for their
use. We believe that our ability to provide technical assistance to these
companies in terms of the design and development of solutions encourages the
incorporation of our products in their devices.

Pursue a selective acquisition and investment strategy. We seek to access
additional technological capabilities and complementary product lines through
selective acquisitions and strategic investments.

                            PRODUCTS AND APPLICATIONS

We manufacture, design, and market yield enhancement solutions that utilize
optical metrology and automation for high performance manufacturers. We also
manufacture macro-optical components, such as flats, spheres, waveplates, and
mirrors, and optical assemblies for the semiconductor and industrial markets.

     Our products are based on our two core competencies:

     o    Metrology--including OEM, process control, and on-line automated
          metrology for yield enhancement; and

     o    Optics--sold as components and assemblies.

We provide the following Metrology products:

                                    METROLOGY

OEM:

PRODUCT             DESCRIPTION            BENEFITS TO CUSTOMER      MARKET
-------             -----------            --------------------      ------
Displacement        Used to measure and    o Improves              Semiconductor
Measuring           control, while they      positioning           Industrial
Interferometers     are in motion, the       accuracy
                    x, y and theta         o High Resolution
                    stages in photo        o High Velocity
                    lithography equipment  o Low data age
                                             uncertainty

PROCESS CONTROL:

Interferometric     Used for               o Improves              Semiconductor
Microscopes         three-dimensional        analysis of           Industrial
                    analysis of the          various types of
                    surface of an object     surfaces





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<PAGE>




PRODUCT             DESCRIPTION            BENEFITS TO CUSTOMER       MARKET
-------             -----------            --------------------       ------

Small Aperture      Used to analyze the    o Measures              Industrial
Wavefront           surface shape of         performance of
Interferometer      transmitted              lenses
                    wavelengths and
                    optical components

Large Aperture      Used to analyze        o Precise process       Semiconductor
Wavefront           surface shape and        control               Industrial
Interferometer      transmitted
                    wavelength of
                    optical components
                    and modules

Photomask Critical  Used to measure and    o Allows superior       Semiconductor
Dimension Metrology analyze                  resolution,
System              resist-coated and        repeatability
                    production masks         and linearity

                                           o Available with
                                             defect
                                             printability
                                             analysis

Geometrically       Used to measure the    o Allows                Industrial
Desensitized        flatness of              industrial
Interferometer      precision machined       surfaces to be
                    parts                    measured quickly
                                             and without
                                             contact

Digital Video Disk  Used to measure the    o Allows                Industrial
Interferometer      transmitted              inspection of
                    wavefront quality of     small, aspherical
                    small lenses             lenses for
                                             digital video disk
                                             optical devices

3-D Interferometer  Used to measure        o High throughput       Industrial
                    flatness, thickness,   o High yield
                    and parallelism of
                    precision machined
                    parts

                               AUTOMATED METROLOGY

PRODUCT             DESCRIPTION            BENEFITS TO CUSTOMER        MARKET
-------             -----------            --------------------        ------

Auto KMS 100        Fully automated        o High throughput       Semiconductor
                    system used to         o High yield
                    measure critical       o Process control
                    dimensions on reticles

FPD 1500            Fully automated system o High throughput       Semiconductor
                    measures critical      o High yield
                    dimensions on flat     o Process control
                    panel displays





                                       8
<PAGE>



METROLOGY

We offer a broad range of interferometry-based and imaging products. An
interferometer analyzes the number, shape, and position of the lines in the
fringe pattern of bright and dark lines that result from the optical path
difference between a reference and a measurement beam. These interferometric and
imaging instruments and systems utilize highly sophisticated subsystems
including precision optical components, stable and long-life laser or other
light sources, piece part positioning stages, and high-powered workstations or
PCs for processing and analyzing fringe pattern data and image analysis. Our
metrology products include:

OEM

Displacement Measuring Interferometers. Our displacement measuring
interferometer family of laser interferometer systems provides measurements that
control some of the world's most sophisticated machinery in the semiconductor,
flat panel display production, and optical component manufacturing industries.
These products are used to measure the position of a tool relative to a part
under fabrication through the use of a directed laser beam reflected from the
moving portion of a machine. Most of these systems are sold on an OEM basis into
the semiconductor photolithography market.

PROCESS CONTROL

Interferometric Microscopes. Our interferometric microscopes combine advanced
techniques of interferometry, microscopy, and precision analysis algorithms in
an automated package. These instruments make high precision surface analysis
possible and are important because they provide surface structure analysis.
These microscopes use scanning white light interferometry to measure
non-specular surfaces and build ultra-high z-axis resolution images. Our
patented Frequency Domain Analysis system and powerful workstations and personal
computers then combine for next-generation three-dimensional surface structure
analysis.

Small Aperture Wavefront Interferometer. Our small aperture wavefront
interferometer is a compact interferometer that is designed for ease of use,
especially for applications that involve repetitive testing of similar
components. It has the ability to quickly and automatically characterize
microlenses as small as 20 microns to three millimeters in diameter. Its
integrated motion control and down facing orientation make it ideal for testing
lens arrays and picking and testing discrete lenses, molded aspherics, miniature
mirrors, and filters.

Large Aperture Wavefront Interferometer. Our large aperture wavefront
interferometer is used for large surface metrology. Our interferometers are used
extensively in the optics industry to measure glass or plastic optical
components such as flats, lenses, and prisms. In addition, they are used to
measure other precision components such as bearings, sealing surfaces, polished
ceramics, and contact lens molds.

Photomask Critical Dimension Metrology System. Our photomask critical dimension
metrology system product lines hold a significant market share of the photomask
metrology market. They provide the measurement of photomask line width. The
positioning, measurement, and data collection functions of the products can be
custom configured to specific applications.

Geometrically Desensitized Interferometer. Our geometrically desensitized
interferometer product is a patented interferometer that utilizes diffraction
gratings to measure surfaces that have roughness and departures approximately 20
times greater than those surfaces presently measurable with existing
interferometer technology. It is able to measure rougher, non-specular surfaces,
such as those used in precision-machined parts applications, without sacrificing
such advantages of other interferometers, such as the ability to utilize
high-speed non-contact interferometry and to produce a full-field wide aperture
view.



                                       9
<PAGE>



Digital Video Disk Interferometer. The digital disk interferometer measures
spherical and aspherical lenses for next-generation DVD players.

3-D Interferometer. The 3-D interferometer product family is a new concept in
interferometric metrology. They extend optical interferometric metrology to the
rapid measurement of dimensional relationships. While previous interferometric
metrology only measured one primary surface parameter such as roughness or
flatness, it simultaneously measures the flatness, thickness, and parallelism of
industrial components. This patent pending technology combines our scanning
broadband interferometry and our displacement interferometry into one system. We
expect industrial assemblies, such as fuel injector systems, to benefit from
this technology with both increased efficiency and improved production yields.

AUTOMATED METROLOGY

Our Automation Group develops products used across a broad range of industries.
Our automation products include:

Auto KMS 100. This fully automated inspection system incorporates our KMS
microscope with a robotic material handling system. The system accepts an
individual reticle from a carrier, automatically presents it to a bar code
reader for identification, loads it to the microscope's inspection stage,
performs an automated inspection routine, and returns the reticle to the
original input location. A single graphical user interface provides the operator
with input to both the handling and inspection systems.

FPD 1500: This fully automated inspection system incorporates our NewView 5000
microscope with a robotic material handling system. The system accepts an
individual flat panel display from a carrier, loads it to the microscope's
inspection stage, performs an automated inspection routine, and returns the flat
panel display to the original input location. A single graphical user interface
provides the operator with input to both the handling and inspection systems.

We provide the following Macro-Optics and Assemblies products:

<TABLE>
<CAPTION>

                          MACRO-OPTICS AND ASSEMBLIES:

PRODUCT               DESCRIPTION                  BENEFITS TO CUSTOMER         MARKET
-------               -----------                  --------------------         ------

<S>                   <C>                          <C>                          <C>
Prisms, Rhomboids,    High precision plano,        o Low insertion loss         Semiconductor
and Beamsplitters     or flat, optical components  o High quality
                      used singly or in
                      combination to direct,
                      steer, combine, divide and
                      separate laser beams

Optical Coatings      Thin-film coatings used to   o High efficiency            Semiconductor
                      reflect, minimize loss,        energy transfer
                      separate or combine light    o Reduced feedback
                                                     and noise

</TABLE>




                                       10
<PAGE>




<TABLE>
<CAPTION>

                          MACRO-OPTICS AND ASSEMBLIES:

PRODUCT               DESCRIPTION                  BENEFITS TO CUSTOMER         MARKET
-------               -----------                  --------------------         ------

<S>                   <C>                          <C>                          <C>
Lenses and Lens       High precision spherical     o  High resolution           Semiconductor
Systems               and aspherical lens             optical imaging
                      elements and assemblies      o  High resolution
                      used in industrial and          lithography
                      semiconductor imaging
                      systems

Reference Flat        Super-smooth flat mirrors    o  Precise location          Semiconductor
Mirrors               used as reference               of reference surfaces
                      surfaces with                o  High resolution
                      displacement measurement        lithography
                      sensors

Stage Mirrors         Lightweight wafer and        o  High throughput           Semiconductor
                      reticle stages used for
                      lithography and metrology
                      systems used in
                      semiconductor
                      manufacturing and testing

Laser Optics          Mirrors, polarizers and      o  Improved laser            Industrial
                      laser and assemblies            performance and
                      disks used in high energy       damage resistance
                      laser systems for
                      alternative energy
                      research and nuclear
                      weapons simulation

</TABLE>

MACRO-OPTICS AND ASSEMBLIES

We manufacture and supply high precision optical components and modules to
customers as well as for use in our own instruments. Our macro-optics products
include:

Prisms, Rhomboids, and Beamsplitters. Our high-precision plano optical
components are manufactured and supplied to our external customers for use in a
variety of modules and assemblies. In addition, they are also used internally as
part of our metrology and automation solutions. They are used individually or in
combination with one another to direct, steer, combine, divide, and separate
laser beams. These products are often coated with special optical films to meet
the highly demanding requirements for low insertion loss and cross-channel
isolation.

Optical Coatings. Reflective films are designed to minimize loss of optical
energy upon reflection from the coated surface. Anti-reflective films minimize
the loss of energy upon transmission through the coated surface. These coatings
are produced by vacuum deposition of thin dielectric films in sophisticated
coating chambers. Reflective and anti-reflective coatings are essential for
achieving low insertion losses through components and assemblies. Polarization
coatings are applied to prisms and other plano optical components to separate or
combine laser beams of orthogonal polarization.

Lenses and Lens Systems. Lenses are transmissive optical components with
spherical or aspherical surfaces. They are used individually or in combination
as lens systems to form and transfer images. We produce lenses and assemblies
for use in a wide variety of applications, ranging from spectrum analyzers for
optical telecom systems to semiconductor lithography. Such lenses are produced
using advanced computer numeric control manufacturing and metrology equipment.
We assemble lens systems in clean-room conditions using laser-based alignment
and centering equipment.



                                       11
<PAGE>



Reference Flat Mirrors. Our super-smooth flat mirrors serve as reference
surfaces when used in conjunction with displacement measurement interferometers.
These reference mirrors must be made of special materials to be insensitive to
temperature variation and non-uniformity. We produce a large quantity and
variety of reference flat mirrors used in semiconductor manufacturing and
metrology equipment. The flatness and smoothness of these mirrors are essential
for precise location of semiconductor wafers and exposure masks during
production and testing of integrated circuits.

Stage Mirrors. Our stage mirrors are lightweight structures, which serve as both
a mechanical support for a wafer or reticle and two orthogonal reference flat
mirror surfaces. Stage mirrors are used in high performance lithography and
metrology systems employing laser, electron-beam, or x-ray exposure sources.
They are made of low-expansion materials to reduce sensitivity to thermal
variations, and are machined to produce a lightweight but stiff mechanical
structure with excellent dimensional stability. Two adjacent sides of the stage
are finished using proprietary technology to serve as reference flat mirrors.
The combined optical and structural properties of such stage mirrors are
critical for achieving higher wafer throughput in advanced lithography and
metrology tools. We supply stage mirrors to a number of manufacturers of
semiconductor lithography and metrology equipment.

Laser Optics. Laser optics are mirrors, polarizers and solid-state laser
amplifiers used in high energy laser systems. Such components are used in laser
fusion research and nuclear weapons simulation. Such optical components must be
finished to the highest quality in terms of surface flatness, smoothness, and
surface cosmetics. Even the smallest defects can lead to catastrophic failure in
use. We are a leader in producing large plano laser optics, having supplied such
components to major laser fusion laboratories for nearly two decades. We are
under contract with the Lawrence Livermore National Laboratory to produce
mirrors, polarizers and amplifier slabs for the National Ignition Facility, also
known as NIF. The NIF, when completed in 2007, is expected to be the largest
laser system ever built.

                              CUSTOMERS AND MARKETS

The growing requirements for dimensional control to the sub-nanometer level have
created an escalating need for our yield enhancement instruments and systems
among both OEMs and end-users of microfabrication technology. We have been able
to meet these demands with on-line yield improvement instruments and systems as
well as with our off-line quality control instruments. Today, our installed base
of high precision metrology systems exceeds 6,500 systems.

Several of our customers purchase multiple product family types and multiple
technology platforms and employ our solutions at their facilities worldwide. The
following is a sampling of our customers in fiscal 2002:

                        SELECTED CUSTOMERS BY END MARKET

            SEMICONDUCTOR                      INDUSTRIAL
            -------------                      ----------
            Applied Materials                  Agilent
            Canon                              Bosch
            Electro Scientific                 Caterpillar
            IBM                                Elcan
            KLA-Tencor                         Hitachi
            Nikon                              Lawrence Livermore National
            Samsung                            University of Rochester
            Zeiss                              Raytheon


                                       12
<PAGE>


During fiscal 2002, 2001, and 2000, sales to Canon Inc. and Canon Sales Co.,
Inc., amounted to 21%, 33%, and 19%, respectively, of our net sales. No other
single customer accounted for more than 10% of our sales in any of the fiscal
years 2002, 2001, and 2000.

PATENTS AND OTHER INTELLECTUAL PROPERTY

Our success and ability to compete depend substantially upon our internally
developed technology. We have been developing a portfolio of intellectual
property for 30 years. We rely on a combination of patent, copyright, trademark
and trade secret laws and license agreements to establish and protect our
proprietary rights in our products. We believe, however, that our success
depends upon innovation, technological expertise and distribution strength.

Since we introduced the first optical interferometer in 1972, we have had 98
United States patents issued, of which 93 are currently active, and 50 foreign
patents issued, and we have 152 United States and 110 foreign patent
applications pending. In addition, we have a number of registered and
unregistered trademarks.

While we rely on patent, copyright, trade secret and trademark law to protect
our technology, we also believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are essential to establishing and
maintaining a technology leadership position.

RESEARCH AND DEVELOPMENT AND ENGINEERING OPERATIONS

We operate in industries that are subject to rapid technological change and
engineering innovation. We dedicate substantial resources to research and
development. At June 30, 2002, we employed 131 individuals within our research
and development and engineering operations. Our strategy is to form close
technical working relationships with customers and OEM suppliers in our markets
to ensure that our products have relevancy when commercialized. In connection
with our research and development operations, we also maintain a close working
relationship with various research groups and academic institutions in the
United States as well as abroad, such as Zetetic Institute in Arizona. We
believe that continued enhancement, development and commercialization of new and
existing products and systems are essential to maintaining and improving our
leadership position.

COMPETITION

The industries in which we participate are intensely competitive and are
characterized by price pressure and technological change. Furthermore, these
markets are dominated by a few market leaders.

We believe that we are one of a limited group of companies that develop and
market yield enhancement solutions. Our primary yield enhancement competitors in
the semiconductor and industrial markets include Agilent's Laser Interferometer
Positioning Systems Division, ADE's Phase Shift Technology, Leica's Mask
Metrology Division, and Veeco's Metrology Division.

The principal factors upon which we compete are:

     o    performance and flexibility of solutions;

     o    value;

     o    on-time delivery;

     o    responsive customer service and support; and

     o    breadth of product line.



                                       13
<PAGE>

We believe we compete favorably on each of these factors.


                                     BACKLOG

Backlog at June 30, 2002 was $47,129,000, a decrease of $6,768,000, or 13%, as
compared to $53,897,000 (excluding backlog from Automation Systems Group sold in
December 2001) at June 30, 2001. The year-end fiscal 2002 backlog consisted of
$21,983,000, or 47%, in the semiconductor segment, $15,700,000, or 33%, in the
industrial segment, and $9,446,000, or 20%, in the telecommunications segment.
Orders, net of debookings, for the fiscal year ended June 30, 2002 totaled
$79,106,000 (including $1,448,000 related to the Automation Systems Group) and
consisted of $27,578,000, or 35%, in the semiconductor segment, $44,287,000, or
56%, in the industrial segment, and $7,241,000, or 9%, in the telecommunications
segment.

                               MARKETING AND SALES

In the semiconductor and industrial markets our sales and marketing strategy is
to establish and/or solidify strategic relationships with leading OEMs and
end-users in targeted market sectors. The selling process for our products is
performed through our worldwide sales organization operating out of six regional
sales offices in California, Connecticut, Germany, Japan, Singapore, and Taiwan.
Supporting this core sales team are business development, marketing, service,
and engineering specialists representing our various optics, metrology, and
automation factories in Connecticut, Massachusetts, California, and Florida.
Product promotion is done through trade shows, printed and e-business
advertising, and industry technical organizations.

The underlying focus of all our sales and marketing activities is to improve the
performance of our customers' products and process through value-added,
yield-enhancing solutions.

The following table sets forth the percentage of our total sales by region
(including sales delivered through distributors) during the past three years:

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended June 30,
                                                   -------------------------------------------
                                                   2002                2001               2000
                                                   ----                ----               ----
<S>                                                 <C>                <C>                <C>
Americas (primarily United States) ..........       49%                51%                56%
Far East:
   Japan ....................................       25%                34%                20%
   Pacific Rim ..............................        9%                 6%                14%
                                                   ---                ---                ---
Total Far East ..............................       34%                40%                34%
Europe and other (primarily Europe) .........       17%                 9%                10%
                                                   ---                ---                ---
Total .......................................      100%               100%               100%
                                                   ===                ===                ===
</TABLE>


Customer service is an essential and growing part of our business since product
up time is critical given its effect on our customers' production efficiency. As
of June 30, 2002, our global sales customer support and service organization
consisted of over 88 people skilled in sales, marketing, optical and electro
component repair, software, application and system integration, diagnostics, and
problem-solving capabilities.



                                       14
<PAGE>


               MANUFACTURING, RAW MATERIALS AND SOURCES OF SUPPLY

Our principal manufacturing activities are conducted at our facilities in
Middlefield, Connecticut, Westborough, Massachusetts, and Tucson, Arizona.

We maintain an advanced optical components manufacturing facility in Middlefield
specializing in the fabrication, polishing, and coating of plano, or flat,
optics for sales to third parties, as well as the manufacturing of a wide
variety of optics that are used in our metrology products. Our manufacturing
activities for our metrology and system products consist primarily of assembling
and testing components and sub assemblies, some of which are supplied by us and
others are supplied by third-party vendors and then integrated into our finished
products.

Our optical assembly manufacturing activities are conducted in our Tucson,
Arizona facility. We integrate ZYGO optics, optics from third party vendors, and
mechanical sub-systems utilizing Zygo metrology, for semiconductor and
industrial customers in these facilities.

Certain components and subassemblies incorporated into our systems are obtained
from a single source or a limited group of suppliers. We routinely monitor
single or limited source supply parts, and we endeavor to ensure that adequate
inventory is available to maintain manufacturing schedules should the supply of
any part be interrupted. Although we seek to reduce our dependence on sole or
limited source suppliers, we have not qualified a second source for various of
these products and the partial or complete loss of certain of these sources
could have a negative impact on our results of operations and damage customer
relationships.

                                    EMPLOYEES

At June 30, 2002, we employed 537 people. Our employees are not represented by a
labor union or a collective bargaining agreement. We regard our employee
relations as good.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

J. BRUCE ROBINSON - AGE 60 - CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Mr. Robinson has served as Chairman, President, and Chief Executive Officer
since November 2000, as President and Chief Executive Officer from November 1999
to November 2000, and as President from February 1999 to November 1999.
Previously, he spent 25 years with The Foxboro Company; his most recent
positions were President Worldwide Operations from 1996 to 1998 and President
of Europe from 1990 to 1996.

Mr. Robinson has served as an executive officer of the Company since February
1999 and is a director of the Company.

RICHARD M. DRESSLER - AGE 57 - VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER,
AND TREASURER
Mr. Dressler has served as Vice President, Finance, Chief Financial Officer, and
Treasurer since January 2001. Previously, he served as President of Richard
Dressler L.L.C. Consulting from July 2000 until January 2001. From 1976 to 2000,
Mr. Dressler served in various capacities with units of United Technologies
Corporation, including as Director of Cost Management and Financial Systems of
Carrier, as Controller of Sikorsky Aircraft, and as Vice President, Finance and
Administration of United Technologies Control Systems.



                                       15
<PAGE>


Mr. Dressler has served as an executive officer of the Company since January
2001.

JOHN S. BERG - AGE 39 - PRESIDENT, ZYGO TERAOPTIX
Mr. Berg has served as the President, Zygo TeraOptix, one of our subsidiaries,
since May 2000. Previously, he served as the President and Chief Technical
Officer of Firefly Technologies, Inc. from 1997 to 2000 and held senior
management and key engineering positions at Digital Papyrus Corporation from
1995 to 1997.

Mr. Berg has served as an executive officer of the Company since May 2000 and is
a director of the Company.

WILLIAM H. BACON - AGE 52 - VICE PRESIDENT, METROLOGY MANUFACTURING
Mr. Bacon has served as Vice President, Manufacturing since April 2002.
Previously, he served as Vice President, Metrology Manufacturing from April 2000
to April 2002, and Vice President, Corporate Quality from January 1996 to April
2000. From November 1993 to January 1996, Mr. Bacon was Director of Total
Quality and also served as Manager of Instrument Manufacturing Engineering from
June 1987 to November 1993.

Mr. Bacon has served as an executive officer of the Company since January 1996.

BRIAN J. MONTI - AGE 46 - VICE PRESIDENT, WORLDWIDE SALES AND MARKETING
Mr. Monti has served as Vice President, Worldwide Sales and Marketing since July
1999. Previously, he served as Vice President, Sales, Service and Marketing for
Radiometric Corporation from 1998 to 1999. From 1994 to 1998, Mr. Monti held
various positions for Honeywell Measurex, including Vice President, Sales,
Service and Marketing.

Mr. Monti has served as an executive officer of the Company since July 1999.

PETER B. MUMOLA - AGE 58 - VICE PRESIDENT, BUSINESS DEVELOPMENT
Mr. Mumola has served as Vice President, Business Development since February
2002. Previously, he served as Vice President, Optics Division from February
2000 to February 2002. From June 1999 to February 2000, he served as General
Manager, Optics Business. From January 1996 until June 1999, Mr. Mumola was
President of IPEC-Precision Inc., a supplier of specialty silicon wafer
manufacturing and metrology equipment. Previously, he served as the Business
Director for Diversification of Hughes Electronics, Danbury Optical Systems.

Mr. Mumola has served as an executive officer of the Company since July 2000.

DAVID J. PERSON - AGE 54 - VICE PRESIDENT, HUMAN RESOURCES
Mr. Person has served as Vice President, Human Resources since September 1998.
Previously, he served in a number of senior human resource management positions
with Digital Equipment Corporation from 1972 to September 1998.

Mr. Person has served as an executive officer of the Company since September
1998.

PATRICK K. TAN - AGE 42 - VICE PRESIDENT, BUSINESS OPERATIONS, ZYGO TERAOPTIX
Mr. Tan has served as the Vice President, Business Operations, Zygo TeraOptix
since May 2000. Previously, he served as the Vice President of Business
Operations of Firefly Technologies, Inc. from 1997 to 2000 and held management
and engineering positions at Quantum Corporation from 1994 to 1997.


                                       16
<PAGE>


Mr. Tan has served as an executive officer of the Company since May 2000.

ROBERT A. SMYTHE - AGE 50 - VICE PRESIDENT, MARKETING
Mr. Smythe has served as Vice President, Marketing since April 2002. Previously,
he served as Vice President, Engineering from June 1998 to April 2002. From
January 1996 to June 1998, he served as Vice President, Sales and Marketing.
From June 1993 to January 1996, Mr. Smythe was Director of Sales and Marketing
and from April 1992 to June 1993 served as Manager, Industry Marketing.

Mr. Smythe has served as an executive officer of the Company since January 1996.

CARL A. ZANONI - AGE 61 -SENIOR VICE PRESIDENT, TECHNOLOGY
Dr. Zanoni has served as Senior Vice President, Technology since November 2001.
Previously, he served as Vice President, Technology from June 1998 to November
2001, and Vice President, Research, Development and Engineering from April 1992
to June 1998.

Dr. Zanoni is a cofounder of the Company and has served as an executive officer
since its inception in 1970. He is also a director of the Company.

Of the above executive officers, Mr. Robinson, Mr. Berg, and Dr. 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.



                                       17
<PAGE>



ITEM 2.  PROPERTIES

The Company's principal manufacturing facilities are located in Middlefield,
Connecticut and Westborough, Massachusetts. The Corporate headquarters is
located on Laurel Brook Road in Middlefield, Connecticut. The Middlefield
facility consists of one 135,500-square-foot building on approximately 13 acres.

<TABLE>
<CAPTION>
                                                         SQUARE FOOTAGE
                                                ------------------------------              OWNED / LEASED
    OPERATION/LOCATION                          MANUFACTURING            TOTAL              EXPIRATION DATE
    ------------------                          -------------            -----              ---------------

<S>                                                <C>                 <C>                 <C>
CORPORATE HEADQUARTERS,
  EASTERN REGIONAL SALES OFFICE, AND
  INSTRUMENT AND OPTICS
  MANUFACTURING
Middlefield, Connecticut                           80,000              135,500                   Owned

ZYGO TERAAUTOMATION
Delray Beach, Florida                               6,000               10,343             Leased - 07/31/04

ZYGO TERAOPTIX
Westborough, Massachusetts                         95,075              118,575                   Owned

ZYGO - LASER TECHNOLOGY (R&D)
Watsonville, California                                 0                1,452             Leased - 04/14/05

OPTO-MECHANICAL ASSEMBLY
Tucson, Arizona                                    14,560               22,560             Leased - 08/31/06

WESTERN REGIONAL SALES OFFICE
  AND R&D CENTER
Sunnyvale, California                                   0               20,000             Leased - 10/31/03

R&D CENTER
Simi Valley, California                                 0                6,290             Leased - 12/14/05

ZYGO - PACIFIC RIM SALES OFFICE
Singapore                                               0                2,350             Leased - 01/01/03

ZYGOLOT
Damstad, Germany                                        0                1,296             Leased - 10/01/04

ZYGO KK
Japan                                                   0                1,775             Leased - 10/31/03

PROPERTIES UNOCCUPIED OR LEASED TO OTHERS
Longmont, Colorado                                      0               32,000             Leased - 05/31/06
Newbury Park, California                                0               12,240             Leased - 02/02/03
Asslar, Germany                                         0                4,000             Leased - 08/31/03
                                                  -------              -------
Total                                             195,635              368,381
                                                  =======              =======
</TABLE>



                                       18
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

From time to time, we are subject to certain legal proceedings and claims that
arise in the normal course of our business. In the opinion of management, we are
not party to any litigation that we believe could have a material effect on our
business or us.

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

None.


                                     PART II

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

Our common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market under the symbol "ZIGO". Market price data for 2002 and
2001 is as follows:

<TABLE>
<CAPTION>
                          FISCAL YEAR ENDED JUNE 30, 2002              FISCAL YEAR ENDED JUNE 30, 2001
                          -------------------------------              -------------------------------
                             High                   Low                   High                   Low
                             ----                   ---                   ----                   ---
<S>                       <C>                    <C>                   <C>                    <C>
First quarter                $22                  $8 7/10              $93 15/16               $53 3/4
Second quarter            $19 17/20               $9 3/4                $76 1/8               $21 15/16
Third quarter                $18                 $11 1/10               $48 3/4               $15 7/16
Fourth quarter               $18                  $6 4/5                $38 1/25              $16 5/16
</TABLE>


The number of record holders of our common stock at June 30, 2002 was 483.

The Company has never declared or paid a cash dividend on its capital stock. The
Company currently intends to retain all its earnings to finance the expansion
and development of its business and, therefore, does not anticipate paying any
cash dividends in the foreseeable future.



                                       19
<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and with the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this form 10-K405.

<TABLE>
<CAPTION>
(Dollars in thousands, except for share, per share, and ratio amounts)
                                                                                    Fiscal Year Ended June 30,
                                                              -------------------------------------------------------------------
                                                                2002          2001           2000          1999          1998
                                                                ----          ----           ----          ----          ----
<S>                                                          <C>           <C>            <C>            <C>           <C>
Net Sales .............................................       $84,426      $133,250        $87,243       $63,382      $99,084
Gross Profit ..........................................       $24,796 (1)   $61,169        $32,555 (1)   $22,385      $41,449
      % of sales ......................................            29%           46%            37%           35%          42%

(Loss) earnings before taxes and nonrecurring items ...      ($22,111)(1)   $14,113         $7,256 (1)   ($6,851)     $12,940 (1)
      % of sales ......................................           (26%)          11%             8%          (11%)         13%
(Loss) earnings before nonrecurring items .............      ($13,889)(1)   $10,659         $4,797 (1)   ($3,876)      $8,949 (1)
      % of sales ......................................           (16%)           8%             5%           (6%)          9%
(Loss) earnings per share before nonrecurring items
      Basic ...........................................        ($0.80)(1)     $0.69          $0.38 (1)    ($0.33)       $0.78 (1)
      Diluted .........................................        ($0.80)(1)     $0.66          $0.34 (1)    ($0.33)       $0.69 (1)

Net (loss) earnings ...................................      ($11,733)      $10,659       ($16,047)      ($3,876)      $7,029
Net (loss) earnings per common share:
   Basic ..............................................        ($0.67)        $0.69         ($1.28)       ($0.33)       $0.61
   Diluted ............................................        ($0.67)        $0.66         ($1.28)       ($0.33)       $0.55
Weighted average number of shares:
   Basic (2) ..........................................        17,414        15,398         12,511        11,780       11,480
   Diluted (2) ........................................        17,414        16,063         12,511        11,780       12,877

Research and development ..............................       $21,346       $17,673        $11,270 (1)    $9,185       $9,844
Capital expenditures ..................................       $17,640       $33,050         $6,513        $4,372       $9,126
Depreciation and amortization .........................        $7,251        $3,996        $11,318 (1)    $4,448       $3,412

                                                                                        June 30,
                                                          -------------------------------------------------------------------
                                                             2002           2001           2000          1999          1998
                                                             ----           ----           ----          ----          ----
Working capital .......................................       $73,931       $94,112        $56,550       $43,766      $50,246
Current ratio .........................................           5.7           4.8            4.5           4.8          4.1
Total assets ..........................................      $169,201      $186,832        $95,162       $82,442      $91,444
Long-term debt (excluding current portion) ............       $11,374       $12,281            $84           $36          $65
Stockholders' equity ..................................      $140,005      $149,139        $78,229       $68,712      $72,391
Price-earnings ratio ..................................           N/A          33.7            N/A           N/A         26.9
Number of employees at year end .......................           537           648            486           444          466
Sales per employee - average ..........................          $157          $206           $179          $143         $213
Book value per common share ...........................         $7.99         $8.48          $5.50         $6.16        $6.60
Market price per common share at year-end .............        $8.050       $22.250        $90.813       $11.438      $14.813
</TABLE>

----------

(1)  Nonrecurring items include the gain on sale of the Automation Systems Group
     of $6,142 and related exit costs of $1,856, inventory write-downs of $808,
     and tax expense of $1,322 in the second quarter ended December 30, 2001;
     acquisition-related charges of $14,001 and $1,585, in the fourth quarter
     ended June 30, 2000, and in the first quarter ended September 30, 1997,
     respectively; West Coast operations reorganization costs of $10,567 in the
     fourth quarter ended June 30, 2000; and failed merger costs of $335, in the
     first quarter ended September 30, 1997.

(2)  The difference between basic shares outstanding and diluted shares
     outstanding is the assumed conversion of common stock equivalents (stock
     options) in the amounts of 0, 665, 0, 0, and 1,397, in the years ended June
     30, 2002, 2001, 2000, 1999, and 1998, respectively. Accounting principles
     generally accepted in the United States of America require the computation
     of the net loss per share to be based on the weighted average basic shares
     outstanding.


                                       20
<PAGE>



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

       CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS AND ESTIMATES

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

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

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

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

WARRANTY COSTS
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. The Company considers historical warranty costs actually
incurred to establish the warranty liability.




                                       21
<PAGE>


Should actual costs differ from management's estimates, revisions to the
estimated warranty liability would be required.

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

VALUATION OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" the carrying value of
intangible assets and other long-lived assets is reviewed on a regular basis for
the existence of facts or circumstances, both internally and externally, that
may suggest impairment. Some factors we consider important, which could trigger
the impairment review, include a significant decrease in the market value of an
asset, a significant change in the extent or manner in which an asset is used, a
significant adverse change in the business climate that could affect the value
of an asset, and an accumulation of costs for an asset in excess of the amount
originally expected.

If such circumstances exist, we evaluate the carrying value of long-lived assets
to determine if impairment exists based upon estimated undiscounted future cash
flows over the remaining useful life of the assets and comparing that value to
the carrying value of the assets. If the carrying value of the asset is greater
than the estimated future cash flows, the asset is written down to the estimated
fair value. We determine the estimated fair value of the assets on a projected
discounted cash flow method using a discount rate determined by management to be
commensurate with the risk inherent in the current business model. Our cash flow
estimates contain management's best estimates, using appropriate and customary
assumptions and projections at the time.

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

                              RESULTS OF OPERATIONS

FISCAL 2002 COMPARED TO FISCAL 2001

On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. of Chelmsford, Massachusetts, in a cash
transaction, for $12,165,000.



                                       22
<PAGE>



Substantially all of the assets were sold to Brooks and substantially all of the
liabilities were assumed by Brooks. The gain on the sale was $6,142,000 before
related exit costs of $1,856,000 to be paid from the proceeds, inventory
write-downs of $808,000, and tax expense of $1,322,000.

Net sales of $84,426,000 for fiscal 2002 decreased by $48,824,000, or 37%, from
fiscal 2001 net sales of $133,250,000. For fiscal 2002, net sales in the
semiconductor segment were $37,483,000, or 44% of total net sales, as compared
to $84,561,000, or 64%, in the prior year period; net sales in the industrial
segment were $40,336,000, or 48% of total net sales, as compared to $35,178,000,
or 26%, in the prior year period; and net sales in the telecommunications
segment were $6,607,000, or 8% of total net sales, as compared to $13,511,000,
or 10%, in the prior year period. The decrease in sales is primarily due to a
decrease in units sold, reflecting the downturn in the semiconductor and
telecommunications industries.

Company sales to the Americas, primarily the United States, amounted to
$41,040,000 in fiscal 2002, a decrease of $27,259,000, or 40%, from fiscal 2001
levels of $68,299,000. The Company's sales to outside the Americas amounted to
$43,386,000 in fiscal 2002, a decrease of $21,565,000, or 33%, from fiscal 2001
levels of $64,951,000. Sales to Japan during fiscal 2002 amounted to
$21,268,000, a decrease of $23,926,000, or 53%, from fiscal 2001 sales levels.
Sales to Europe/Other, primarily Europe, amounted to $14,064,000, an increase of
$1,730,000, or 14%, from fiscal 2001. Sales to the Pacific Rim, excluding Japan,
amounted to $8,054,000, an increase of $631,000, or 9%, from 2001 sales levels.
Substantially all of the Company's sales and costs are negotiated and paid in
U.S. dollars. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can impact the sales of the Company's products
in its export markets, as would changes in the general economic conditions in
those markets. The impact of such changes in foreign currency values on the
Company's sales cannot be measured.

Gross profit in fiscal 2002 amounted to $24,796,000 (including $808,000 of
inventory write-downs related to the sale of the Automation Systems Group in
Longmont, Colorado to Brooks Automation, Inc. in December 2001), a decrease of
$36,373,000, or 59%, from gross profit of $61,169,000 in fiscal 2001. Gross
profit as a percentage of sales in fiscal 2002 was 29%, as compared to 46% in
fiscal 2001. The decrease in gross profit and gross profit as a percentage of
sales were primarily due to lower production volumes.

Selling, general and administrative expenses ("SG&A") in fiscal 2002 amounted to
$25,173,000, a decrease of $3,946,000, or 14%, from fiscal 2001. SG&A as a
percentage of net sales in fiscal 2002 was 30%, as compared to 22% in fiscal
2001. The decrease in SG&A for fiscal 2002 resulted from lower incentive
compensation costs due to lower sales volumes and net losses for fiscal 2002.

Research, development and engineering expenses ("R&D") in fiscal 2002 totaled
$21,346,000 and increased by $3,673,000, or 21%, from fiscal 2001. R&D as a
percentage of net sales in fiscal 2002 was 25%, as compared to 13% in fiscal
2001. This increase was primarily due to the continued investment in the
semiconductor segment, primarily in the motion measurement product line, through
the first three quarters of fiscal 2002.

Amortization expense of $963,000 for fiscal 2002 increased by $166,000, or 21%,
from fiscal 2001 levels of $797,000.

The Company's operating loss in fiscal 2002 was $24,542,000 (including
$1,856,000 of exit costs and $808,000 of inventory write-downs related to the
sale of the Automation Systems Group in Longmont, Colorado), as compared to an
operating profit of $13,580,000 in fiscal 2001. Operating loss as a



                                       23
<PAGE>


percentage of sales in fiscal 2002 was 29%, as compared to the operating profit
as a percentage of sales of 10% in fiscal 2001.

Income tax benefit in fiscal 2002 totaled $6,900,000, or 38% of pretax losses,
which compares with income tax expense of $3,454,000, or 24% of pretax profits,
in fiscal 2001. The change in the effective tax rate is primarily due to the
impact of transactions involving the early sale of stock resulting from the
exercise of incentive stock options by former employees of Firefly (renamed Zygo
TeraOptix), and changes in the valuation for certain state tax carryforwards.

The Company recorded a net loss for fiscal year 2002 of $11,733,000, or $.67
loss per share, as compared to a net profit of $10,659,000, or $.66 on a diluted
per share basis, during fiscal 2001. Excluding the gain on sale of the
Automation Systems Group in Longmont, Colorado of $6,142,000 and related exit
costs ($1,856,000), inventory write-downs ($808,000), and tax expense
($1,322,000), the net loss was $13,889,000, or $.80 on a diluted per share
basis, for fiscal year 2002.

The basic and diluted weighted average number of shares outstanding for the
fiscal year ended June 30, 2002 were 17,414,000 as compared to 15,398,000 basic
shares and 16,063,000 fully diluted shares for the fiscal year ended June 30,
2001. The increase in the number of shares outstanding was primarily due to the
2,925,000 shares issued in March 2001 in the secondary offering of the Company's
common stock.

Backlog at June 30, 2002 was $47,129,000, a decrease of $6,768,000, or 13%, as
compared to $53,897,000 (excluding backlog from the Automation Systems Group in
Longmont, Colorado) at June 30, 2001. The year-end fiscal 2002 backlog consisted
of $21,983,000, or 47%, in the semiconductor segment, $15,700,000, or 33%, in
the industrial segment, and $9,446,000, or 20%, in the telecommunications
segment. Orders, net of debookings, for the fiscal year ended June 30, 2002
totaled $79,106,000 (including $1,448,000 related to the Automation Systems
Group in Longmont, Colorado) and consisted of $27,578,000, or 35%, in the
semiconductor segment, $44,287,000, or 56%, in the industrial segment, and
$7,241,000, or 9%, in the telecommunications segment.

FISCAL 2001 COMPARED TO FISCAL 2000
Net sales of $133,250,000 for fiscal 2001 increased by $46,007,000, or 53%, from
fiscal 2000 net sales of $87,243,000. The significant increase in sales was due
to increased demand from key markets, specifically increased sales and market
share in stage metrology, optical metrology, and macro optics products. For
fiscal 2001, net sales in the semiconductor segment were $84,561,000, or 64%,
net sales in the industrial segment were $35,178,000, or 26%, and net sales in
the telecommunications segment were $13,511,000, or 10%.

Company sales to the Americas, primarily the United States, amounted to
$68,299,000 in fiscal 2001, an increase of $19,464,000, or 40%, from fiscal 2000
levels of $48,835,000. The Company's sales to outside the Americas amounted to
$64,951,000 in fiscal 2001, an increase of $26,543,000, or 69%, from fiscal 2000
levels of $38,408,000. Sales to Japan during fiscal 2001 amounted to
$45,194,000, an increase of $27,606,000, or 157%, from fiscal 2000 sales levels.
Japan sales reached record levels driven by demand for stage metrology,
metrology instrumentation components and systems, and semiconductor and optical
storage. Sales to Europe/Other, primarily Europe, amounted to $12,334,000, an
increase of $3,228,000, or 35%, from fiscal 2000 due to increased sales in the
industrial and semiconductor markets driven by the first full year of operations
of the ZygoLOT joint venture. Sales to the Pacific Rim, excluding Japan,
amounted to $7,423,000, a decrease of $4,291,000, or 37%, from 2000 sales levels
due to reductions in sales in the semiconductor and industrial markets.
Substantially all of the Company's



                                       24
<PAGE>



sales and costs are negotiated and paid in U.S. dollars. Significant changes in
the values of foreign currencies relative to the value of the U.S. dollar can
impact the sales of the Company's products in its export markets, as would
changes in the general economic conditions in those markets. The impact of such
changes in foreign currency values on the Company's sales cannot be measured.

Gross profit in fiscal 2001 amounted to $61,169,000, an increase of $28,614,000,
or 88%, from gross profit of $32,555,000 in fiscal 2000. Excluding fiscal 2000
nonrecurring charges of $4,214,000, gross profit for fiscal 2001 increased
$24,400,000, or 66%. Gross profit as a percentage of sales in fiscal 2001 was
46%, as compared to 37% in fiscal 2000. Excluding nonrecurring charges, fiscal
2000 gross profit as a percentage of net sales was 42%. On a comparable basis,
excluding nonrecurring charges for fiscal 2000, the increase in gross profit and
gross profit as a percentage of sales were primarily due to the increase in
volume and higher productivity resulting from investments in equipment and
manufacturing process enhancements.

Selling, general and administrative expenses ("SG&A") in fiscal 2001 amounted to
$29,119,000, an increase of $10,615,000, or 57%, from fiscal 2000. As a
percentage of net sales, SG&A has remained relatively constant at approximately
22%. The increase in fiscal 2001 resulted from increased commissions and
incentive compensation costs resulting from higher sales and profit and
increased administrative costs due to one new location that opened during the
year, three locations which opened last fiscal year that now have been operating
for a full year, and higher professional fees. During fiscal 2000, the Company
recorded a $1,000,000 credit to SG&A as a result of a legal settlement.

Research, development and engineering expenses ("R&D") in fiscal 2001 totaled
$17,673,000 and increased by $6,403,000, or 57%. Excluding fiscal 2000
nonrecurring charges of $875,000, fiscal 2001 R&D costs increased $7,278,000, or
70%. R&D as a percentage of net sales has remained relatively constant at
approximately 13%. The Company continues to invest in technology to enhance its
position in the marketplace. R&D was driven by investments in next generation
lithography product requirements and investments to broaden our customer base
into automotive and telecommunications.

The Company did not record any nonrecurring charges in fiscal 2001. The Company
recorded nonrecurring charges in the amount of $24,568,000 in fiscal 2000. The
Company recorded nonrecurring charges of $14,001,000 as a result of the
acquisition of Firefly Technologies, Inc., which became Zygo TeraOptix, Inc.
("Zygo TeraOptix"). The nonrecurring charge from the acquisition consisted of
$12,024,000 for compensation expense resulting from the difference in the
Firefly stock option exercise price and the deemed fair market value on the date
of grant for financial statement purposes and $1,977,000 for the payment of
professional fees related to the transaction. In 2000, the Company recorded a
charge of $10,567,000 as a result of its reorganization of its West Coast
operations, principally for the write off of goodwill and inventory.

Amortization expense of $797,000 for fiscal 2001 decreased by $6,305,000, or
89%, from fiscal 2000 levels of $7,102,000. Substantially all of the decrease is
associated with the West Coast operations write-off of goodwill and other
intangible assets in fiscal 2000.

The Company's operating profit in fiscal 2001 was $13,580,000, an increase of
$31,902,000 from the operating loss of $18,322,000. Excluding fiscal 2000
nonrecurring charges of $24,568,000, operating profit for fiscal 2001 increased
$7,334,000. Operating profit as a percentage of sales in fiscal 2001 was 10%, as
compared to the operating loss as a percentage of sales of 21% in fiscal 2000.
Excluding nonrecurring charges, fiscal 2000 operating profit as a percentage of
sales was 7%.



                                       25
<PAGE>



Income tax expense in fiscal 2001 totaled $3,454,000, or 24% of pretax profits,
which compares with income tax benefit of $1,459,000, or 8% of pretax losses, in
fiscal 2000. The effective tax rate of 24% versus the combined federal and state
statutory rate of 39% in fiscal 2001 is primarily due to the impact of
transactions involving the early sale of stock resulting from the exercise of
incentive stock options by former employees of Firefly (renamed Zygo TeraOptix).
The effective tax rate of 8% versus the combined statutory rate of 39% in fiscal
2001 was primarily due to the tax benefits related to expenses that could not be
recorded as a charge to earnings for financial statement purposes associated
with the compensation charge in connection with the Firefly acquisition.

The Company recorded net earnings for fiscal year 2001 of $10,659,000, or $.66
on a diluted per share basis, as compared to a net loss of $16,047,000, or $1.28
loss per share, during fiscal 2000. Excluding nonrecurring charges for fiscal
year 2000, net earnings were $4,797,000, or $.34 on a diluted per share basis.
The diluted weighted average number of shares outstanding at June 30, 2001 was
16,063,000, an increase of 3,552,000 as compared to 12,511,000 at June 30, 2000.
The increase is due to the shares related to the secondary offering and the
impact of stock options offset by the repurchase of shares from two officers and
directors.

Backlog at June 30, 2001 was $55,502,000, an increase of $9,559,000, or 21%, as
compared to $45,943,000 at June 30, 2000. The year-end fiscal 2001 backlog
consisted of $11,206,000, or 20%, in the semiconductor segment, $31,689,000, or
57%, in the industrial segment, and $12,607,000, or 23%, in the
telecommunications segment. The backlog decreased $14,851,000 between the third
and fourth quarters due to the slowdown in the semiconductor and
telecommunications markets. Orders for fourth quarter fiscal 2001 totaled
$23,019,000 and consisted of $17,308,000, or 75%, in the semiconductor segment,
$7,711,000, or 34%, in the industrial segment, and net debooking of $2,000,000,
or (9%), in the telecommunications segment. The net debooking in the
telecommunications segment was primarily due to cancellations of orders totaling
$8,806,000 from two major customers due to market conditions.

                         LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, working capital was $73,931,000, a decrease of $20,181,000
from the $94,112,000 at June 30, 2001. The Company maintained cash, cash
equivalents, and marketable securities (excluding restricted cash of $1,225,000)
at June 30, 2002 totaling $37,247,000, a decrease of $22,504,000 from June 30,
2001. Excluding the cash received from the sale of the Automation Systems Group
of $10,949,000 (net of escrow of $1,216,000) there would have been a decrease of
$33,453,000 during the year ended June 30, 2002. Marketable securities are
invested primarily in securities with maturity dates ranging from fiscal 2003 to
fiscal 2006. The decrease in working capital was due to the operating loss,
decreases in accounts payable and accrued expenses and progress payments, and
investments in property, plant, and equipment, partially offset by a decrease in
receivables (in all cases, after excluding the Automation Systems Group assets
and liabilities from the June 30, 2001 balance sheet which were transferred to
Brooks Automation, Inc.). The decrease in accrued expenses was due to payments
of profit sharing and other incentive compensation liabilities that existed at
June 30, 2001. Due to the current year net loss, similar liabilities did not
exist as of June 30, 2002. The investments in property, plant, and equipment are
primarily due to investments in optical equipment ($4,959,000) and the
completion of the TeraOptix facility in Westborough, Massachusetts ($7,657,000).
There were no borrowings outstanding under the Company's $3,000,000 bank line of
credit at fiscal year-end 2002. Stockholders' equity at June 30, 2002 decreased
by $9,134,000 from the year earlier to $140,005,000, primarily due to 2002 net
loss. The Company incurred significant losses from its telecommunications
segment and there is very little visibility as to when a healthy
telecommunications market will occur. Management is reviewing various options to
reduce the effect of its ongoing negative impact on the financial results. The
Company's short



                                       26
<PAGE>


term liquidity at June 30, 2002 was adequate for its requirements and the
Company expects that available cash and its existing credit facility will be
sufficient to meet normal operating requirements over the near term.

                   RISK FACTORS THAT MAY IMPACT FUTURE RESULTS

INDUSTRY CONCENTRATION AND CYCLICALITY
ZYGO's business is significantly dependent on capital expenditures and component
requirements for manufacturers in the semiconductor and telecommunications
industries. These industries are cyclical and have historically experienced
periods of oversupply, resulting in significantly reduced demand for capital
equipment, including the products manufactured and marketed by us. For the
foreseeable future, our operations will continue to be dependent on the capital
expenditures in these industries which, in turn, is largely dependent on the
market demand in the semiconductor, industrial, and telecommunications markets.

The overall economy continues to be in a low growth period, which could have a
significant impact on the Company's near-term financial results, as customer
demand remains stagnant. During the fourth quarter of 2002, the Company showed a
slight increase in orders over the average of the previous three quarters. The
increase was due to an increase in the industrial segment. The semiconductor and
telecommunications segments continue to be adversely affected by the current
economic conditions. ZYGO's net sales and results of operations will be
materially adversely affected if downturns or slowdowns in the markets in which
we serve extend significantly into the future.

RISKS ASSOCIATED WITH ACQUISITIONS
ZYGO's growth strategy includes expanding our products and services, and we may
seek acquisitions to expand our business. We regularly review potential
acquisitions of businesses, technologies or products complementary to our
business and periodically engage in discussions regarding such possible
acquisitions. Acquisitions involve numerous risks, including some or all of the
following: substantial cash expenditures; potentially dilutive issuance of
equity securities; incurrence of debt and contingent liabilities; amortization
of certain intangible assets; difficulties in assimilating the operations and
products of the acquired companies; diverting our management's attention away
from other business concerns; risks of entering markets in which we have limited
or no direct experience; the inability to manage the growth expected for various
acquisitions; and potential loss of key employees of the acquired companies in
the process of integrating personnel with disparate business backgrounds; and
combining different corporate cultures.

We cannot assure you that any acquisition will result in long-term benefits to
us or that our management will be able to effectively manage the acquired
businesses. We may also incorrectly judge the value or worth of an acquired
company or business. Furthermore, the development or expansion of our business
or any acquired business may require substantial capital investment. We may not
have the necessary funds nor may they be readily available to us on acceptable
terms or at all.

MANUFACTURING CAPACITY
We have recently built and financed a new facility in Westborough, Massachusetts
for our Zygo TeraOptix operation, providing us with significantly more
micro-optics manufacturing capacity. To the extent our micro-optics business
continues to not grow as quickly as we had expected, our new manufacturing
facility might in part represent excess capacity for which we may not recover
the cost. In that circumstance, our revenues may be inadequate to support our
committed costs and our planned growth, and our profitability and business
results would suffer.



                                       27
<PAGE>



CUSTOMER CONCENTRATION; RELATIONSHIP WITH CANON
During fiscal 2002, 2001, and 2000, sales to Canon Inc. and Canon Sales Co.,
Inc. (collectively, "Canon"), ZYGO's largest customer in those periods,
accounted for 21%, 33%, and 19% of our net sales, respectively. We expect that
sales to Canon, an original investor in ZYGO which owns approximately 7% of
ZYGO's outstanding shares of common stock and is a distributor of certain ZYGO
products in the Japanese market, will continue to represent a significant
percentage of our net sales for the foreseeable future. Our customers generally
do not enter into long-term agreements obligating them to purchase ZYGO's
products. A reduction or delay in orders from this customer, including
reductions or delays due to market, economic, or competitive conditions in the
industries in which we serve, could have a material adverse effect upon ZYGO's
results of operations.

QUARTERLY FLUCTUATIONS
ZYGO's quarterly and annual operating results have varied in the past and may in
the future vary significantly depending on factors such as: the effect of our
acquisitions and consequent integration; the size, timing and recognition of
revenue from significant orders; increased competition; our ability to develop
innovative products; the timing of new product releases by us or our
competitors; market acceptance of our products; changes in our and our
competitors' pricing policies; budgeting cycles of our customers; changes in
operating expenses and personnel changes; changes in our business strategy; and
general economic factors.

Due to these and other factors we believe that quarter-to-quarter comparisons of
our operating results may not be meaningful. You should not rely on our results
for one quarter as any indication of our future performance. In future periods
our operating results may be below the expectations of public market analysts or
investors. If this occurs, the price of our common stock would likely decrease.

Current conditions in the domestic and global economies are extremely uncertain.
As a result, it is difficult to estimate the level of growth for the economy as
a whole or of capital expenditures in the semiconductor, industrial and
telecommunications markets. Because all of the components of the Company's
budgeting and forecasting are dependent on estimates of spending within these
markets, the prevailing economic uncertainty renders estimates of future revenue
and expenses even more difficult than usual to make.

POSSIBLE VOLATILITY OF STOCK PRICE
ZYGO believes that factors such as the announcement of new products or
technologies by ZYGO or our competitors, market conditions in the semiconductor,
industrial, and telecommunications markets, and quarterly fluctuations in
financial results are expected to cause the market price of the common stock to
vary substantially. Further, our net sales or results of operations in future
quarters may be below the expectations of public market securities analysts and
investors. In such event, the price of the common stock would likely decline. In
addition, historically the stock market has experienced price and volume
fluctuations that have particularly affected the market prices for many high
technology companies and which often have been unrelated to the operating
performance of such companies. The market volatility may adversely affect the
market price of the shares of ZYGO's common stock.

COMPETITION
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, we compete with
the internal development efforts of our current and prospective customers, some
of which may attempt to become vertically integrated. ZYGO's competitors can be
expected to continue to improve the design and performance of their products and
to introduce new products with



                                       28
<PAGE>



competitive price/performance characteristics. Competitive pressures may
necessitate price reductions, which can adversely affect results of operations.
Although we believe that we have certain technical and other advantages over
some of our competitors, maintaining such advantages will require a continued
high level of investment by ZYGO in research and development and sales,
marketing, and service. There can be no assurance that we will have sufficient
resources to continue to make such investments or that we will be able to make
the technological advances necessary to maintain such competitive advantages. In
addition, there can be no assurance that the bases of competition in the
industries in which ZYGO competes will not shift.

TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The market for ZYGO's products is characterized by rapidly changing technology.
Our future success will continue to depend upon our ability to enhance our
current products and to develop and introduce new products that keep pace with
technological developments and evolving industry standards, respond to changes
in customer requirements, and achieve market acceptance. The development of new
technologically advanced products is a complex and uncertain process requiring
high levels of innovation, as well as the accurate anticipation of technological
and market trends.

ZYGO commits significant financial and personnel resources on a continuous basis
to redesign and enhance its instruments, systems, and components and upgrade its
proprietary software technology incorporated in its products. Any failure by us
to anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could have a material adverse effect on ZYGO's business and impact our close
relationships with customers. This could have an impact on customers'
willingness to share proprietary information about their requirements and
participate in collaborative efforts with us. There can be no assurance that our
customers will continue to provide us with timely access to such information,
that we will be successful in developing and marketing new products and services
or product and service enhancements on a timely basis, or respond effectively to
technological changes or new product announcements by others. In addition, there
can be no assurance the new products and services or product enhancements, if
any, developed by ZYGO will achieve market acceptance.

DEPENDENCE ON PROPRIETARY TECHNOLOGY
ZYGO's success is heavily dependent upon its proprietary technology. There can
be no assurance that the steps taken by us to protect our proprietary technology
will be adequate to prevent misappropriation of our technology by third parties
or will be adequate under the laws of some foreign countries, which may not
protect our proprietary rights to the same extent as do laws of the United
States. In addition, there remains the possibility that others will "reverse
engineer" our products in order to determine their method of operation and
introduce competing products or that others will develop competing technology
independently. Any such adverse circumstances could have a material adverse
effect on our results of operations.

Some of the markets in which we compete are characterized by the existence of a
large number of patents and frequent litigation for financial gain that is based
on patents with broad, and often questionable, application. As the number of our
products increase, the markets in which our products are sold expands, and the
functionality of those products grows and overlaps with products offered by
competitors, we believe that ZYGO may become increasingly subject to
infringement claims. Although we do not believe any of our products or
proprietary rights infringe the rights of third parties, there can be no
assurance that infringement claims will not be asserted against ZYGO in the
future or that any such claim will not result in costly litigation or require us
to enter into royalty arrangements, which may not be available to us on
commercially acceptable terms if at all.



                                       29
<PAGE>



DEPENDENCE ON KEY PERSONNEL
ZYGO's success depends in large part upon the continued services of many of our
highly skilled personnel involved in management, research, development and
engineering, sales and marketing, manufacturing, and support and upon our
ability to attract and retain additional highly qualified employees. Our
employees may voluntarily terminate their employment with us at any time.
Competition for these individuals from a variety of employers, including our
competitors and companies in computer or technology-related industries, is
intense. We cannot assure you that we will be able to retain our existing
personnel or attract and retain additional personnel.

DEPENDENCE ON THIRD-PARTY SUPPLIERS
ZYGO is dependent on suppliers for raw materials and various electrical,
mechanical, and optical supplies, including fiber and electronic components and
modules. If any relationship with a key supplier is terminated or if a supplier
fails or is unable to provide reliable services or equipment and we are unable
to reach suitable alternative solutions quickly, we may experience significant
delays and additional costs in the manufacturing of our products. If our key
suppliers cease manufacturing the supplies we require, if their manufacturing
operations are interrupted for any significant amount of time, or if they are
unwilling to supply us for any other reason, including capacity restraints, then
we may be at least temporarily unable to obtain these supplies, thus exposing us
to significant delays and additional costs. Currently there are only a limited
number of companies that are capable of supplying optical materials in the
quantity and of the quality we require.

Although we enter, either directly or through our contract manufacturers, into
purchase orders with our suppliers based on our forecasts, we do not have any
guaranteed supply arrangements with these suppliers. Moreover, as our demand for
supplies increases, we may not be able to obtain these supplies in a timely
manner. If we are unable to obtain, either directly or through contract
manufacturers, a sufficient amount of supplies, or if we experience any
interruption in delivery of supplies, we could experience difficulties in
obtaining alternative sources or in altering product designs to use alternative
supplies.

REVENUES DERIVED FROM INTERNATIONAL SALES AND FOREIGN OPERATIONS
We sell our products internationally, primarily to customers in Japan and
throughout the Pacific Rim. Net sales to customers outside the Americas
(primarily the United States) accounted for 51%, 49%, and 44% of our net sales
in each of the fiscal years ended June 30, 2002, 2001, and 2000, respectively,
and are expected to continue to account for a substantial percentage of our net
sales.

International sales and foreign operations are subject to inherent risks,
including the economic conditions in these various foreign countries and their
trading partners, political instability, longer payment cycles, greater
difficulty in accounts receivable collection, compliance with foreign laws,
changes in regulatory requirements, tariffs or other barriers, difficulties in
obtaining export licenses, staffing and managing foreign operations, exposure to
currency exchange fluctuations, transportation delays, and potentially adverse
tax consequences.

Substantially all ZYGO's sales and costs are negotiated and paid in U.S.
dollars. However, changes in the values of foreign currencies relative to the
value of the U.S. dollar can render our products comparatively more expensive to
the extent locally produced alternative products are available. Such conditions
could negatively impact international sales of our products and foreign
operations, as would changes in the general economic conditions in those
markets. There can be no assurance that risks inherent in international sales
and foreign operations will not have a material adverse effect on ZYGO in the
future.



                                       30
<PAGE>


BACKLOG
ZYGO schedules the production of its systems based in part upon order backlog.
Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. There can be no assurance that amounts
included in backlog will ultimately result in future sales. A reduction in
backlog during any particular period, or the failure of our backlog to result in
future sales could adversely affect our results of operations. The Company has
recently experienced a significant decrease in backlog primarily due to the
slowdown in the semiconductor and telecommunications markets, and net debookings
in the telecommunications segment, primarily due to order cancellations.

SALES CYCLE
ZYGO's lengthy and variable qualification and sales cycle makes it difficult to
predict the timing of a sale or whether a sale will be made, which may cause us
to have excess manufacturing capacity or inventory and negatively impact our
operating results. As is typical in the industry, our customers generally expend
significant efforts in evaluating and qualifying our products and manufacturing
process. This evaluation and qualification process frequently results in a
lengthy sales cycle, typically ranging from three to six months and sometimes
longer. While our customers are evaluating our products and before they place an
order with us, we may incur substantial sales, marketing and research and
development expenses, expend significant management efforts, increase
manufacturing capacity and order long-lead-time supplies prior to receiving an
order. Even after this evaluation process, it is possible that a potential
customer will not purchase our products. In addition, product purchases are
frequently subject to unplanned processing and other delays, particularly with
respect to larger customers for which our products represent a very small
percentage of their overall purchase activity.

If we increase capacity and order supplies in anticipation of an order that does
not materialize, our gross margins will decline and we will have to carry or
write off excess inventory. Even if we receive an order, the additional
manufacturing capacity that we add to service the customer's requirements may be
underutilized in a subsequent quarter. Either situation could cause our results
of operations to be below the expectations of investors and public market
analysts, which would, in turn, cause the price of our stock to decline. Our
long sales cycles, as well as the practice of companies in the
telecommunications industry to sporadically place large orders with short lead
times, may cause our revenues and operating results to vary significantly and
unexpectedly from quarter to quarter.



                                       31
<PAGE>



PREDICTION OF MANUFACTURING REQUIREMENTS
If we fail to predict our manufacturing requirements accurately, we could incur
additional costs or experience manufacturing delays, which could cause us to
lose orders or customers and result in lower net sales. We currently use a
rolling 12-month forecast based primarily on our anticipated product orders and,
in the telecommunications field, our limited product order history to help
determine our requirements for components and materials. It is very important
that we accurately predict both the demand for our products and the lead-time
required to obtain the necessary components and raw materials. Lead times for
materials and components that we order vary significantly and depend on factors
such as the specific supplier, the size of the order, contract terms, and demand
for each component at a given time. If we underestimate our requirements, we may
have inadequate manufacturing capacity or inventory, which could interrupt
manufacturing of our products and result in delays in shipments and net sales.
If we overestimate our requirements, we could have excess inventory of parts. We
also may experience shortages of components from time to time, which also could
delay the manufacturing of our products and could cause us to lose orders or
customers.

UNDETECTED PRODUCT DEFECTS
ZYGO's products are deployed in large and complex systems and may contain
defects that are not detected until after our products have been installed,
which could damage our reputation and cause us to lose customers. We design some
of our products for deployment in large and complex optical networks. Because of
the nature of these products, they can only be fully tested for reliability when
deployed in networks for long periods of time. Our fiber optic products may
contain undetected defects when first introduced or as new versions are
released, and our customers may discover defects in our products only after they
have been fully deployed and operated under peak stress conditions. In addition,
our products are combined with products from other vendors. As a result, should
problems occur, it might be difficult to identify the source of the problem.
These conditions increase the risk that we could experience, among other things:
loss of customers; damage to our brand reputation; failure to attract new
customers or achieve market acceptance; diversion of development and engineering
resources; and legal actions by our customers. The occurrence of any one or more
of the foregoing factors could cause us to experience losses, incur liabilities,
and cause our net sales to decline.

ENVIRONMENTAL REGULATIONS
Environmental regulations applicable to ZYGO's manufacturing operations could
limit our ability to expand or subject us to substantial costs. We are subject
to a variety of environmental regulations relating to the use, storage,
discharge, and disposal of hazardous chemicals used during our manufacturing
processes. Any failure by us to comply with present and future regulations could
subject us to future liabilities or the suspension of production. In addition,
such regulations could restrict our ability to expand our facilities or could
require us to acquire costly equipment or to incur other significant expenses to
comply with environmental regulations.

                   EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" which addresses the financial accounting and
reporting for business combinations and supercedes Accounting Principles Board
(APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires
that all business combinations be accounted for by a single method, the purchase
method, modifies the criteria for recognizing intangible assets, and expands
disclosure requirements. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001. The adoption of SFAS No. 141 did not
have a material effect on our results of operations or statements of financial
position.


                                       32
<PAGE>



In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB No. 17, "Intangible Assets." SFAS
No. 142 addresses how intangible assets that are acquired individually or with a
group of other assets should be accounted for in financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. SFAS No. 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but rather tested at least annually for
impairment, and intangible assets that have finite useful lives be amortized
over their useful lives. SFAS No. 142 provides specific guidance for testing
goodwill and intangible assets that will not be amortized for impairment. In
addition, SFAS No. 142 expands the disclosure requirements for goodwill and
other intangible assets in the years subsequent to their acquisition. SFAS No.
142 is effective for our fiscal year 2003. Impairment losses for goodwill and
indefinite-life intangible assets that arise due to the initial application of
SFAS No. 142 are to be reported as resulting from a change in accounting
principles. However, goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to provisions of SFAS No. 142. Management is
currently assessing the impact that SFAS No. 142 will have on our results of
operations and financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for retirement
obligations associated with the retirement of tangible long-lived assets and for
the associated asset retirement costs. SFAS No. 143 requires a company to record
the fair value of an asset retirement obligation in the period in which it is
incurred. When the retirement obligation is initially recorded, the company also
records a corresponding increase to the carrying amount of the related tangible
long-lived asset and depreciates that cost over the useful life of the tangible
long-lived asset. The retirement obligation is increased at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the initial fair value measurement. Upon settlement of the
retirement obligation, the company either settles the retirement obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 with earlier
application encouraged. Management is currently assessing the impact that SFAS
No. 143 will have on the Company's financial position and results of operations.

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

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued. This
statement provides guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain specified lease
transactions. The adoption of this statement will not have a material impact on
the Company's current financial position and results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with the exit or disposal activities. SFAS No.
146 nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability




                                       33
<PAGE>



Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires companies to record liabilities for exit or disposal activities in the
period in which they are incurred, except for certain types of transactions.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Management is
currently assessing the impact that SFAS No. 146 will have on the Company's
financial position and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

INTEREST RATE SENSITIVITY
We maintain a portfolio of cash equivalents and marketable securities including
money market funds, commercial paper, government agency securities, and
corporate bonds. Our interest income on our variable rate investments is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are short-term instruments. Due to the
short-term nature of our investments, we do not believe that a material risk
exposure exists.

During fiscal 2001 the company entered into a mortgage on its Westborough
facility of $12,560,000 at the interest rate of LIBOR (1.8% at June 30, 2002)
which is payable in full in May 2007. In addition to the normal fluctuations in
LIBOR, the interest rate can increase during the life of the mortgage by up to
250 basis points depending on the Company's performance against a debt ratio. In
conjunction with the mortgage, the Company entered into an interest rate swap
agreement that provides for a fixed interest rate of 6% for the duration of the
mortgage. In addition, the variable interest rate will continue to be applied to
the outstanding mortgage amount. The effective interest rate at June 30, 2002
and 2001 was 8.5% and 7%, respectively. Due to the existence of the swap
agreement, we do not believe that a material risk exposure exists.

EXCHANGE RATE SENSITIVITY
Substantially all of the Company's sales and costs are negotiated and paid in
U.S. dollars. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can impact the sales of the Company's products
in its export markets as would changes in the general economic conditions in
those markets. The impact of such changes in foreign currency values on the
Company's sales cannot be measured.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data required pursuant to this Item begin
on Page F-1 of this Report.

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

None.




                                       34
<PAGE>



                                    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 Annual Report, information required by this item will be 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 2002 Annual Meeting of Stockholders
("the Proxy Statement") and is herein incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



                                       35
<PAGE>



                                     PART IV

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

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

          1. 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")*

          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    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)*

          10.5    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)*


                                       36
<PAGE>


          10.6    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)*

          10.7    Amendment Agreement dated as of December 31, 1996, between the
                  Company and Paul F. Forman (Exhibit 10.16 to the Company's
                  Annual Report on Form 10-K for its year ended June 30, 1997)*

          10.8    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)*

          10.9    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)*

          10.10   Renewal of Line of Credit dated June 4, 1997, between the
                  Company and Fleet Bank Connecticut, N.A. (Exhibit 10.23 to the
                  Company's Annual Report on Form 10-K for its year ended June
                  30, 1997)*

          10.11   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)*

          10.12   Subcontract B335188 between The Regents of The University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated May 9, 1997 (Exhibit 10.31 to the Company's
                  Annual Report on Form 10-K for its year ended June 30, 1997)*

          10.13   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
                  (Exhibit 10.32 to the Company's Annual Report on Form 10-K for
                  its year ended June 30, 1997)*


                                       37
<PAGE>


          10.14   Employment agreement dated January 15, 1999, between Zygo
                  Corporation and J. Bruce Robinson. (Exhibit 10.34 to the
                  Company's Annual Report on Form 10-K 405 for its year ended
                  June 30, 1999)*

          10.15   Zygo Corporation Amended and Restated Non-Employee Director
                  Stock Option Plan ratified and approved by the Company's
                  stockholders on November 17, 1999. (Exhibit to the Company's
                  Definitive Proxy Statement for its year ended June 30, 1999)*

          10.16   Employment agreement dated July 1, 1999, between Zygo
                  Corporation and Brian J. Monti. (Exhibit 10.22 to the
                  Company's Annual Report on Form 10-K405 for its year ended
                  June 30, 2000)*

          10.17   Acquisition Agreement dated May 5, 2000, by and among Zygo
                  Corporation, Firefly Technologies Inc., and the Shareholders
                  of Firefly Technologies Inc. (Company's Current Reports on
                  Form 8-K dated May 8, 2000 and on Form 8-KA dated June 30,
                  2000)*

          10.18   Employment agreement dated May 5, 2000, between Zygo
                  Corporation and John Berg. (Exhibit 10.01(e)(1) to the
                  Company's Current Reports on Form 8-K dated May 8, 2000 and on
                  Form 8-KA dated June 30, 2000)*

          10.19   Employment agreement dated May 5, 2000, between Zygo
                  Corporation and Patrick Tan. (Exhibit 10.01(e)(2) to the
                  Company's Current Reports on Form 8-K dated May 8, 2000 and on
                  Form 8-KA dated June 30, 2000)*

          10.20   Promissory Note to the amended and restated credit agreement
                  dated May 14, 2001, between Zygo Corporation and Fleet
                  National Bank (Exhibit 10.26 to the Company's Annual Report
                  on Form 10K 405 for its year ended June 30, 2001)*

          10.21   Amended and restated credit agreement dated May 14, 2001,
                  between Zygo Corporation and Fleet National Bank

          10.22   Amended and restated credit agreement dated November 22, 2001
                  between Zygo Corporation and Fleet National Bank

          10.23   Amended and restated credit agreement dated June 26, 2002
                  between Zygo Corporation and Fleet National Bank

          10.24   Subcontract B514527 between The Regents of The University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated April 14, 2001

          10.25   Subcontract B519044 between The Regents of The University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated January14, 2002

          21.     Subsidiaries of Registrant

          23.     Accountants' Consent

          24.     Power of Attorney

          99.1    Certification

----------
* Incorporated herein by reference.



                                       38
<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

<TABLE>
<S>                                                                                   <C>
By     /s/ Richard M. Dressler                                                        Date     September 20, 2002
       -----------------------                                                                 ------------------
         Richard M. Dressler
       Vice President, Finance, Chief
       Financial Officer, and Treasurer
</TABLE>

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

<TABLE>

<S>                                      <C>                                          <C>
/s/ J. Bruce Robinson                    Chairman, President, and Chief               Date     September 20, 2002
---------------------------              Executive Officer
        J. Bruce Robinson

/s/ Richard M. Dressler                  Vice President, Finance, Chief               Date     September 20, 2002
---------------------------------
        Richard M. Dressler              Financial Officer, and Treasurer

/s/ Carl A. Zanoni                       Senior Vice President, Technology            Date     September 20, 2002
------------------------------------     and Director
        Carl A. Zanoni

John Berg*                               President, Zygo TeraOptix
------------------------------           and Director
        (John Berg)


Paul F. Forman*                          Director
-----------------------------------
        (Paul F. Forman)

R. Clark Harris*                         Director
--------------------------------
        (R. Clark Harris)

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

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

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

Bruce Worster*                           Director
--------------------------------------
        (Bruce Worster)

*By    /s/ Richard M. Dressler                                                        Date     September 20, 2002
       -----------------------                                                                 ------------------
       Richard M. Dressler
       Attorney-in-Fact

</TABLE>


                                       39
<PAGE>



                           CERTIFICATION OF DISCLOSURE
                        IN THE REGISTRANT'S ANNUAL REPORT

I, J. Bruce Robinson, certify that:

     1.   I have reviewed this annual report on Form 10-K of Zygo Corporation;

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

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

Date:  September 13, 2002
       ------------------

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



                                       40
<PAGE>




                           CERTIFICATION OF DISCLOSURE
                        IN THE REGISTRANT'S ANNUAL REPORT

I, Richard M. Dressler, certify that:

     1.   I have reviewed this annual report on Form 10-K of Zygo Corporation;

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

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

Date:  September 13, 2002
       ------------------

                                                    /s/ Richard M. Dressler
                                                    ----------------------------

                                                    Richard M. Dressler
                                                    Vice President, Finance,
                                                    Chief Financial Officer



                                       41


<PAGE>


                 ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARIES
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>

Page
----
<S>               <C>
F-2               Report of Management

F-3               Report of Independent Auditors

F-4               Consolidated balance sheets at June 30, 2002 and 2001

F-5               Consolidated statements of operations for the years ended June 30, 2002, 2001, and 2000

F-6               Consolidated statements of stockholders' equity for the years ended June 30, 2002, 2001, and 2000

F-7               Consolidated statements of cash flows for the years ended June 30, 2002, 2001, and 2000

F-8 to F-24       Notes to consolidated financial statements

F-25              Selected consolidated quarterly financial data for the years ended June 30, 2002 and 2001

                  Consolidated Schedules
                  ----------------------

S-1               Independent Auditors' Report on Schedule II

S-2               Schedule II -Valuation and qualifying accounts

</TABLE>

     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.


                                      F-1

<PAGE>



REPORT OF MANAGEMENT

Management is responsible for preparing the Company's consolidated financial
statements and related information that appears in this annual report. The
consolidated financial statements were prepared in conformity with accounting
principles generally accepted in the United States of America appropriate in the
circumstances and, accordingly, include some amounts based on management's best
judgements and estimates. Financial information in this Annual Report is
consistent with that in the consolidated financial statements.

The Company maintains a system of internal controls and procedures which
provides reasonable assurance, at an appropriate cost/benefit relationship, that
assets are safeguarded and that transactions are authorized, recorded, and
reported properly. Management believes that the Company's system of internal
controls provides reasonable assurance that assets are safeguarded against
material loss from unauthorized use or disposition and that the financial
records are reliable for preparing financial statements and other data and for
maintaining accountability for assets.

The Audit Committee of the Board of Directors, composed solely of Directors who
are not officers or employees of the Company, meets with the independent
auditors and financial management periodically to discuss internal accounting
controls, auditing and financial reporting matters, and to discharge its
responsibilities outlined in its written charter. The Committee reviews with the
independent auditors the scope and results of the audit effort. The Committee
also meets with the independent auditors without management present to ensure
that the independent auditors have free access to the Committee.

The independent auditors, KPMG LLP, were recommended by the Audit Committee of
the Board of Directors and selected by the Board of Directors. KPMG LLP was
engaged to audit the 2002, 2001, and 2000 consolidated financial statements of
Zygo Corporation and its subsidiaries and conducted such tests and related
procedures as deemed necessary in conformity with auditing standards generally
accepted in the United States of America. The opinion of the independent
auditors, based upon their audits of the consolidated financial statements, is
included in this annual report.

Richard M. Dressler
Vice President, Finance,
Chief Financial Officer, and Treasurer


                                      F-2

<PAGE>



REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ZYGO CORPORATION:

We have audited the accompanying consolidated balance sheets of Zygo Corporation
and subsidiaries as of June 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zygo Corporation and
subsidiaries as of June 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2002, in conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP

Hartford, Connecticut
August 16, 2002

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)

                                                                              JUNE 30, 2002 June 30, 2001
                                                                              ------------- -------------
<S>                                                                             <C>          <C>
ASSETS
   CURRENT ASSETS:
           Cash and cash equivalents .........................................   $  28,513    $  52,630
           Restricted cash ...................................................       1,225         --
           Marketable securities (note 3) ....................................       8,734        7,121
           Receivables (note 4) ..............................................      21,241       27,278
           Inventories (note 5) ..............................................      23,612       24,261
           Costs in excess of billings (note 6) ..............................        --          1,802
           Prepaid expenses ..................................................       1,444        1,393
           Deferred income taxes (note 17) ...................................       4,899        4,076
                                                                                 ---------    ---------
              Total current assets ...........................................      89,668      118,561
                                                                                 ---------    ---------
Property, plant and equipment, net (notes 7 and 10) ..........................      55,045       47,475
Deferred income taxes (note 17) ..............................................      19,981       15,819
Goodwill and other intangibles, net (notes 8 and 20) .........................       4,507        4,867
Other assets .................................................................        --            110
                                                                                 ---------    ---------
TOTAL ASSETS .................................................................   $ 169,201    $ 186,832
                                                                                 =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
   CURRENT LIABILITIES:
     Current portion of long-term debt (note 10) .............................   $     837    $     279
     Accounts payable ........................................................       5,020        8,648
     Accrued progress payments ...............................................         368          549
     Accrued salaries and wages ..............................................       3,451        7,153
     Interest rate swap liability (note 10) ..................................         832         --
     Other accrued expenses (note 2) .........................................       4,300        4,688
     Income taxes payable ....................................................         929        3,132
                                                                                 ---------    ---------
           Total current liabilities .........................................      15,737       24,449
                                                                                 ---------    ---------
Long-term debt (note 10) .....................................................      11,374       12,281
Other long-term liabilities (note 2) .........................................       1,115         --
Minority interest ............................................................         970          963
                                                                                 ---------    ---------
TOTAL LIABILITIES ............................................................      29,196       37,693
                                                                                 ---------    ---------
Commitments (note 11)

STOCKHOLDERS' EQUITY (NOTES 13, 14, 15, AND 16):
   Common stock, $ .10 par value per share:
     40,000,000 shares authorized (40,000,000 in 2001);
     17,892,564 shares issued (17,803,812 in 2001);
     17,445,359 shares outstanding (17,356,607 in 2001) ......................       1,789        1,780
   Additional paid-in capital ................................................     137,390      134,380
   Retained earnings .........................................................       7,981       19,714
   Accumulated other comprehensive income (loss):
      Currency translation effects ...........................................      (1,369)      (1,786)
      Net unrealized gain (loss) on swap agreement (note 10) .................        (515)          31
      Net unrealized gain on marketable securities (note 3) ..................          16           37
                                                                                 ---------    ---------
                                                                                   145,292      154,156
   Less treasury stock, at cost; 447,205 common shares
     (447,205 shares in 2001) ................................................       5,287        5,017
                                                                                 ---------    ---------
      Total stockholders' equity .............................................     140,005      149,139
                                                                                 ---------    ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................   $ 169,201    $ 186,832
                                                                                 =========    =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands except per share amounts)
                                                               Fiscal Year Ended June 30,
                                                          -----------------------------------
                                                             2002        2001        2000
                                                          ---------    ---------    ---------
<S>                                                      <C>          <C>          <C>
Net sales (notes 18 and 19) ...........................   $  84,426    $ 133,250    $  87,243
Cost of goods sold ....................................      59,630       72,081       54,688
                                                          ---------    ---------    ---------
      Gross profit ....................................      24,796       61,169       32,555

Selling, general and administrative expenses ..........      25,173       29,119       18,504
Research and development ..............................      21,346       17,673       11,270
Nonrecurring acquisition-related charges ..............        --           --         14,001
Amortization and impairment of goodwill
   and other intangibles (note 2) .....................         963          797        7,102
Automation Systems Group exit costs (note 2) ..........       1,856         --           --
                                                          ---------    ---------    ---------
      Operating (loss) profit .........................     (24,542)      13,580      (18,322)
                                                          ---------    ---------    ---------
Gain on sale of Automation Systems Group (note 2) .....       6,142         --           --
                                                          ---------    ---------    ---------
Other income (expense):
      Interest income .................................       1,686        1,641        1,250
      Miscellaneous expense, net ......................      (1,443)        (526)        (240)
                                                          ---------    ---------    ---------
         Total other income ...........................         243        1,115        1,010
                                                          ---------    ---------    ---------
        (Loss) earnings before income taxes and
             minority interest ........................     (18,157)      14,695      (17,312)

Income tax benefit (expense) (note 17) ................       6,900       (3,454)       1,459
                                                          ---------    ---------    ---------
(Loss) earnings before minority interest ..............     (11,257)      11,241      (15,853)
Minority interest .....................................         476          582          194
                                                          ---------    ---------    ---------
Net (loss) earnings ...................................   $ (11,733)   $  10,659    $ (16,047)
                                                          =========    =========    =========
(Loss) earnings per common and common equivalent share:
      Basic ...........................................   $   (0.67)   $    0.69    $   (1.28)
                                                          =========    =========    =========
      Diluted .........................................   $   (0.67)   $    0.66    $   (1.28)
                                                          =========    =========    =========
Weighted average common shares and common
  dilutive equivalents outstanding:
      Basic ...........................................      17,414       15,398       12,511
                                                          =========    =========    =========
      Diluted .........................................      17,414       16,063       12,511
                                                          =========    =========    =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars)
                                                                                      Accum.
                                                                                      Other
                                                                Comp.                 Comp.
                                                               Income    Retained     Income      Common     Treasury      Paid-In
                                                   Total       (Loss)    Earnings     (Loss)       Stock      Stock        Capital
                                                  ---------   ---------- ---------   ---------   ---------   ---------    ---------
<S>                                               <C>         <C>        <C>         <C>         <C>         <C>         <C>
Balance at June 30, 1999 ......................   $  68,712              $  25,102   $    (126)  $   1,370   $    (301)   $  42,667
Comprehensive loss
  Net loss ....................................     (16,047)     (16,047)  (16,047)
                                                               ---------
  Other comprehensive loss, net of tax
    Unrealized loss on marketable securities ..         (22)         (22)
    Foreign currency translation effect .......        (125)        (125)
                                                               ---------
  Other comprehensive loss ....................                     (147)                 (147)
                                                               ---------
Comprehensive loss ............................                  (16,194)
                                                               =========
Unearned Compensation .........................      12,024                                                                  12,024
Exercise of employee stock options
  And related tax effect ......................      13,687                                             74                   13,613
                                                  ---------    --------- ---------   ---------   ---------   ---------    ---------
Balance at June 30, 2000 ......................   $  78,229              $   9,055   $    (273)  $   1,444   $    (301)   $  68,304
Comprehensive income (loss)
  Net earnings ................................      10,659       10,659    10,659
                                                               ---------
  Other comprehensive income (loss),
     net of tax
       Unrealized gain on marketable securities         128          128
       Unrealized gain on Swap Agreement ......          31           31
       Foreign currency translation effect ....      (1,604)      (1,604)
                                                               ---------
  Other comprehensive loss ....................                   (1,445)               (1,445)
                                                               ---------
Comprehensive income ..........................                    9,214
                                                               =========
Repurchased common stock ......................      (4,716)                                                    (4,716)
Secondary offering ............................      51,824                                            292                   51,532
Exercise of employee stock options
  and related tax effect ......................      14,588                                             44                   14,544
                                                  ---------    --------- ---------   ---------      ------   ---------    ---------
Balance at June 30, 2001 ......................   $ 149,139              $  19,714   $  (1,718)     $1,780   $  (5,017)   $ 134,380
Comprehensive income (loss)
  Net loss ....................................     (11,733)     (11,733)  (11,733)
                                                               ---------
  Other comprehensive income (loss),
     net of tax
       Unrealized loss on marketable securities         (21)         (21)
       Unrealized loss on Swap Agreement ......        (546)        (546)
       Foreign currency translation effect ....         417          417
                                                               ---------
  Other comprehensive loss ....................                     (150)                 (150)
                                                               ---------
Comprehensive loss ............................                  (11,883)
                                                               =========
Repurchased common stock adjustment ...........        (270)                                                      (270)
Non-cash compensation charges
    related to stock options ..................          83                                                                      83
Employee stock purchase .......................       1,098                                              8                    1,090
Exercise of employee stock options
  and related tax effect ......................       1,838                                              1                    1,837
                                                  ---------               --------   ---------   ---------     -------    ---------
Balance at June 30, 2002 ......................   $ 140,005              $   7,981   $  (1,868)  $   1,789     $(5,287)   $ 137,390
                                                  =========              =========   =========   =========     =======    =========

See accompanying notes to consolidated financial statements.

</TABLE>

                                      F-6

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

                                                                            Fiscal Year Ended June 30,
                                                                         ---------------------------------
                                                                           2002        2001         2000
                                                                         --------    --------    ---------
<S>                                                                      <C>         <C>         <C>
Cash provided by (used for) operating activities:
   Net (loss) earnings ...............................................   $(11,733)   $ 10,659    $(16,047)
   Adjustments to reconcile net (loss) earnings to cash
      provided by (used for) operating activities:
      Depreciation and amortization ..................................      7,251       3,996      11,318
      Gain on sale of Automation Systems Group .......................     (6,142)       --          --
      Loss on disposal of assets .....................................      2,320         869       1,176
      Deferred income taxes ..........................................     (4,705)      2,446      (7,247)
      Non-cash compensation charges related to stock options .........         83        --        12,024
      Changes in operating accounts:
         Receivables .................................................      3,975      (7,140)     (7,657)
         Costs in excess of billings .................................       (690)      3,942      (5,083)
         Inventories .................................................       (727)    (12,382)      3,594
         Prepaid expenses ............................................        (72)      3,721       4,770
         Accounts payable and accrued expenses .......................     (7,795)      3,306       4,654
         Minority interest ...........................................        476         520         194
                                                                         --------    --------    --------
      Net cash provided by (used for) operating activities ...........    (17,759)      9,937       1,696
                                                                         --------    --------    --------
Cash provided by (used for) investing activities:
   Additions to property, plant and equipment ........................    (17,640)    (33,050)     (6,513)
   Investment in marketable securities ...............................     (8,001)     (2,155)     (2,466)
   Investments in other assets .......................................       (493)     (1,790)       --
   Proceeds from the sale of assets ..................................        673        --          --
   Proceeds from sale of Automation Systems Group,
      net of cash sold ($88) .........................................     12,077        --          --
   Restricted cash with interest from sale of Automation Systems Group     (1,225)       --          --
   Proceeds from the sale of marketable securities ...................      4,248       2,250        --
   Proceeds from maturity of marketable securities ...................      2,155       1,180       2,500
                                                                         --------    --------    --------
      Net cash used for investing activities .........................     (8,206)    (33,565)     (6,479)
                                                                         --------    --------    --------
Cash provided by (used for) financing activities:
   (Payments) proceeds of debt .......................................       (349)     12,556          48
   Dividend payments to minority interest ............................       (469)       --          --
   Employee stock purchase ...........................................      1,098        --          --
   Exercise of employee stock options ................................      1,838         996       7,062
   Issuance and repurchase of common stock ...........................       (270)     47,108        --
   Contributions from minority interest of consolidated subsidiaries .       --          --           249
                                                                         --------    --------    --------
      Net cash provided by financing activities ......................      1,848      60,660       7,359
                                                                         --------    --------    --------
Net increase (decrease) in cash and cash equivalents .................    (24,117)     37,032       2,576
Cash and cash equivalents, beginning of year .........................     52,630      15,598      13,022
                                                                         --------    --------    --------
Cash and cash equivalents, end of year ...............................   $ 28,513    $ 52,630    $ 15,598
                                                                         ========    ========    ========

</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-7


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002, 2001, and 2000
Dollars in thousands, except for share and per share amounts

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION

Zygo Corporation is a worldwide developer and supplier of high performance
metrology instruments, high precision optics, optical assemblies, and automation
for the semiconductor, industrial, and telecommunications markets. The
accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("Company"). All material transactions and
accounts with the subsidiaries have been eliminated from the consolidated
financial statements. As discussed in Note 2, all the outstanding shares of
Firefly Technologies, Inc. ("Firefly") were acquired by the Company on May 5,
2000, in a transaction accounted for as a pooling-of-interests. Accordingly the
financial statements of the Company have been restated to reflect the merger as
if it had occurred on July 1, 1997.

CASH AND CASH EQUIVALENTS

The Company considers cash and investments in securities with maturities at the
date of purchase of three months or less to be cash and cash equivalents.

MARKETABLE SECURITIES

The Company considers investments in securities with maturities at the date of
purchase in excess of three months as marketable securities. Marketable
securities primarily consist of corporate bonds, government agency securities,
and tax-exempt bonds. All securities held by the Company at June 30, 2002 and
2001, were classified as available-for-sale and recorded at fair value or held
to maturity and recorded at cost. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized.

INVENTORIES

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.

DEPRECIATION

Depreciation is based on the estimated useful lives of the various classes of
assets and is computed using the straight-line method. See note 7.

IMPAIRMENT OF LONG-LIVED ASSETS

As required by Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company evaluates the carrying value of its long-lived and
intangible assets at each balance sheet date to determine if impairment exists
based upon estimated undiscounted future cash flows. The impairment, if any, is
measured by the difference between carrying value and estimated fair value and
charged to expense in the period identified. The remaining depreciation and
amortization periods are periodically evaluated and would be revised if
considered necessary.

REVENUE RECOGNITION

Revenues, other than revenue from certain automation contracts (note 6), are
recognized when units are shipped unless there is significant uncertainty
concerning customer acceptance, in which case, revenue is recognized when the
customer accepts the product. Revenues related to certain automation contracts
are recognized under the percentage-of-completion method of accounting.

                                      F-8

<PAGE>

In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarized certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 was effective for the fourth quarter of fiscal 2001. The
adoption of SAB No. 101 did not have a material effect on the Company's
financial position or results of operations.

EARNINGS PER SHARE

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

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

                                      JUNE 30,        June 30,         June 30,
                                        2002            2001             2000
                                   -----------     -----------      ------------
Weighted average shares
  outstanding ..................    17,414,000      15,398,000       12,511,000
Dilutive effect of stock
  options ......................            --         665,000               --
                                    ----------      ----------       -----------
Diluted weighted average
  shares outstanding ...........    17,414,000      16,063,000       12,511,000
                                    ----------      ----------       ----------

For the fiscal years ended June 30, 2002 and June 30, 2000, the Company recorded
net losses. Due to these net losses, stock options of 319,000 and 1,547,000 for
the fiscal years ended 2002 and 2000, respectively, were excluded from the
computation because of the anti-dilutive effect on earnings per share.

GAIN ON LEGAL SETTLEMENT

The Company recorded a gain of $1 million in the third quarter of 2000 from the
settlement of a legal claim.

STOCK BASED COMPENSATION

Stock-based compensation awards to employees under the Company's stock option
plans are accounted for using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. The Company has adopted the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation."

The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional paid in capital. Except as
discussed in Note 2, no charges are reflected in the consolidated statements of
operations as a result of the grant or exercise of stock options, which are
granted with an exercise price at fair market value on the date of grant. The
Company realizes an income tax benefit from the exercise or early disposition of
certain stock options. This benefit results in a decrease in current income
taxes payable and an increase in additional paid-in capital.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that reporting entities provide, to the extent practicable, the fair value of
financial instruments, both assets and liabilities. The carrying amounts of
cash, accounts receivable, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.


                                      F-9
<PAGE>


USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America. On an ongoing basis, management evaluates its
estimates and judgements, including those related to bad debts, inventories,
long-lived assets, income taxes, and warranty obligations. Actual results could
differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" which addresses the financial accounting and
reporting for business combinations and supercedes APB Opinion No. 16, "Business
Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." SFAS No. 141 requires that all business combinations be
accounted for by a single method, the purchase method, modifies the criteria for
recognizing intangible assets, and expands disclosure requirements. The
provisions of SFAS No. 141 apply to all business combinations initiated after
June 30, 2001. The adoption of SFAS No. 141 did not have a material effect on
our results of operations or statements of financial position.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB No. 17, "Intangible Assets." SFAS
No. 142 addresses how intangible assets that are acquired individually or with a
group of other assets should be accounted for in financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. SFAS No. 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but rather tested at least annually for
impairment, and intangible assets that have finite useful lives be amortized
over their useful lives. SFAS No. 142 provides specific guidance for testing
goodwill and intangible assets that will not be amortized for impairment. In
addition, SFAS No. 142 expands the disclosure requirements for goodwill and
other intangible assets in the years subsequent to their acquisition. SFAS No.
142 is effective for our fiscal year 2003. Impairment losses for goodwill and
indefinite-life intangible assets that arise due to the initial application of
SFAS No. 142 are to be reported as resulting from a change in accounting
principles. However, goodwill and intangible assets acquired after June 30, 2001
will be subject immediately to provisions of SFAS No. 142. Management is
currently assessing the impact that SFAS No. 142 will have on our results of
operations and financial position.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for retirement
obligations associated with the retirement of tangible long-lived assets and for
the associated asset retirement costs. SFAS No. 143 requires a company to record
the fair value of an asset retirement obligation in the period in which it is
incurred. When the retirement obligation is initially recorded, the company also
records a corresponding increase to the carrying amount of the related tangible
long-lived asset and depreciates that cost over the useful life of the tangible
long-lived asset. The retirement obligation is increased at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the initial fair value measurement. Upon settlement of the
retirement obligation, the company either settles the retirement obligation for
its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002 with earlier
application encouraged. Management is currently assessing the impact that SFAS
No. 143 will have on the Company's financial position and results of operations.


                                      F-10
<PAGE>


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

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued. This
statement provides guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain specified lease
transactions. The adoption of this statement will not have a material impact on
the Company's current financial position and results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" which addresses financial accounting and
reporting for costs associated with the exit or disposal activities. SFAS No.
146 nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires companies to record liabilities for exit or disposal activities in the
period in which they are incurred, except for certain types of transactions.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Management is
currently assessing the impact that SFAS No. 146 will have on the Company's
financial position and results of operations.

NOTE 2: MERGERS, ACQUISITIONS AND STRATEGIC INITIATIVES

On December 12, 2001, the Company sold its Automation Systems Group in Longmont,
Colorado, to Brooks Automation, Inc. of Chelmsford, Massachusetts, in a cash
transaction, for $12,165. Substantially all of the assets were sold to Brooks
and substantially all of the liabilities were assumed by Brooks. The gain on the
sale was $6,142 before related exit costs of $1,856 to be paid from the
proceeds, inventory write-downs of $808, and tax expense of $1,322. As of June
30, 2002, the restricted cash balance of $1,225 related to the Automation sale
is being held in escrow for a period of one year from the date of sale. The
Company established certain reserves of $2,333, which includes $1,115 for lease
costs classified as a long-term liability, for costs to be incurred as a result
of the sale.

On May 5, 2000, the Company entered into an agreement and plan of merger with
Firefly Technologies, Inc. ("Firefly"), a Delaware corporation, Zygo TeraOptix,
Inc., ("Zygo TeraOptix") a Delaware corporation and a wholly-owned subsidiary of
the Company, and the security holders of Firefly, pursuant to which the Company
agreed to acquire Firefly. Immediately thereafter, the acquisition was
consummated by the merger of Zygo TeraOptix with and into Firefly and Firefly
became a wholly-owned subsidiary of the Company under the new name Zygo
TeraOptix, Inc.

Under the terms of the acquisition, the Company exchanged an aggregate of
2,303,937 shares of its common stock, $.10 par value per share, for all of the
then outstanding capital stock and stock options of Firefly. The acquisition,
which is intended to be tax free for federal income tax purposes to the Firefly
security holders, has been accounted for as a pooling-of-interest transaction.
Firefly manufactures metrology equipment, micro-optics, switches, and filters
for the telecommunications industry, as well as heads and related products for
the optical data storage industry. The telecommunications components


                                      F-11
<PAGE>


are used in wave division multiplexers to increase the capacity of optical
fibers. The Company intends to continue to use the assets acquired in the
acquisition for these purposes.

Related to the transaction and the vesting of certain Firefly stock options, the
Company has recorded approximately $12,024 of additional compensation expense
and in addition recorded $1,977 in acquisition related costs for legal,
investment banking and accounting fees in fiscal 2000.

In the fourth quarter of fiscal 2000, the Company decided to discontinue its
investment in certain product lines, which were no longer compatible with its
strategic plan. Related to the discontinuance of these product lines, the
Company recorded approximately $10,567 of charges in the fourth quarter of
fiscal year 2000 which consisted of the write-down of goodwill and other
intangible assets ($5,478) and inventory ($5,089) which the Company will no
longer continue to develop.

NOTE 3: MARKETABLE SECURITIES

Marketable securities consisted primarily of corporate bonds, government agency
securities and tax-exempt bonds issued by various federal, state and municipal
agencies for both 2002 and 2001. Marketable securities at June 30, 2002 and June
30, 2001 are reported either at fair value or at cost depending on their
classification. The gross unrealized gains on marketable securities of $22 and
$51 at June 30, 2002 and 2001, respectively, are shown net of their related tax
effects, resulting in balances of $16 and $37, respectively, as a separate
component of stockholders' equity.

Dividend and interest income is recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.

The cost, gross unrealized holding gains (losses), and fair value of
available-for-sale securities at June 30, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>

                                                             Gross           Gross
                                                            Unrealized      Unrealized
                                           Amortized         Holding         Holding           Fair
                                            Cost               Gains         Losses           Value
                                           ---------        ----------     -----------      --------
<S>                                         <C>              <C>            <C>             <C>
AT JUNE 30, 2002
  Corporate, federal, state and
       local municipal bonds ...........    $8,094              $75           ($ 53)          $8,116
                                            ======             ====            ====           ======
At June 30, 2001
  Corporate, state and local
       municipal bonds .................    $5,320              $51            $ --           $5,371
                                            ======             ====            ====           ======

</TABLE>

There were $59 gross realized gains recorded in 2002. There were no gross
realized gains or losses recorded in 2001.


                                      F-12
<PAGE>


Maturities of investment securities classified as available-for-sale were as
follows at June 30, 2002 and 2001:

                                        JUNE 30, 2002      June 30, 2001
                                      -----------------  ------------------
                                      AMORTIZED   FAIR   Amortized   Fair
                                        COST     VALUE      Cost     Value
                                      --------- -------  --------- --------
Due within one year .................   $   44   $   91   $ --     $ --
Due after one year through five years    8,050    8,025    5,320    5,371
                                        ------   ------   ------   ------
                                        $8,094   $8,116   $5,320   $5,371
                                        ======   ======   ======   ======

Maturities of investment securities classified as held-to-maturity were as
follows at June 30, 2002 and 2001:

                                        JUNE 30, 2002     June 30, 2001
                                       ---------------  -----------------
                                       AMORTIZED FAIR   Amortized   Fair
                                         COST    VALUE    Cost     Value
                                        ------   ------ ---------  ------
Due within one year .................   $  618   $  630   $1,750   $1,750
Due after one year through five years     --       --       --       --
                                        ------   ------  ------   ------
                                        $  618   $  630   $1,750   $1,750
                                        ======   ======   ======   ======

NOTE 4: ACCOUNTS RECEIVABLE

At June 30, 2002 and 2001, accounts receivable were as follows:

                                             JUNE 30,      June 30,
                                              2002           2001
                                            --------       --------
Trade (note 19) ........................    $ 20,737       $ 25,644
Other ..................................       1,453          2,015
                                            --------       --------
                                              22,190         27,659
llowance ...............................        (949)          (381)
                                            --------       --------
                                            $ 21,241       $ 27,278
                                            ========       ========

NOTE 5: INVENTORIES


At June 30, 2002 and 2001, inventories, net of reserves, were as follows:


                                              JUNE 30,              June 30,
                                                2002                  2001
                                              -------               --------
Raw materials and manufactured parts ....     $18,695                $20,359
Work in process .........................       8,477                  5,674
Finished goods ..........................         179                  1,308
                                              -------                -------
                                               27,351                 27,341
Reserve .................................      (3,739)                (3,080)
                                              -------                -------
                                              $23,612                $24,261
                                              =======                =======

                                      F-13
<PAGE>


NOTE 6: COSTS IN EXCESS OF BILLINGS

Revenues from certain automation projects were accounted for under the
percentage-of-completion method using total project costs incurred to date in
relation to estimated total costs of the contracts to measure the stage of
completion. The cumulative effects of revisions of estimated total contract
costs and revenues were recorded in the period in which the facts became known.
The differences between amounts billed and revenue recognized is shown as costs
in excess of billings on the accompanying balance sheets.

Totals of revenue earned and billings issued on uncompleted contracts as of June
30, 2001 were as follows:

Revenue recognized to date ............................        $ 50,529
Billings to date ......................................          48,727
                                                               --------
                                                               $  1,802
                                                               ========

As a result of the sale of the Company's Automation Systems Group in Longmont,
Colorado, there were no outstanding projects accounted for under the
percentage-of-completion method as of June 30, 2002.

NOTE 7: PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Costs of additions,
replacements and improvements are capitalized and depreciated over a range of
3-40 years. Maintenance and repairs are charged to expense as incurred.
Management evaluates, on an ongoing basis, the carrying value of its property,
plant and equipment and makes adjustments when impairments are identified. At
June 30, 2002 and 2001, property, plant and equipment, at cost, were as follows:

                                            JUNE 30,    June 30,
                                              2002        2001
                                           ---------    --------
Land ....................................   $  3,822    $  3,778
Building ................................     25,252       9,199
Machinery, equipment and office furniture     47,640      31,101
Leasehold improvements ..................        237         625
Construction in progress ................      2,878      23,849
                                            --------    --------
                                              79,829      68,552
 Less accumulated depreciation ..........    (24,784)    (21,077)
                                            --------    --------
                                            $ 55,045    $ 47,475
                                            ========    ========

NOTE 8: GOODWILL AND OTHER INTANGIBLES

The cost of goodwill and other intangible assets is amortized on a straight-line
basis, which ranges from 4 to 20 years. Management evaluates, on an ongoing
basis, the carrying value of its goodwill and other intangible assets and makes
adjustments when impairments are identified. Goodwill and other intangibles,
net, at June 30, 2002 and 2001 were as follows:


                                      F-14
<PAGE>


                                                 JUNE 30,          June 30,
                                                   2002              2001
                                                 -------           -------
Goodwill and other intangibles ............      $ 8,329           $ 7,726
Accumulated amortization ..................       (3,822)           (2,859)
                                                 -------           -------
                                                 $ 4,507           $ 4,867
                                                 =======           =======

NOTE 9: BANK LINE OF CREDIT

The Company has a $3,000 unsecured bank line of credit with interest at LIBOR
plus 60 basis points (approximately 2.4% at June 30, 2002). The line of credit
is available through November 21, 2002. At June 30, 2002 and 2001, no amounts
were outstanding under the bank line of credit.

NOTE 10: LONG-TERM DEBT

In May 2001 the Company entered into a mortgage on the newly constructed
facility located in Westborough, Massachusetts. The mortgage amount was $12,560
at an interest rate of LIBOR plus a variable interest rate of 1% to 1.5%, which
was based on a pricing grid related to a certain debt ratio and adjusted
quarterly. The mortgage agreement contains financial covenants which, among
others, relate to debt service and consolidated debt ratios. In June 2002, the
mortgage agreement was amended to revise the financial covenants and adjust the
variable interest rate pricing grid, such that the variable interest rate can
fluctuate between 1% and 2.5% based on the debt ratio. At June 30, 2002, the
LIBOR plus variable rate was 4.3%. The mortgage is amortizing on a 15-year
schedule requiring level monthly principal and interest payments and is payable
in full in May 2007. The Company made interest only payments through February
2002. As of June 30, 2002, long-term debt was $11,374 with a current portion of
long-term debt of $837. Principal payments for fiscal years 2003-2006 will be
$837 annually and the principal payment for the fiscal year 2007 will be $8,862,
including a balloon payment of $8,164 due in May 2007.

In conjunction with the mortgage, the Company entered into a $12,560 notional
principal interest rate swap that effectively converted the variable rate
LIBOR-based payments to a fixed rate of 6% for the duration of the mortgage. In
addition, the variable interest rate based on a pricing grid related to a
certain debt ratio will continue to be applied to the outstanding mortgage
amount. The effective interest rate at June 30, 2002 and 2001 was 8.5% and 7%,
respectively. In accordance with SFAS No. 133, as amended, the Company recorded
a liability for the present value of the increase in interest over the remaining
term of the mortgage of approximately $832. This amount, net of taxes of $317,
is reflected with a corresponding debit to the stockholders' equity of $515.

Interest payments on debt were $1,158, $107, and $6 in fiscal 2002, 2001, and
2000, respectively.

NOTE 11: LEASES

The Company leases certain manufacturing equipment and facilities under
operating leases, some of which include cost escalation clauses, expiring on
various dates through 2007. Total lease expense charged to operations was $1,603
in 2002, $1,562 in 2001, and $986 in 2000. At June 30, 2002 the minimum future
lease commitments under noncancellable leases payable over the remaining lives
of the leases were:


                                      F-15
<PAGE>


                                                                   Minimum
                                                                 Future Lease
Year ending June 30,                                             Commitments
                                                                 -------------
2003 ..........................................................     $ 1,382
2004 ..........................................................       1,219
2005 ..........................................................         743
2006 ..........................................................         262
2007 ..........................................................         119
                                                                    -------
                 Total minimum lease payments .................     $ 3,725
                                                                    =======


NOTE 12: PROFIT-SHARING PLAN

The Company maintains a deferred profit-sharing plan under which substantially
all full-time employees of the Company are eligible to participate.
Profit-sharing expense for the years ended June 30, 2002, 2001, and 2000,
amounted to $0, $2,516, and $1,209, respectively. The profit-sharing plan
consists of a cash distribution and a contribution to the Company's 401(k)
program. Profit-sharing contributions are determined annually at the discretion
of the Board of Directors. The cash distribution for the years ended June 30,
2002, 2001, and 2000, amounted to $0, $930, and $709, respectively.

The Company also maintains a 401(k) tax deferred payroll deduction program and
an Employee Stock Ownership Program. Under the 401(k) program, employees may
contribute a tax-deferred amount of up to 15% of their compensation, as defined.
The Company may contribute to the 401(k) program an amount determined annually
at the discretion of the Board of Directors. The 401(k) contribution expense for
the years ended June 30, 2002, 2001, and 2000 amounted to $780, $1,586, and
$500, respectively.

As of January 1, 2001, the employees of Zygo TeraOptix have been incorporated
into the Company's 401(k) program for fiscal 2001. Prior to January 1, 2001, the
Company maintained a separate defined contribution retirement plan for the
employees of Zygo TeraOptix. The plan allowed employees to participate after
three months of employment with the Company by deferring up to 15% of their
salary on a pre-tax basis, and allowed the Company to make discretionary
contributions to the plan, which were allocated to the participants' accounts.
The Company did not make any contributions to the plan through January 1, 2001.

Under the Employee Stock Ownership Program, the Company may, at the discretion
of the Board of Directors, contribute its own stock or contribute cash to
purchase its own stock. The purchased stock's fair market value can not exceed
the maximum amount of employee stock ownership credit as determined under
Section 416 of the Internal Revenue Code. There were no purchases and no
contributions made under this program for the years ended June 30, 2002, 2001,
and 2000.

NOTE 13: STOCKHOLDERS' EQUITY

On July 31, 2000 the shareholders voted to increase the number of authorized
shares of common stock from 15 million to 40 million.

On March 7, 2001 the Company closed a secondary public offering of 2,924,500
shares of common stock including 424,500 shares sold to underwriters to cover
over-allotments. The offering price was $19 per share. The net proceeds to the
Company including the over-allotment shares, after deducting underwriting
discounts, commissions, and offering expenses totaled $51,824.


                                      F-16
<PAGE>


On April 11, 2001, the Company purchased 239,605 shares of its common stock from
two officers and directors, pursuant to stock purchase agreements; all at a
price per share of $20.81 (the closing price of the common stock in the public
markets on that day) for $4,986. The funding for the purchase came from cash
balances. The purpose of the purchase was to allow these two officers and
directors to satisfy their tax obligations arising from the Firefly acquisition,
in which they were principal stockholders, and to satisfy and extinguish the
margin loans they incurred to pay additional taxes, which arose from the
acquisition of Firefly. The common stock purchased is being held as treasury
stock.

NOTE 14: STOCK COMPENSATION PLANS

As of June 30, 2002, the Company has two stock-based compensation plans, which
are described below (see note 15). The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. Since all options were granted with an exercise price
equal to the fair market value on the date of the grant, no compensation cost
has been recognized for its fixed option plans. Pro forma information regarding
net income and earnings per share is required by SFAS No. 123 "Accounting for
Stock-Based Compensation," which requires that the information be determined as
if the Company has accounted for its stock options granted in fiscal years
beginning after December 15, 1994 under the fair value method of the statement.

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

<TABLE>
<CAPTION>

                                                     JUNE 30,      June 30,    June 30,
                                                       2002         2001        2000
                                                    ---------     ---------   -----------
<S>                                                 <C>           <C>         <C>
Pro forma net (loss) earnings ...................   $  (12,161)   $   9,952   $  (16,930)
Pro forma net (loss) earnings per share - diluted   $    (0.70)   $    0.62   $    (1.35)

</TABLE>

The fair value of these options at the date of grant was estimated with the
following weighted average assumptions of 2002, 2001 and 2000:

                                   JUNE 30,     June 30,        June 30,
                                     2002          2001           2000
                                  ---------     ---------       ----------
Risk free rate of interest ......       4.3%          5.0%            5.9%
Dividend yield ..................       0.0%          0.0%            0.0%
Volatility factor ...............        76%           77%             67%
Expected life of option .........  4.5 YEARS     4.8 years       5.6 years

The above pro forma information is based on historical activity and may not
represent future trends.

On June 26, 2001, the Board of Directors granted a warrant to purchase 25,000
shares of the Company's common stock to the Zetetic Institute, a non-profit
organization that provides assistance to the Company in connection with certain
research and development activities. The warrant has an exercise price of $18.64
per share, the closing price of the common stock on the date of the grant, and
will vest, in equal annual increments, over the four-year period following the
date of grant.


                                      F-17
<PAGE>


NOTE 15: STOCK OPTION PLANS

EMPLOYEE STOCK OPTION PLAN AND DATA

The Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan
permits the granting of non-qualified options to purchase a total of 4,850,000
shares (adjusted for splits) of common stock at prices not less than the fair
market value on the date of grant. There are 1,487,893 shares available under
the plan as of June 30, 2002. Options generally become exercisable at the rate
of 25% of the shares each year commencing one year after the date of grant. The
Plan, as amended, expires on September 3, 2002.

                                         JUNE 30, 2002
                                  ----------------------------
                                                  WEIGHTED
                                                  AVERAGE
                                   SHARES       EXERCISE PRICE
                                  -----------    -------------
Outstanding at beginning of year    1,778,308    $    50.223
Granted ........................      325,075    $    12.870
Exercised ......................       (2,125)   $    10.425
Expired or canceled ............     (150,539)   $    44.774
                                   ----------    -----------
Outstanding at end of year .....    1,950,719    $    44.527
                                   ==========    ===========

                                          June 30, 2001
                                   ---------------------------
                                                Weighted
                                                 Average
                                     Shares    Exercise Price
                                   ----------- ---------------
Outstanding at beginning of year      798,299    $    10.020
Granted ........................    1,386,436    $    61.810
Exercised ......................     (347,463)   $     3.508
Expired or canceled ............      (58,964)   $    58.527
                                   ----------    -----------
Outstanding at end of year .....    1,778,308    $    50.223
                                   ==========    ===========

                                         June 30, 2000
                                    ---------------------------
                                                   Weighted
                                                  Average
                                       Shares    Exercise Price
                                    ------------ ---------------
Outstanding at beginning of year    1,245,299      $     7.228
Granted ........................      182,650      $    23.139
Exercised ......................     (519,200)     $     7.215
Expired or canceled ............     (110,450)     $    13.240
                                   ----------      -----------
Outstanding at end of year .....      798,299      $    10.020
                                   ==========      ===========

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN AND DATA

The Zygo Corporation Amended and Restated Non-Employee Director Stock Option
Plan permits the granting of non-qualified options to purchase a total of
620,000 shares (adjusted for splits) of common stock at prices not less than the
fair market value on the date of grant. Under the terms of the Plan, as amended
on September 24, 1999, each new non-employee director (other than a person who
was previously an employee of the Company or any of its subsidiaries) is granted
an option to purchase 8,000 shares of Common stock, generally, on his or her
first day of service as a non-employee director; and each other non-employee
director is granted an option to purchase 3,000 shares of Common stock on an
annual basis. All options are fully exercisable on the date of grant and have a
10-year term. The Plan, as amended, will expire on November 17, 2009. There are
89,000 shares available under the plan as of June 30, 2002.


                                      F-18
<PAGE>


                                                      JUNE 30, 2002
                                              ------------------------------
                                                               WEIGHTED
                                                                AVERAGE
                                                 SHARES      EXERCISE PRICE
                                              ------------   ---------------
Outstanding at beginning of year .............     182,000         $13.996
Granted ......................................      23,000         $16.276
Exercised ....................................    (10,000)         $ 2.000
Expired or canceled ..........................          --         $    --
                                                  --------         -------
Outstanding at end of year ...................     195,000         $14.880
                                                  ========         =======

                                                      June 30, 2001
                                              --------------------------------
                                                                  Weighted
                                                                   Average
                                               Shares          Exercise Price
                                              ------------    ----------------
Outstanding at beginning of year .............     249,000         $ 5.792
Granted ......................................      23,000         $55.873
Exercised ....................................    (90,000)         $ 2.000
Expired or canceled ..........................          --         $    --
                                                  --------         -------
Outstanding at end of year ...................     182,000         $13.996
                                                  ========         =======

                                                         June 30, 2000
                                              -------------------------------
                                                                Weighted
                                                                 Average
                                               Shares        Exercise Price
                                              ------------   -----------------
Outstanding at beginning of year .............     450,000        $ 6.229
Granted ......................................      15,000        $17.250
Exercised ....................................   (216,000)        $ 7.498
Expired or canceled ..........................          --        $    --
                                                 ---------        -------
Outstanding at end of year ...................     249,000        $ 5.792
                                                 =========        =======


The following table summarizes information about all fixed stock options
outstanding at June 30, 2002:

<TABLE>
<CAPTION>

                                 Options Outstanding                      Options Exercisable
                        -----------------------------------------  ----------------------------------
                          Number    Weighted Average
        Range of        Outstanding   Remaining      Weighted           Number             Weighted
        Exercise           as of      Contractual     Average       Exercisable as of      Average
         Prices        June 30, 2002     Life       Exercise Price    June 30, 2002     Exercise Price
    ------------------- ------------ -------------  --------------  -----------------   --------------
<S>                      <C>             <C>         <C>              <C>                <C>
    $ 1.92 - $ 2.00 ...     175,124       2.1        $    2.00          175,124            $    2.00
    $ 7.44 - $11.10 ...     212,300       6.4        $   10.16          144,652            $   10.25
    $11.40 - $17.10 ...     335,950       8.8        $   12.92           36,200            $   13.73
    $17.18 - $24.56 ...     463,346       8.5        $   18.93          164,434            $   18.80
    $26.38 - $39.13 ...      69,970       6.4        $   29.73           44,630            $   28.80
    $40.38 - $58.75 ...      80,265       8.2        $   45.21           37,210            $   45.09
    $60.75 - $90.81 ...     808,764       8.1        $   84.59          223,951            $   84.46
-----------------------   ---------       ---        ---------          -------            ---------
    $ 1.92 - $90.81 ...   2,145,719       7.6        $   41.82          826,201            $   33.04
=======================   =========       ===        =========          =======            =========

</TABLE>

As discussed in Note 2, the Company recorded approximately $12,024 of additional
compensation expense to reflect the derived fair market value of certain Firefly
stock options, which were exercised by Firefly employees in connection with the
exchange of Firefly capital stock and stock options for the Company's common
stock. No Firefly options have been included in the tables above because all
Firefly options were exercised and converted to the Company's common shares in
connection with the merger.


                                      F-19
<PAGE>


NOTE 16: EMPLOYEE STOCK PURCHASE PLAN

In November 2000, the Company adopted a non-compensatory Employee Stock Purchase
Plan ("ESPP"). Under the ESPP, employees of the Company who elect to participate
have the ability to purchase common stock at a 15% discount from the market
value of such stock. The ESPP permits an enrolled employee to make contributions
to purchase shares of common stock by having withheld from his or her salary an
amount between 1% and 10% of compensation. The total number of shares of common
stock that may be issued under the ESPP is approximately 500,000. At June 30,
2002 and 2001, the Company had withheld $532 and $613, respectively, for
purchase of shares under this plan; and in July 2002 and 2001, issued
approximately 64,000 and 32,000, respectively, shares of common stock.

NOTE 17: INCOME TAXES

The components of income tax expense (benefit) for each year are as follows:

                                      Fiscal Year Ended June 30,
                                     -----------------------------
                                       2002       2001       2000
                                     --------   -------    -------
Currently payable:
   Federal .......................   $(3,118)   $  --      $ 1,136
   State .........................         4       --          (71)
   Foreign .......................       798      1,008        604
                                     -------    -------    -------
                                     $(2,316)   $ 1,008    $ 1,669
                                     =======    =======    =======
Deferred:
   Federal .......................   $(3,859)   $ 2,328    $(3,051)
   State .........................      (725)       118        (77)
   Foreign .......................      --         --         --
                                     -------    -------    -------
                                     $(4,584)   $ 2,446    $(3,128)
                                     -------    -------    -------
Total income tax (benefit) expense   $(6,900)   $ 3,454    $(1,459)
                                     =======    =======    =======

Income tax refunds, net of payments, amounted to $149, $1,979, and $2,539 in
fiscal 2002, 2001, and 2000, respectively.

The total income tax expense (benefit) differs from the amount computed by
applying the applicable U.S. federal income tax rate of 35% in each of the
fiscal years 2002, 2001, and 2000 to earnings before income taxes for the
following reasons:


                                      F-20
<PAGE>


                                                   Fiscal Year Ended June 30,
                                                  ------------------------------
                                                    2002       2001      2000
                                                  -------    -------    --------
Computed "expected" tax expense
   (benefit) ..................................   $(6,355)   $ 5,143    $(5,886)
Increases (reductions) in taxes resulting from:
    Acquisition-related charges ...............       (72)    (1,112)     4,329
    State taxes, net of federal
      income tax benefit ......................    (1,787)      (331)       (96)
    Tax exempt interest income ................       (29)       (43)       (15)
    Export tax incentives .....................      --         (254)      (300)
    Change in Valuation Allowance .............     1,987        619       --
    Research Credit ...........................    (1,358)    (1,114)      (300)
    Other, net ................................       714        546        809
                                                  -------    -------    -------
                                                  $(6,900)   $ 3,454    $(1,459)
                                                  =======    =======    =======

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of June 30, 2002 and
2001 are presented below:

                                               JUNE 30,    June 30,
                                                2002         2001
                                              ---------   ----------
Deferred tax assets:
   Accounts receivable ....................   $    358    $    143
   Accrued liabilities ....................      1,965         610
   Inventory valuation ....................      1,066       1,492
   One-time charges .......................      1,725       1,943
   Intangibles ............................        262          96
   Federal and state NOLs and credits .....     26,207      17,486
   Other ..................................         46        --
                                              --------    --------
                                                31,629      21,770
   Less valuation allowance ...............      3,803       1,653
                                              --------    --------
   Deferred tax asset .....................     27,826      20,117
                                              --------    --------

Deferred tax liabilities:
   Prepaid expenses .......................       (208)        (92)
   Plant and equipment ....................     (2,731)       (111)
   Unrealized gain on marketable securities         (7)        (19)
                                              --------    --------
   Deferred tax liability .................     (2,946)       (222)
                                              --------    --------
Net deferred tax asset ....................   $ 24,880    $ 19,895
                                              ========    ========

The net current deferred tax assets and net non-current deferred tax assets as
recorded on the balance sheet as of June 30, 2002 and 2001 are as follows:

                                                JUNE 30,          June 30,
                                                  2002              2001
                                                -------           --------
Net current deferred tax asset ...............  $ 4,899           $ 4,076
Net noncurrent deferred tax asset ............   19,981            15,819
                                                -------           -------
Net deferred tax asset .......................  $24,880           $19,895
                                                =======           =======

                                      F-21
<PAGE>


The Company has recorded a valuation allowance to reflect the uncertainty of
realizing certain state net operating loss and credit carryforwards. The
valuation allowance as of June 30, 2001 was $1,653. The net change in the total
valuation allowance for the year ended June 30, 2002 was an increase of $2,150.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of June 30, 2002 will be allocated as follows:

                  Income tax benefit ................  $ 1,987
                  Additional paid-in capital ........      163
                                                       -------
                                                       $ 2,150

Management believes it is more likely than not that the remaining net deferred
tax assets of $24,880 will be realized as the results of future operations are
expected to generate sufficient taxable income to do so.

The deferred tax provision for 2002 does not reflect tax benefits of ($328)
allocated to other comprehensive income and ($73) allocated to paid in capital.

At June 30, 2002, the Company's share of the cumulative undistributed earnings
of foreign subsidiaries was $991. No provision has been made for U.S. or
additional foreign taxes on the undistributed earnings of foreign subsidiaries
because the Company intends to continue to reinvest these earnings.
Determination of the amount of unrecognized deferred tax liability associated
with these earnings is not practicable.

At June 30, 2002, the Company has federal and state net operating loss
carryforwards of approximately $45,405 and $73,089, respectively, and various
state credit carryforwards of $3,175, which are available to reduce income taxes
in various jurisdictions through 2022. The Company also has a federal general
business credit carryforward of approximately $4,592, which is available to
reduce federal taxable income, if any, through 2022. In addition, the Company
has alternative minimum tax credit carryforwards of approximately $206 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.

NOTE 18: SEGMENT REPORTING

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

The Company operates in three principal business segments globally:
Semiconductor, Industrial, and Telecommunications. For fiscal 2000, the Company
operated in one segment, as a world leader in metrology, process control, and
yield solutions servicing high precision industries. Substantially all of the
Company's operating results, assets, depreciation, and amortization are U.S.
based. The segment data is presented below in a manner consistent with
management's internal measurement of the business.


                                      F-22
<PAGE>

<TABLE>
<CAPTION>

                                                       Fiscal Year Ended June 30, 2002
                                      ----------------------------------------------------------------------------
                                      Semiconductor       Industrial         Telecommunications          Total
                                      -------------     ------------         ------------------       ------------
<S>                                       <C>               <C>                    <C>                   <C>
Sales ..............................      $37,483           $40,336               $ 6,607               $ 84,426
Gross Profit .......................        9,909            16,882                (1,995)                24,796
Gross Profit as a % Sales ..........         26%              42%                    (30)%                  29%
</TABLE>

<TABLE>
<CAPTION>

                                                       Fiscal Year Ended June 30, 2001
                                      ----------------------------------------------------------------------------
                                      Semiconductor       Industrial         Telecommunications          Total
                                      --------------    --------------      --------------------       -----------
<S>                                      <C>                <C>                   <C>                   <C>
Sales ..............................      $84,561           $35,178               $13,511               $133,250
Gross Profit .......................       38,737            15,969                 6,463                 61,169
Gross Profit as a % Sales ..........         46%              45%                    48%                    46%
</TABLE>

The total gross profit and the Semiconductor segment gross profit for the fiscal
year ended June 30, 2002 included $808 of inventory write-downs related to the
sale of the Automation Systems Group.

Separate financial information by segment for total assets, capital
expenditures, and depreciation and amortization is not available and is not
evaluated by the chief operating decision-maker of the Company.

Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than 19% of
total Company sales for each of the years ended June 30, 2002, 2001, and 2000
(see note 19). No other individual customer accounted for more than 10% of total
Company sales for any year presented in the accompanying consolidated financial
statements. Substantially all of the Company's operating results, assets,
depreciation, and amortization are U.S. based. The Company's sales are noted
below.

Sales by geographic area were as follows:
<TABLE>
<CAPTION>

                                                            Fiscal Year Ended June 30,
                                                      --------------------------------------
                                                         2002          2001           2000
                                                      --------       --------       --------
<S>                                                   <C>            <C>            <C>
Americas (primarily United States) ................   $ 41,040       $ 68,299       $ 48,835
Far East:
   Japan ..........................................     21,268         45,194         17,588
   Pacific Rim ....................................      8,054          7,423         11,714
                                                      --------       --------       --------
Total Far East ....................................   $ 29,322       $ 52,617       $ 29,302
Europe and Other (primarily Europe) ...............     14,064         12,334          9,106
                                                      --------       --------       --------
Total .............................................   $ 84,426       $133,250       $ 87,243
                                                      ========       ========       ========

</TABLE>

                                      F-23
<PAGE>


NOTE 19: RELATED PARTY TRANSACTIONS

Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of
certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to $17,636 (21% of net sales), $43,336 (33% of net sales), and $16,463
(19% of net sales), for the years ended June 30, 2002, 2001, and 2000,
respectively. Selling prices of products sold to Canon Inc. and Canon Sales Co.,
Inc. are based, generally, on the normal terms given to distributors. At June
30, 2002 and 2001, there was approximately, in the aggregate, $2,683 and $3,827,
respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co.,
Inc.

On April 11, 2001, the Company purchased 239,605 shares of its common stock from
two officers and directors for $4,986 (see note 13).

NOTE 20: MATERIAL CONTRACTS

In May 1997, the Company entered into a contract with the University of
California's Lawrence Livermore National Laboratory ("LLNL"), whereby the
Company will be a primary supplier of large plano optical components for the
National Ignition Facility ("NIF"). In April 2001 and January 2002, the Company
entered into related contracts with LLNL to supply additional optical components
to NIF. Revenues under the NIF contract, which is presently a fixed price
contract, are recorded as deliveries are made. Revenues recognized in fiscal
2002, 2001, and 2000 amounted to $3,834, $3,308, and $2,802, respectively.

During fiscal year 1999, the Company entered into an agreement with IBM, which
allows for marketing and servicing rights for its Atomic Force Microscope (AFM)
line of business for a four-year period. The Company made payments totaling
$2,250 to secure this relationship, which are being amortized over four years or
less.

On March 28, 2000, the Company entered into an agreement to terminate the
distribution agreement to market and sell AFM products. As part of the
agreement, the Company was granted a nonexclusive license to the IBM AFM
technology for the next three years and may continue to license the technology
for additional terms thereafter. The Company and Veeco Corporation, which
subsequently entered into the distribution agreement with IBM, have entered into
an additional agreement for support and service of AFM products previously sold
by the Company. As a result of this agreement, the Company's AFM sales and
service department was discontinued.



                                      F-24
<PAGE>


 SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands except per share amounts)

<TABLE>
<CAPTION>

                                                   FOR THE FISCAL YEAR ENDED JUNE 30, 2002
                                        -------------------------------------------------------------
                                        SEPTEMBER 30, DECEMBER 31, (1)      MARCH 31,    JUNE 30, (1)
                                        ------------- ----------------      ---------   --------------
<S>                                      <C>            <C>               <C>            <C>
Net sales .............................   $ 20,956        $ 19,006          $ 21,298        $ 23,166
Gross profit ..........................   $  7,025        $  4,678          $  6,282        $  6,811
Loss before taxes and minority interest   $ (3,711)       $ (4,737)         $ (5,851)       $ (3,858)
Income tax benefit ....................      1,410           1,800             2,223           1,467
Minority interest .....................         70              82                94             230
                                          --------        --------          --------        --------
Net loss ..............................   $ (2,371)       $ (3,019)         $ (3,722)       $ (2,621)
                                          ========        ========          ========        ========
Net loss per share:
   Basic (2) ..........................   $  (0.14)       $  (0.29)         $  (0.21)       $  (0.15)
                                          ========        ========          ========        ========
   Diluted (2) ........................   $  (0.14)       $  (0.29)         $  (0.21)       $  (0.15)
                                          ========        ========          ========        ========
</TABLE>

<TABLE>
<CAPTION>
                                                 For the Fiscal Year Ended June 30, 2001
                                           -----------------------------------------------------
                                           September 30,   December 31,  March 31,     June 30,
                                           -------------   ------------  ----------    ---------
<S>                                          <C>          <C>            <C>           <C>
Net sales .................................   $23,932       $32,731       $38,717       $37,870
Gross profit ..............................   $ 9,969       $13,611       $19,489       $18,100
Earnings before taxes and minority interest   $ 1,379       $ 3,063       $ 5,055       $ 5,198
Income taxes ..............................       469         1,041         1,719           225
Minority interest .........................        93           117           129           243
                                              -------       -------       -------       -------
Net earnings ..............................   $   817       $ 1,905       $ 3,207       $ 4,730
                                              =======       =======       =======       =======
Net earnings per share:
   Basic (2) (3) ..........................   $  0.06       $  0.13       $  0.21       $  0.27
                                              =======       =======       =======       =======
  Diluted (2) (3) ........................    $  0.05       $  0.13       $  0.20       $  0.26
                                              =======       =======       =======       =======
</TABLE>


----------

(1)  Loss includes the gain on sale of the Automation Systems Group of $6,142
     and related exit costs of $1,856, inventory write-downs of $808, and tax
     expense of $1,322 in the second and fourth quarters ended December 31, 2001
     and June 30, 2002, respectively.

(2)  Accounting principles generally accepted in the United States of America
     require the computation of the net loss per share to be based on the
     weighted average basic shares outstanding.

(3)  The difference between basic shares outstanding and diluted shares
     outstanding is the assumed conversion of common stock equivalents (stock
     options) in the amounts of 909, 764, 440, and 547 for fiscal 2001 quarters
     ended September 30, December 31, March 31, and June 30, respectively.


                                      F-25
<PAGE>



INDEPENDENT AUDITORS' REPORT ON SCHEDULE II

The Board of Directors
Zygo Corporation

Under date of August 16, 2002, we reported on the consolidated balance sheets of
Zygo Corporation and subsidiaries as of June 30, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2002 as contained in
the 2002 annual report to stockholders. 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 LLP

Hartford, Connecticut
August 16, 2002


                                      S-1
<PAGE>

<TABLE>
<CAPTION>


                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED JUNE 30, 2002, 2001, AND 2000

(Thousands of dollars)

                                          Balance                                                     Balance
                                        at Beginning                                                   at End
Description                               of Period            Provision          Write-Offs          of Period
-----------                             -------------          ---------          ----------          ---------
<S>                                        <C>                  <C>                 <C>                 <C>
YEAR ENDED JUNE 30, 2002:
  ALLOWANCE FOR DOUBTFUL
    ACCOUNTS .......................      $  381                $  599              $   31              $  949

  INVENTORY RESERVE ................      $3,080                $  842              $  183              $3,739

VALUATION ALLOWANCE ON NET
  DEFERRED TAX ASSETS ..............      $1,653                $2,150              $   --              $3,803

Year Ended June 30, 2001:
  Allowance for Doubtful
    Accounts .......................        $234                $  246              $   99              $  381

  Inventory Reserve ................      $2,846                $  312              $   78              $3,080

Valuation allowance on net
  Deferred tax assets ..............      $   --                $1,653              $   --              $1,653

Year Ended June 30, 2000:
  Allowance for Doubtful
    Accounts .......................      $1,324                $   70              $1,160              $  234

  Inventory Reserve ................      $4,513                $  (24)             $1,643              $2,846

Valuation allowance on net
  Deferred tax assets ..............      $   --                $   --              $   --              $   --
</TABLE>


                                      S-2
<PAGE>


<TABLE>
<CAPTION>
                                  EXHIBIT INDEX

EXHIBIT
 TABLE                                                                                                   FORM 10K
 NUMBER                                                                                                 PAGE NUMBER
 ------                                                                                                 -----------


 <S>              <C>                                                                                    <C>
 10.27            Amended and restated credit agreement dated May 14, 2001,
                  between Zygo Corporation and Fleet National Bank.

 10.28            Amended and restated credit agreement dated November 22, 2001,
                  between Zygo Corporation and Fleet National Bank.

 10.29            Amended and restated credit agreement dated June 26, 2002,
                  between Zygo Corporation and Fleet National Bank.

 10.30            Subcontract B514527 between The Regents of the University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated April 14, 2001.

 10.31            Subcontract B519044 between The Regents of the University of
                  California Lawrence Livermore National Laboratory and Zygo
                  Corporation dated January 14, 2002.

 21.              Subsidiaries of Registrant

 23.              Accountants' Consent

 24.              Power of Attorney

 99.1             Certification
 </TABLE>