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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-K405

(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, 2000
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
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             (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
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              (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 [ X ] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K405. [ X ]

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 August 31, 2000, was $903,190,742

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

      14,517,181 Shares of Common Stock, $.10 Par Value, at August 31, 2000

Documents incorporated by reference: Specified portions of the registrant's
Proxy Statement related to the registrant's 2000 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 Report.


                                       1
<PAGE>


                           FORWARD LOOKING STATEMENTS

All statements other than statements of historical fact included in this Annual
Report, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," regarding the Company's financial position,
business strategy, and plans and objectives of management of the Company for
future operations, are forward-looking statements. When used in this Annual
Report, words such as "anticipate," "believe," "estimate," "expect," "intend,"
and similar expressions, as they relate to the Company or its management,
identify forward-looking statements. Forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. 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

                                   THE COMPANY

Zygo Corporation ("Zygo" or the "Company") delivers high performance metrology
and automation solutions for manufacturers of semiconductor equipment and
precision parts, and manufactures optical components, systems and fiber optic
modules for next generation optical networks.

The Company has a successful track record in commercializing its product
innovations. Since 1992, the Company has introduced over 50 new products and an
extensive number of customer-specific applications. The Company received R&D
Magazine's R&D 100 awards and Photonics Circle of Excellence awards for its
NewView 100, Pegasus 2000, ZMI 2000, and Mesa product introductions in 1994,
1996, 1997, and 1998, respectively, and has expanded its product applications to
end industries which have not historically used noncontact metrology products
such as the precision machined parts industry.

On May 5, 2000, the Company acquired Firefly Technologies, Inc. ("Firefly"),
which became a wholly-owned subsidiary of the Company under the name Zygo
TeraOptix. Under the terms of the acquisition, the Company issued 2,303,937
shares of its common stock.

The following chart illustrates the combined strengths of the current Zygo
structure and demonstrates the strategic thrust of the Company:

                          INTEGRATED CORE COMPETENCIES

A) METROLOGY AND YIELD ENHANCEMENT SOLUTIONS

                                [GRAPHIC OMITTED]
                                                                  AUTOMATED
                                                                  METROLOGY
    SENSOR              APPLICATION SPECIFIC ENGINEERING          SOLUTIONS
----------------        --------------------------------        -------------
                                                                    Yield
     High                                    Parts               Productivity
   Precision              Analysis          Handling              Enhancing
   Metrology              Software         Automation             Solutions


                                       3
<PAGE>



Improving the yields of manufacturing processes by providing application
specific solutions for customers' precision manufacturing needs.

B) OPTICS AND OPTICAL COMPONENTS

                                    [GRAPHIC OMITTED]

------------           -------------              ---------------
                                                  Next
Macro                  Wavefront                  Generation
&                      Engineering &              Optical Network
Micro Optics           Opto-                      Components
                       Mechanical                 Modules &
                       Assembly                   Semiconductor
                                                  Optics &
                                                  Assemblies
------------           -------------              ----------------
Providing high precision optics, components and modules to the semi-conductor
and telecom industries.

                                INDUSTRY OVERVIEW

Manufacturers in high precision industries are radically redesigning processes
in order to compete more effectively in an increasingly demanding marketplace.
These changes are being necessitated by (i) decreasing product geometries, (ii)
increasing complexity of manufacturing processes, (iii) shortened product life
cycles, (iv) declining product prices and (v) intensified global competition.
These pressures on manufacturers to improve productivity and quality have
required integration of high precision metrology and process control
technologies directly into the manufacturing process in order to increase yields
and quality control. High performance, noncontact metrology is an enabling
technology for the semiconductor, data storage, optical manufacturing, and other
high precision manufacturing industries.

Advancing technologies have required manufacturers in a variety of industries to
produce smaller products with more precise tolerances and increased complexity
of design geometries, not capable of adequately being measured by the 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 sub micron precision machine parts.

The trend towards miniaturization and tighter tolerances creates new challenges
for manufacturers as they are forced to handle, measure, and test ever-smaller
components. As piece part dimensions and tolerances become smaller, "nano
technology scale" precision is necessitated and, to a greater extent than ever,
automated measurement and control is required.

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 outpace the growth of the overall capital
equipment market. Shortened product lifecycles, increased competition, and
declining product prices in these industries, have forced these manufacturers to
no longer depend solely on sales growth to fuel financial performance
improvement, but rather to focus greater attention on the need to reduce
production defects and significantly increase production yields. While the
semiconductor industry is rather mature in its use of these types of tools, the
telecom and



                                       4
<PAGE>


industrial 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.

With the acquisition of Firefly, the Company entered into the optical
communications marketplace. The Optical Communications Industry is characterized
by rapid expansion and growth, with both established and emergent companies
rushing to create next-generation all-optical components, systems and networks
that will replace existing bandwidth-constrained electrical-based systems.
All-optical networks will transport and process information at significantly
higher throughputs, and more efficiently. Multiple streams of information will
travel within optical fibers at the speed of light, and be introduced or
retrieved using DWDM (dense wavelength division multiplexing) systems, and
routed to different locations by high-speed Optical Cross-Connect Switches.

The availability of critical components and fiber-optic modules is presently
pacing the growth of this industry. The strong demand and short supply of these
components has created a significant opportunity for those who can efficiently
produce and deliver optical components. The limited number of manufacturers of
optical components creates a problem for customers who typically want multiple
sources for critical components and modules. Items that are in high-demand
include dielectric collimator lenses, filters, switches, beam combining modules,
and fiber arrays.

The Company believes this situation creates an opportunity for new entrants who
can rapidly fill the voids; and Zygo TeraOptix, with its assembled talent pool
and vertical manufacturing capabilities, experienced in the technically
analogous industries of optical data storage and recording head fabrication, is
well poised to address this dynamic market.

                                    STRATEGY

Zygo's objective has been to apply its core competencies in precision optics,
metrology and automation to expand its position as a leading worldwide supplier
of OEM products and instruments for the semiconductor, optical
telecommunications, and industrial manufacturing markets. Zygo dedicates
substantial resources to research, process and product development to enable it
to compete effectively in its market areas. Key elements of Zygo's strategy
include:

o     MAINTAIN ENHANCED LEADERSHIP THROUGH INNOVATIVE TECHNICAL SOLUTIONS

      Zygo's core competencies in high precision measurement, including
      interferometry, confocal scanning optical microscopy, systems integration,
      automated piece parts handling, and precision optic components are
      directly applied to meet the higher measurement precision, accuracy,
      resolution, data acquisition and data analysis requirements in the most
      demanding manufacturing processes of its customers. Throughout its
      history, Zygo has met its customers' requirements through innovation and
      invention, with 93 United States patents and 12 foreign patents, and 42
      United States patent applications and 48 foreign patent applications
      pending.


                                       5
<PAGE>


o     FOCUS ON NEW MARKETS

      Over the course of its 30-year history, Zygo has developed an Intellectual
      Property portfolio around the use of light for metrology and motion
      control. Zygo possesses patents used in metrology instruments that can be
      re-deployed into modules for optical communications. As an example, the
      Company's management believes that metrology can increase the
      manufacturers ability to deliver high yields in the production of optical
      components.

      Leveraging the assembled capabilities and talent pool, Zygo through its
      new TeraOptix subsidiary plans to deliver components and modules to
      optical communications customers, offering suitable alternative solutions
      at superior quality and competitive prices. As such, TeraOptix intends to
      operate at the highest level of integration to best optimize each given
      value proposition. Examples include a collimator lens and fiber-lens
      offering, electro-optic fiber-optic assembly and a polarizing beam
      combining module. A major internal development effort centers around the
      creation of a 1024 X 1024 optical cross-connect switch that will draw on
      our abilities to fabricate MEMs switches, microlenses and fiber-arrays,
      and integrate them.

      In response to a recent customer need for a beam combiner, Zygo TeraOptix
      created a set of base process technologies that can be used to address a
      broad range of modules. Specific capabilities created include a
      wavefront-guided alignment and in-situ component attachment schemes that
      enable TeraOptix to create hermetically sealed, epoxy-free low-loss
      modules.

      Zygo is also focused on expanding its presence in new high precision
      manufacturing markets where yield improvement process control solutions
      are enabling technologies. For example, the Company's MESA system has
      broadened the capabilities of Zygo's large aperture products and now
      allows manufacturers of precision machined parts to use interferometry to
      measure the surface topography of their parts. Zygo's history of
      innovation is across products and technologies, exhibited by the Company's
      ability to integrate nano-metrology products with automated discrete parts
      handling. Examples include Zygo's automated mask handling system, which
      incorporates motion control and precision parts handling with optical
      components and robotics, and the Company's reticle inspection system,
      which utilizes parts handling robotics and optical microscopy. The
      combination of several of the Company's core technologies results in
      automated precision metrology and process control solutions that can be
      placed directly in the production process.

o     BROADEN CUSTOMER RELATIONSHIPS

      One of Zygo's strategies is to form close technical and strategic
      relationships with leading companies in its targeted end markets. This is
      accomplished by working closely with its customers to provide high
      precision metrology and process control solutions integrated directly into
      the manufacturing process. Zygo has developed significant brand-name
      recognition among leading users of microfabrication technology, and
      several of its customers are repeat purchasers of multiple product
      families across technological platforms. Zygo intends, by forming closer
      customer alliances, to better understand the evolving needs of its
      customers and, through the application of innovative technology, to
      provide high performance, high quality, cost effective solutions to the
      production improvement requirements in the shortest possible cycle time.
      Through this solution-sales cycle, which further promotes a closer and
      longer term partnership relationship between Zygo and its customers, Zygo
      strives to attain a preferred position with major industry leaders.


                                       6
<PAGE>


o     SUPPLY QUALITY SOLUTIONS RAPIDLY

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

o     PROVIDE UNINTERRUPTED WORLDWIDE SERVICE AND SUPPORT

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

                            PRODUCTS AND APPLICATIONS

Zygo manufactures high performance, noncontact metrology instruments and systems
and accessories, and optical components and systems to precise tolerances both
for sale and for use as key elements in its own products. The Company's products
are based on its core competencies: (i) interferometry, (ii) confocal scanning
optical microscopy, (iii) systems integration, (iv) automated piece parts
handling, (v) precision optics and modules, and (vi) MEMS manufacturing.

Zygo's product strategy with respect to metrology and yield enhancement is to
apply its high precision automated metrology systems to its customers'
production lines in order to improve yields and increase productivity. The
Company's products employ such features as automated parts handling, auto-focus,
and automated parts alignment, thereby removing the operator from the
measurement process and improving throughput and product yields. The Company's
instruments and systems utilize modular designs where entire product families
share several, if not all, of the same components, modules, and software. Since
1992, Zygo has redesigned all of its instruments and continues to upgrade its
systems and their features, particularly their software capabilities.

Since its inception, Zygo has been broadening its ability to provide
productivity enhancing solutions through in-house development of leading-edge
technological innovations and through synergistic add-on acquisitions. The
Company has integrated these acquisitions, and has augmented its existing
interferometry and optical expertise with a broad array of high precision
metrology capabilities. The addition of systems integration and parts handling
capabilities allows Zygo to integrate its core metrology products into an
automated system, which can be placed directly into a customer's production
line.

With the acquisition of Firefly Technologies, Zygo's combined experiences in
metrology enable the Company to fully characterize its components, allowing for
rapid process yield and quality improvements.

TeraOptix's wafer fab, with a full complement of vacuum deposition,
photolithography, ion-milling, reactive ion etching, electroplating, wet
chemistry and film characterization machines, enables the Company to fabricate a
wide variety of components. These include patterned substrates for microwave


                                       7
<PAGE>


devices, MEMs devices for high-speed switching, and various metal and dielectric
coatings, including those required for optical filters and anti-reflection.
Silicon baseplates, with built-in alignment and attachment features, are also
fabricated within the wafer fab.

TeraOptix's capabilities in precision mechanical processing, spanning from
lapping and polishing to slicing and grinding, allows us to fabricate
micro-optic and opto-mechanical components, i.e., ball lenses, collimator
lenses, polished fibers, silicon baseplates, and platforms. A fully equipped
model shop enables Zygo TeraOptix to rapidly fabricate its own machined parts
and tools.

In Micro-Assembly and Opto-electronics Packaging, TeraOptix uses its proprietary
wavefront guided alignment methods and in-situ attachment schemes, enabling it
to produce hermetically sealed, epoxy-free, low-insertion loss modules. Recent
projects have included MEMs switch packages, tight-pitch fiber-arrays and
polarizing beam combiner modules. Leveraging the automation expertise of Zygo's
Delray Beach operations, efforts are under way to create a rapid and precise
fiber placement tool that will give Zygo TeraOptix a competitive advantage for
fiber-array and fiber-optic module production.

"Dashboard", TeraOptix's home-grown database management system, enables managing
and tracking of all manufacturing and business activities, including process
trends, order status, inventory levels, and process equipment status. A
web-accessible module, named "Approach", enables customers and partners to view
real-time product and process data, in a secure yet easy-to-use manner. Enabled
by TeraOptix proprietary data pumps, measurement information gathered off
TeraOptix's networked measurement and manufacturing equipment, is typically
available approximately 10 seconds after a measurement is completed.

We also manufacture the MicroLUPI 2000, a compact interferometer designed for
ease of use, especially for applications that involve repetitive testing of
similar components. Microlenses as small as 20 microns to 3 millimeters in
diameter can be quickly and automatically characterized. The MicroLUPI 2000 is
easily configured to test optics in reflection or transmission, using
collimated, converging or diverging illumination. With its integrated motion
control and down facing orientation, this system is ideal for testing lens
arrays, and for picking and testing discrete lenses, molded aspherics, miniature
mirrors and filters.

Zygo's instrument products utilize powerful processors that facilitate
high-speed data acquisition and data analysis. Zygo's interferometric surface
analysis microscopes and large aperture surface measurement interferometers
utilize Zygo's proprietary MetroPro(R) software, which has a graphical user
interface that makes the product very user friendly. The MetroPro(R) software,
combined with super high-resolution graphics and pull-down menus, provides the
user with engineering solutions with on-line processing. The software allows the
user to record, print, and store measurement data locally as well as to
distribute the data through networks for process management and further
analysis. Zygo's proprietary software provides Zygo with a high speed, powerful
analysis capability based on proprietary algorithms, easily configurable
screens, powerful image analysis modules, and adaptability to new applications.


                                       8
<PAGE>


                            ZYGO'S PRODUCT OFFERINGS
<TABLE>
<CAPTION>

CORE COMPETENCIES              MEASUREMENT/APPLICATION                          PRODUCT
-------------------------      -------------------------------------------      -------------------------
<S>                            <C>                                              <C>
Interferometry                 Surface Analysis Microscopy                      NewView Family
                               Large-Aperture Surface Analysis                  GPI family, MESA
                                                                                Flying Height Test
                               Precision Distance/Angle/Motion Measurement      ZMI family
                               Surface Figure Analysis for Microoptic           Microlupi 2000

Confocal Scanning              Surface Analysis Microscopy                      AMS, KMS family
  Optical Metrology            Confocal Modules - OEM                           K-2, K-3, NCM, PCM

Automatic Handling             Application Specific Automation Systems          Systems integration,
                                                                                production line automation

Precision Optical Systems      Optical Instruments; Zygo's own products,        Flats, Spheres, Waveplates,
                               Telecommunication devices, High Energy lasers    Mirrors

Micro Optics                   Fiber and Laser Collimation                      Ball & Collimator Lenses
                                                                                Lense & Micro Lense Arrays

Fiber Optic Modules            Subssemblies for DWDM & Optical Routers          Fiber Arrays, Beam Combiners,
                               Core Switches, Telecom                           NxN Switches
</TABLE>

PATENTS

Zygo relies on a combination of patent, copyright, trademark, and trade secret
laws and license agreements to establish and protect its proprietary rights in
its products. Zygo believes, however, that its success depends to a greater
extent upon innovation, technological expertise, and distribution strength. The
Company has been awarded 93 United States patents and 12 foreign patents, and
has 42 United States patent applications and 48 foreign patent applications
pending. Zygo, the Zygo logo, and Sight Systems are registered trademarks of
Zygo Corporation. The Company also holds several nonregistered trade-marks
including AAB System, AMS, GAPii, GapScope, GPI, Growth Potential
Interferometer, KMS, MaximoGP, MESA, MicroLUPI, MicroLUPI 2000, NewView 100, New
View 200, NewView 5000, Pegasus 2000, ROBOii, SXM-Cascade, SXM-Dolomite,
SXM-Sierra, ZLF-1000, ZMI-510, ZMI-1000, and ZMI-2000.

RESEARCH AND DEVELOPMENT

Zygo operates in an industry that is subject to rapid technological change and
engineering innovation. The Company distinguishes its instrument products on the
basis of its electro-optical sensor technology, its software capability, and its
skill in systems integration. Zygo dedicates substantial resources to research
and development. At June 30, 2000, the Company employed 83 individuals within
its R&D and engineering operations, including 26 individuals with advanced
degrees, of which 9 individuals have earned doctoral degrees.

As an integral part of Zygo's product development strategy, it has formed
technical relationships with several customers. The Company's strategy is to
form close technical working relationships with the leading suppliers in its
markets and thereby develop products and systems, which have the greatest


                                       9
<PAGE>


relevancy to the marketplace in general. In connection with its R&D operations,
Zygo also maintains a close working relationship with various research groups
and academic institutions in the United States as well as abroad. Zygo believes
that continued enhancement, development, and commercialization of new and
existing products and systems is essential to maintaining and improving its
leadership position.

                              CUSTOMERS AND MARKETS

The growing need for dimensional control to the subnanometer level has created a
growing need for Zygo's instruments and systems among both OEMs and end-users of
microfabrication technology. As the market demands for greater tolerance control
in the manufacturing process have increased, particularly in the data storage
and semiconductor markets, Zygo has been able to meet these demands with
on-the-production-line yield improvement instruments and systems as well as with
its off-line quality control instruments. The Company's installed base of high
precision metrology systems exceeds 6,540.

For most of fiscal year 2000, Zygo continued to operate in one segment, as a
world leader in metrology, process control, and yield solutions servicing high
precision industries. With the acquisition of Firefly in May 2000 and its
continued focus on customers and their needs, Zygo has reorganized to address
three key markets - semiconductor/data storage, industrial, and
telecommunications - which is consistent with how management will monitor
business performance and make key decisions beginning with the first quarter of
fiscal 2001.

Sales to the semiconductor and data storage industry in fiscal year 2000
constituted approximately 62% of the Company's revenues. A large portion of
sales to this sector is optics and motion control systems to OEMs for the
photolithography process, wafer repair, sawing systems, and mask making. The
demand for increasing disk drive areal density dictates that flying heights are
decreasing and that head designs and tolerances are becoming more and more
critical. As a result, the majority of sales to the data storage industry are
interferometric and vision metrology microscopes and systems, which provide
complete measurement and analysis of all critical head parameters.

Approximately 28% of the Company's fiscal year 2000 sales are to industrial
companies and research institutions. The Company anticipates growth
opportunities in its sales to the industrial market, as products such as the
NewView, ZMI and GPI family, and new product introductions, such as the MESA,
expand Zygo's capability to sell to the precision machining and industrial
sectors. Specifically, the Company sees significant potential in the Tier 1
suppliers to the automotive industry as performance engines require parts
machined to tighter and tighter tolerances. The Company also maintains close
working relationships with various research groups and academic institutions.
The Company continues to see its optic sales to the Industrial market increase.

The telecommunications industry, although a new market for the Company accounted
for 10% of the Company's sales in 2000, which can be attributed to both the
Company's Optics operations and the recently acquired TeraOptix operations.

Virtually all testing of optical components and systems and national
laboratories is done with Zygo's GPI family of interferometers which have a
variety of applications including aircraft windows, stages for high precision
equipment, and optics for Zygo's own equipment. The Company maintains key
relationships with major optics research organizations as evidenced by its
relationship and significant contract with NIF, referred to earlier.


                                       10
<PAGE>


Several of Zygo's customers purchase multiple product family types and multiple
technology platforms and employ Zygo's solutions at multiple facilities
worldwide. The following is a representative list of end-users of Zygo's
products:

                      SELECTED ZYGO CUSTOMERS BY END MARKET

  Semiconductor &                                     Industrial Surfaces,
   Data Storage           Telecommunication         Machine Control, & Optics
----------------------   ------------------------   --------------------------

Canon                    Agilent                    Bausch & Lomb
DuPont Photomasks        Corning                    Berliner Glass
ESI                      GSI Lumonics               Bosch
ETEC                     Infrared Fiber             Canon
IBM                      JDS Uniphase               Catepillar
Hitachi                  Leister                    Cummins Engine
KLA-Tencor               Lightchip                  Dover Instruments
Intel                    Lucent                     General Motors
Leica                    Mems Optical               Hughes
Motorola                 Opnetics                   Lawrence Livermore
NEC                      Photonics                  Martin Marietta
Phototronics             Qtera                      Melles Griot
SAE Magnetics            Vytran                     Nikon
Seimens                                             NIST
Sony                                                Olympus
SVGL                                                Saint-Gobain/Norton
Taiwan Mask Co.                                     Schott Glass
Texas Instruments                                   Vistakon
Zeiss                                               Zeiss
                                                    3M

In fiscal years 2000, 1999, and 1998, sales to Zygo's top customer, Canon Inc.,
accounted for approximately 19%, 21%, and 18%, respectively, of Zygo's net
sales. Sales to the Lawrence Livermore National Laboratories accounted for 3%,
6%, and 13% of the Company's sales in 2000, 1999, and 1998. No other single
customer accounted for more than 10% of Zygo's sales in any of the 2000, 1999,
or 1998.

                                     BACKLOG

Backlog at June 30, 2000, was $45,943,000 compared to $28,941,000 at June 30,
1999, an increase of $17,002,000 (59%). The increase in the backlog was
principally a result of a surge in the semiconductor industry and the change in
the sales infrastructure.

                                MARKETING & SALES

The Company's core marketing strategy is to establish and solidify strategic
relationships with leading OEMs and end-users in targeted end-markets. The
selling process for Zygo's products is performed through Zygo's worldwide sales
organization and frequently involves participation by sales, marketing,
applications specialists, and engineering personnel. Zygo's marketing activities
also include participation in international standards organizations, trade
shows, publication of articles in trade journals, participation in industry
forums, and distribution of sales literature. In addition, Zygo's strategic
relationships with customers serve as highly visible references.


                                       11
<PAGE>


Sales to the Company's OEM customers are usually through direct sales personnel.
Zygo's sales and marketing staff and engineers work closely with the OEM to
design high value-added subsystems to be integrated into the OEM's product.
These subsystems often contain multiple Zygo technologies, are highly
customized, and provide a differentiated advantage for the OEM. While these
sales generally take a long time to develop and deliver, the result can be a
long-term relationship as a sole-source supplier.

Zygo's regional organization sells all Zygo products and services through a
combination of direct sales staff and independent distributors and sales
representatives. The Company's regional sales offices are headquartered in
Middlefield, Connecticut (Eastern USA Region); Chicago, Illinois (Central USA
Region); Sunnyvale, California (Western USA Region); Damstad, Germany (European
Region); Singapore (Pac Rim Region); and Tokyo, Japan (Japan Region).
Additionally, the Company maintains direct sales offices in Delray Beach,
Florida; Longmont, Colorado; and Taiwan. At June 30, 2000 Zygo employed 93
sales, service, applications support, and marketing personnel. Additionally, the
Company employs more than 10 representatives and distributors in international
regions to support sales and service in over 20 countries including Japan,
Singapore, Malaysia, Philippines, Taiwan, South Korea, Germany, United Kingdom,
France, and Italy. The combination of direct sales and representatives allow the
Company to be truly international in its sales and customer support approach.

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


                                                Year Ended June 30,
                                  ----------------------------------------------
                                       2000             1999            1998
                                  -------------      ----------      -----------

United States....................      56.0%           53.9%            56.0%
Japan............................      20.2%           23.3%            22.8%
Pacific Rim......................      13.4%            9.9%            11.6%
Other (primarily Europe).........      10.4%           12.9%             9.6%

Almost all of Zygo's export sales are negotiated, invoiced, and paid in United
States dollars.

CUSTOMER SUPPORT

Zygo believes that its strong commitment to service is essential, based on the
growing complexity of the equipment used in the manufacturing process by Zygo's
customers. As Zygo's products are on customer production lines, uptime of Zygo's
products is critical considering the effect on the customers' production
efficiency. In March 1999, Zygo established a Technical Support Center within
its Middlefield site. This center is staffed with individuals who are
knowledgeable of the Company's products and offer technical support via e-mail
or via an 800 number service (1-800-ZYGO-NOW). At June 30, 2000, Zygo's domestic
customer support and service staff consisted of 20 persons. Outside of the U.S.,
Zygo's distributors and sales representatives assist the direct service staff
allowing the Company to offer a worldwide network for customer support,
providing 24-hour-on-demand maintenance services. The service engineers are
skilled in optical and electrical component repair, software, application and
system integration, diagnostics, and problem solving capabilities.


                                       12
<PAGE>


Zygo offers its customers three main types of service programs including
priority support, extended warranty, and preventive maintenance, and also
customizes programs to meet specific customer needs. These service programs
include emergency service scheduling, software upgrades, preventative
maintenance visits, and charges for parts, labor, and travel. To minimize
downtime, the Company has available spare parts kits designed to ensure
availability and emergency delivery. Finally, the Company can supply customers
with upgrades for nearly all of its systems.

Zygo also offers testing services for a fee to customers, which require extra
precision, an alternative metrology resource, a third party
opinion/certification, or extended metrology capabilities. This service provides
an economical way for customers to measure and/or certify their samples with
Zygo's precision, noncontact, surface and optical measuring instruments. When
customers need the accuracy and NIST-traceability of Zygo precision surface and
optical measuring instruments, but do not have the volume to justify a purchase,
Zygo's Testing & Certification Services provides a cost-effective solution. The
Company's facility in Middlefield, Connecticut, has advanced equipment for
testing a customer's parts and providing the customer with three-dimensional
surface maps and supporting data necessary for determining the quality of the
parts.

Zygo also offers absolute calibration of spheres and flats, as well as large
aperture plano surfaces. To assist customers in establishing and maintaining a
routine calibration program, the Company often automatically notifies customers
when the next certification is due.

TRAINING AND SEMINARS

In addition to its customer support network, Zygo offers training programs and
maintenance contracts for its customers for a fee. Zygo's Customer Education and
Training seminars offer training in the areas of interferometry, optical
testing, surface metrology, and 3D microscopy, and can be customized to suit the
attendees particular needs. Customer opticians, QC inspectors, technicians and
engineers, and managers generally attend the classes and receive the training
necessary to reduce the variability of measurements, solve chronic testing
problems due to issues such as alignment and environment, increase throughput of
production teams, automate systems setup and data recording, and prevent
bottlenecks in the QC department. Classes can be held at Zygo's Middlefield,
Connecticut, or Sunnyvale, California, locations or at the customer's location.

All Zygo training courses integrate lab sessions with the classroom content.
While the classes are not restricted to Zygo customers, attendees use Zygo
interferometers to set up and measure surfaces as well as explore many of the
features and functions of MetroPro(R). In this respect, classes also serve as a
sales tool as attendees experience the user-friendly setup and performance of
Zygo products.

               MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY

Late in 1999, Zygo reorganized its operations, eliminating the manufacturing
activities of its Sunnyvale and Newbury Park, California, operations. Zygo's
principal manufacturing activities are conducted at its facilities in
Middlefield, Connecticut; Longmont, Colorado; Holliston, Massachusetts and
Asslar, Germany. Zygo maintains an advanced optical components manufacturing
facility in Middlefield, specializing in the fabrication, polishing, and coating
of plano (flat) optics for sales to third parties, as well as the manufacturing
of a wide variety of optics that are used in Zygo's instrument products. Zygo's
manufacturing activities for its instruments and system products consist
primarily of assembling and testing components and sub assemblies, some of which
are supplied from within Zygo and others are supplied by third party vendors and
then integrated into Zygo's finished products. Many of the components and
subassemblies are standard products, although certain items are made to Company


                                       13
<PAGE>


specifications. Zygo also maintains Computer Numerical Control (CNC) metal
fabrication equipment for in-house production of strategic metal formed
components.

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

At its Middlefield operations, Zygo also maintains a fully integrated management
information system which includes the business modules (capacity planning,
materials requirements planning, order entry, financials, etc.) necessary to
manage Zygo's growing operations there. All of Zygo's worldwide operations are
connected by a wide area network which provides full network services including
shared databases, electronic mail, and the ability to interchange files
containing writing material, software code and engineering drawings.
Additionally, to facilitate effective communications, Zygo's Middlefield,
Longmont, and Sunnyvale operations have installed advanced video conferencing
equipment. At June 30, 2000 the Company employed 297 personnel in its
manufacturing operations.

The Company has developed a significant Total Quality Management ("TQM")
process, which is headed by the Vice President of Manufacturing. The TQM program
is characterized by a 7-step problem solving process whereby employees identify
areas of waste, establish teams, and apply the process to eliminate the root
cause of the problem. The TQM program, which is completely voluntary for
employees, was instrumental in the Company obtaining ISO 9001 certification at
its Middlefield facility where it was originally launched and has a 30% employee
participation

                                    EMPLOYEES

At June 30, 2000, Zygo employed 486 persons.

None of the Company's employees are covered by collective bargaining agreements.
Zygo has never experienced a work stoppage and believes that its relations with
its employees are good.


                                       14
<PAGE>


ITEM 2. PROPERTIES

The Company maintains manufacturing facilities in Middlefield, Connecticut,
Holliston, Massachusetts, Asslar, Germany and Longmont, Colorado, and maintains
its corporate headquarters on Laurel Brook Road in Middlefield, Connecticut. The
Middlefield facility consists of one 135,500-square-foot building on
approximately 13 acres. In 1998, this facility was expanded by 35,500 square
feet to provide additional optical fabrication capacity and a new office area
for sales, service, R&D, and administrative personnel. All other facilities are
leased.

<TABLE>
<CAPTION>
                                                                    Square Feet
                                                       ---------------------------------         Owned /
                Operation/Location                     Manufacturing              Total         Lease Exp.
----------------------------------------------------   -------------            --------        ----------
<S>                                                     <C>                      <C>            <C>
Corporate Headquarters                                   80,000                  135,500          Owned
  Eastern Regional Sales Office,
  Instrument Manufacturing,
  and Optics Manufacturing
Middlefield, Connecticut

Automation Systems Manufacturing                         15,000                   32,000         Leased
Longmont, Colorado                                                                              31-May-06

Zygo TeraOptix                                           10,000                   16,000         Leased
Holliston, Massachusetts                                                                        31-Mar-02

Zygo - Laser Technology (R&D)                                 0                    1,452         Leased
Watsonville, California                                                                         14-Apr-05

Western Regional Sales Office                                 0                   20,000         Leased
  and R&D Center                                                                                31-Oct-00
Sunnyvale, California

R&D Center                                                    0                   12,240         Leased
Newbury Park, California                                                                        2-Feb-03

European Regional Sales Office,                           1,500                    4,000         Leased
  Confocal Manufacturing                                                                        31-Aug-03
Asslar, Germany

Zygo - Pacific Rim Sales Office                               0                    2,350         Leased
Singapore                                                                                       1-Mar-01

ZygoLOT                                                                                          Leased
Damstad, Germany                                              0                    1,296        1-Oct-04

Zygo KK                                                                                          Leased
Japan                                                         0                    1,775        31-Oct-01
                                                        -------                  -------
Total                                                   106,500                  226,613
                                                        =======                  =======
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

None.


                                       15
<PAGE>


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


None.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

GARY K. WILLIS - AGE 55 - CHAIRMAN

Mr. Willis has served as Chairman of the Company since November 1999. Mr. Willis
also served as Chairman and Chief Executive Officer from November 1998 to
November 1999, and as President and Chief Executive Officer from August 1993 to
November 1998. From February 1992 to August 1993, Mr. Willis served as President
and Chief Operating Officer of the Company. Previously, Mr. Willis spent 15
years with The Foxboro Company, most recently as President, Chairman and CEO.

Mr. Willis has served as an executive officer of the Company since February 1992
and is a director of the Company.

J. BRUCE ROBINSON - AGE 58 - PRESIDENT AND CHIEF EXECUTIVE OFFICER

Mr. Robinson has served as President and Chief Executive Officer since November
1999 and as President from February 1992 to November 1999. Previously, Mr.
Robinson 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.

MICHAEL J. AUTH - AGE 46 - CHIEF FINANCIAL OFFICER, VICE PRESIDENT FINANCE AND
TREASURER

Mr. Auth has served as the Chief Financial Officer, Vice President Finance and
Treasurer since March 2000. Previously Mr. Auth served as Vice President,
Finance and Information Systems for M/A-COM, the wireless division of Tyco
International from 1996 to 2000 and in various senior financial positions with
Comsat Corporation from 1987 to 1996.

Mr. Auth has served as an executive officer of the Company from March 2000.

JOHN S. BERG - AGE 37 - PRESIDENT AND CHIEF TECHNICAL OFFICER, ZYGO TERAOPTIX

Mr. Berg has served as the President and Chief Technical Officer of Zygo
TeraOptix since May 2000. Previously Mr. Berg served as the President and Chief
Technical Officer of Firefly Technologies from 1997 to 2000 and has 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 50 - VICE PRESIDENT MANUFACTURING

Mr. Bacon has served as Vice President Manufacturing since April 2000.
Previously, Mr. Bacon served as Vice President, Corporate Quality of the Company
from January 1996 to April 2000. From November 1993 to January 1996, Mr. Bacon
was Director of Total Quality of the Company and also served as Manager of
Instrument Manufacturing Engineering of the Company from June 1987 to November
1993.

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


                                       16
<PAGE>


BRIAN J. MONTI - AGE 44 - VICE PRESIDENT, WORLDWIDE SALES AND SERVICE

Mr. Monti has served as Vice President, Worldwide Sales and Service since July
1999. Previously, Mr. Monti served as Vice President, Sales, Service and
Marketing for Radiometric Corporation from 1998 to 1999 and Vice President,
Sales, Service and Marketing for Honeywell Measurex from 1984 to 1998.

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

DAVID J. PERSON - AGE 52 - VICE PRESIDENT HUMAN RESOURCES

Mr. Person has served as Vice President Human Resources since September 1998.
Previously Mr. Person 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 40 - VICE PRESIDENT, BUSINESS OPERATIONS, ZYGO TERAOPTIX

Mr. Tan has served as the Vice President of Business Operations of Zygo
TeraOptix since May 2000. Previously Mr. Tan served as the Vice President of
Business Operations of Firefly Technologies from 1997 to 2000 and has held
management and engineering positions at Quantum Corporation from 1994 to 1997.

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

ROBERT A. SMYTHE - AGE 49 - VICE PRESIDENT PRODUCT DEVELOPMENT AND ENGINEERING

Mr. Smythe has served as Vice President Product Development and Engineering
since June 1998. Previously, he served as Vice President, Sales and Marketing of
the Company from January 1996 to June 1998. From June 1993 to January 1996, Mr.
Smythe was Director of Sales and Marketing of the Company and from April 1992 to
June 1993 served as Manager, Industry Marketing of the Company.

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

CARL A. ZANONI - AGE 59 - VICE PRESIDENT TECHNOLOGY

Dr. Zanoni has served as Vice President Technology since June 1998. Previously,
he served as Vice President, Research, Development and Engineering of the
Company 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. Willis, Mr. Robinson, Mr. Berg, Mr. Tan 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>


                                     PART II

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

The Company's common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market under the symbol "ZIGO". Market price data for 2000 and
1999, is as follows:

                               Fiscal Year                   Fiscal Year
                            Ended June 30, 2000          Ended June 30, 1999
                         ------------------------      ----------------------
                           High             Low         High             Low
                         --------         -------      -------         -------
First quarter            $14 5/8          $9 1/4       $15 3/8         $6 3/8
Second quarter           $25 1/16         $13          $12 3/4         $5
Third quarter            $74 5/16         $19 3/8      $15 3/4         $8 1/2
Fourth quarter           $94              $20 3/4      $13 1/8         $7 1/4


The number of stockholders of record at June 30, 2000 was 492.


                                       18
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

(Thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                 Fiscal Year Ended June 30,
                                                            -----------------------------------------------------------------------
                                                            2000 (1)        1999 (1)      1998 (1)        1997 (1)         1996
                                                            --------        --------      --------        --------        -------
<S>                                                         <C>             <C>           <C>             <C>             <C>
Net Sales                                                   $ 87,243        $63,382       $ 99,084        $ 87,220        $ 57,374
Gross Profit                                                $ 32,555(4)     $22,385       $ 41,449        $ 41,825        $ 25,866
      % of sales                                                  37%            35%            42%             48%             45%

Earnings before taxes and nonrecurring charges              $  7,256(2)     $(6,851)      $ 12,940(2)     $ 21,121(2)     $ 11,558
      % of sales                                                   8%           (11%)           13%             24%             20%
Earnings before nonrecurring charges                        $  4,798(2)     $(3,876)      $ 8,949(2)      $ 13,960(2)     $  7,799
      % of sales                                                   5%            (6%)            9%             16%             14%
Earnings per share before nonrecurring charges
      Basic                                                 $   0.38(2)       $(.33)      $   0.78(2)     $   1.34(2)     $   0.84
      Diluted                                               $   0.34(2)       $(.33)      $   0.69(2)     $   1.16(2)     $   0.72
   Earnings per share before nonrecurring charges                203%          (148)%          (41)%            62%            121%
       growth rate

Net earnings (loss)                                         $(16,047)       $(3,876)      $  7,029        $  2,877        $  7,799
Net earnings (loss) per common share:
   Basic (3)                                                $  (1.28)       $  (.33)      $   0.61        $   0.28        $   0.84
   Diluted (3)                                              $  (1.28)       $  (.33)      $   0.55        $   0.24        $   0.72
Weighted average number of shares:

   Basic                                                      12,511         11,780         11,480          10,403           9,323
   Diluted                                                    12,511         11,780         12,877          11,998          10,878

Research and development                                    $ 11,270        $ 9,186       $  9,844        $  7,151        $  5,538
Capital expenditures                                        $  6,513        $ 4,372       $  9,126        $  4,723        $  2,864
Depreciation and amortization                               $ 11,318        $ 4,448       $  3,412        $  2,612        $  1,477

<CAPTION>

                                                                                           June 30,
                                                            -----------------------------------------------------------------------
                                                             2000(1)        1999(1)        1998(1)        1997(1)           1996
                                                            ---------       -------        -------        -------         --------
<S>                                                         <C>             <C>           <C>             <C>             <C>
Working capital                                             $ 56,550        $ 43,766      $ 50,246        $ 47,633        $ 47,148
Current ratio                                                    4.5             4.8           4.1             4.6             5.2
Total assets                                                $ 95,162        $ 82,442      $ 91,444        $ 78,799        $ 65,895
Long-term debt (excluding current portion)                        84        $     36      $     65        $    --         $    --
Stockholders' equity                                        $ 78,229        $ 68,712      $ 72,382        $ 62,408        $ 54,087
Price-earnings ratio                                           N/A             N/A            26.9           128.1            30.4
Number of employees at year end                                  486             444           466             399             287
Sales per employee - average                                $    179        $    143      $    213        $    231        $    224
Book value per common share                                 $   5.50        $   6.16      $   6.60        $   5.91        $   5.34
Market price at year-end                                    $ 90.813        $ 11.438      $ 14.813        $ 30.750        $ 21.875
</TABLE>


(1)  The results of Firefly Technologies, which is being accounted for as a
     pooling-of-interests, are included as of July 1, 1997. The results of Sight
     Systems, Inc ("SSI"), which is being accounted for as an immaterial
     pooling-of-interests, are included from July 1, 1997; the results of
     Syncotec Neue Technologien und Instrumente GmbH ("Syncotec") are included
     from September 1, 1997 when the acquisition of the remaining 50% of
     Syncotec was completed; and the results of Technical Instrument Company
     ("TIC") are included in the consolidated results of the Company from August
     8, 1996 when that acquisition was effective. Both of Syncotec and TIC were
     accounted for as purchases.

(2)  Nonrecurring charges include acquisition-related charges of $14,001, $1,585
     and $11,083 in the fourth quarter ended June 30, 2000, and in the first
     quarter ended September 30, 1997 and 1996, 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.

(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 0, 0, 1,397,000, 1,595,000, and 1,555,000 in the
     years ended June 30, 2000, 1999, 1998, 1997, and 1996, respectively.

(4)  Includes nonrecurring charges of $4,214 related to the inventory write off
     in the fourth quarter of fiscal 2000 as part of the Company's
     reorganization of its west coast operation.

                                       19

<PAGE>



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

                              RESULTS OF OPERATIONS

FISCAL 2000 COMPARED TO FISCAL 1999

Net sales of $87,243,000 for fiscal 2000 increased by $23,861,000 or 38% from
fiscal 1999 net sales of $63,382,000. The Company's sales were favorably
impacted by the increase in demand from the semiconductor market and from the
reorganization of the sales function, which moved the sales, marketing and
customer service to a regional basis in order to put the critical support
services closer to the customer. During each quarter of fiscal 2000 there was an
increase in orders, sales and backlog. Product and system backlog is now at a
record level and reflects the strong market demand for our manufacturing
productivity and yield enhancement solutions. Orders for the year exceeded $100
million for the first time.

The Company's sales outside of the United States amounted to $38,408,000 in
fiscal 2000, an increase of $10,379,000 or 37% from fiscal 1999 levels of
$28,029,000. Sales in Japan during fiscal 2000 amounted to $17,588,000, an
increase of $3,445,000 or 24.4% from fiscal 1999 levels. Sales in the Pacific
Rim and Europe amounted to $11,714,000 and $9,106,000, respectively,
representing 94% and 16% increases from 1999 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 2000 amounted to $32,555,000, an increase of $10,170,000
or 45.4% from gross profit of $22,385,000 in fiscal 1999. As a percentage of net
sales, gross profit in fiscal 2000 was 37.3%, as compared to 35.3% in fiscal
1999. The increase in gross profit and gross profit as a percentage of sales
were primarily due to the increase in volume and a more favorable product mix.

Selling, general and administrative expenses in fiscal 2000 amounted to
$18,504,000 a decrease of $1,129,000 or 5.8% over fiscal 1999. During fiscal
2000, the Company recorded a $1 million credit to the selling, general and
administrative expenses as a result of a legal settlement. Absent that credit,
the expenses in this area remained relatively constant. As a percentage of net
sales, selling, general, and administrative expenses decreased in fiscal 2000 to
21.2 % as compared to 31.0% in fiscal 1999, as a result of the increase in the
volume of sales, increase in efficiencies of the group, and the decrease in the
expense primarily as a result of the proceeds from the legal settlement.

Research, development and engineering expenses ("R&D") in fiscal 2000 totaled
$11,270,000 and increased by $2,085,000 from fiscal 1999. The Company's
management continues to pursue projects which will enhance the Company's product
offering and provide long-term strategic and financial benefits. In addition to
the normal investment in Research and Development, the Company is increasing its
development in the optical module market in order to develop prototypes for
major users in the telecommunications industry. R&D costs as a percentage of net
sales amounted to 12.9%, which compares with 14.5% of net sales in 1999.

The Company recorded nonrecurring charges in the amount of $24,568,000 in fiscal
2000. This charge was a result of the Company's acquisition of Firefly
Technologies, Inc. and the Company's decision to reorganize its West Coast
operations. The Company recorded nonrecurring charges of $14,001,000 in 2000 as
a result of the acquisition of Firefly Technologies, Inc. The nonrecurring
charge from the acquisition was $12,024,000 for compensation expense resulting
from the difference in the Firefly stock

                                       20

<PAGE>

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. 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. The Company did not record any nonrecurring
charges in fiscal 1999.

Amortization expense of $7,102,000 for fiscal 2000 increased by $5,844,000 or
465% from fiscal 1999 levels of $1,258,000. Substantially all of the increase is
associated with the West Coast operations write-off of goodwill and other
intangible assets and the amortization expense recorded on the Atomic Force
Microscope line of business.

The Company's operating losses in fiscal 2000 were $18,322,000 as compared to
operating losses of $7,691,000 in fiscal 1999.

Income tax benefits in fiscal 2000 totaled $1,459,000 or 8% of pretax losses,
which compares with income tax benefit of $2,975,000 or 43% of pretax losses in
fiscal 1999. The change from year to year relates primarily to the tax benefits
that could not be recorded for financial statement purposes associated with the
compensation charge in connection with the Firefly acquisition in fiscal 2000.

The Company recorded a net loss for fiscal year 2000 of $16,047,000 or $(1.28)
per share, as compared to a net loss of $3,876,000 or $(.33) per share during
fiscal 1999.

Backlog at June 30, 2000 was $45,943,000 compared to $28,941,000 at June 30,
1999, an increase of $17,002,000 or 59%.

FISCAL 1999 COMPARED TO FISCAL 1998

Net sales of $63,382,000 for fiscal 1999 decreased by $35,702,000 or 36% from
fiscal 1998 net sales of $99,084,000. The Company's sales were adversely
impacted by market conditions, which began with poor conditions in the Asian
economic environment, leading to weak conditions in the semiconductor and data
storage markets. These forces impacted net sales of the Company's instruments
and systems, which decreased by 35.3% to $41,020,000. Net sales of modules and
components decreased by 35.1% to $22,362,000. The decrease in modules and
components was principally the result of reductions in revenue associated with
the Lawrence Livermore National Laboratory National Ignition Facility Project as
1998 results included $8,887,000 of revenue associated with the facilitation of
the Company's Middlefield, Connecticut plant and to a lesser extent motion and
optical component sales to OEM customers.

The Company's sales outside of the United States amounted to $28,029,000 in
fiscal 1999, a decrease of $14,990,000 or 34.8% from fiscal 1998 levels of
$43,019,000. Sales in Japan during fiscal 1999 amounted to $14,143,000, a
decrease of $8,141,000 or 36.5% from fiscal 1998 levels. Shortfalls were caused
by lower demand from Japanese customers due to market conditions, including
lower sales of motion control components to Canon Inc. for incorporation into
Canon's photolithography "steppers" used in the production of semiconductors.
Additional reductions occurred in mask metrology systems where macroeconomic
factors impacted sales levels. Sales in the Pacific Rim and Europe amounted to
$6,038,000 and $7,848,000, respectively, representing 46.8% and 16.4% reductions
from 1998 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.

                                       21

<PAGE>

Gross profit in fiscal 1999 amounted to $22,385,000, a decrease of $19,064,000
or 46% from gross profit of $41,449,000 in fiscal 1998. As a percentage of net
sales, gross profit in fiscal 1999 was 35.3%, as compared to 41.8% in fiscal
1998. The decreases in gross profit and gross profit as a percentage of sales
were primarily due to volume shortfalls and the associated underutilization of
the Company's manufacturing facilities as well as costs, which were essentially
one time in nature, incurred as the Company realigned its manufacturing
operations in response to lower demand. These actions led to the elimination of
manufacturing in the Company's Newbury Park and Sunnyvale, California
facilities.

Selling, general and administrative expenses in fiscal 1999 amounted to
$19,633,000 an increase of $909,000 or 4.9% over fiscal 1998. During fiscal
1999, the Company initiated substantial cost reduction efforts as well as
efforts associated with creating additional sales and support infrastructure.
1999 results were also impacted by bad debt expenses, most notably with
contracts associated with StorMedia, Inc. Additional costs have been incurred
for the creation of sales infrastructure and the addition of Atomic Force
Microscopy technology to the Company's product portfolio. As a percentage of net
sales, selling, general, and administrative expenses increased in fiscal 1999 to
31.0% as compared to 18.9% in fiscal 1998, as a result of such increased
expenses and lower sales volume levels.

Research, development and engineering expenses ("R&D") in fiscal 1999 totaled
$9,185,000 and decreased by $659,000 from fiscal 1998. During the third and
fourth quarters, consolidations and cost reduction efforts were targeted in this
functional area. Particular emphasis was given to the vision and confocal
product lines where the completion of certain R&D programs and the resulting
introduction of new products enabled these cost savings actions to move forward.
The Company's management continues to pursue projects which will enhance the
Company's product offering and provide long-term strategic and financial
benefits. R&D costs as a percentage of net sales amounted to 14.5%, which
compares with 9.9% of net sales in 1998.

The Company recorded nonrecurring charges in the amount of $1,920,000 in fiscal
1998, all which were incurred in the three months ended September 30, 1997. The
nonrecurring charges related to $707,000 of expenses incurred to complete the
Company's merger with SSI, recorded as a pooling-of-interest, the write-off of
$878,000 of in-process research and development costs in conjunction with the
Company's acquisition of Syncotec, and failed merger costs of $335,000 relating
to the Company's failed efforts to merge with Digital Instruments, Inc. The
Company did not record any nonrecurring charges in fiscal 1999.

Amortization expense of $1,258,000 for fiscal 1999 increased by $465,000 or
58.6% from fiscal 1998 levels of $793,000. Substantially all of the increase is
associated with the amortization expense recorded on the Atomic Force Microscope
line of business.

The Company's operating losses in fiscal 1999 were $7,691,000 as compared to
operating profits of $10,168,000 in fiscal 1998.

Income tax benefits in fiscal 1999 totaled $2,975,000 or 43% of pretax losses
which compares with income tax expense of $3,991,000 or 36% of pretax income in
fiscal 1998.

The Company recorded a net loss for fiscal 1999 of $3,876,000 or $(.33) per
share, as compared to net earnings of $7,029,000 and $.55 per share during
fiscal 1998.

Backlog at June 30, 1999 was $28,941,000 compared to $24,410,000 at June 30,
1998, an increase of $4,531,000. The Company's instruments and systems at June
30, 1999 increased $6,280,000 largely due to increases in the automation
backlog. The components backlog fell by $1,749,000.

                                       22

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2000, working capital was $56,550,000, an increase of $12,784,000
from the amount at June 30, 1999, and the Company had cash and cash equivalents
of $15,598,000 and marketable securities amounting to $8,268,000 for a total of
$23,866,000. Accounts payable and accrued expenses increased by $4,629,000,
while accounts receivable increased by $7,657,000. As of June 30, 2000, there
were no borrowings outstanding under the Company's $3,000,000 bank line of
credit. Stockholders equity at June 30, 2000 increased by $9,517,000 from the
year earlier to $78,229,000, largely as a result of stock option exercises and
the related tax benefit and the acquisition of Firefly.

At June 30, 1999, working capital was $43,766,000, a decrease of $6,480,000 from
the amount at June 30, 1998, and the Company had cash and cash equivalents of
$13,022,000 and marketable securities amounting to $8,351,000 for a total of
$21,373,000. The $9,230,000 decrease in cash, cash equivalents, and marketable
securities from the amount at June 30, 1998 came primarily from net losses of
$3,989,000 and investing activities totaling $7,320,000. Additions to property,
plant, and equipment account for $4,362,000 and AFM intangible purchases
requiring cash payments of $2,250,000 were the major utilizers of cash. Lower
business activity led to accounts payable and accrued expense decreases of
$4,244,000, which were largely offset by accounts receivable reductions of
$4,074,000. Management expects fiscal 2000 capital expenditures to approximate
fiscal 1999 capital spending levels. At fiscal year end, the Company had
$1,410,000 in inventory and purchase commitments of approximately $7,324,000
under its distribution agreement relating to the AFM technology and product
line. As of June 30, 1999, there were no borrowings outstanding under the
Company's $3,000,000 bank line of credit. Stockholders equity at June 30, 1999
decreased by $3,670,000 from the year earlier to $68,712,000, largely as a
result of net losses of $3,989,000.

RISK FACTORS THAT MAY IMPACT FUTURE RESULTS

Industry Concentration and Cyclicality. Zygo's business is significantly
dependent on capital expenditures by manufacturers of components for the
computer disk drive industry and of semiconductors. 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 Zygo. For the foreseeable future, Zygo's operations
will continue to be dependent on the capital expenditures in these industries
which, in turn, is largely dependent on the market demand for hard disk drives
and products containing integrated circuits. Zygo's net sales and results of
operations may be materially adversely affected if downturns or slowdowns in the
computer disk drive or semiconductor markets significantly extend into the
future.

Risks Associated with Acquisitions. Zygo's growth strategy involves growth
through acquisitions and internal development and, as a result, Zygo is subject
to various risks associated with this growth strategy. The successful
integration of acquired businesses is important to Zygo's future financial
performance. In addition, while there are currently no commitments with respect
to any future acquisitions, Zygo's business strategy includes the expansion of
its products and services, which may be effected through further acquisitions.
Zygo regularly reviews various acquisition prospects of businesses, technologies
or products complementary to Zygo's business and periodically engages in
discussions regarding such possible acquisitions. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations and products
of the acquired companies, the ability to manage effectively geographically
remote units, the diversion of management's attention from the day-to-day
business operations of the Company and its other business concerns, risks of
entering markets in which Zygo has limited or no direct experience, integrating
personnel with disparate business backgrounds, combining different corporate
cultures, and the potential loss of key employees of the acquired companies.
There can be no assurance that there will not be substantial costs associated
with such activities or that there will not be other material adverse effects of
those integrating efforts.

                                       23

<PAGE>

Further, there can be no assurance that management's efforts to integrate the
operations of Zygo and newly acquired companies will be successful or that the
anticipated benefits of the recent acquisitions will be fully realized.

In addition, acquisitions may result in dilutive issuances of equity securities,
the incurrence of debt, reduction of existing cash balances, amortization
expenses related to goodwill and other intangible assets, and other charges to
operations that may materially adversely affect Zygo's business, financial
condition or results of operations. Although management expects to carefully
analyze any such opportunity before committing Zygo's resources, there can be no
assurance that any acquisition will result in long-term benefits to Zygo or that
Zygo's management will be able to manage effectively the resulting businesses.

Customer Concentration; Relationship with Canon. During fiscal 2000, 1999 and
1998, sales to Canon Inc. and Canon Sales Co., Inc. (collectively, "Canon"),
Zygo's largest customer in those periods, accounted for approximately 19%, 21%
and 18%, respectively, of Zygo's net sales. Zygo expects that sales to Canon, an
original investor in Zygo which owns approximately 8.5% 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 Zygo's
net sales for the foreseeable future. Zygo's 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 semiconductor or
computer disk drive industries, could have a material adverse effect upon Zygo's
results of operations.

Technological Change and New Product Development. The market for Zygo's products
is characterized by rapidly changing technology. Zygo's future success will
continue to depend upon its ability to enhance its current products and to
develop and introduce new products that keep pace with technological
developments and evolving industry standards, respond to changes in customer
requirements, and achieve market acceptance. Zygo expends significant financial
and personnel resources to continually redesign and enhance its instruments,
systems and components and upgrade its proprietary software technology
incorporated in its products. Any failure by Zygo 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 the results of close relationships with
its customers and their willingness to share proprietary information about their
requirements and participate in collaborative efforts with Zygo. There can be no
assurance that Zygo's customers will continue to provide the Company with timely
access to such information or that Zygo will be successful in developing and
marketing new products and services or product and service enhancements on a
timely basis and 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 Key Personnel. Zygo's success depends in large part upon the
continued services of many of its highly skilled personnel involved in
management, research, development and engineering, and sales and marketing and
upon its ability to attract and retain additional highly qualified employees.
Zygo's employees may voluntarily terminate their employment with Zygo at any
time. Competition for such personnel is intense, and there can be no assurance
that Zygo will be successful in retaining its existing personnel or attracting
and retaining additional personnel.

Quarterly Fluctuations. Zygo has experienced quarterly fluctuations in results
of operations and anticipates that these fluctuations may continue. These
fluctuations have been caused by various factors, including the capital
procurement practices of its customers and the industries into which its
products are sold generally, the timing and acceptance of new product
introductions and enhancements, and the

                                       24

<PAGE>

timing of product shipments and marketing. Future results of operations may
fluctuate as a result of these and other factors, including Zygo's ability to
continue to develop innovative products, the announcement or introduction of new
products by Zygo's competitors, Zygo's product and customer mix, the level of
competition and overall trends in the United States and various economies.

Possible Volatility of Stock Price. Zygo believes that factors such as the
announcement of new products or technologies by Zygo or its competitors, market
conditions in the precision measurement, data storage, and semiconductor
industries generally and quarterly fluctuations in financial results are
expected to cause the market price of the Common Stock to vary substantially.
Further, Zygo's 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, perhaps
substantially. In addition, in recent years 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, Zygo
competes with the internal development efforts of its current and prospective
customers, certain 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 competitive price/performance
characteristics. Competitive pressures may necessitate price reductions, which
can adversely affect results of operations. Although Zygo believes that it has
certain technical and other advantages over certain of its 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 Zygo will have sufficient resources to continue to make such
investment or that Zygo 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.

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

Dependence on Third-Party Suppliers. Certain of the components and subassemblies
included in Zygo's systems are obtained from a single source or a limited group
of suppliers. Although Zygo seeks to reduce dependence on sole and limited
source suppliers in some cases, the partial or complete loss of

                                       25

<PAGE>

certain of these sources could have an adverse effect on Zygo's results of
operations and damage customer relationships.

Revenues Derived From International Sales and Foreign Operations. Zygo's
products are sold internationally by Zygo primarily to customers in Japan and
throughout the Pacific Rim. Net sales to customers outside the United States
accounted for 44%, 46%, and 44% of Zygo's net sales in each of the fiscal years
ended June 30, 2000, 1999, and 1998, and are expected to continue to account for
a substantial percentage of Zygo's 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 and in
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 Zygo's products comparatively more expensive
to the extent locally produced alternative products are available. Such
conditions could negatively impact international sales of Zygo's products and
Zygo's 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.

Reliance on Middlefield Manufacturing Facility. The Company manufactures
substantially all of its optical components at its facility in Middlefield,
Connecticut. Any extended interruption of optical component production at the
Middlefield manufacturing facility could have a material adverse effect on the
business of the Company.

Control of Company. The Company's executive officers and directors, through
their affiliation with certain stockholders and their stock option holdings, may
be deemed to beneficially own approximately 18% of the outstanding shares of
Common Stock. As a result, these individuals may have the ability to control the
Company and direct its affairs and business, including the election of all the
directors.

Dividend Policy. The Company has never declared or paid cash dividends 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.

Year 2000. The Company has transitioned into the year 2000 with minimal
interruptions. We are continuing to monitor our products, product design tools,
manufacturing tools, information systems, business infrastructure, material and
service suppliers and customers. Overall, there has been no significant impact
on the Company. The cost spent on the year 2000 problem has been immaterial to
date.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are subject to interest rate risk on our investment portfolio.

A move in interest rates of 10% of our weighted-average worldwide interest rate
in 2000 affecting our financial investments as of June 30, 2000 would have an
insignificant effect on our pretax earnings.

                                       26

<PAGE>

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.

                                    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 2000 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" 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.

                                     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.

                                       27

<PAGE>

3. EXHIBITS

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

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

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

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

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

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

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

10.4      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)*

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

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

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

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

10.10     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)*

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

                                       28

<PAGE>

10.12     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)*

10.13     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)*

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

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

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

10.17     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)*

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

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

10.20     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)*

10.21     Zygo Corporation Amended and Restated Non-Employee Director Stock
          Option Plan ratified and approved by the Company's stockholders on
          November 17, 1999 *

10.22     Employment agreement dated July 1, 1999, between Zygo Corporation and
          Brian J. Monti.

10.23     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)*

10.24     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)*

                                       29

<PAGE>

10.25     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)*

21.       Subsidiaries of Registrant

23.       Accountants' Consent

24.       Power of Attorney

27.       Financial Data Schedule

(b)  Reports on Form 8-K

     1.   On May 18, 2000, the Company filed a Current Report on Form 8-K, dated
          May 8, 2000, reporting the completion of an acquisition of Firefly
          Technologies, Inc. by Zygo Corporation.

     2.   On July 19, 2000, the Company filed an amended Current Report on Form
          8-K/A, dated June 30, 2000, reporting the historical Financial
          Statements and Notes of Firefly Technologies, Inc. as of December 31,
          1999, 1998, and 1997, and the Combined Proforma Financial Statements
          and Notes for the years ended June 30, 1999 and 1998 and the nine
          month period ended March 31, 2000.

----------

* Incorporated herein by reference.

                                       30

<PAGE>

                                   SIGNATURES

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

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


By      /s/ Michael J. Auth                       Date       September 25, 2000
---------------------------------------
         Michael J. Auth
        Vice President Finance

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

<TABLE>
<CAPTION>

          Signature                                           Title
          ---------                                           -----
<S>                                             <C>                                                  <C>
/s/ Gary K. Willis                              Chairman, and Director                               Date  September 25, 2000
------------------------------------
    Gary K. Willis

/s/ J. Bruce Robinson                           President, Chief Executive Officer,                  Date  September 25, 2000
------------------------------------            and Director
    J. Bruce Robinson


/s/ Michael J. Auth                             Vice President Finance, Chief                        Date  September 25, 2000
-----------------------------------             Financial Officer and Treasurer
    Michael J. Auth

/s/ Carl A. Zanoni                              Vice President Technology                            Date  September 25, 2000
-----------------------------------             and Director
    Carl A. Zanoni

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

John Berg*                                      President and Chief Technical Officer
-----------------------------------             Zygo TeraOptix and Director
     (John Berg)

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

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

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

Patrick Tan*                                    Vice President Business Operations
-----------------------------------             Zygo TeraOptix and Director
     (Patrick Tan)

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

*By     /s/ Michael J. Auth                                                                          Date  September 25, 2000
-----------------------------------
        Michael J. Auth
        Attorney-in-Fact
</TABLE>

                                       31

<PAGE>

                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE


Page

F-2            Report of Management

F-3            Independent Auditors' Report

F-4            Consolidated balance sheets at June 30, 2000 and 1999

F-5            Consolidated statements of earnings for the years ended June 30,
               2000, 1999, and 1998

F-6            Consolidated statements of stockholders' equity for the years
               ended June 30, 2000, 1999, and 1998

F-7            Consolidated statements of cash flows for the years ended
               June 30, 2000, 1999, and 1998

F-8 to F-21    Notes to consolidated financial statements

F-22           Selected consolidated quarterly financial data for the years
               ended June 30, 2000 and 1999


               Consolidated Schedules

S-1            Independent Auditors' Report on Schedule

S-2            II -Valuation and qualifying accounts

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



                                      F-1
<PAGE>



REPORT OF MANAGEMENT

Management is responsible for preparing the Company's consolidated financial
statements and related information that appears in this report on Form 10-K405.
Management believes that the financial statements fairly reflect the form and
substance of transactions and reasonably present the Company's financial
condition and results of operations in conformity with generally accepted
accounting principles. Management has included in the Company's financial
statements amounts that are based on estimates and judgments which it believes
are reasonable under the circumstances.

The Company maintains a system of internal accounting policies, procedures, and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.

KPMG LLP audits the Company's financial statements in accordance with generally
accepted auditing standards and provides an objective, independent review of the
fairness of reported financial condition and results of operations.

The Board of Directors of the Company has an Audit Committee composed of
nonmanagement directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing, and financial reporting matters.

Michael J. Auth
Vice President of Finance,
Treasurer, and Chief Financial Officer

                                      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, 2000 and 1999, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended June 30, 2000. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP
Hartford, Connecticut
August 12, 2000

                                      F-3


<PAGE>



CONSOLIDATED BALANCE SHEETS
(Thousands, except share and per share amounts)

                                                         JUNE 30,   June 30,
                                                           2000       1999
                                                         --------   --------
ASSETS
   CURRENT ASSETS:
      Cash and cash equivalents                          $ 15,598    $ 13,022
      Marketable securities (note 3)                        8,268       8,351
      Receivables (note 4)                                 20,138      12,481
      Inventories (note 5)                                 11,879      15,473
      Costs in excess of billings (note 6)                  5,743         660
      Income taxes receivable                                 866         741
      Prepaid expenses and taxes                            1,173         804
      Deferred income taxes (note 16)                       9,020       3,715
                                                         --------    --------
         Total current assets                              72,685      55,247
                                                         --------    --------
Property, plant and equipment, net (notes 7 and 11)        18,493      16,437
Goodwill and other intangibles, net (note 8)                3,078       9,939
Other assets                                                  906         819
                                                         --------    --------
TOTAL ASSETS                                             $ 95,162    $ 82,442
                                                         ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                      $  8,380    $  5,140
   Customer progress payments                                 279         784
   Accrued salaries and wages                               3,485       1,743
   Other accrued expenses                                   3,934       3,782
   Income taxes payable                                        57          32
                                                         --------    --------
      Total current liabilities                            16,135      11,481
                                                         --------    --------
Long-term debt                                                 84          36
Deferred income taxes (note 16)                               271       2,213
Minority Interest                                             443        --

STOCKHOLDERS' EQUITY (notes 13, 14,and 15):
   Common stock, $ .10 par value per
     share:15,000,000 shares authorized;
     14,441,231 Shares issued
     (13,706,359 in 1999)                                   1,444       1,370
   Additional paid-in capital                              68,304      42,667
   Retained earnings                                        9,055      25,102
   Accumulated other comprehensive income:
   Currency translation effects                              (182)        (57)
   Net unrealized (loss) on marketable securities
  (note 3)                                                    (91)        (69)
                                                         --------    --------
                                                           78,530      69,013
   Less treasury stock, at cost; 207,600 common shares        301         301
                                                         --------    --------
      Total stockholders' equity                           78,229      68,712
                                                         --------    --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $ 95,162    $ 82,442
                                                         ========    ========

See accompanying notes to consolidated financial statements.


                                      F-4

<PAGE>

<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)

                                                        Fiscal Year Ended June 30,
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    ---------
<S>                                                  <C>         <C>         <C>
Net sales (notes 17 and 18)                          $ 87,243    $ 63,382    $ 99,084
Cost of goods sold                                     54,688      40,997      57,635
                                                     --------    --------    --------
      Gross profit                                     32,555      22,385      41,449
Selling, general and administrative expenses           18,504      19,633      18,724
Research and development                               11,270       9,185       9,844
Failed merger costs                                      --          --           335
Nonrecurring acquisition-related charges               14,001        --         1,585
Amortization and impairment of goodwill
   and other intangibles (note 2)                       7,102       1,258         793
                                                     --------    --------    --------
      Operating profit (loss)                         (18,322)     (7,691)     10,168
                                                     --------    --------    --------
Other income (expense):
      Interest income                                   1,250       1,148       1,100
      Miscellaneous expense, net                         (240)       (308)       (248)
                                                     --------    --------    --------
         Total other income                             1,010         840         852
                                                     --------    --------    --------
         Earnings (loss) before income taxes and
             minority interest                        (17,312)     (6,851)     11,020
Income tax expense (benefit) (note 16)                 (1,459)     (2,975)      3,991
                                                     --------    --------    --------
Earnings (loss) before minority interest              (15,853)     (3,876)      7,029
Minority interest                                         194        --          --
                                                     --------    --------    --------
Net earnings (loss)                                  $(16,047)   $ (3,876)   $  7,029
                                                     ========    ========    ========
Earnings (loss) per common and common equivalent
   share (note 13):
     Basic                                           $  (1.28)   $ ( .33)    $   0.61
                                                     ========    ========    ========
     Diluted                                         $  (1.28)   $ ( .33)    $   0.55
                                                     ========    ========    ========
Weighted average common shares and common dilutive
   equivalents outstanding (note 13):
      Basic                                            12,511      11,780      11,480
                                                     ========    ========    ========
      Diluted                                          12,511      11,780      12,877
                                                     ========    ========    ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5


<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars)

                                                                                         Accum.
                                                                                         Other
                                                               Comp.      Retained        Comp.      Common     Treasury    Paid-In
                                                    Total     Income      Earnings       Income       Stock      Stock      Capital
                                                   --------  --------     -----------    ---------  --------    --------   ---------
<S>                                               <C>         <C>         <C>           <C>         <C>         <C>        <C>
Balance at June 30, 1997                          $ 62,408                $ 21,405      $   17     $  1,077   $   (301)    $ 40,210
Comprehensive Income
  Net earnings                                       7,029       7,029       7,029
                                                              --------
  Other comprehensive loss, net of tax
    Unrealized loss on marketable
      securities                                        (3)         (3)
    Foreign currency translation effect                  1           1
                                                              --------
  Other comprehensive loss, net of tax                              (2)                     (2)
                                                              --------
Comprehensive income                                             7,027
                                                              ========
Shares issued for Syncotec (note 2)                    623                                                2                     621
Shares issued for Sight Systems (note 2)               555                     544                       29                     (18)
Shares issued for Firefly Technologies (note 2)        310                                              230                      80
Exercise of employee stock options
  and related tax effect                             1,468                                               14                   1,454
                                                  --------                --------      ------     --------   --------     --------
Balance at June 30, 1998                          $ 72,391                $ 28,978      $   15     $  1,352   $   (301)    $ 42,347
Comprehensive loss
  Net loss                                          (3,876)     (3,876)     (3,876)
                                                              --------
  Other comprehensive loss, net of tax
    Unrealized loss on marketable
      securities                                       (83)        (83)
    Foreign currency translation effect                (58)        (58)
                                                              --------
  Other comprehensive loss                                        (141)                   (141)
                                                              --------
Comprehensive loss                                              (4,017)
                                                              ========
Exercise of employee stock options
  And related tax effect                               338                                               18                     320
                                                  --------                --------    --------      --------   -------     --------
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

</TABLE>



See accompanying notes to consolidated financial statements.

                                                                         F-6


<PAGE>

<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

                                                                          Fiscal Year Ended June 30,
                                                                       --------------------------------
                                                                         2000        1999       1998
                                                                       --------    --------    --------
<S>                                                                    <C>         <C>         <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
   Net earnings (loss)                                                 $(16,047)   $ (3,876)   $  7,029
   Adjustments to reconcile net earnings to cash provided by
      operating activities:
      Depreciation and amortization                                      11,318       4,448       3,412
      Deferred income taxes                                              (7,247)     (1,540)     (1,103)
     (Gain) loss on disposal of assets                                    1,176         662         (62)
      Nonrecurring acquisition-related IPR&D charges (note 2)              --          --           878
      Unearned Compensation related to stock options                     12,024        --          --
      Gain on sale of marketable securities                                --           (38)        (70)
      Changes in operating accounts:
         Receivables                                                     (7,657)      4,074       5,002
         Costs in excess of billings                                     (5,083)        522         900
         Inventories                                                      3,594      (1,043)     (2,295)
         Prepaid expenses and taxes                                       4,770          42          53
         Accounts payable and accrued expenses                            4,654      (5,252)      1,117
         Minority interest                                                  194        --          --
                                                                       --------    --------    --------
      Net cash provided by (used for)operating activities                 1,696      (2,001)     14,861
                                                                       --------    --------    --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
   Additions to property, plant and equipment                            (6,513)     (4,372)     (9,126)
   Investment in marketable securities                                   (2,466)    (11,860)     (4,479)
   Investments in other assets                                             --        (2,958)       (626)
   Acquisition of business                                                 --          --        (1,268)
   Cash acquired from business                                             --          --         2,059
   Proceeds from the sale of marketable securities                         --         8,616       4,605
   Proceeds from maturity of marketable securities                        2,500       3,045       4,368
   Proceeds from sale of assets                                            --          --           230
                                                                       --------    --------    --------
      Net cash used for investing activities                             (6,479)     (7,529)     (4,237)
                                                                       --------    --------    --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
   Proceeds (Repayments) of long-term debt                                   48        (125)         51
   Exercise of employee stock options and issuance of common stock        7,062         338         678
   Contributions from minority interest of consolidated subsidiaries        249        --          --
                                                                       --------    --------    --------
      Net cash provided by (used for) financing activities                7,359         213         729
                                                                       --------    --------    --------
Net increase (decrease) in cash and cash equivalents                      2,576      (9,317)     11,353
Cash and cash equivalents, beginning of year                             13,022      22,339      10,986
                                                                       --------    --------    --------
Cash and cash equivalents, end of year                                 $ 15,598    $ 13,022    $ 22,339
                                                                       ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                              F-7


<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999, and 1998
Amounts in thousands except for per share

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Zygo
Corporation and its subsidiaries ("Zygo" or the "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. The Company, via its
wholly owned subsidiary, Technical Instrument Company, completed the acquisition
of Syncotec Neue Technologien und Instrumente GmbH ("Syncotec"), a German-based
company, effective September 1, 1997. Zygo, prior to this acquisition, completed
all necessary legal requirements allowing for appropriate transfer and
registration of its original 50 percent ownership of Syncotec on June 30, 1997.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash investments 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 and tax exempt bonds. All securities
held by the Company at June 30, 2000 and 1999, 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 No. 121, Accounting
for the Impairment of Long-Lived Assets 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 amortization periods are
periodically evaluated and would be revised if considered necessary. See notes 8
and 20.

REVENUE RECOGNITION

Revenues, other than revenue under the National Ignition Facility ("NIF")
contract (note 19) and revenue from certain automation contracts (note 6), are
recognized when units are shipped. Revenues related to NIF and automation
contracts are recognized under the percentage-of-completion method of
accounting.

                                      F-8


<PAGE>

EARNINGS PER SHARE

Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards No. 128, Earnings Per Share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement No. 128 requirements.

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

--------------------------------------------------------------------------------
                                     JUNE 30,        June 30,       June 30,
                                      2000            1999           1998
--------------------------------------------------------------------------------
Weighted average shares
  outstanding                         12,511          11,780        11,480
Dilutive effect of stock
  options                               --              --           1,397
                                      ------          ------        ------
Diluted weighted average
  shares outstanding                  12,511          11,780        12,877
--------------------------------------------------------------------------------

During 2000 and 1999, the Company recorded a loss and all options were excluded
from the computation because of the anti-dilutive effect on earnings per share.

GAIN CONTINGENCY

The Company was awarded $2,669 plus recovery of certain costs in a judgment
rendered by the United States District Court (District of Arizona) on June 2,
1994. The Court's decision was appealed to the Court of Appeals for the Federal
Circuit located in Washington, D.C. by the defendant and oral arguments of the
appeal were heard by the Court on March 9, 1995. On April 1, 1996, the United
States Court of Appeals for the Federal Circuit rendered an Opinion Announcing
Judgment of the Court. The appellate court affirmed-in-part and reversed-in-part
the District Court's earlier findings and remanded the case to the District
Court for a redetermination of the damage award. Zygo recorded a gain of $1
million in the third quarter of 2000 when the Company received the proceeds from
this settlement.

STOCK BASED COMPENSATION

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards 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 generally accepted accounting
principles. Actual results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities ("Statement 133"), was issued in 1998 and is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. In 1999, Statement of Financial Accounting
Standard No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the effective date of FASB Statement 133, was issued
which delays the required adoption of Statement 133 to the Company's fiscal year
2001. This statement is not expected to have an impact, as the Company does not
significantly utilize derivatives or hedges.

NOTE 2: MERGERS, ACQUISITIONS AND STRATEGIC INITIATIVES

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., 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.

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
securityholders, 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 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 their
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.

On September 1, 1997, the Company, through its Technical Instruments subsidiary
completed the purchase of the remaining 50% of Syncotec Neue Technologien und
Instrumente GmbH ("Syncotec") the Company did not already own. The Company paid
$2,262 and issued 19,432 shares of common stock, $.10 par value, valued at $623.
The transaction was accounted for as a purchase. The net


                                      F-10


<PAGE>


purchase price was allocated to the fair value of the net assets acquired. This
allocation resulted in a charge of $878 of in-process research and development
costs.

In October 1997, the Company terminated merger talks with Digital Instruments,
Inc. resulting in a charge for failed merger costs of $335.

NOTE 3: MARKETABLE SECURITIES

Marketable securities at June 30, 2000 consist primarily of corporate bonds and
tax exempt bonds issued by various state and municipal agencies while marketable
securities at June 30, 1999 consist primarily of corporate bonds. Marketable
securities at June 30, 2000 and June 30, 1999 are reported either at fair value
or at cost depending on their classification. The unrealized loss on marketable
securities of $154 (gross) is shown net of its related tax effect of $91 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, gross unrealized holding losses, and
fair value for available-for-sale securities at June 30, 2000 and 1999 were as
follows:

                                            Gross         Gross
                                          Unrealized     Unrealized
                                           Holding        Holding         Fair
                             Cost           Gains         Losses          Value
                            ------       -----------    ----------       ------
AT JUNE 30, 2000
  STATE AND LOCAL
    MUNICIPAL BONDS         $7,240        $  --          $ (154)          $7,086
At June 30, 1999
  Corporate Bonds           $5,954        $  --          $ (117)          $5,837
                            ------        -------        ------           ------

The Company recorded gross realized gains on the maturity of investment
securities of $0 and $38 in 2000 and 1999, respectively. There were no gross
realized losses recorded in 2000 or 1999.

Maturities of investment securities classified as available-for-sale were as
follows at June 30, 2000:

                                                                 Fair
                                                     Cost        Value
                                                   -------      ------
Due within one year                                $  --        $   --
Due after one year through five years               7,240        7,086
                                                   -------      ------
                                                   $7,240       $7,086
                                                   =======      ======

Maturities of investment securities classified as held-to-maturity were as
follows at June 30, 2000:

                                                               Fair
                                                  Cost        Value
                                                 ------       ------
Due within one year                              $1,182       $1,182
Due after one year through five years              --            --
                                                 ------       ------
                                                 $1,182       $1,182
                                                 ======       ======

                                      F-11

<PAGE>

NOTE 4: ACCOUNTS RECEIVABLE

At June 30, 2000 and 1999, accounts receivable, net of allowances, were as
follows:

                                 JUNE 30,                  June 30,
                                  2000                      1999
                                --------                  --------
Trade (note 18)                 $ 19,293                  $ 13,343
Other                              1,079                       462
                                --------                  --------
                                  20,372                  $ 13,805
Allowance                           (234)                   (1,324)
                                --------                  --------
                                $ 20,138                  $ 12,481
                                ========                  ========

NOTE 5: INVENTORIES

Inventories at June 30, 2000 and 1999 were as follows:

                                             JUNE 30,             June 30,
                                              2000                  1999
                                           ---------               --------
Raw materials and manufactured parts         $ 7,034               $ 7,866
Work in process                                3,471                 4,622
Finished goods                                 1,374                 2,985
                                             -------               -------
                                             $11,879               $15,473
                                             =======               =======

NOTE 6: COSTS IN EXCESS OF BILLINGS

Revenues from automation projects are 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
are recorded in the period in which the facts become known. When a loss is
anticipated on a contract, the full amount of the loss is provided for
currently. 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 contracts were as follows:

                                      JUNE 30,     June 30,
                                        2000        1999
                                      -------      -------
Revenue recognized to date            $37,069      $25,239
Billings to date                       31,326       24,579
                                      -------      -------
                                      $ 5,743      $   660
                                      =======      =======

NOTE 7: PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Costs of replacements and
improvements are capitalized and depreciated over a range of 3-40 years.
Maintenance and repairs are charged to expense as incurred. At June 30, 2000 and
1999, property, plant and equipment, at cost, were as follows:

                                                 JUNE 30,           June 30,
                                                   2000              1999
                                                 --------           -------
Land                                             $   897            $   897
Building                                           9,115              9,115
Machinery, equipment and office furniture         23,839             21,887
Leasehold improvements                               519                431
Construction in progress                           3,621              1,603
                                                 -------            -------
                                                  37,991             33,933
Less accumulated depreciation                     19,498             17,496
                                                 -------            -------
                                                 $18,493            $16,437
                                                 =======            =======


                                      F-12


<PAGE>



NOTE 8: GOODWILL AND OTHER INTANGIBLES

The cost of 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 intangible assets and makes adjustments, when impairments
are identified. Goodwill and other intangibles, net, at June 30, 2000 and 1999
were as follows:

                                         JUNE 30,      June 30,
                                           2000         1999
                                          ------       -------
Goodwill and other intangibles            $5,140       $12,778
Accumulated amortization                   2,062         2,839
                                          ------       -------
                                          $3,078       $ 9,939
                                          ======       =======

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 6.8% at June 30, 2000). The line of credit
is available through November 22, 2000. At June 30, 2000 and 1999, no amounts
were outstanding under the bank line of credit.

NOTE 10: LONG-TERM DEBT

As of June 30, 2000, the Company has $24 in long-term debt obligations as a
result of the acquisition of Firefly.

Interest payments on debt and capital leases were $6, $11 and $6 in fiscal 2000,
1999, and 1998, 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 2005. Total rental expense charged to operations was $986
in 2000, $738 in 1999, and $600 in 1998. At June 30, 2000 the minimum future
rental commitments under noncancellable leases payable over the remaining lives
of the leases were:

                                                     Capital     Operating
Year ending June 30,                                 -------     ---------
2001                                                 $   44       $1,253
2002                                                     34        1,167
2003                                                   --            548
2004                                                   --            536
2005                                                   --            877
                                                     ------       ------
       Total minimum lease payments                      78       $4,381
                                                                  ======
Less amount representing interest                         6

Present value of minimum lease payments                  72

Less current portion of capital lease obligations        40

Capital lease obligation, excluding current portion  $   32
                                                     ======

                                      F-13

<PAGE>



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, 2000, 1999, and 1998
amounted to $709, $0, and $1,370, respectively.Profit-sharing contributions are
determined annually at the discretion of the Board of Directors.

Effective June 30, 1985, the existing profit-sharing plan was revised and
amended to incorporate 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, 2000, 1999, and 1998 amounted to $500, $607, and $603,
respectively.

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, 2000, 1999,
and 1998.

With the acquisition of Firefly, the Company maintains a separate defined
contribution retirement plan for the employees of Zygo TeraOptix. Employees are
eligible to participate after three months of employment with the Company and
may elect to defer up to 15% of their salary on a pre-tax basis. The plan also
allows the Company to make discretionary contributions to the plan, which are
allocated to the participants' accounts. The Company has not made any
contributions to the plan to date.

NOTE 13: STOCKHOLDERS' EQUITY

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

NOTE 14: STOCK COMPENSATION PLANS

As of June 30, 2000, Zygo Corporation 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:

                                          JUNE 30,     June 30,     June 30,
                                           2000          1999        1998
                                         ---------    ---------     -------
Pro forma net (loss) income              $(16,930)     $(4,697)     $5,583
Pro forma (loss) earnings per share      $  (1.35)     $  (.40)     $  .43

The fair value of these options at the date of grant was estimated with the
following weighted average assumptions of 2000 and 1999:


                                      F-14

<PAGE>

                                   JUNE 30,       June 30,     June 30,
                                     2000           1999         1998
                                   ----------    ----------   ----------
Risk free rate of interest              5.9%           4.8%         5.8%
Dividend yield                          0.0%           0.0%         0.0%
Volatility factor                        67%            58%          68%
Expected life of option            5.6 YEARS      5.7 years    6.2 years

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

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. The Board of Directors approved a
repricing of non-qualified options greater than $30.00 per share at the August
1998 board meeting. The average price of 112,000 shares went from $35.12 to
$10.81. 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 will
expire on September 3, 2002. On July 31, 2000, the shareholders voted to
increase the number of shares in the stock option plan by 1,500,000.

                                                     JUNE 30, 2000
                                           -------------------------------------
                                                                  WEIGHTED
                                                                  AVERAGE
                                              SHARES            EXERCISE PRICE
                                           ---------           ----------------
Outstanding at beginning of year           1,245,299              $ 7.2277
Granted                                      182,650              $23.1386
Exercised                                  (519,200)              $ 7.2148
Expired or canceled                        (110,450)              $13.2402
                                           ---------
Outstanding at end of year                   798,299              $10.0199
                                           =========

                                                     June 30, 1999
                                           -------------------------------------
                                                                  Weighted
                                                                   Average
                                            Shares               Exercise Price
                                           ---------             ---------------
Outstanding at beginning of year           1,416,779               $ 7.2866
Granted                                      228,000               $10.5957
Exercised                                   (184,480)              $ 1.8362
Expired or canceled                         (215,000)              $26.6993
                                           ---------
Outstanding at end of year                 1,245,299               $ 7.2277
                                           =========

                                                         June 30, 1998
                                           -------------------------------------
                                                                  Weighted
                                                                   Average
                                            Shares              Exercise Price
                                           ---------            ----------------
Outstanding at beginning of year           1,393,324              $ 5.6865
Granted                                      280,500              $32.9166
Exercised                                   (145,170)             $ 4.5445
Expired or canceled                         (111,875)             $11.5510
                                           ---------
Outstanding at end of year                 1,416,779              $ 7.2866
                                           =========


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, each

                                      F-15


<PAGE>


new non-employee director 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.

                                                     JUNE 30, 2000
                                          --------------------------------------
                                                                   WEIGHTED
                                                                   AVERAGE
                                            SHARES               EXERCISE PRICE
                                          ----------             ---------------
Outstanding at beginning of year             450,000                $ 6.2292
Granted                                       15,000                $17.2500
Exercised                                  (216,000)                $ 7.4983
Expired or canceled                               --                $     --
                                          ----------
Outstanding at end of year                   249,000                $ 5.7922
                                          ==========


                                                          June 30, 1999
                                          --------------------------------------
                                                                Weighted
                                                                Average
                                          Shares               Exercise Price
                                          -------              --------------
Outstanding at beginning of year          450,000                $6.2292
Granted                                        --                $    --
Exercised                                      --                $    --
Expired or canceled                            --                $    --
                                          -------
Outstanding at end of year                450,000                $6.2292
                                          =======


                                                 June 30, 1998
                                          -----------------------------
                                                           Weighted
                                                           Average
                                          Shares        Exercise Price
                                          -------       ---------------
Outstanding at beginning of year          450,000          $6.2292
Granted                                        --          $    --
Exercised                                      --          $    --
Expired or canceled                            --          $    --
                                          -------
Outstanding at end of year                450,000          $6.2292
                                          =======


The following table summarizes information about all fixed stock options
outstanding at June 30, 2000:


                             Options Outstanding
--------------------------------------------------------------------------------
                        Number            Weighted Average
   Range of           Outstanding            Remaining           Weighted
   Exercise              as of              Contractual          Average
    Prices           June 30, 2000              Life          Exercise Price
--------------------------------------------------------------------------------
$ 1.42 - $ 1.92           44,500                1.88             $ 1.7774
$ 2.00 - $ 2.00          439,374                4.04             $ 2.0000
$ 2.42 - $ 9.50          183,150                5.31             $ 5.7870
$10.56 - $11.75          191,425                8.29             $10.9900
$13.38 - $58.75          182,050                7.85             $26.6417
$65.69 - $70.44            6,800                9.90             $69.0409
---------------        ---------                ----             --------
$ 1.42 - $70.44        1,047,299                5.65             $ 9.0147


                                      F-16

<PAGE>

                                 Options Exercisable
-----------------------------------------------------------------------------
             Range of                   Number                   Weighted
             Exercise              Exercisable as of              Average
              Prices                 June 30, 2000            Exercise Price
-----------------------------------------------------------------------------
         $ 1.42 - $ 1.92                  44,500                 $ 1.7774
         $ 2.00 - $ 2.00                 439,374                 $ 2.0000
         $ 2.42 - $ 9.50                  98,850                 $ 2.8645
         $10.56 - $11.75                  33,300                 $10.8752
         $13.38 - $58.75                  54,500                 $20.4971
         $65.69 - $70.44                      --                 $     --
         ---------------                 -------                 --------
         $ 1.42 - $70.44                 670,524                 $ 4.0569


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 Zygo Corporation. No
Firefly options have been included in the tables above because all Firefly
options were exercised and converted to Zygo shares in connection with the
merger.

NOTE 16: INCOME TAXES

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

                                                Fiscal Year Ended June 30,
                                           -------------------------------------
                                             2000         1999           1998
                                           -------       -------        --------
Currently payable:
   Federal                                 $ 1,136       $(1,339)       $ 3,670
   State                                       (71)          101            909
   Foreign                                     604           101            285
                                           -------       -------        -------
                                           $ 1,669       $(1,137)       $ 4,864
                                           =======       =======        =======
Deferred:
   Federal                                 $(3,051)      $(1,034)       $  (677)
   State                                       (77)         (755)          (143)
   Foreign                                    --             (49)           (53)
                                           -------       -------        -------
                                           $(3,128)      $(1,838)       $  (873)
                                           -------       -------        -------
Total income tax (benefit) expense         $(1,459)      $(2,975)       $ 3,991
                                           =======       =======        =======

Income taxes paid (refunded) amounted to $(2,539), $(848), and $4,660 in fiscal
2000, 1999, and 1998, 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 2000, 1999, and 1998 to earnings before income taxes for the
following reasons:


                                      F-17
<PAGE>

                                                   Fiscal Year Ended June 30,
                                                2000        1999        1998
                                              --------------------------------
Computed "expected" tax expense
  (benefit)                                   $(5,886)    $(2,400)     $3,858
Increases (reductions) in
  taxes resulting from:
    Nondeductible acquisition-
      related charges                           4,329         --          458
    State taxes, net of federal
      income tax benefit                          (96)       (432)        498
    Tax exempt interest income                    (15)       (131)       (179)
    FSC benefit                                  (300)        --         (637)
    Other, net                                    509         (12)         (7)
                                              --------------------------------
                                              $(1,459)    $(2,975)     $3,991
                                              ================================

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, 2000 and
1999, are presented below:

                                                         JUNE 30,       June 30,
                                                          2000           1999
                                                        ----------------------
Deferred tax assets:
  Accounts receivable, principally due to
    the allowance for doubtful accounts                 $    468       $   501
  Accrued liabilities                                        395           941
  Inventory valuation                                      1,412         1,978
  Unrealized gain on marketable securities                    57           --
  One-time charges                                         2,140           --
  Intangibles                                                245           --
  Federal and state NOLs and credits                       4,572           380
  Other                                                       30            52
                                                        ----------------------
                                                           9,319         3,852
  Less valuation allowance                                  --             --
                                                        ----------------------
  Deferred tax asset                                       9,319         3,852
Deferred tax liabilities:
  Prepaid expenses                                          (39)           (52)
  Plant and equipment, principally due
     to differences in depreciation expense                (516)          (290)
  Intangibles                                               --          (1,892)
  Unrealized gain on marketable securities                  --              (9)
  Other                                                     (15)           (26)
                                                        ----------------------
  Deferred tax liability                                   (570)        (2,269)
                                                        ----------------------
Net deferred tax asset (liability)                      $ 8,749        $ 1,583
                                                        ======================

The net current deferred tax assets and net non-current deferred tax liabilities
as recorded on the balance sheet as of June 30, 2000 and 1999 are as follows:

                                               JUNE 30,             June 30,
                                                 2000                 1999
                                               --------             --------
Net current deferred tax asset                 $ 9,020              $ 3,715
Net noncurrent deferred tax liability             (271)              (2,132)
                                              --------              -------
Net deferred tax asset (liability)             $ 8,749              $ 1,583

A valuation allowance has not been recorded because the Company believes that
the deferred tax assets will, more likely than not, be realized. This
determination is based largely upon the Company's historical earnings trend as
well as its ability to carryback reversing items and recover taxes paid in the
carryback

                                      F-18

<PAGE>

period. In addition, the Company has the ability to offset deferred tax assets
against deferred tax liabilities associated with such items as depreciation and
amortization.

The Company has federal and state net operating loss carryforwards of
approximately $8,220 and $22,571 which are available to reduce federal and state
taxable income, if any, through 2019.

The Company also has a federal general business credit carryforward of
approximately $874, which is available to reduce federal taxable income, if any,
through 2019.

NOTE 17: SEGMENT REPORTING

The Company has adopted FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 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 Statement
131. The Company is managed as a single operating segment with a centrally
managed sales force selling Zygo's products in regional offices located in the
U.S., Japan, Europe, and Asia.

For its fiscal year 2000, Zygo continued to operate in one segment, as a world
leader in metrology, process control, and yield solutions servicing high
precision industries. Beginning in Fiscal 2001, the Company will capture and
report on its operations in three segments: Semiconductor/Data Storage,
Industrial, and Telecommunication. Substantially all of the Company's operating
results, assets, depreciation, and amortization are U.S. based. The Company's
export sales are noted below.

The Company is headquartered in Middlefield, Connecticut, and also has
facilities in Asslar, Germany; Longmont, Colorado; Holliston, Massachusetts; and
in Newbury Park and Sunnyvale, California.

Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than 18% of
total Company sales for each of the years ended June 30, 2000, 1999 and 1998
(see note 18). The Company recorded 3%, 6%, and 13% of total Company sales with
the University of California's Lawrence Livermore National Laboratories for the
years ended June 30, 2000, 1999, and 1998, respectively (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.

Export sales by geographic area were as follows:

                                             Fiscal Year Ended June 30,
                                         2000          1999           1998
                                        ------------------------------------
Far east:
   Japan                                $17,588        $14,143       $22,284
   Pacific Rim                           11,714          6,038        11,348
                                        ------------------------------------
Total Far East                          $29,302        $20,181       $33,632
Europe and other                          9,106          7,848         9,387
                                        ------------------------------------
Total                                   $38,408        $28,029       $43,019
                                        ====================================

                                      F-19

<PAGE>

NOTE 18: RELATED PARTY TRANSACTIONS

Sales to Canon Inc., a stockholder, and to Canon Sales Co., Inc., a distributor
for certain of the Company's products in Japan and a subsidiary of Canon Inc.,
amounted to approximately $16,463 (19% of net sales), $13,375 (21% of net
sales), and $17,626 (18% of net sales), for the years ended June 30, 2000, 1999,
and 1998, 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, 2000
and 1999, there was approximately, in the aggregate, $2,171 and $1,548,
respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co.,
Inc.

NOTE 19: MATERIAL CONTRACTS

On May 9, 1997, the Company announced it had 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"), a $1.2 billion Department of Energy
project at LLNL to produce the world's largest laser for nuclear fusion
research. The contract provided for the Company to design, manufacture, and
equip a world-class optical fabrication facility at its Middlefield,
Connecticut, operations for a fixed price of nearly $10 million over an 18-month
time period. Revenues recognized on this contract in fiscal 2000 and 1999
amounted to $2,802 and $900, respectively. To accommodate the space required for
the NIF facility and provide additional office facilities, the Company has built
a 35,500-square-foot building addition at its Middlefield, Connecticut, site.

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, who
subsequently entered into the distribution agreement from IBM, have entered into
an additional agreement for support and service of AFM products previously sold
by Zygo. As a result of this agreement Zygo's AFM sales and service department
has been discontinued.

                                      F-20

<PAGE>

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

<TABLE>
<CAPTION>

                                                                        For the Fiscal Year Ended June 30, 2000
                                                                 -------------------------------------------------------
                                                                 SEPTEMBER 30  DECEMBER 31     MARCH 31     JUNE 30 (3)
                                                                 ------------  -----------     --------     -----------
<S>                                                               <C>            <C>           <C>           <C>
Net sales                                                         $ 18,603       $22,362       $  22,408     $ 23,870
Earnings (loss) before taxes, minority interest
  and nonrecurring charges                                        $    926       $ 2,424       $   2,136     $  1,770

Income taxes                                                           354           960             609          342
Minority interest                                                     --              73              (6)         127
                                                                  --------       -------       ---------     --------
Earnings (loss) before nonrecurring charges                       $    572       $ 1,391       $   1,533     $  1,301
                                                                  ========       =======       =========     ========
Earnings (loss) per share before nonrecurring
    charges:
  Basic                                                           $   0.05       $  0.12       $    0.13     $   0.09
                                                                  ========       =======       =========     ========
  Diluted                                                         $   0.04       $  0.11       $    0.11     $   0.08
                                                                  ========       =======       =========     ========

Net earnings (loss)                                               $    572       $  (949)      $     792     $(16,462)
                                                                  ========       =======       =========     ========
Net earnings (loss) per share:
  Basic (1)                                                       $   0.05       $ (0.08)(2)   $    0.06     $  (1.17)(2)
                                                                  ========       =======       =========     ========
  Diluted (1)                                                     $   0.04       $ (0.08)(2)   $    0.06     $  (1.17)(2)
                                                                  ========       =======       =========     ========

<CAPTION>

                                                                          For the Fiscal Year Ended June 30, 1999
                                                                 -----------------------------------------------------
                                                                 September 30  December 31     March 31      June 30
                                                                 ------------  -----------     --------      -------
<S>                                                               <C>            <C>           <C>           <C>
Net sales                                                         $ 16,086       $16,437       $  13,679     $ 17,180
Earnings (loss) before taxes                                      $ (1,496)      $  (563)      $  (5,423)    $    631
Income taxes                                                          (463)           23          (1,789)        (746)
                                                                  --------       -------       ---------     --------
Net earnings (loss)                                               $ (1,033)      $  (586)      $  (3,634)    $  1,377
                                                                  ========       =======       =========     ========
Net earnings (loss) per share:

   Basic (1)                                                      $ ( 0.09)(2)   $( 0.05)(2)   $   (0.31)(2) $   0.12
                                                                  ========       =======       =========     ========
   Diluted (1)                                                    $ ( 0.09)(2)   $( 0.05)(2)   $   (0.31)(2) $   0.11
                                                                  ========       =======       =========     ========
</TABLE>


(1)  The difference between basic shares outstanding and diluted shares
     outstanding is the assumed conversion of common stock equivalents (stock
     options) in the amounts of 1,075,000, 0, 1,595,000, and 0 for fiscal 2000
     quarters and 0, 0, 0 and 1,073,000 for the fiscal 1999 quarters ended
     September 30, December 31, March 31, and June 30, respectively.

(2)  Generally accepted accounting principles requires the computation of the
     net loss per share to be based on the weighted average basic shares
     outstanding.

(3)  Nonrecurring charges include acquisition-related charges of $14,001 and the
     west coast operations reorganization costs of $10,567 in the fourth quarter
     ended June 30, 2000.

                                      F-21

<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The Board of Directors
Zygo Corporation

Under date of August 12, 2000, we reported on the consolidated balance sheets of
Zygo Corporation and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2000 as contained in
the 2000 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 12, 2000

                                      S-1

<PAGE>

                  ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                    YEARS ENDED JUNE 30, 2000, 1999, AND 1998

<TABLE>
<CAPTION>

                                        Balance                                             Balance
                                      at Beginning                                          at End
Description                            of Period        Provision        Write-Offs        of Period
-----------                           ------------     -----------       -----------      ------------
<S>                                   <C>              <C>               <C>              <C>
YEAR ENDED JUNE 30, 2000:
  ALLOWANCE FOR DOUBTFUL
  ACCOUNTS                            $ 1,324,300      $    70,100       $ 1,160,000      $   234,400

  INVENTORY RESERVE                   $ 4,513,300      $   (23,820)      $ 1,219,297      $ 3,270,183

Year Ended June 30, 1999:
  Allowance for Doubtful
    Accounts                          $   753,600      $ 1,286,600       $   715,900      $ 1,324,300

  Inventory Reserve                   $ 2,423,500      $ 2,679,000       $   589,200      $ 4,513,300

Year Ended June  30, 1998*:
  Allowance for Doubtful
    Accounts                          $   814,700      $   131,300       $   192,400      $   753,600

  Inventory Reserve                   $ 1,477,450      $ 1,421,700       $   475,650      $ 2,423,500
</TABLE>

* Includes opening balances of SSI
         Allowance for Doubtful Accounts  $86,700

                                      S-2
<PAGE>

EXHIBIT INDEX

   EXHIBIT
     TABLE                                                   FORM 10K-405
    NUMBER                                                   PAGE NUMBER
    ------                                                   ------------

  10.22       Brian J. Monti's Employment Contract

  21.         Subsidiaries of Registrant

  23.         Accountants' Consent

  24.         Power of Attorney

  27.         Financial Data Schedule