<PAGE>






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

                                    FORM 10-K
 (Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                    SECURITIES ACT OF 1934

For the fiscal year ended December 31, 1998 [ X ]

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE
                                    SECURITIES ACT OF 1934

For the transition period from  ...................to .........................

                         Commission file number 0-12489

                              SPECTRAN CORPORATION
     ......................................................................... 
           (Exact name of the registrant as specified in its charter)

         Delaware                                      04-2729372
     .....................................     ................................
     State or other jurisdiction of             (I.R.S. Employer Identification
No.)
     incorporation or organization

50 Hall Road, Sturbridge, Massachusetts                        01566
 ......................................................   .......................
   (Address of Principal Executive Offices)                   (Zip Code)

Registrant's telephone number, including area code   (508) 347-2261

Securities registered pursuant to Section 12(b) of the Act:
                                           Name of each exchange on
      Title of each class                     which registered
                                                  

            None                               Not Applicable
                  
 ................................................................................


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

               Common Stock, $.10 par value
 ................................................................................

                   (Title of class)

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

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

                                       1
<PAGE>

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  computed  by  reference  to the  closing  price of such  stock,  on
February 26, 1999: $36.3 million.

The number of shares  outstanding of each of the Registrant's  classes of common
stock, as of the latest practicable date: 7,003,850 shares of common stock, $.10
par value, outstanding on February 26, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required for Part III hereof is incorporated by reference from
the Registrant's  Proxy Statement for its 1999 Annual Meeting of Stockholders to
be filed with the Securities and Exchange  Commission  within 120 days after the
end of the Registrant's fiscal year.

                                     PART I

Item 1.       BUSINESS.

         SpecTran  Corporation  ("SpecTran," the "Company" or the  "Registrant")
operates through two wholly-owned  subsidiaries,  SpecTran  Communication  Fiber
Technologies,  Inc.  ("SpecTran  Communication")  and SpecTran  Specialty Optics
Company ("SpecTran  Specialty"),  and through General  Photonics,  LLC ("General
Photonics"),  a joint venture with General Cable Corporation  ("General Cable").
In December  1996,  the Company sold  certain of the assets of its  wholly-owned
subsidiary,  Applied Photonic Devices,  Inc.  ("APD"),  and then contributed the
remaining  assets of APD to General  Photonics for a 50% equity  interest.  (See
Note  14  to  the  Consolidated   Financial  Statements  -   "Acquisitions/Joint
Venture").  SpecTran Communication develops,  manufactures and markets multimode
and single-mode  optical fiber for data  communications  and  telecommunications
applications.   SpecTran  Specialty,   acquired  in  February  1994,   develops,
manufactures  and  markets   specialty   multimode  and  single-mode  fiber  and
value-added   fiber   optic   products   for   industrial,   military/aerospace,
communication and medical applications. General Photonics develops, manufactures
and markets  communications-grade  fiber optic cable  primarily for the customer
premises market in the United States, Canada and Mexico.

Technology

         Fiber optic technology  utilizing glass as a communications  medium was
developed in the 1970s and offers numerous technical advantages over traditional
media such as copper. Optical fibers are hair-thin solid strands of high quality
glass usually  combined in cables for  transmitting  information  in the form of
light pulses.  An optical fiber  consists of a core of high purity glass,  which
transmits light with little signal loss. This core is typically encased within a
covering  layer of high purity glass or plastic  polymer  referred to as optical
cladding,  which  reduces  signal loss through the side walls of the fiber.  The
information to be transmitted is converted from  electrical  impulses into light
waves by a laser or light emitting diode.  At the point of reception,  the light
waves are commonly converted back into electrical impulses by a photo-detector.

                                       2
<PAGE>

     Optical  fiber's  advantages  include  its high  bandwidth,  which  permits
reliable transmission of complex signals such as multiple high-quality audio and
video  channels  and  high-speed  data formats  such as Fiber  Distributed  Data
Interface (FDDI), Asynchronous Transfer Mode (ATM), Gigabit Ethernet Synchronous
Optical  Network  (SONET)  and  other  communications  protocols.   Compared  to
traditional copper cable used in telephony, optical fiber has thousands of times
the information carrying capacity, occupies less space and operates over greater
distances  with   significantly   less  attenuation.   This  high  capacity  and
reliability   makes   optical   fiber   systems  well  suited  for   interactive
applications,  allowing  digitally  encoded voice,  data and video signals to be
transmitted in large volumes at high speed. Furthermore, optical fiber is immune
to electrical  surges  (including  from lightning  strikes) and  electromagnetic
interference  which  cause  static or failure in copper  wire  transmission  and
wireless  communication.  Optical fiber has technical  advantages  over wireless
communications  media  such as  transmission  quality  and  signal  reliability.
Optical fiber is also a safer choice in flammable  environments  because it does
not conduct electricity.  Additionally,  communicating  through optical fiber is
more secure than copper and wireless  communications  because tapping into fiber
optic cable without detection is more difficult.

         Optical   fiber   quality   is   measured   by   several    performance
characteristics  and is reflected in the price of the fiber.  These  performance
characteristics  include  bandwidth,  attenuation  (signal loss over  distance),
tensile  strength,  geometry and the dimensional  and optical  uniformity of the
fiber. Optical fiber users and manufacturers have established specifications and
standards for both multimode and single-mode fiber.

                                       


Products

         The following  table  describes  the  Company's and General  Photonics'
principal product areas and the markets they serve:

<TABLE>
<CAPTION>


--------------------------------------- ------------------------------------- --------------------------------------
               Products                             Applications                        Target Customers
--------------------------------------- ------------------------------------- --------------------------------------
--------------------------------------- ------------------------------------- --------------------------------------
SpecTran Communication
--------------------------------------- ------------------------------------- --------------------------------------
<S>                                     <C>                                     <C>
Data Communication grade multimode      Data Communications, including          Integrated cablers (e.g., Lucent, 
fiber:  50, 62.5 and 100 micrometer     FDDI and fast Ethernet; LANs; video     Chromatic Technologies); independent
core diameters                          CCTV; computer peripherals channel      cablers (e.g., Optical Cable
                                        attachment                              Corporation, CommScope, General
                                                                                Photonics)
--------------------------------------- ------------------------------------- --------------------------------------
Telecommunication grade single-mode     Telephony (principally in emerging      Independent data communications
fiber                                   economies); high-speed                  domestic cablers; international
                                        short-distance data communication,      telecommunications cablers
                                        including Fibre Channel and FDDI        (e.g., India, China, Mexico)
--------------------------------------- ------------------------------------- --------------------------------------

</TABLE>
                                       3

<PAGE>

<TABLE>
<CAPTION>


--------------------------------------- ------------------------------------- --------------------------------------
               Products                             Applications                        Target Customers
--------------------------------------- ------------------------------------- --------------------------------------
SpecTran Specialty
--------------------------------------- ------------------------------------- --------------------------------------
<S>                                       <C>                                   <C>    
Step & graded index multimode fiber &     Factory LANs and PLC interconnects;   Factory, transportation and medical
cable:  Polymer clad/glass core, high     mobile video: avuibucs; high-speed    OEMs; systems designers and 
numerical aperture, radiation             ground-basedd transportation;         integrators; geophysical exploration
tolerant, power delivery an high          geophysical exploration and           companies; US government and 
temperature fiber; avionics cable         monitoring; sensing; power            military:  utilities; telecom and
high dielectric strength cable            transmission, including laser         supercomputer OEMs; systems
tether cables                             surgery; blood gas monitoring;        designers and integrators
including laser  supercomputer  OEMs;     radiation  resistant links;  high-
monitoring; designers and integrators     speed, short-distance telecom
                                          interconnects (e.g.,  telephone
                                          switching systems andPBXs);
                                          supercomputer links
--------------------------------------- ------------------------------------- --------------------------------------
--------------------------------------- ------------------------------------- --------------------------------------
Specialty single-mode fiber and           Metalized pigtails, couplers,         Telecommunications; optoelectronic
cable: photo-sensitive, rare-earth        amplifiers, geophysical exploration   manufacturers; well-logging
delay line, fatique resistant fiber;      and monitoring; gyroscopes;           companies and system integrators;
avionics cable; tether cables             wave-length division multiplexers     defense contracts


--------------------------------------- ------------------------------------- --------------------------------------
--------------------------------------- ------------------------------------- --------------------------------------
Components and assemblies: crimp and      Industrial automation;                OEMs; systems designers and 
cleave connectors; pigtails; fiber        environmental monitoring; customer    integrators; facilities managers;
optic arrays; specialty and hybrid        premises networking; military spec    utilities; optoelectronic devices
interconnects; tool kits                  and high reliablitity assemblies;     manufacturers; defense contractors
                                          high power laser delivery; sensing;
                                          illumination; spectroscopy


--------------------------------------- ------------------------------------- --------------------------------------
General Photonics
--------------------------------------- ------------------------------------- --------------------------------------
Indoor cable:  tight buffered             Building backbones; riser and         Networking systems and LAN OEMs;
distribution and breakout designs         plenum installation                   systems designers and integrators;
                                                                                installers; facilities managers
--------------------------------------- ------------------------------------- --------------------------------------
--------------------------------------- ------------------------------------- --------------------------------------
Outdoor cable:  loose tube;               Customer premises backbones,          Networking systems and LAN OEMs;
gel-filled; direct burial; aerial;        including densely populated           systems designers and integrators;
armored; figure eight                     buildings and campuses; Fibre         installers; facilities managers
                                          Channel; FDDI; bypass telecom
--------------------------------------- ------------------------------------- --------------------------------------
--------------------------------------- ------------------------------------- --------------------------------------
Cable accessories:  pulling devices;      Customer premises systems and LAN     Installers; system integrators; LAN
breakout, splitter and restoration        installation & repair                 OEMs; utilities
kits; cable terminations
--------------------------------------- ------------------------------------- --------------------------------------
</TABLE>

                                       

     Types of products produced by SpecTran Communication and SpecTran Specialty
accounted for  approximately  72% and 28%,  respectively,  of 1998  consolidated
revenue and 73% and 27%,  respectively,  of 1997 consolidated  revenue. In 1996,
types  of  products  by  SpecTran  Communication,  SpecTran  Specialty  and  APD
accounted for  approximately  59%, 21% and 20%,  respectively,  of  consolidated
revenue.

                                       4
<PAGE>


Customers and Marketing

     The Company  sells its  communication  multimode  and  single-mode  optical
fibers to various cable manufacturers,  domestically and internationally,  which
assemble  them into  cables for resale in  configurations  of their own  design.
Specialty  fiber  products  are sold  directly  to a large  number  of OEMs,  by
developing  specialty  applications for customers,  and to product  development
groups,   international   distributors   and   manufacturers'   representatives,
installers,  universities  and governmental  agencies,  primarily for use in the
industrial, medical, military, aerospace,  transportation and telecommunications
and data  communications  markets.  Optical  fiber cable and cable  accessories,
manufactured by General  Photonics,  are sold largely to  distributors,  systems
integrators and installers  primarily for use in the customer premises market in
the United States, Canada and Mexico.

         The Company markets its multimode and single-mode  data  communications
and telecommunications optical fiber products principally through a direct sales
force  in  the   United   States  and   through  a  network  of   manufacturers'
representatives   internationally.   Specialty   fiber   products  are  marketed
domestically  through a direct  technical field sales force and  internationally
through a network of technical distributors and sales  representatives.  Optical
fiber cable and cable  components  produced by General  Photonics  are  marketed
primarily through General Cable's direct sales force and sales  representatives,
whose principal  customers are largely  distributors  and end users.  Marketing,
technical  support and some direct  sales and  customer  support are provided by
General  Photonics  personnel.  The Company  advertises  in trade  publications,
brochures  and  other  material  to its  mailing  list  of  potential  customers
worldwide  and  participates  at trade shows,  technical  symposia and standards
committees.

     As a result of its  diversification  efforts and broader product  offering,
the Company has  increased its customer base over the last three years and plans
to  continue  to expand this base  within its  targeted  markets.  International
sales,  primarily Asia and Europe,  accounted for approximately 15%, 20% and 18%
of  total  sales  in  1998,  1997 and  1996,  respectively.  See  Note 16 to the
Consolidated  Financial Statements - "Business  Segements".  For the year ended
December  31,  1998,  sales to each of  Optical  Cable  Corporation  and  Lucent
Technologies  were equal to 10% or more of the Company's  revenues.  The loss of
either Optical Cable  Corporation or Lucent  Technologies  would have a material
adverse affect on the Company.

                                       5
<PAGE>

Manufacturing and Quality Control

     The basic raw  materials  required  for the  manufacture  of the  Company's
optical fiber products are high quality glass tubes and rods, various chemicals,
gases and certain  polymers.  The Company believes that its sources of supply of
these raw materials are adequate and that alternative sources are available. The
Company typically manufactures optical fibers by introducing vapors and gases of
varying  chemical  compositions  into a special  glass tube  located in a clean,
controlled  environment.  In the modified  chemical  vapor  deposition  ("MCVD")
process, an inside vapor deposition process used by the Company, the glass tube,
which forms all or a portion of the optical cladding,  and the introduced vapors
and gases are  simultaneously  heated,  and oxide  particles,  formed  through a
reaction of chemical  vapors with  oxygen,  are  deposited  on and adhere to the
inside of the tube. As the particles  attach to the tube wall, they are fused to
create a layer of high purity glass.  Succeeding  layers of glass of the same or
different  compositions are deposited in this fashion to permit the transmission
of light in accordance  with the desired  specifications.  The Company  believes
that the MCVD process is well suited to the  production  of multimode  fiber but
that it is not presently the most cost-effective  process for making single-mode
fiber. As part of the acquisition of Ensign Bickford  Optical  Technologies  the
Company acquired the patent rights to a process known as hybrid vapor deposition
("HVD"). Since its acquisition,  the HVD process has been refined and engineered
for  production  and the  Company  expects  it  will  be  used  in 1999  for the
manufacture of single-mode fiber.

         In the MCVD process,  once  deposition is completed,  the glass tube is
then collapsed into a rod, or primary  preform,  consisting of a deposited core,
in certain instances some deposited  cladding and cladding provided by the glass
tube  itself.  In most  cases,  additional  cladding  is added  to this  primary
preform.  The rod is then  placed at the top of a fiber  drawing  tower,  heated
until it  softens  and drawn  into a fiber of  predetermined  diameter.  The HVD
process does not use a glass starting tube but rather deposits glass soot on the
end of a target  rod to produce  the  central  portion of the fiber.  After this
material  has been fused into  clear  glass,  additional  soot is  deposited  to
increase the cladding  volume.  The deposited  material is also fused into clear
glass and  resulting rod or preform is  subsequently  drawn into fiber using the
same basic technology as with MCVD fiber draw.

                                       6
<PAGE>

         The majority of the  Company's  specialty  products  use a  proprietary
polymer clad glass core fiber drawn from  manufactured or purchased  silica rod.
This  fiber is either  sold to third  parties  or cabled  and/or  combined  with
assemblies and sold. The Company owns certain hard polymer cladding, coating and
fiber  termination   technology  known  as  "crimp/cleave,"   which  facilitates
attachment of optical fibers to connectors and other  components and has certain
proprietary  technology  used for the cabling of optical fiber.  The Company has
developed proprietary  technology related to the processing of a wide variety of
polymeric  compounds  for  the  manufacture  of  optical  fiber  cable.  General
Photonics  purchases fiber from the Company and protectively  covers and bundles
the fibers into cable.

     The Company believes that its quality control programs are essential to its
success.  The Company's quality control programs are designed to maintain strict
tolerances during the manufacturing  process and to assure performance standards
of its products.  The Company  performs  quality  control  testing on all of its
products.  The  Company  designs  and builds  much of the  equipment  it uses to
manufacture  and test  its  optical  fiber  products.  SpecTran  Communication's
facility in Sturbridge, Massachusetts and SpecTran Specialty's facility in Avon,
Connecticut  are ISO 9001  certified.  All of the Company's  operations  utilize
internal testing procedures based on the internationally recognized "Fiber Optic
Test  Procedures"  and  have  in  place  and  continue  to  develop  specialized
proprietary  testing systems and procedures to support the requirements of their
respective customers.

Environmental Matters

     The  Company  uses  certain   hazardous   materials  in  its  research  and
manufacturing  operations. As a result, the Company is subject to federal, state
and local governmental  regulations.  During 1998, the Company invested $500,000
for the purchase and installation of additional air pollution  control equipment
at SpecTran Communication's production facility in Sturbridge,  Massachusetts.
There is no material spending pertaining to environmental compliance planned for
1999. The Company believes that it has complied with all regulations and has all
permits necessary to conduct its business.

                                       7
<PAGE>

Proprietary Rights

         The Company and its subsidiaries consider its proprietary know-how with
respect  to the  development  and  manufacture  of  flexible  glass  fibers  and
value-added  optical  fiber  products  to be a  valuable  asset.  This  know-how
includes  formulation  of new glass  compositions,  development of special fiber
coatings,  coating  applications,  fiber  designs,  preform  fabrication,  fiber
drawing,  optical  fiber  cabling  methods,  fiber  cleaving,  polishing and end
finishing  techniques,   proprietary  testing   capabilities,   development  and
implementation of manufacturing  processes and quality control  techniques,  and
design and construction of manufacturing and quality control equipment.  Product
and  application  knowledge  are also  considered  to be valuable  assets of the
Company and its subsidiaries.

         Corning   License.   The   Company   has  a  limited,   non-assignable,
non-exclusive,  royalty-bearing license from Corning to make, use and sell fiber
under  certain of Corning's  United  States  patents with a filing date prior to
January 1, 1996 in the field of optical  fiber.  The license  contains  certain
annual quantity limitations. The Corning license is not applicable to sales made
directly or  indirectly  to certain  customers  such as Corning,  Lucent and the
United States  Government.  The quantities  that can be  manufactured  under the
license increase annually through the year 2000. The license has a term equal to
the life of the last to expire of the Corning or Company patents  licensed under
the agreement.  Corning has the right to terminate the license in the event that
more than 30% of the Company's voting stock is acquired, directly or indirectly,
by  another  manufacturing  company.  The  Company  granted  back to  Corning  a
non-exclusive  royalty-free  license for any of its  patents  with a filing date
prior to January 1, 1996 in the field of optical fiber.

         Lucent  Licenses.  The  Company  has a  non-assignable,  non-exclusive,
unlimited,  royalty-bearing  license  from  Lucent  under all  patents  covering
optical  fiber and optical  fiber cable owned by Lucent or which  Lucent and its
affiliates  had the right to license on or before  August 15, 1986.  The Company
granted back to Lucent a non-exclusive,  royalty-free  license under patents the
Company may obtain relating to optical fiber inventions made on or before August
15, 1986. The license  extends for the life of the last to expire of the patents
licensed under the agreement.

         In October 1998,  the Company and Lucent  established a new  worldwide,
non-exclusive license exchanging rights under their optical fiber patents issued
prior to January 1, 1998  and  additional  patents  related to multimode  fiber
based on applications filed through October 1998. SpecTran is licensed by Lucent
to make optical  fiber at its existing  factories  for  worldwide  use, sale and
export from the United  States.  The license  contains some product  limitations
including  certain  exclusions to make or sell select  specialty fibers for some
                                       8

<PAGE>

     applications. Lucent receives non-exclusive, royalty-free worldwide rights.
SpecTran agreed to pay Lucent a $4.0 million  license fee in  installments  and,
beginning  in 2000, a royalty on sales.  Lucent has the right to  terminate  the
agreement if the Company is acquired by an optical fiber manufacturer.

     Sales Subject to Corning and Lucent License  Agreements.  Approximately 22%
of the Company's net sales during 1998, all of which were SpecTran Communication
sales,  were  subject to license  requiring  aggregate  royalty  payments by the
Company of approximately 5% of net sales of the Company's products  manufactured
under license during 1998. The Company  believes that certain  Corning  patents,
which may have been  relevant  to the  Company's  single-mode  fiber,  including
patents  covered by a  non-exclusive  license from Corning to the Company,  have
expired in many countries (including the United States).  Therefore, the Company
believes that  manufacturing and sale of its single-mode fiber is not subject to
the  Corning  license  and has been  marketing  its  single-mode  fiber  without
payments  of  royalties  to Corning and  without  regard to the annual  quantity
limitations of the Corning  license since 1993.  The Company  presently does not
expect to need the Corning  license for the  manufacture of its multimode  fiber
after 1999 because the Company believes that a Corning United States patent with
relevancy to its multimode fiber will expire in 1999.

     Patents  and  Trademarks.  The  Company  and its  subsidiaries  own 22 U.S.
patents  relating to products,  processes and equipment in the fields of optical
fibers,  optical  connectors,  coatings and cleaving tools. The Company believes
that its patents afford it certain  competitive  advantages.  Under the terms of
the Corning and Lucent license  agreements,  generally its optical fiber patents
are required to be made available royalty-free to Lucent and Corning.

         The Company is using its trademark  SPECTRAGUIDE(R)  for its commercial
grade optical fiber and for certain of its value added fiber  products.  It also
uses the trademarks HCS(R) (Hard Clad Silica),  Avioptics(TM),  Flightguide(TM),
PYROCOAT(TM), V-System(TM), V-Pin(TM) and GigaGuideTM.

Research and Development

     Research and  development  activities and the Company's  ability to develop
and improve products  employing both existing and new technology,  are important
to the Company.  During the fiscal years ended December 31, 1998, 1997 and 1996,
the Company spent $5.5 million, $3.3 million and $3.1 million,  respectively, or
7.8%, 5.3% and 5.1%, respectively, of its net sales on research and development.
The Company has continued to invest in programs to reduce manufacturing cost and
improve product performance in both the single-mode and multimode product lines,
to  develop  new  optical  fiber  products  and to develop  alternative  process
technologies.  The Company's personnel conduct substantially all of its research
and development activities. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
                                       9

<PAGE>

Backlog

     As of January 31, 1999, the Company's  backlog of orders was  approximately
$16.6 million (approximately 42% of which was SpecTran  Communication  backlog),
as compared to a backlog of $35.2  million as of January  31,  1998.  All of the
January 31, 1999 backlog is expected to be delivered during 1999.

Competition

         The Company  produces and sells optical  fibers and value added optical
fiber components and assemblies for data communications,  telecommunications and
specialized applications. Optical fiber cable and cable components are also sold
through  General  Photonics.   While  there  may  be  less  competition  in  the
specialized  markets,  all of the  markets  served by the  Company  and  General
Photonics are very  competitive.  The Company's main  competitors for its fibers
for data communications and  telecommunications  are its licensors,  Corning and
Lucent,  to whom the Company pays royalties and who have  substantially  greater
resources and operating  experience than the Company.  The Company also competes
with Alcatel,  Plasma Optical Fibres, Yangzee Optical Fiber Corp., FiberCore and
other fiber producers  throughout the world.  The Company's main competitors for
its specialty fibers generally have been smaller  operations,  but some of those
competitors are part of companies with substantially  greater resources than the
Company.  General  Photonics'  main  competitors  for its  optical  fiber  cable
products are large companies with substantially  greater resources and operating
experience  than the Company and  General  Photonics,  some of which may also be
customers of SpecTran  Communication.  The Company competes for sales based upon
its  ability to fill  orders  promptly  at  competitive  prices,  by  developing
specialty  applications for customers,  product  performance,  product features,
unique proprietary products, flexibility, quality and service.

         The Company  believes that optical  fibers offer a number of advantages
over and compete favorably with other means of transmitting information, such as
copper wire,  radio  frequency (RF) wireless,  satellite and other line of sight
transmissions  (e.g.,  microwaves).  Many companies offering such other means of
transmitting  information  have  substantially  greater  resources and operating
experience  than the  Company.  The  Company  often  competes  with both  mature
existing technology and new technology,  some of which have cost advantages over
optical fiber for certain applications.
                                       10

<PAGE>

     Competition  may also result from  technological  innovation in the optical
fiber  industry.  New  optical  fiber  designs  could  provide an  advantage  to
competitors  of  the  Company.   New  single-mode   dense  wavelength   division
multiplexing  fibers  produced by Lucent and Corning  may,  particularly  in the
future,  as, among other things,  the cost of electronic  connections  decrease,
provide a  competitive  advantage to those  companies,  although the Company has
access to certain of  Lucent's  patents in this area  through  its 1998  license
agreement with Lucent.

         The number of  participants  in the optical  fiber  industry is to some
extent limited by patents covering the fundamental optical fiber technology, the
need  for  substantial   capital  investment  and  the  availability  of  highly
specialized equipment and personnel with the requisite technical expertise.  The
Company believes that certain Corning  patents,  which may have been relevant to
the Company's  single-mode  fiber,  including patents covered by a non-exclusive
license from Corning to the Company,  have expired in many countries  (including
the United States).  The Company further  believes that a certain Corning United
States  patent,  covered by this  non-exclusive  license,  with relevance to the
Company's  multimode fiber,  expires in 1999. In addition,  the Company believes
that a certain Lucent patent  licensed to the Company  relating to its multimode
and  single-mode  fiber expired in 1997.  The expiration of these patents may or
may not reduce the patent barrier to entry by other companies.

Employees

         As of December 31, 1998, the Company employed 531 persons,  of whom 195
were employed in technology,  242 were employed in manufacturing  operations and
94 provided  marketing,  administrative,  management and other support services.
These  numbers do not include 49 employees of General  Photonics.  The Company's
employees  are not  represented  by a labor  union.  The  Company  believes  its
employee relations are good.


Item 2.       PROPERTIES.

     The  Company's  administrative  offices  and  the  offices  and  production
facilities  of SpecTran  Communication  are located in an  approximately  98,000
square foot building. The building is situated on approximately 43 acres of land
owned  by  SpecTran   Communication  in  Sturbridge,   Massachusetts.   SpecTran
Communication  owns  these  buildings  and land as well as a 5,000  square  foot
office building, used for offices, that is next to this manufacturing facility.

         SpecTran  Specialty's offices and production  facilities are located in
an approximately  54,000 square foot building situated on approximately 14 acres
of land located in Avon, Connecticut. This property is owned by the Company.

                                       11
<PAGE>

         General  Photonics has assumed  APD's lease for offices and  production
facilities  in a 50,000 square foot  facility  located in Dayville,  Connecticut
under a lease  expiring  February  6,  2001,  which is  subject  to a three year
renewal option, followed by a two year renewal option.


Item 3.       LEGAL PROCEEDINGS.

              On November 6, 1998, the Company announced that it would contest a
complaint filed in the United States District Court in Boston,  MA on October 2,
1998,  purportedly as a class action suit.  Titled Cruise v. Cannon, et al., the
complaint  alleges that the Company and three of its current or former  officers
and  directors  violated   securities  laws  by  misrepresenting  the  Company's
financial condition and financial results during 1998. The suit purports to be a
class action on behalf of all  individuals  who purchased the Company's stock on
the open market from February 25, 1998 to July 17, 1998. The suit alleges, among
other things, that there were public  misrepresentations or failures to disclose
material  facts during that period  which  allegedly  artificially  inflated the
price of the Company's common stock in the  marketplace.  The complaint seeks an
undisclosed  amount of  compensatory  damages and costs and expenses,  including
plaintiff's  attorney's  fees and such further relief as the Court may deem just
and proper.  The Company believes the action is totally without merit,  believes
that  it has  highly  meritorious  defenses  and it  intends  to  defend  itself
vigorously.


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

              None.

                                       12
<PAGE>


                                     PART II


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

         The  Company's  Common  Stock is traded on the NASDAQ  National  Market
System  under the symbol  "SPTR."  Set forth  below is high and low sales  price
information for the Company's Common Stock for the periods indicated as reported
on the NASDAQ National Market:


                                                                 Price
                                    
         Fiscal Year      Fiscal Quarter Ended            High           Low

             1997         March 31, 1997                  25             12-5/8
                          June 30, 1997                   21             11-1/4
                          September 30, 1997              20-3/4         13-3/4
                          December 31, 1997               15-1/4         8-5/8

             1998         March 31, 1998                  11-1/8         6-7/8
                          June 30, 1998                   10-1/4         6-15/16
                          September 30, 1998              7-13/16        4-5/32
                          December 31, 1998               7-5/8          3-9/16



     On March 26 1999,  the  closing  price of Common  Stock as  reported on the
NASDAQ   National  Market  System  was  $4.   The  approximate   number  of
shareholders of record of the Company's  Common Stock as of January 31, 1999 was
755 which  includes  all shares  held in nominee  names by  brokerage  firms and
financial  institutions as one stockholder.  It is estimated that shares held in
street name are held for approximately 5,602 stockholders.

         The Company has not paid any cash  dividends and does not intend to pay
cash dividends in the foreseeable future.

                                       13
<PAGE>



Item 6.       SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
<CAPTION>


                                                                       Years Ended December 31
                                                                (in thousands, except per share data)
                                                 ---------------------------------------------------------------------
OPERATING RESULTS                                    1998          1997          1996          1995          1994
-----------------                                    ----          ----          ----          ----          ----

<S>                                              <C>           <C>           <C>              <C>           <C>    
Net Sales                                        $   70,856    $   62,057    $   61,571       $38,581       $26,926
Gross Profit                                         18,880        23,276        22,375        13,061         7,623

Income (Loss) Before Income Taxes and
   Equity in Joint Venture                            1,746         7,111         5,537           777          (487)
Net Income (Loss)                                       523         4,842         3,655           542          (487)
Earnings per Common Share-Basic                         .07           .72           .68          .10            (.09)
Earnings per Common Share-Diluted                       .07           .68           .61          .10            (.09)
Weighted Average Shares Outstanding                   7,003         6,724         5,374         5,298         5,203
Weighted Average Shares Outstanding
   Assuming Conversion                                7,103         7,148         5,962         5,582         5,203

FINANCIAL POSITION

Total Assets                                        105,419        92,105        62,456        40,365        31,362
Long-Term Debt                                       30,800        24,000        24,000        10,000         5,240
Stockholders' Equity                                 57,312        56,759        28,403        24,296        23,104

</TABLE>

     See also  Note 16 to the  Consolidated  Financial  Statements  -  "Business
Segements".

                                       14

<PAGE>



Item 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS   OF OPERATIONS.
         
     Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Overview

         Currently,  SpecTran develops,  manufactures,  and markets high quality
optical fiber, optical fiber cables and value-added optical fiber components and
assemblies.  Prior to 1993,  the  Company  had a  narrow  customer  base and was
focused on the production of multimode  fiber for the domestic  market.  In 1993
the Company  began to  implement a strategic  plan to  diversify  its  products,
markets  and  customer  base.  As part of this plan,  the  Company  reintroduced
single-mode  fiber in 1993 and began marketing it  internationally.  In 1994 the
Company  acquired  Ensign-Bickford's  specialty  fiber  operations  (which later
became SpecTran Specialty), allowing the Company to become a worldwide leader in
fiber optic  specialty  applications.  The Company entered the fiber optic cable
market in May 1995 by acquiring APD in order to participate  more extensively in
the rapid growth of the data communications  market, the principal end market of
multimode fiber. In December 1996 the Company formed General Photonics,  a joint
venture  with  General  Cable,  to develop,  manufacture  and market fiber optic
cable.

Results of Operations

         The  following  table sets forth,  for the periods  indicated,  certain
financial data as a percentage of net sales:

<TABLE>
                                                                                    Years Ended December 31,
                                                                              1998              1997             1996
                                                                              ----              ----             ----

<S>                                                                         <C>               <C>               <C>   
Net Sales                                                                   100.00%           100.0%            100.0%
Cost of Sales                                                                 73.4%            62.5%             63.7%
                                                                              -----            -----             -----
   Gross Profit                                                               26.6%            37.5%             36.3%
Selling and Administrative Expenses                                           19.5%            22.5%             22.1%
Research and Development Cost                                                  7.8%             5.3%              5.1%
                                                                               ----             ----              ----
   Income (Loss) from Operations                                                    (0.6)%             9.7%              9.1%
Other Income (Expense), net                                                    3.1%             1.8%             (.1)%
                                                                               ----             ----             -----
   Income before Income Taxes and Equity in Joint Venture                      2.5%            11.5%              9.0%
Income (Loss) from Joint Venture                                             (1.4)%           (0.5)%               --%
                                                                             ------           ------               ---
   Income before Income Taxes                                                  1.1%            11.0%              9.0%
Income Tax Expense                                                              .4%             3.2%              3.1%
                                                                                ---             ----              ----
      Net Income                                                                .7%             7.8%              5.9%
                                                                                ===             ====              ====
</TABLE>

                                       15


<PAGE>


Net Sales

         Net sales  increased $8.8 million,  or 14.2% from $62.1 million in 1997
to $70.9 million in 1998. The increase was due to record annual revenues at both
SpecTran Communication,  resulting from higher sales volume made possible by the
multimode expansion completed earlier in 1998, and at SpecTran Specialty.  Sales
growth continued to be adversely  affected by lower unit selling prices for both
multimode and single-mode fiber due to the highly  competitive market conditions
caused by an industry-wide oversupply situation.

Gross Profit

         Gross profit  decreased  $4.4  million,  or 18.9% from $23.3 million in
1997 to $18.9 million in 1998.  As a percentage  of net sales,  the gross profit
decreased to 26.6% for the year ended December 31, 1998, from 37.5% for the year
ended  December 31, 1997.  The  decrease in gross  profit was  primarily  due to
continued industry pricing pressures for standard  communication  fiber products
and to operational problems and inventory write-downs at SpecTran Specialty.

Selling & Administrative

         As a  percentage  of net sales,  selling  and  administrative  expenses
decreased to 19.5% for the year ended December 31, 1998, from 22.5% for the year
ended December 31, 1997. Selling and  administrative  expense decreased $85,000,
or .6% from $14.0  million in 1997 to $13.8  million in 1998.  The  decrease  is
primarily due to lower Incentive Compensation in 1998.

Research and Development

         Research and development  costs  increased $2.2 million,  or 67.0% from
$3.3 million in 1997 to $5.5 million in 1998.  The Company in 1998 increased its
investment in programs to improve manufacturing costs and product performance in
both multimode and single-mode product lines, to develop new special performance
fiber products and to develop alternative process technologies.

                                       16
<PAGE>

Other Income (Expense), net

         Other income (expense),  net favorably increased $1.1 million, or 99.8%
from net  other  income  of $1.1  million  in 1997 to net  other  income of $2.2
million in 1998.  Interest  income  decreased  $1.1 million,  or 83.1% from $1.3
million in 1997 to $200,000 in 1998 due to a lower level of cash  available  for
investment.  Net interest expense increased $672,000,  or 90.1% from $747,000 in
1997 to $1.4 million in 1998 primarily due to a higher level of borrowings under
the Company's  revolving  credit  agreement and to a lower level of  capitalized
interest associated with the Company's capacity expansion  programs.  Other net,
increased  favorably  $2.9  million,  or 561.2%  from  $510,000  in 1997 to $3.4
million in 1998 due to the Company's  settlement of a multi-year supply contract
with Corning.

Income Taxes

         A tax  provision  of 32.0% of pre-tax  income was provided for the year
ended December 31, 1998, compared to a tax provision of 29.0% for the year ended
December 31, 1997. The lower  effective tax rate for 1997 was due to the Company
benefiting from tax credit  carryforwards and low state income taxes as a result
of a high level of investment tax credits due to the capacity expansions. 

Income From Equity in Joint Venture

         The Company  realized a loss of  $974,000  and  $287,000  for the years
ended 1998 and 1997 respectively, from its investment in General Photonics. This
joint venture was formed in December 1996 with General  Cable.  The loss in 1998
was  primarily  due to lower than  anticipated  revenues and gross profit due to
continued soft demand in the cable premise market, combined with continued price
declines for cable.

Net Income

     Net income  decreased  $4.3 million,  or 89.2% from $4.8 million in 1997 to
$523,000 in 1998.  The decrease in earnings is due to reduced  gross profit from
SpecTran   Communication,   primarily  related  to  continued  industry  pricing
pressures for standard  communication fiber products,  to operational issues and
inventory  write-downs  at SpecTran  Specialty  and the loss from the  Company's
equity in General Photonics.

                                       17
<PAGE>


     Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net Sales

         Net sales  increased  $486,000,  or .8%,  from $61.6 million in 1996 to
$62.1  million  in 1997.  Net  sales in 1997 did not  include  those of  General
Photonics,  whereas  sales  for 1996  included  the  sales of  Applied  Photonic
Devices,  Inc. (APD), certain assets of which were sold in December 1996 to form
General  Photonics,  a joint venture with General Cable. On a comparative basis,
including  General  Photonics  sales in 1997  would  have  resulted  in an 18.4%
increase compared with 1996. Net sales increased at both SpecTran  Communication
and  SpecTran  Specialty  in 1997 as  compared to 1996 due to  continued  market
demand.  This was  partially  offset by industry  pricing  pressure for standard
communication fiber products experienced during the second half of 1997.

Gross Profit

         Gross profit increased $901,000, or 4.0%, from $22.4 million in 1996 to
$23.3 million in 1997. As a percentage of net sales,  the gross profit increased
to 37.5% for the year ended  December  31,  1997,  from 36.3% for the year ended
December 31,  1996.  The  increase in gross  profit was  primarily  due to lower
production  costs  for  the  Company's  standard  communication  fiber  products
resulting from manufacturing process and yield improvements.  This was partially
offset by lower  margins at SpecTran  Specialty,  primarily  due to greater than
planned costs incurred in connection with the consolidation and expansion into a
new facility.

         As a percentage of net sales,  royalties decreased from 3.7% in 1996 to
3.0% in 1997.  This  decrease  in  royalties  as a  percentage  of net sales was
primarily due to an increase in 1997 in the net sales not subject to royalties.

Selling & Administrative

         Selling and administrative  expenses increased $325,000,  or 2.4%, from
$13.6 million in 1996 to $14.0 million in 1997.  This increase was primarily due
to costs associated with the Company's  one-time  management  reorganization and
training costs slightly offset by a lower  provision for incentive  compensation
in 1997.  As a  percentage  of net sales,  selling and  administrative  expenses
slightly  increased to 22.5% for the year ended December 31, 1997 from 22.2% for
the year ended December 31, 1996.

                                       18
<PAGE>

Research & Development

         Research and development costs increased  $157,000,  or 5.0%, from $3.1
million in 1996 to $3.3 million in 1997. As a percentage of net sales,  research
and  development  costs increased from 5.1% for the year ended December 31, 1996
to 5.3% for the year ended December 31, 1997. The Company continues to invest in
programs  to  improve  manufacturing  costs  and  product  performance  in  both
multimode and  single-mode  product  lines,  to develop new special  performance
fiber  products and to develop  alternative  process  technologies.  The Company
intends to approximately double its research and development spending in 1998.

Other Income (Expense), net

         Other income (expense),  net favorably increased by $1.2 million to net
other income of $1.1 million in 1997  compared with net other expense of $65,000
in 1996.  Interest income  increased $1.1 million,  or 487.2%,  from $226,000 in
1996 to $1.3  million  in 1997  due to a  higher  level  of cash  available  for
investment as a result of the Company's  secondary  public  offering in February
1997. Interest expense,  net of capitalized  interest,  increased  $276,000,  or
58.6%,  from  $471,000 in 1996 to  $747,000 in 1997 due to the  increase in debt
related to the Company's capacity expansion.

Income Taxes

         The  effective  tax rate  declined  from 34.0% in 1996 to 29.0% in 1997
primarily due to a lower provision for state income taxes in 1997 as a result of
investment tax credits  associated  with capacity  expansion.  The effective tax
rates for 1997 and 1996 were lower than the statutory combined federal and state
tax rates due  primarily to a reduction of $300,000 in 1997 and $400,000 in 1996
in the valuation  allowance for deferred tax assets due to the Company's  belief
that it is more likely than not that the additional  deferred tax assets will be
realized through the utilization of operating loss and tax credit carryforwards.
See Note 10 of "Notes to the Consolidated Financial Statements."

Income From Equity in Joint Venture

     The  Company  realized  a loss of  $287,000,  from its  equity  in  General
Photonics,  the joint venture  formed in December 1996 with General  Cable.  The
loss in 1997, was primarily due to lower than anticipated revenues. In 1996, the
results of Applied Photonic Devices, Inc., the predecessor to General Photonics,
were included in the consolidated results.

Net Income (Loss)

         Net income increased $1.2 million,  or 32.5%, from $3.7 million in 1996
to $4.8 million for the year ended in 1997.  The increase was  primarily  due to
improved operating results at Communication Fiber and higher interest income.

                                       19

<PAGE>


                         Liquidity and Capital Resources

     As of December  31,  1998,  the Company had  approximately  $1.7 million of
cash. In addition,  the Company has a $20.0 million  revolving  credit agreement
with its principal  bank  maturing in April 2000.  As of December 31, 1998,  the
Company had borrowed $10.0 million against the revolving credit agreement.

         The Company has a scheduled  debt  principal  repayment of $3.2 million
on December 21, 1999.

         The Company's net working  capital  position at December 31, 1998,  was
approximately $11.8 million with a current ratio of 1.8 to 1.

     During 1998 the Company used $10.0 million in cash provided from  financing
activities,  primarily from net borrowings under its revolving credit agreement,
$6.5 million of proceeds  from the sale of  marketable  securities  and positive
cash flow from operations of $3.0 million, to fund its capacity expansion.

     The  Company is  continuing  its  capacity  expansion,  which will  require
approximately $1 million in capital expenditures during 1999, resulting in total
expenditures for capacity  expansion since 1996 of approximately $44 million for
SpecTran  Communication and  approximately  $12 million for SpecTran  Specialty,
including equipment  purchases.  When fully operational,  expected in the second
quarter of 1999,  the  expansion  at SpecTran  Communication  will  increase its
capacity  by more  than  100%  from  1996  levels.  The  expansion  at  SpecTran
Specialty increased capacity by more than 50%.

     The Company  intends to  continue  to finance  its capital and  operational
needs for the  remainder  of the year  through a  combination  of cash flow from
operations and  borrowings,  assuming the Company  continues to meet its lenders
revised covenants.  The Company had violated certain covenants contained in both
the revolving  credit  agreement and the senior  secured notes  triggered by its
second  quarter 1998 results.  In December 1998, the Company signed an agreement
to amend these  covenants  under its loan agreements with its principal bank and
the senior secured noteholders.  With the signing of that agreement, the Company
remedied  all  violations  under the original  agreements.  While the Company is
presently  in  compliance  with  all  the  revised  covenants,  there  can be no
assurance  that the Company,will in the future, be able to remain in  compliance
with all the revised covenants.

     The Company is exploring various financing alternatives,  including seeking
additional capital or entering into strategic  alliances in an attempt to reduce
its debt.  The Company  believes  that  successful  completion of one or more of
these alternatives and/or renewal or extension of its revolving credit agreement
is necessary to meet its longer term cash requirements.

                                       20
<PAGE>

                               The Year 2000 Issue

     The Year 2000 issue is the result of computer  programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
information  technology  systems  (which the  Company  relies on to monitor  and
manage its operations,  accounting, sales and administrative functions), such as
computers, servers, networks, and software ("IT Systems") and other systems that
use embedded microchip technology ("Non-IT Systems") that are date sensitive may
recognize  a date using "00" as the year 1900  rather  than the Year 2000.  This
could  result  in  system  failure  or  miscalculations  causing  disruption  of
operations. Similarly, the date-sensitive IT Systems and Non-IT Systems of third
party  suppliers or customers  with whom the Company has material  relationships
could  experience  similar  malfunctions  which could,  in turn, have a material
adverse impact on the Company.

     The Company has  completed  an  enterprise-wide  assessment  of all mission
critical IT Systems and Non-IT Systems to evaluate the state of its preparedness
for the Year 2000. The Company has established teams by business unit to address
the Year 2000  issue.  The Company has  completed a  significant  portion of the
Non-IT Systems  remediation in connection with the recent capacity  expansion at
both facilities.  A significant portion of production  equipment was replaced or
upgraded as part of this  expansion.  The Company has revised its  estimate  for
Year 2000  spending  down to $1.2  million  from  $1.5  million.  This  includes
$222,000  for  software  which  will be  expensed  in 1999.  The plan  calls for
remediation  to be complete on all systems  critical to operate the  business by
July 1999, with the remediation of the remaining  non-critical  systems expected
to be complete by the end of the third quarter. The Company estimates that it is
50% complete with its  remediation  efforts for the Year 2000.  The costs of the
project and the date the Company plans to complete Year 2000  modifications  are
based on management's  best estimates.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. The Company presently  believes that with modifications to existing
software and conversions to new software,  the Year 2000 issue can be mitigated.
However,  if  such  modifications  and  conversions  are  not  made  or are  not
completely  timely,  the Year 2000 issue could have a material adverse impact on
the operations of the Company.  The Company is developing  contingency  plans in
case its remediation  efforts are unsuccessful.  The Company expects to complete
the contingency  plans in July 1999 in conjunction with the  implementation  and
testing of the critical business systems.

                                       21
<PAGE>

         The Company has  initiated  formal  communications  with a  substantial
majority of its significant  customers and suppliers to determine their plans to
address the Year 2000 issue.  While the Company expects a successful  resolution
of all issues there can be no guarantee  that the systems of other  companies on
which the Company  relies  will be  completed  in a timely  manner or that these
issues would not have a material adverse effect on the Company.

                                Subsequent Events

     In March 1999,  Dr.  Raymond E.  Jaeger,  who was  Chairman of the Board of
Directors  until December 31, 1998,  resigned from his position as a director of
the  Company  and its  subsidiaries.  Dr.  Jaeger  remains a  consultant  to the
Company.  Mr. Bruce A. Cannon,  who had  previously  resigned from his executive
positions,  entered into an agreement with the Company during the first quarter
of 1999,  effective as of December 1, 1998,  memorializing his resignation as an
officer and a director of the Company and its subsidiaries. Mr. Cannon remains a
consultant to the Company.

                        Recent Accounting Pronouncements

         Effective  January 1, 1998,  the  Company  adopted:  (1)  Statement  of
Financial  Accounting  Standards No. 130, Reporting  Comprehensive  Income." The
statement requires the corporation to report  "comprehensive  income" as defined
therein.  (2) Statement of Financial  Accounting  Standards No. 131, "Disclosure
about Segments of an enterprise and Related  Information." The Statement changes
the criteria  used to  determine  the segments for which the Company must report
information.  This  item is  discussed  herein;  please  also  see the  Notes to
Consolidated  Financial  Statements for more  information;  and (3) Statement of
Financial Accounting Standards No. 132, "Employers' Disclosure about Pension and
Other Postretirement Benefits." The Statement requires additional disclosures on
changes in the benefit  obligations  and fair  values of plan assets  during the
year.  (4)  Statement  of Position  98-1  "Accounting  for the Costs of Computer
Software  Developed  or obtained for Internal  Use".  The  statement of position
provides guidance on accounting for the costs of computer software  developed or
obtained  for  internal  use.  The  adoption  of this  statement  did not have a
material  affect  to the  financial  position  or  results  of  operations.  (5)
Statement of Position 98-5 "Reporting on the Costs of Start-up Activities".  The
adoption  of this  statement  did not have a  material  affect to the  financial
position or results of  operations.  Please  refer to the Notes to  Consolidated
Financial Statements for more information.

                                       Other
                                      
     This  document  contains  certain  forward-looking  statements  within  the
meaning of Section 27A of the Securities Act of 1933, as amended, in Section 21E
of the  Securities  Exchange Act of 1934,  as amended,  which are intended to be
covered by the safe harbors  created  thereby.  Investors are cautioned that all
forward-looking  statements  involve  risks  and  uncertainties  that may  cause
results to differ materially from  expectations,  including without  limitation,
the ability of the Company to market and develop its products,  general economic
conditions  and  competitive  conditions  in  markets  served  by  the  Company.
Forward-looking  statements  include,  but are not limited to,  global  economic
conditions,  product  demand,  competitive  products and pricing,  manufacturing
efficiencies,  cost reductions,  manufacturing capacity, facility expansions and
new plant  start-up  costs,  the rate of  technology  change,  and other  risks.
Although   the   Company   believes   that  the   assumptions   underlying   the
forward-looking   statements  contained  herein  are  reasonable,   any  of  the
assumptions could be inaccurate,  and therefore,  there can be no assurance that
the  forward-looking  statements  included  in  this  filing  will  prove  to be
accurate.   In  light  of  the   significant   uncertainties   inherent  in  the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a representation by the company or any person that the
objectives and plans of the Company will be achieved.

                                       22
<PAGE>

Item 7A.      QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The  Company's  cash is invested in  short-term  dollar-denominated  money
market funds.  The Company does not engage in trading of these  investments  and
believes that they may present minimal market risk.

Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

              The response to this Item is  submitted  as a separate  section of
              this Form 10-K.

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

              None.

                                       23
<PAGE>
 
                                   PART III


Item 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The  information  to  be  contained  under  the  heading  "Election  of
Directors" in the Company's proxy statement  relating to the 1999 Annual Meeting
of  Shareholders  (the  "Proxy  Statement")  is  hereby  incorporated  herein by
reference.


Item 11.      EXECUTIVE COMPENSATION.

         The  information  with  respect to  compensation  of certain  executive
officers  and all  executive  officers of the Company as a group to be contained
under the heading  "Compensation  of Executive  Officers and  Directors"  in the
Proxy Statement is hereby incorporated herein by reference.


Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information with respect to ownership of the Company's Common Stock
by management and by certain other  beneficial  owners to be contained under the
heading "Principal Stockholders and Other Information" in the Proxy Statement is
hereby incorporated herein by reference.


Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information with respect to certain  relationships and related transactions
to be contained  under the heading  "Compensation  and Incentive Stock Committee
Interlocks  and  Insider  Participation " in  the  Proxy  Statement  is  hereby
incorporated herein by reference.

                                       24
<PAGE>


                                     PART IV


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

(a)    1. & 2.    Financial Statements and Financial Statement Schedules:
                  The  response  to this  portion of Item 14 is  submitted  as a
                  separate section of this Form 10-K.

             3.   Exhibits:
                  See Exhibit Index on Pages 27 through 32 of this Form 10-K.

(b) Reports on Form 8-K filed during the final quarter of fiscal 1998: None


                                   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.

Dated:                                         SPECTRAN CORPORATION

          March 27, 1999               By:    /s/  Charles B. Harrison
                                              ------------------------
                                              Charles B. Harrison
                                              President,
                                              Chief Executive Officer and
                                              Chairman of the Board of Directors



          March 27, 1999                By:    /s/  John T. Rogers
                                               -------------------
                                               John T. Rogers
                                               Acting Chief Financial Officer
                                               Principal Accounting Officer

                                       25
<PAGE>


         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>


               Signatures                                Title                                Date


<S>                                        <C>                                           <C> 
/s/  Charles B. Harrison                   President, Chief Executive Officer            March 27, 1999
------------------------------               and Chairman of the Board of
Charles B. Harrison                           Directors (principal executive
                                              officer)
                                                        

/s/  John T. Rogers                          Acting Chief Financial Officer              March 27, 1999
------------------------------               (principal accounting officer)
John T. Rogers                                




/s/  John E. Chapman                       Senior Vice President - Technology            March 27, 1999
-------------------------------
John E. Chapman                                       and Director



/s/  Ira S. Nordlicht                                   Director                         March 27, 1999
-----------------------------------
Ira S. Nordlicht



/s/  Paul D. Lazay                                      Director                         March 27, 1999
---------------------------------
Paul D. Lazay



/s/  Richard M. Donofrio                                Director                         March 27, 1999
----------------------------------
Richard  M. Donofrio



/s/  Lily K. Lai                                        Director                         March 27, 1999
-------------------------------------
Lily K. Lai



/s/  Robert A. Schmitz                                  Director                         March 27, 1999
-------------------------------------
Robert A. Schmitz
</TABLE>

                                       26
<PAGE>


                   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


    3.1    Certificate  of   Incorporation   of  the  Registrant,   as  amended.
           (Incorporated by reference to Registrant's Annual Report on Form 10-K
           for its fiscal year ended December 31, 1991.)

    3.2    By-Laws of the Registrant, as amended.  (Incorporated by reference to
           Registrant's  Annual  Report on Form 10-K for its  fiscal  year ended
           December 31, 1991.)

    4.5*   Form of Stock Certificate for Voting Common Stock.

   10.7*   License  Agreement dated August 15, 1981,  between the Registrant and
           Western Electric Company, Incorporated.  (Registrant has been granted
           confidential treatment of portions of this Exhibit.)

   10.49   License  Agreement  dated as of the first day of January  1991 by and
           between the Registrant  and Corning,  Incorporated.  (Registrant  has
           been granted  confidential  treatment  of portions of this  Exhibit.)
           (Incorporated by reference to Registrant's Annual Report on Form 10-K
           for its fiscal year ended December 31, 1991.)

   10.61   Stock Purchase  Agreement among APD  Acquisition  Corp. and Irving N.
           Dwyer,  David P.  DaVia,  The  Irving N.  Dwyer and  Annette M. Dwyer
           Charitable  Remainder Trust and the DaVia Charitable Remainder Trust.
           (Incorporated  by  reference to the  Registrant's  Report on Form 8-K
           filed June 7, 1995.)

   10.62   Directors  Retirement Plan dated December 27, 1995.  (Incorporated by
           reference  to the  Registrant's  Report on Form 10-K dated  March 29,
           1996.)

   10.63   Registrant's  Employee  Profit  Sharing  Plan as revised  and adopted
           effective  January  1,  1995.   (Incorporated  by  reference  to  the
           Registrant's Report on Form 10-K dated March 29, 1996).

   10.65   Lease  between   Fabrilock,   Inc.  and  Applied  Photonic   Devices,
           Inc.  dated  February  6,  1996.  (Incorporated by reference to the 
           Registrant's Report on Form 10-K dated March 29, 1996).
 
   10.69   Supplemental  Retirement  Agreement between SpecTran  Corporation and
           Raymond E. Jaeger  dated May 8, 1996.  (Incorporated  by reference to
           the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.)

   10.70   Supplemental  Retirement  Agreement between SpecTran  Corporation and
           Bruce A. Cannon dated May 8, 1996.  (Incorporated by reference to the
           Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.)
                                       27
<PAGE>

   10.71   Supplemental  Retirement  Agreement between SpecTran  Corporation and
           Crawford L. Cutts dated May 8, 1996.  (Incorporated  by  reference to
           the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.

   10.73   Supplemental  Retirement  Agreement between SpecTran  Corporation and
           John E. Chapman dated May 8, 1996.  (Incorporated by reference to the
           Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.)

   10.74   Lease  between  CRJ Realty  Trust and  SpecTran  Communication  Fiber
           Technologies, Inc. dated July 22, 1996. (Incorporated by reference to
           the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.)

   10.75   Contractual  Agreement Between Lucent  Technologies Inc. and SpecTran
           Corporation  dated  October 3,  1996.  (Registrant  has been  granted
           confidential  treatment for portions of this Exhibit.)  (Incorporated
           by reference to the Registrant's  Quarterly Report on Form 10-Q dated
           November 13, 1996.)

   10.79   Key  Employee  Incentive  Plan  effective  as  of  January  1,  1996.
           (Incorporated  by reference to the  Registrant's  Quarterly Report on
           Form 10-Q dated November 13, 1996.)

   10.80   Employment  Agreement  between  SpecTran  Corporation  and Raymond E.
           Jaeger dated as of December 14, 1992.  (Incorporated  by reference to
           the  Registrant's  Quarterly  Report on Form 10-Q dated  November 13,
           1996.)

   10.81   Employment Agreement between SpecTran Corporation and Bruce A. Cannon
           dated as of December  14,  1992.  (Incorporated  by  reference to the
           Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.)

   10.82   Employment Agreement between SpecTran Corporation and John E. Chapman
           dated as of December  14,  1992.  (Incorporated  by  reference to the
           Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.)

   10.83   Employment  Agreement  between  SpecTran  Corporation and Crawford L.
           Cutts dated as of January 1, 1996.  (Incorporated by reference to the
           Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.)

                                       28
<PAGE>

   10.84   Employment Agreement between SpecTran Corporation and William B. Beck
           dated as of February  18,  1994.  (Incorporated  by  reference to the
           Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.)

   10.86   Note   Purchase   Agreement   between   SpecTran    Corporation   and
           Massachusetts  Mutual Life Insurance  Company dated as of December 1,
           1996.  (Incorporated by reference to the Registrant's  Current Report
           on Form 8-K dated December 31, 1996.)

   10.87   Note Purchase  Agreement  between  SpecTran  Corporation  and CM Life
           Insurance  Company  dated as of  December 1, 1996.  (Incorporated  by
           reference  to the  Registrant's  Current  Report  on Form  8-K  dated
           December 31, 1996.)

   10.88   Note Purchase  Agreement between SpecTran  Corporation and The Mutual
           Life  Insurance  Company  of New York dated as of  December  1, 1996.
           (Incorporated by reference to the Registrant's Current Report on Form
           8-K dated December 31, 1996.)

   10.89   Note Purchase Agreement between SpecTran Corporation and Atwell & Co.
           dated as of  December  1, 1996.  (Incorporated  by  reference  to the
           Registrant's Current Report on Form 8-K dated December 31, 1996.)

   10.90   Security Agreement among SpecTran Corporation, SpecTran Communication
           Fiber Technologies,  Inc., SpecTran Specialty Optics Company, Applied
           Photonic Devices, Inc. and Fleet National Bank, as Trustee,  dated as
           of December 1, 1996.  (Incorporated  by reference to the Registrant's
           Current Report on Form 8-K dated December 31, 1996.)

   10.91   Trademark  Security  Agreement among SpecTran  Corporation,  SpecTran
           Communication  Fiber  Technologies,  Inc.,  SpecTran Specialty Optics
           Company,  Applied Photonic Devices,  Inc. and Fleet National Bank, as
           Trustee, dated as of December 1, 1996.  (Incorporated by reference to
           the Registrant's Current Report on Form 8-K dated December 31, 1996.)

   10.92   Patent  Collateral  Assignment among SpecTran  Corporation,  SpecTran
           Communication  Fiber  Technologies,  Inc.,  SpecTran Specialty Optics
           Company,  Applied Photonic Devices,  Inc. and Fleet National Bank, as
           Trustee, dated as of December 1, 1996.  (Incorporated by reference to
           the Registrant's Current Report on Form 8-K dated December 31, 1996.)

   10.93   Pledge Agreement among SpecTran Corporation,  SpecTran  Communication
           Fiber Technologies,  Inc., SpecTran Specialty Optics Company, Applied
           Photonic Devices, Inc. and Fleet National Bank, as Trustee,  dated as
           of December 1, 1996.  (Incorporated  by reference to the Registrant's
           Current Report on Form 8-K dated December 31, 1996.)

   10.94   Mortgage,  Assignment  of Rents and  Security  Agreement  by SpecTran
           Communication  Fiber  Technologies,  Inc. to Fleet  National Bank, as
           Trustee, dated as of December 1, 1996.  (Incorporated by reference to
           the Registrant's Current Report on Form 8-K dated December 31, 1996.)

   10.95   Open-End  Mortgage,  Assignment  of Rents and  Security  Agreement by
           SpecTran Specialty Optics Company to Fleet National Bank, as Trustee,
           dated as of  December  1, 1996.  (Incorporated  by  reference  to the
           Registrant's Current Report on Form 8-K dated December 31, 1996.)

                                       29
<PAGE>

   10.96   Guaranty   Agreement  dated  as  of  December  1,  1996  by  SpecTran
           Communication  Fiber  Technologies,  Inc.,  SpecTran Specialty Optics
           Company and Applied Photonic Devices,  Inc. in favor of Massachusetts
           Mutual Life Insurance  Company,  CM Life Insurance  Company,  The New
           York Mutual Life Insurance Company and Atwell & Co.  (Incorporated by
           reference  to the  Registrant's  Current  Report  on Form  8-K  dated
           December 31, 1996.)

   10.97   Loan Agreement  among SpecTran  Corporation,  SpecTran  Communication
           Fiber Technologies,  Inc., SpecTran Specialty Optics Company, Applied
           Photonic  Devices,  Inc. and Fleet National Bank dated as of December
           1, 1996.  (Incorporated  by  reference  to the  Registrant's  Current
           Report on Form 8-K dated December 31, 1996.)

   10.98   Limited Liability Company Agreement of General Photonics, LLC between
           Applied Photonic Devices,  Inc. and General Cable  Industries,  Inc. 
           dated as of December 23, 1996. (Incorporated by reference to the
           Registrant's Current Report on Form 8-K dated January 8, 1997.)

   10.99   Asset  Purchase  Agreement  among  Applied  Photonic  Devices,  Inc.,
           SpecTran  Corporation,  General Cable  Corporation  and General Cable
           Industries,  Inc.  dated as of December  23, 1996.  (Incorporated  by
           reference  to the  Registrant's  Current  Report  on Form  8-K  dated
           January 8, 1997.)

   10.100  Investor's  Representations,  Contribution Agreement and Subscription
           Agreement among Applied Photonic Devices,  Inc., SpecTran Corporation
           and  General   Photonics,   LLC  dated  as  of  December   23,  1996.
           (Incorporated by reference to the Registrant's Current Report on Form
           8-K dated January 8, 1997.)

   10.101  Non-Competition  Agreement  among  General  Cable  Industries,  Inc.,
           General Cable Corporation,  Applied Photonic Devices,  Inc., SpecTran
           Corporation  and General  Photonics,  LLC dated  December  23,  1996.
           (Registrant has been granted  confidential  treatment for portions of
           this Exhibit.) (Incorporated by reference to the Registrant's Current
           Report on Form 8-K dated January 8, 1997.)

   10.102  Standstill  Agreement among General Cable Industries,  Inc.,  General
           Cable  Corporation and SpecTran  Corporation dated as of December 23,
           1996.  (Incorporated by reference to the Registrant's  Current Report
           on Form 8-K dated January 8, 1997.)
   
   10.104  Letter amendment to Employment  Agreement between SpecTran  Specialty
           Optics   Company  and   William  B.  Beck  dated   April  18,   1996.
           (Incorporated by reference to the Registrant's Current Report on Form
           8-K dated January 8, 1997.)

                                       30
<PAGE>

   10.105  Cross-Indemnity Agreement between SpecTran Corporation and Allen &
           Company Incorporated.  (Incorporated by reference to the  
           Registrant's Registration  Statement on Form S-3 (Reg. No. 333-19449)
           effective February 12, 1997.)

   10.106  Common Stock Purchase Warrant issued to Allen & Company Incorporated.
           (Incorporated by reference to the Registrant's  Annual Report on Form
           10-K for the fiscal year ended December 31, 1996.)

   10.107  Settlement  Agreement  dated  February  13,  1998,   between  Corning
           Incorporated  and  SpecTran   Corporation.  (Incorpated  by reference
           to  the Registrant's  Annual Report on Form 10-K for the fiscal year 
           ended  December 31, 1998.)

  10.108   Employment  Agreement  between  SpecTran  Corporation and  Charles B.
           Harrison dated as of April 1, 1998.  (Incorpated  by reference to the
           Registrant's  Quarterly Report on Form 10-Q for the fiscal year 
           ended  May 15, 1998.)

  10.109   Employment  Agreement  between SpecTran  Corporation and William B.
           Beck dated as of June 20, 1998. (Incorpated  by reference to the  
           Registrant's  Quarterly Report on Form 10-Q for the fiscal year 
           ended  August 14, 1998.)

  10.110   Employment  Agreement  between SpecTran  Corporation and Raymond E.
           Jaeger dated as of April 13, 1998. (Incorpated  by reference to the  
           Registrant's  Quarterly Report on Form 10-Q for the fiscal year 
           ended  August 14, 1998.)

  10.111   Patent  License  Agreement  between  Lucent  Technologies,  Inc.  and
           SpecTran Corporation dated October 30, 1998.(Incorpated  by reference
           to the  Registrant's  Current Report on Form 8-K for the fiscal year
           ended  February 11, 1998.)(Registrant has been granted confidential  
            treatment for portions of this Exhibit.) 
  
  10.112   Agreement between SpecTran  Corporation and Bruce A. Cannon dated as 
           of December 1,1998.

  10.113   Employment   Termination   Agreement  and  Release  between  SpecTran
           Corporation and William B. Beck dated as of October 7, 1998.

  10.114   Employment Agreement between SpecTran Corporation and Martin Seifert
           dated as of August 25, 1998.

                                       31
<PAGE>

  10.115   Registrant's 1991 Incentive Stock Option Plan, as amended

  10.116   First  Amendment  to  Loan  Agreement  among  SpecTran   Corporation,
           SpecTran  Communication Fiber Technologies,  Inc., SpecTran Specialty
           Optics Company,  Applied  Photonic  Devices,  Inc. and Fleet National
           Bank dated as of September 30, 1998.

  10.117   First  Amendment to Note  Purchase  Agreement  by and among  SpecTran
           Corporation,  and each of the purchasers listed on the signature page
           thereto dated as of September 30, 1998.

  10.118   First  Amendment  to  Trademark Security   Agreement  among  SpecTran
           Corporation, SpecTran Communication  Fiber Technology  Inc., SpecTran
           Specialty Optics Company, Applied Photonic Devices, Inc., and State
           Street Bank and Trust Company, as Trustee, dated as of September 30, 
           1998.

  10.119   First  Amendment  to  Patent  Collateral  Assignment  among  SpecTran
           Corporation,   SpecTran   Communication  Fiber  Technologies,   Inc.,
           SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and
           State  Street  Bank  and  Trust  Company,  as  Trustee,  dated  as of
           September 30, 1998.

  10.120   Modification   Agreement   between   SpecTran   Communication   Fiber
           Technologies,  Inc.  to State  Street  Bank  and  Trust  Company,  as
           Trustee, dated as of September 30, 1998.

  10.121   Modification  Agreement between SpecTran  Specialty Optics Company to
           State  Street  Banks  and  Trust  Company,  as  Trustee,  dated as of
           September 30, 1998.

  10.122   General Photonics audited Financial Statements.  (In compliance with
           Regulation SX13, General Photonics' Financial Statements for period
           ending December 31, 1998 will follow as an amendment. They are
           currently unavailable.)

  21.0    Subsidiaries.

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

     * Incorporated by reference to Registrant's Registration Statement on Form
              S-1 (Reg. No. 2-83172) effective June 2, 1983

                                       32



<PAGE>



                                                     

                              SpecTran Corporation

                                    Form 10-K

                           Items 8, 14 (a) (1) and (2)

             Index to Consolidated Financial Statements and Schedule

The following consolidated financial statements of the registrant required to be
included in Item 8 and 14 (a) (1) are listed below:
<TABLE>

                                                                                                   Page

<S>                                                                                          <C>
Independent Auditors' Report                                                                       F-2
Financial Statements:
     Consolidated   Balance  Sheets  as  of  December  31,  1998  and  1997  F-3
     Consolidated  Statements  of  Operations  for the Years Ended  December 31,
     1998,
          1997 and 1996                                                                            F-4
     Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
          1997 and 1996                                                                            F-5
     Consolidated Statements of Stockholders' Equity for the Years
           Ended December 31, 1998, 1997 and 1996                                                  F-6
     Notes to Consolidated Financial Statements                                              F-7 through F-32



The  following  financial  statement  schedule  of the  registrant  is  included
pursuant to Item 14 (a) (2):

Financial Statement Schedule                                                                       Page


        I.  Valuation and Qualifying Accounts                                                      F-32

Schedules  other than those  mentioned  above are omitted because the conditions
requiring  their  filing do not exist or because  the  required  information  is
presented in the consolidated financial statements, including the notes thereto.

</TABLE>


                                      F-1





<PAGE>



                                           Independent Auditors' Report




The Board of Directors and Stockholders
SpecTran Corporation:


We have audited the consolidated financial statements of SpecTran Corporation as
of December 31, 1998 and 1997,  and the related  statements  of  operations  and
comprehensive income,  stockholders' equity and cash flows for each of the years
in the three year period ended December 31, 1998. In connection  with our audits
of the  consolidated  financial  statements,  we also have audited the financial
statement  schedule  as listed in the  accompanying  index.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of SpecTran Corporation
as of December 31, 1998 and 1997, and the results of their  operations and their
cash flows for each of the years in the  three-year  period  ended  December 31,
1998, in conformity with generally accepted accounting principles.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule I is  presented  for the purposes of  additional  analysis and is not a
required  part of the basic  financial  statements.  Such  information  has been
subjected  to the  auditing  procedures  applied  in  the  audits  of the  basic
financial  statements  and,  in our  opinio,  is fairly  stated in all  material
respects in relation to the basic financial statements taken as a whole.





                                                           KPMG PEAT MARWICK LLP



Boston, Massachusetts
February 12, 1999

                                      F-2




<PAGE>


                                               SpecTran Corporation
                                            Consolidated Balance Sheets
                                               Dollars in thousands
<TABLE>

                                              ASSETS (NOTE 8 AND 15)
                                                                                       1998                1997
                                                                                       ----                ----
<S>                                                                              <C>                  <C>        
Current Assets:
     Cash and Cash Equivalents                                                    $    1,690          $      445
     Current Portion of Marketable Securities (Note 2)                                    --               5,535
     Trade Accounts Receivable, net of allowance for doubtful
        accounts of $523 and $389 in 1998 and 1997, respectively                      12,568               8,622
     Inventories (Note 3)                                                              8,279               9,666
     Income Taxes Receivable                                                             644                  --
     Deferred Income Taxes, net (Note 11)                                              1,889               1,189
     Prepaid Expenses and Other Current Assets                                         1,036               1,943
                                                                                  ----------          ----------

     Total Current Assets                                                             26,106              27,400
                                                                                  ----------          ----------

Investment in Joint Venture (Note 15)                                                  3,239               4,213

Property, Plant and Equipment, net (Note 4)                                           68,495              55,409

Other Assets:
     Long-term Marketable Securities (Note 2)                                             --                 996
     License Agreements, net (Notes 5 & 13)                                            4,335                 603
     Deferred Income Taxes, net (Note 11)                                                 --                 412
     Goodwill, net (Note 6)                                                              793                 872
     Other Long-Term Assets (Note 14)                                                  2,451               2,200
                                                                                  ----------          ----------
     Total Other Assets                                                                7,579               5,083
                                                                                  ----------          ----------
              Total Assets                                                        $  105,419          $   92,105
                                                                                  ==========          ==========

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities (Note 15):
     Current Maturities of Long-term Debt (Note 8)                                 $    3,200          $       --
     Current Portion of License Fees Payable (Note 13)                                  1,250                  --
     Accounts Payable                                                                   4,410               4,758
     Income Taxes Payable                                                                  --                 573
     Accrued Defined Benefit Pension Liability (Note 14)                                1,902               1,716
     Deferred Income Taxes, net (Note 11)                                                 478                  --
     Accrued Liabilities (Note 7)                                                       3,317               4,299
                                                                                   ----------          ----------

     Total Current Liabilities                                                         14,557              11,346
                                                                                   ----------          ----------

Long-term portion of License Fee Payable (Notes 5 & 13)                                 2,750                  --
Long-term Debt (Note 8)                                                                30,800              24,000
                                                                                   ----------          ----------

Stockholders' Equity (Note 9 ):
     Common  Stock,  voting,  $.10  par  value;  authorized  20,000,000  shares;
         outstanding 7,003,850 shares and 7,000,634 shares in 1998 and
         1997, respectively                                                               700                 700
     Common Stock, non-voting, $.10 par value;
          authorized 250,000 shares, no shares outstanding                                 --                  --
     Paid-in Capital                                                                   50,252              50,223
     Accumulated Other Comprehensive Income (Loss)                                         --                  (1)
     Retained Earnings                                                                  6,360               5,837
                                                                                   ----------          ----------

     Total Stockholders' Equity                                                        57,312              56,759
                                                                                   ----------          ----------

              Total Liabilities and Stockholders' Equity                           $  105,419          $   92,105
                                                                                   ==========          ==========
</TABLE>
               See  accompanying  notes  to  consolidated  financial statements.

                                      F-3
<PAGE>

                                  SpecTran Corporation
                  Consolidated Statements of Operations and Comprehensive Income
                       Dollars in thousands except per share amounts


<TABLE>

                                                                           Years Ended December 31,
                                                           ---------------------------------------------------------
                                                                 1998                1997               1996
                                                                 ----                ----               ----

<S>                                                            <C>                <C>                 <C>       
Net Sales (Note 12)                                            $   70,856         $   62,057          $   61,571
Cost of Sales                                                      51,976             38,781              39,196
                                                               ----------         ----------          ----------

     Gross Profit                                                  18,880             23,276              22,375

Selling and Administrative Expenses                                13,818             13,966              13,641
Research and Development Costs                                      5,493              3,289               3,132
                                                               ----------         ----------          ----------

Income (Loss) from Operations                                        (431)             6,021               5,602
                                                               ----------         ----------          ----------

Other Income (Expense):
     Interest Income                                                  224              1,327                 226
     Interest Expense                                              (1,419)              (747)               (471)
     Other Net (Note 5)                                             3,372                510                 180
                                                               ----------         ----------          ----------

     Other Income (Expense), net                                    2,177              1,090                 (65)
                                                               ----------         ----------          ----------

Income before Income Taxes and Equity in Joint Venture              1,746              7,111               5,537
Loss from Joint Venture (Note 15)                                    (974)              (287)                 --
                                                               ----------         ----------          ----------

Income before Income Taxes                                            772              6,824               5,537
Income Tax Expense (Note 11)                                          249              1,982               1,882
                                                               ----------         ----------          ----------

Net Income                                                            523              4,842               3,655
                                                               ----------         ----------          ----------

Other Comprehensive Income,
   Net of Tax:
   Unrealized Gains on Securities:
   Unrealized Holdings Gains
    Arising During the Period                                          1                  11                    4
   Less Reclassification Adjustment
    For (Gains)/Losses Included
   In Net Income                                                     (12)                 (17)                 13
                                                                    ----             --------          ----------

   Other Comprehensive Income (Loss)                                 (11)                  (6)                 17
                                                                    ----             --------          ----------

Comprehensive Income                                           $      512          $    4,836               3,672
                                                               ==========           ==========           =========

Net earnings per Common Share (Note 10):

            Basic                                              $      .07        $        .72         $      .68
                                                               ==========        ============         ==========

          Diluted                                              $      .07        $         .68        $      .61
                                                               ==========        =============         =========
</TABLE>

              See  accompanying  notes  to  consolidated  financial statements.

                                      F-4
<PAGE>


                              SpecTran Corporation
                      Consolidated Statements of Cash Flows
                              Dollars in thousands
                            Years Ended December 31,
<TABLE>
                                                                                 1998              1997             1996
<S>                                                                            <C>              <C>               <C>    
Cash Flows from Operating Activities:
     Net income                                                                $     523        $   4,842         $   3,655
     Reconciliation of net income to net cash provided by operating
     activities:
         Depreciation and amortization                                             6,665            3,969             3,071
         Loss (gain) on sale of marketable securities                                (18)             (24)               19
           Loss on disposition of equipment                                          178               61                --
         Changes in valuation accounts                                             1,126             (532)             (380)
           Investment in joint venture                                               974              (78)             (354)
         Change in long-term deferred income taxes                                 1,221              402             1,118
         Change in other long-term assets                                         (4,349)            (409)             (344)
     Changes  in  assets  and  liabilities:
         Current deferred income taxes                                              (700)            (398)              (83)
         Accounts receivable                                                      (4,079)          (1,172)           (2,136)
         Inventories                                                                  65           (1,709)           (3,742)
         Prepaid expenses and other current assets                                   894             (639)              (50)
         Income taxes payable/receivable                                          (1,218)             273              (150)
         Accounts payable and accrued liabilities                                  2,855            1,021             3,606
                                                                               ---------        ---------         ---------

Net Cash Provided by Operating Activities                                          4,137            5,607             4,230
                                                                               ---------        ---------         ---------

Cash Flows from Investing Activities:
     Sale of Assets of Applied Photonic Devices                                       --               --             5,278
     Acquisition of property, plant and equipment                                (19,471)         (41,157)          (11,100)
     Purchase of marketable securities                                            (9,652)        (254,437)          (29,658)
     Proceeds from sale/maturity of marketable securities                         16,202          263,368            19,439
                                                                               ---------        ---------         ---------

Net Cash Used in Investing Activities                                            (12,921)         (32,226)          (16,041)
                                                                               ---------        ---------         ---------

Cash Flows from Financing Activities:
     Borrowings of long-term debt                                                 10,000               --            28,000
     Repayment of long-term debt                                                      --               --           (14,000)
     Issuance of common stock, net                                                    --           23,082                --
     Tax effect of disqualifying disposition of ISO shares                            --               43               117
     Proceeds from exercise of stock options and warrants                             29              374               329
     Deferred financing costs                                                         --               --              (695)
                                                                               ---------        ---------         ---------

Net Cash Provided by Financing Activities                                         10,029           23,499            13,751
                                                                               ---------        ---------         ---------

Increase (Decrease) in Cash and Cash Equivalents                                   1,245           (3,120)            1,940
Cash and Cash Equivalents at Beginning of Year                                       445            3,565             1,625
                                                                               ---------        ---------         ---------

Cash and Cash Equivalents at End of Year                                       $   1,690        $     445         $   3,565
                                                                               =========        =========         =========
</TABLE>

              See  accompanying  notes  to  consolidated  financial statements.

                                      F-5
<PAGE>




                              SpecTran Corporation
                 Consolidated Statements of Stockholders' Equity
              For the Years Ended December 31, 1998, 1997 and 1996
                              Dollars in thousands


<TABLE>
<CAPTION>

                                                                           Accumulated
                                                                              Other       Retained       Total
                                          Common Stock       Paid-in      Comprehensive   Earnings    Stockholders' 
                                       Shares   Par Value    Capital      Income (Loss)   (Deficit)      Equity     

<S>                                   <C>            <C>         <C>             <C>      <C>            <C>        
   Balance at December 31, 1995       5,353,686      $535      $26,443           $(22)     $(2,660)       $24,296
                                                                                                                    
        Exercise of Stock
   Options (Note 9)                      46,385         5          324             --          --             329
        Issuance of Shares in
          Connection with
          Acquisition (Note 15)              --         --         117             --          --             117
        Unrealized Gain on
          Marketable Securities              --         --          --              6          --               6
        Net Income                           --         --          --             --       3,655           3,655
                                      ---------     ------    --------          ------    --------          -----

   Balance at December 31, 1996       5,400,071        540      26,884            (16)        995          28,403

        Exercise of Stock
   Options                              100,563         10         364             --          --             374
        (Note 9)
         Issuance of Shares in
         Connection with Stock
          Offering (Note 9)           1,500,000        150      22,932             --          --          23,082
         Tax Effect of Disqualifying
           Disposition of ISO                --         --          43             --          --              43
           shares(Note 10)
           
        Unrealized Gain on
          Marketable Securities              --         --          --             15          --             15
        Net Income                           --         --          --             --       4,842          4,842
                                      ---------     ------    --------         ------     --------         -----

   Balance at December 31, 1997       7,000,634         700     50,223             (1)      5,837         56,759
   

         Exercise of Stock Options
         (Note 9)                         3,216          --         29             --           --            29
        Unrealized Gain on
          Marketable Securities              --          --         --              1           --             1
        Net Income                           --          --         --             --          523           523
                                      ---------       ------    --------        ------     --------          ---

   Balance at December 31, 1998       7,003,850         $700    $50,252        $   --       $6,360       $57,312
                                      =========       ======    ========        ======      =======      =======
</TABLE>

              See  accompanying  notes  to  consolidated  financia statements.

                                      F-6

<PAGE>



                              SPECTRAN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997 and 1996



1 - Nature of Business and Summary of Significant Accounting Policies

Nature of Business

         SpecTran Corporation (the "Company") develops, manufactures and markets
a wide range of fiber optic  products.  These include  multimode and single-mode
optical fiber and cable for use in data  communications  and  telecommunications
applications.  The Company also develops special performance  fibers,  coatings,
cables,  cable assemblies and other value-added products for use in a variety of
specialty markets.

Principles of Consolidation and Basis of Accounting

     The consolidated  financial  statements include the accounts of the Company
and all wholly owned  subsidiaries:  SpecTran  Communication Fiber Technologies,
Inc.  ("SpecTran  Communication"),  SpecTran Specialty Optics Company ("SpecTran
Specialty") and Applied Photonic Devices, Inc. ("APD") which holds the Company's
investment in General Photonics,  LLC, a 50-50 joint venture between the Company
and General Cable Corporation  ("General Cable").  In December 1996, the Company
sold  certain  of the assets of APD to General  Cable and then  contributed  the
remaining  non-cash assets of APD to General Photonics for a 50% equity interest
(See Note 15). The  investment  in General  Photonics is accounted for under the
equity  method of  accounting  pursuant  to which the  Company  records  its 50%
interest in General Photonics' net operating results.  Prior to the formation of
General  Photonics,  APD's  results  of  operations,  including  net  sales  and
expenses,   were  consolidated  with  those  of  the  Company.  All  significant
intercompany balances and transactions have been eliminated.

         Management  uses  estimates and  assumptions in preparing the financial
statements in accordance with generally accepted  accounting  principles.  Those
estimates and assumptions  affect the reported amounts of assets and liabilities
and the  reported  revenue  and  expenses.  Actual  results  may  vary  from the
estimates.

     Certain 1997 and 1996 balances have been reclassified to be consistent with
the current year's presentation.


Revenue Recognition

     Sales revenues are recognized upon shipment of goods.  Customers  generally
have  the  right to  return  for  replacement  any  goods  which do not meet the
customer's  purchase order  specifications.  Sales revenues and cost of sales as
reported in the consolidated  statements of operations and comprehensive  income
are adjusted to reflect estimated returns and warranty costs.

                                      F-7

<PAGE>



                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996

Marketable Securities

         Marketable securities are classified as available-for-sale and reported
at fair value,  with  unrealized  gains and losses  excluded  from  earnings and
reported as a separate  component  of  stockholders'  equity,  net of  estimated
income  taxes.  Gains  and  losses  on the  sale of  marketable  securities  are
recognized at the time of sale on a specific identification basis.

Inventories

         Inventories  are stated at the lower of cost or market  value.  Cost is
determined by the first-in, first-out method.

Statements of Cash Flows

         For purposes of the statements of cash flows, the Company considers all
highly  liquid debt  instruments  purchased  with  original  maturities of three
months or less to be cash equivalents.

     Supplemental  disclosure of cash flow information includes cash paid during
the year for (in thousands):
                                    1998               1997                1996
                                    ----               ----                ----
            Interest               $2,590             $2,120            $   780
            Income Taxes            1,316              2,159              1,044

Property, Plant and Equipment

     Property,  plant and equipment are carried at cost. Machinery and equipment
assembled  by the Company are valued at the cost of component  parts  purchased,
plus the  approximate  labor  and  overhead  costs to the  Company.  Significant
renewals and betterments are capitalized. The cost of maintenance and repairs is
charged to expense as incurred.  Repairs and maintenance  costs amounted to $1.8
million, $1.6 million and $1.5 million in 1998, 1997 and 1996, respectively.

         Depreciation  is provided by the  straight-line  method.  The principal
annual rates of depreciation are:

         Buildings and building improvements..................4%
         Machinery and equipment.......................14% to 33-1/3%

     In 1997 the Company changed the rate of depreciation  for all machinery and
equipment  put in service  after  January 1,  1997,  from 5 to 7 years,  to more
accurately reflect the economic life of these assets.

     Depreciation  expense of  property,  plant and  equipment  amounted to $6.2
million, $3.6 million and $2.5 million in 1998, 1997 and 1996, respectively.

                                      F-8

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996



Cost in Excess of Net Assets Acquired and Other Intangibles

         The  Company  monitors  its  cost  in  excess  of net  assets  acquired
(goodwill)  and its other  intangibles  to determine  whether any  impairment of
these  assets  has  occurred.  In making  such  determination  with  respect  to
goodwill,  the Company evaluates the performance,  on an undiscounted  basis, of
the  underlying  businesses  which  gave rise to such  amount.  Amortization  of
goodwill is recorded on a straight-line  basis over the estimated useful life of
15 years.

         With respect to other  intangibles,  which  include the cost of license
agreements and patents, the Company bases its determination of impairment on the
performance, on an undiscounted basis, of the related products.

License Agreements and Other Assets

         The total cost of the license agreements  obtained in 1991 and 1998 are
being  amortized and charged to expense  based on a ten year life.  Amortization
expense  amounted to $267,000 in 1998 and $201,000  for 1997 and 1996.  Deferred
financing  costs are  amortized  and  charged to  expense  over the lives of the
related debt. Patents are being amortized over a ten year life.

Income Taxes

         The Company  accounts  for income  taxes using the asset and  liability
method.  Under this method,  deferred tax assets and  liabilities are recognized
for the estimated  future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.

                                      F-9
<PAGE>


                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996




Financial Instruments

         Financial   instruments  of  the  Company  consist  of  cash  and  cash
equivalents,  marketable  securities,  accounts  receivable,  accounts  payable,
accrued  expenses,  bank loan and senior secured notes.  The carrying amounts of
these financial instruments approximate their fair value.

Stock-Based Compensation

         Statement of Financial Accounting Standards Number 123, "Accounting for
Stock-Based Compensation,"  encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting  Principles Board Opinion Number
25,  "Accounting  for Stock Issued to Employees,"  and related  Interpretations.
Accordingly,  compensation  cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's  stock at the date of the grant
over the amount an employee must pay to acquire the stock. 

Comprehensive Income

         In  1998,  the  Company  adopted  Statement  of  Financial   Accounting
Standards No. 130 (SFAS 130), "Reporting  Comprehensive  Income." This statement
establishes rules for the reporting of comprehensive  income and its components.
The Company's comprehensive income consists of net earnings and unrealized gains
or  losses  on  marketable  securities  and is  presented  in  the  Consolidated
Financial Statements.  The adoption of SFAS 130 had no impact on net earnings or
on total  shareholders'  equity.  Prior  year  financial  statements  have  been
reclassified to conform to the SFAS 130 requirements.

                                      F-10
<PAGE>

2 - Marketable Securities

         The Company had no marketable securities available for sale at December
31, 1998. A summary of  marketable  securities  available  for sale for the year
ended December 31, 1997 is as follows (in thousands):
<TABLE>


                                                                                                           Quoted
                                       Purchase         Amortized       Unrealized      Unrealized         Market
                                         Price            Cost            Gains           Losses            Value
1997
<S>                                   <C>               <C>                <C>            <C>            <C>       
Money Market                          $       88        $     88           $  --          $    --        $       88
U.S. Government and
  Agency Obligations                          --              --              --               --                --
Corporate Debt Securities                  4,451           4,446              --                2             4,444
Commercial Paper                           1,998           1,998               1               --             1,999
                                      ----------        --------           -----          -------        ----------
Total                                 $    6,537        $  6,532           $   1          $     2        $    6,531
                                      ==========        ========           =====          =======        ==========
</TABLE>

The amortized cost and estimated market value of debt securities are shown below
(in thousands):                                                    1997
                                        Amortized             Quoted
                                          Cost             Market Value
Expected Maturities:
   Within one year                        $3,448                $3,448
   One to five years                       1,167                 1,156

         Proceeds from sales of marketable securities, prior to maturity, during
1998 and 1997 were $6.5 million and $4.8 million, respectively. Gains of $18,000
for 1998 and $24,000 for 1997 were recognized on these sales.

3 - Inventories
<TABLE>

         Inventories consisted of (in thousands):
                                                                              December 31,
                                                               -------------------------------------------
                                                                      1998                 1997
                                                                      ----                 ----

<S>                                                                  <C>                  <C>      
                   Raw Materials                                     $   3,096            $   4,036
                   Work in Process                                       1,277                1,010
                   Finished Goods                                        3,906                4,620
                                                                    ----------           ----------
                                                                    $    8,279           $    9,666
                                                                     ==========          ==========
</TABLE>
       
                                      F-11
<PAGE>


4 - Property, Plant and Equipment

         Property, plant and equipment consisted of (in thousands):
<TABLE>

                                                                             December 31,
                                                               -----------------------------------------
                                                                      1998                 1997
                                                                      ----                 ----

<S>                                                               <C>                  <C>       
Land and Land Improvements                                        $      978           $      978
Buildings and Improvements                                            24,909               10,453
Machinery and Equipment                                               48,983               33,567
Construction in Progress                                              16,220               27,694
                                                                  ----------           ----------
                                                                      91,090               72,692
Less:  Accumulated Depreciation                                       22,595               17,283
                                                                  ----------           ----------
Property, Plant and Equipment, net                                $   68,495           $   55,409
                                                                  ==========           ==========
</TABLE>

     The  Company is  continuing  its  capacity  expansion,  which will  require
approximately $1 million in capital expenditures during 1999, resulting in total
expenditures for capacity  expansion since 1996 of approximately $44 million for
SpecTran  Communication  and  approximately $12 million for SpecTran  Specialty,
including equipment  purchases.  When fully operational,  expected in the second
quarter of 1999,  the  expansion  at SpecTran  Communication  will  increase its
capacity by more than 100% from 1996 levels. The expansion at SpecTran Specialty
increased capacity by more than 50%.

         In 1998 and 1997 the Company  recorded  approximately  $1.4  million in
capitalized interest in each year related to the expansions.

5 - License Agreements

     The Company  has a limited,  non-assignable  non-exclusive  royalty-bearing
license  from  Corning to make,  use and sell  optical  fiber  under  certain of
Corning's United States patents with filing date prior to January 1, 1996 in the
field of optical fiber.  The license contains annual quantity  limitations.  The
Corning  license is not  applicable  to sales made  directly  or  indirectly  to
certain customers such as Corning, Lucent and the United States government.  The
quantities that can be manufactured  under the license increase annually through
the year 2000. The license has a term equal to the life of the last to expire of
the Corning or Company  patents  licensed under the  agreement.  Corning has the
right to terminate  the license in the event that more than 30% of the Company's
voting  stock is  acquired,  directly or  indirectly,  by another  manufacturing
company. The Company granted to Corning a non-exclusive royalty-free license for
any of its  patents  with a filing  date  prior to  January 1, 1996 in the field
of optical fiber.

     The Company has a non-assignable, non-exclusive, unlimited, royalty-bearing
license from Lucent under all patents  covering  optical fiber and optical fiber
cable  owned by  Lucent  or which  Lucent  and its  affiliates  had the right to
license on or before  August 15,  1986.  The  Company  granted  back to Lucent a
non-exclusive,  royalty-free  license  under  patents  the  Company  may  obtain
relating to optical fiber inventions made on before August 15, 1986. The license
extends  for the life of the last to expire of the  patents  licensed  under the
agreement.

     In October 1998, the Company and Lucent Technologies Inc. established a new
worldwide,  non-exclusive  license  exchanging  rights under their optical fiber
patents  issued  prior to January 1, 1998,  and  additional  patents  related to
multimode  fiber based on applications  filed through October 1998.  SpecTran is
licensed by Lucent to make optical fiber at its existing factories for worldwide
use, sale and export from the United States.  The license  contains some product
limitations including certain exclusions to make or sell select specialty fibers
for some applications.  Lucent receives  non-exclusive,  royalty-free  worldwide
rights. SpecTran agreed to pay Lucent a $4.0 million license fee in installments
and,  beginning in 2000,  a royalty on sales.  Lucent has the right to terminate
the agreement if the Company is acquired by an optical fiber manufacturer.

     Approximately 22% of the Company's net sales during 1998, all of which were
SpecTran  Communication  sales,  were  subject  to license  requiring  aggregate
royalty  payments  by  the  Company  of  approximately  5% of net  sales  of the
Company's  products  manufactured  under license  during  1998.  The Company
believes  that  certain  Corning  patents,  which may have been  relevant to the
Company's  single-mode  fiber,  including  patents  covered  by a  non-exclusive
license from Corning to the Company,  have expired in many countries  (including
the United States).  Therefore, the Company believes that manufacturing and sale
of its  single-mode  fiber is not  subject to the  Corning  license and has been
marketing its  single-mode  fiber  without  payments of royalties to Corning and
without regard to the annual  quantity  limitations of the Corning license since
1993. The Company  presently does not expect to need the Corning license for the
manufacture of its multimode fiber after 1999 because the Company  believes that
a Corning United States patent with relevancy to its multimode fiber will expire
in 1999.

     Total royalties expensed during the years ended December 31, 1998, 1997 and
1996 were $.7 million, $1.9 million and $2.3 million, repectively.

                                      F-12

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996




6 - Goodwill
<TABLE>

         Goodwill consisted of (in thousands):
                                                                                  December 31,
                                                                       -----------------------------------
                                                                             1998              1997
                                                                             ----              ----

<S>                                                                       <C>               <C>     
           Goodwill                                                       $  1,181          $  1,181
           Less Accumulated Amortization                                      (388)             (309)
                                                                          --------          --------
                                                                          $    793          $    872
                                                                          ========          ========

</TABLE>

7 - Accrued Liabilities
<TABLE>

         Accrued liabilities consisted of (in thousands):
                                                                                 December 31,
                                                                  --------------------------------------------
                                                                        1998                      1997
                                                                        ----                      ----

<S>                                                                    <C>                      <C>    
             Salaries and Wages                                        $   534                  $   612
             Royalties                                                     507                      885
             Health Insurance                                              682                      486
             Incentive Compensation                                        614                    1,492
             Interest Expense                                              254                       50
             Other                                                         726                      774
                                                                       -------                  -------
                                                                       $ 3,317                  $ 4,299
                                                                       =======                  =======
</TABLE>

                                      F-13

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996



8 - Long-Term Debt

         Long-term debt consisted of (in thousands):
<TABLE>
                                                                                              December 31,
                                                                                   ------------------------------------
                                                                                         1998                1997
                                                                                         ----                ----

<S>                                                                                    <C>                <C>        
Revolving credit loan facility at the lower of prime or LIBOR
   plus 1.5%                                                                           $   10,000         $       --
Series A Senior Secured Notes at 9.24% interest                                            16,000             16,000
Series B Senior Secured Notes at 9.39% interest                                             8,000              8,000
                                                                                       ----------         ----------
                                                                                           34,000             24,000
Less Current Maturities                                                                     3,200                 --
                                                                                       ----------         ----------
                                                                                       $   30,800         $   24,000
                                                                                       ==========         ==========
</TABLE>

         In  December  1996,  the Company  sold to a limited  number of selected
institutional investors an aggregate principal amount of $24.0 million of senior
secured  notes (the  "Notes"),  consisting  of $16.0  million of 9.24%  interest
Series A Senior  Secured  Notes due December 26, 2003 (the "Series A Notes") and
$8.0 million of 9.39%  interest  Series B Senior  Secured Notes due December 26,
2004 (the  "Series B Notes").  Interest  on the Notes is payable  semi-annually,
with five equal annual principal repayments required beginning December 26, 1999
for  Series A Notes  and  December  26,  2000 for  Series  B  Notes.  The  Notes
constitute  senior  secured  debt of the  Company  secured  by a first  priority
security  interest  in  substantially  all of the assets of the  Company and all
current  and  hereinafter  created  or  acquired  subsidiaries,  a pledge by the
Company of the issued and outstanding stock of its subsidiaries and mortgages on
real estate owned by the Company's  subsidiaries.  The Company's obligations are
also  guaranteed by the Company's  subsidiaries  and rank on an equal basis with
all other senior secured indebtedness of the Company. The Notes also provide for
certain   financial  and   non-financial   covenants  usual  for  this  type  of
transaction.  During 1996 Company used approximately $14.0 million from the sale
of the Notes to repay all outstanding indebtedness and restructured its existing
$22.0 million of total borrowing capacity with its principal bank, composed of a
$14.5 million  revolving credit agreement and $7.5 million in equipment and real
estate term loans,  into a $20.0 million  revolving credit  agreement,  maturing
December 1999,  with the same security  interest in the Company's  assets as the
Notes.  During 1996,  the Company has the option to select from time to time the
interest  rate on the revolving  credit  agreement at either the LIBOR rate plus
1.5% or Fleet Bank's prime rate  provided  that,  under  certain  circumstances,
Fleet Bank may deem that the LIBOR rate is not available.
                                      F-14
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996



         At both June 30,  1998 and  September  30,  1998,  the  Company  was in
violation of certain covenants. In December 1998 the Company signed an agreement
to amend the financial  covenants  under its loan  agreements with its principal
bank and the senior  secured  noteholder.  With the  signing  of this  agreement
SpecTran remedied all violations under the original agreements and also extended
the maturing date of the revolving credit agreement to April 2000.

         As of December 31, 1998 the Company had borrowed $10.0 million  against
the revolving credit agreements.

9 - Stockholders' Equity

(a)  Warrants

     As  part of an  agreement  entered  into in  September  1990  with  Allen &
Company, Incorporated ("Allen"), warrants to purchase 350,000, 30,000 and 20,000
shares of SpecTran  voting  common stock at an exercise  price of $2.00  through
August 14, 1999, were issued to Allen, Richard A.M.C.  Johnson, who retired as a
director of the Company in 1996, and Patrick E. Brake, a former  director of the
Company,  respectively.  In conjunction  with the Company's  public  offering in
February 1997, Allen exercised warrants to purchase 200,000 shares and sold them
in the  offering.  At  December  31,  1998  Allen  owned  none of the  Company's
outstanding  stock; if the remainder of the Allen warrant were exercised,  Allen
would own approximately  2.1% of the Company's  outstanding  stock. In June 1992
the Johnson  warrant was  exercised  and in January  1993 the Brake  warrant was
exercised.

(b)  Stock Options

     Pursuant to the Company's  Incentive Stock Option Plan adopted in November,
1981, as amended,  incentive and nonqualified options may be granted to purchase
up to an aggregate of 455,000 shares of the Company's voting Common Stock,  $.10
par value,  at prices not less than 100% of the fair market  value of the shares
at the time the options are granted.  As of December 31, 1998,  all options were
exercisable  in full  three  years from the date of grant in  cumulative  annual
installments of 33 1/3% commencing one year after the date of grant,  and expire
ten years after grant.

     Under its  provisions,  no options  were to be issued  under the  Incentive
Stock Option Plan  adopted in November  1981 ("Old Plan") after the plan reached
its tenth anniversary.  During the year ended December 31, 1991, a new Incentive
Stock  Option  Plan  ("New  Plan")  was  adopted.  The terms of the New Plan are
identical to those of the Old Plan except that (1) the number of shares eligible
for issuance,  upon adoption of the plan, was 160,490, (2) provision is made for
the  non-discretionary  grant of  nonqualified  options to directors who are not
full-time employees of the Company or any subsidiary  ("outside  directors") and
(3) provision is made for all outstanding options to vest upon the occurrence of
a change in control (as  defined in the New Plan).  Subsequent  to December  31,
1998,  the  New  Plan  was  amended  to  permit  the  committee   discretion  in
establishing  the vesting schedule  options.  At the Company's Annual meeting in
1992,  1994,  1996 and 1998 the holders of Common Stock approved an amendment to
the New Plan  increasing  the  number of shares of  Common  Stock  reserved  for
issuance by 210,000, 255,000, 250,000 and 325,000, respectively.

                                      F-15



<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         Activity in the plans for the years ended  December 31, 1998,  1997 and
1996 is summarized below (dollars in thousands except per share amounts):
<TABLE>
 
                                            Shares                               Shares
                                            Available        Options           Under Option
                                           for Option      Outstanding            Price
                                           ----------      -----------        ------------


<S>                                            <C>           <C>            <C>             <C>         
Balance at December 31, 1995                    138,209       543,488       $1.375-        $22.250

   Increase in Shares Reserved                  250,000            --           --              --
   Options Granted                             (165,500)      165,500       $5.500-        $21.750
   Options Exercised                                 --       (46,385)      $1.37 -        $15.250
   Options Forfeited                             11,900       (11,900)      $3.375-        $15.250
                                                 ------       -------       ------         -------


Balance at December 31, 1996                    234,609       650,703       $1.375-        $22.250

   Options Granted                             (123,450)      123,450      $10.875-        $14.187
   Options Exercised                                 --      (100,563)      $1.188-         $8.875
   Options Forfeited                              3,668        (3,668)      $5.500-        $21.125
                                                  -----        ------       ------         -------

Balance at December 31, 1997                    114,827       669,922       $3.375-        $22.250

   Increase in Shares Reserved                  325,000            --           --              --
   Options Granted                             (388,533)      388,533       $4.125-         $9.625
   Options Exercised                                 --        (3,216)      $5.500-         $6.000
   Options Forfeited                            110,302      (112,919)      $3.375-        $22.250
                                                -------      --------       ------         -------


Balance at December 31, 1998                    161,596       942,320       $3.375-        $22.250
                                                =======       =======       ======         =======
</TABLE>

                                      F-16

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         The following table  summarizes  information  about fixed stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>                                                      
                                                                 OUTSTANDING OPTIONS                  OPTIONS EXERCISABLE
                                                       -----------------------------------------    --------------------------
                                   Number        Weighted Average                              Number of
              Range of         Outstanding at         Remaining         Weighted-Average      Exercisable       Weighted-Average
           Exercise Prices        12/31/98        Contractual Life      Exercise Price        At 12/31/98       Exercise Price

               <S>                 <C>                <C>                   <C>                 <C>                 <C>           
                3.375-5.063         60,937            8.190                 4.278               20,937              4.362
                5.064-7.595        223,999            7.530                 6.055              146,398              5.658
                7.596-11.394       362,384            7.853                 8.324              117,183              8.654
               11.395-17.093       180,250            6.143                13.993              113,744             14.096
               17.094-22.250       114,750            7.478                20.899               60,749             21.166
</TABLE>

         As of December  31,  1998,  options for 459,011  shares were vested and
exercisable at an aggregate exercise amount of $4.8 million ($10.48 per share).

         The Company  applies  Accounting  Principles  Board  Opinion No. 25 and
related interpretations in accounting for its stock option plan. Accordingly, no
compensation  cost has been  recognized  for its fixed stock options  plan.  Had
compensation  cost for the Company's stock option plan been determined  based on
the fair value at the grant dates for awards under the plan  consistent with the
provisions  of FASB  Statement  123, the  Company's  net income and earnings per
share for the years  ended  December  31,  1998,  1997 and 1996  would have been
reduced to the pro forma amounts indicated as follows:
<TABLE>

                                                                 1998              1997              1996
                                                                 ----              ----              ----
<S>                                                              <C>             <C>               <C>    
Net income (in thousands):
     As reported                                                 $523            $4,842            $3,655
     Pro forma                                                   $158            $4,594            $3,640

Net income per  share:
     As reported                                                 $.07              $.68              $.61
     Pro forma                                                   $.02              $.64              $.56
</TABLE>

         The fair value of  options  granted  under the  Company's  fixed  stock
option plan during 1998, 1997 and 1996 were estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions used: no dividend yield,  expected  volatility 67% for 1998, 63% for
1997 and 64% for 1996,  risk free interest rate of 7%, and expected life of five
years.

                                      F-17
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


(c)   Secondary Stock Offering

         On February 18, 1997, the Company completed a secondary public offering
of  1,500,000  shares of common  stock at a price of $19.00  per  share.  Of the
1,500,000  shares,  1,300,000  were sold by the Company and 200,000 by Allen and
Company, Incorporated, a selling stockholder.

10 - Computation of Earnings per Common Share

         Effective December 31, 1997, the Company adopted Statement of Financial
Accounting  Standards  No. 128 "Earnings per Share" (SFAS 128) which has changed
the method of computing  and  presenting  earnings per common  share.  All prior
periods  presented  have  been  restated  in  accordance  with  SFAS  128.  This
restatement had an immaterial  impact on the prior periods'  earnings per common
share amounts calculated under previous standard.

         Under SFAS 128, a primary  earnings per common share has been  replaced
with basic earnings per common share.  The basic earnings per share  computation
is based on the  earnings  applicable  to common  stock  divided by the weighted
average number of shares of common stock outstanding in 1998, 1997 and 1996.

                                      F-18

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         Fully diluted  earnings per common share has been replaced with diluted
earnings per common  share.  The diluted  earnings per common share  computation
includes the common stock  equivalency of options granted to employees under the
stock  incentive  plan.  Excluded  from the diluted  earnings  per common  share
calculation are options granted to employees that are anti-dilutive based on the
average stock price for the year.
<TABLE>
(dollars and shares in thousands:)
                                                             1998                1997                1996
                                                             ----                ----                ----
<S>                                                       <C>                 <C>                 <C>    
Earnings per common share-basic
   Earnings applicable to common stock                    $  523              $  4,842            $   3,655
                                                          ======              ========            =========

   Weighted average shares outstanding                     7,003                 6,724                5,374
                                                          ======              ========            =========

   Earnings per common share-basic                        $  .07              $    .72            $     .68
                                                          ======              =========           =========

Earnings per common share-diluted
   Earnings applicable to common share                    $  523              $  4,842            $   3,655
                                                          ======              ========            =========

   Weighted average shares outstanding                     7,003                 6,724                5,374

    Plus shares issuable on:
        Exercise of dilutive options                         100                   424                  588
                                                          ======              ========            =========

    Weighted average shares outstanding
         assuming conversion                               7,103                 7,148                5,962
                                                          ======              ========            =========

   Earnings per common share-diluted                      $   .07             $    .68            $     .61
                                                          =======             =========           =========
</TABLE>

                                      F-19
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


11 - Income Taxes

         Income  tax  expense  attributable  to income  (loss)  from  operations
differs from the computed expected tax expense (benefit)  determined by applying
the federal income tax rate of 34 percent as follows (in thousands):
<TABLE>

                                                                       1998          1997             1996
                                                                       ----          -----            ----
<S>                                                               <C>            <C>             <C>      
Computed expected tax expense at 34%                              $     262      $   2,320       $   1,883
   State income taxes, net of federal effect and change in
     valuation allowance                                                189             14             298
   Goodwill amortization                                                 --             --              74
   Decrease in valuation allowance for deferred income taxes
                                                                       (230)          (300)           (400)
   Other                                                                 28            (52)             27
                                                                  ---------      ----------      ---------
                                                                  $     249      $   1,982       $   1,882
                                                                  =========      =========       =========
</TABLE>

         Total  income tax expense  (benefit)  for the years ended  December 31,
1998, 1997 and 1996 was allocated as follows (in thousands):

<TABLE>

                                                               1998              1997             1996
                                                               ----              -----            ----
<S>                                                          <C>               <C>              <C>
Income tax expense attributable to:
  Income from operations                                     $   249           $   1,982        $   1,882
  Stockholders' equity, for
     compensation expense for tax purposes from the
     disqualifying disposition of stock options
                                                                   0                 (43)            (117)
                                                         -----------           ---------        ---------

                                                             $   249           $   1,939        $   1,765
                                                             =======           =========        =========
</TABLE>


         Income tax expense  (benefit)  attributable  to income from  continuing
operations consists of (in thousands):
<TABLE>
                                                   Current             Deferred               Total


<S>                                               <C>                  <C>                   <C>
Year ended December 31, 1998:
     Federal                                      $   (149)            $     87              $    (62)
     State                                             208                  103                   311
                                                  --------             --------              --------

                                                  $     59             $    190              $    249
                                                  ========             ========              ========

Year ended December 31, 1997:
     Federal                                      $  1,577             $    165              $  1,742
     State                                             401                 (161)                  240
                                                  --------             --------              --------

                                                  $  1,978             $      4              $  1,982
                                                  ========             ========              ========

Year ended December 31, 1996:
     Federal                                      $    687             $    668              $  1,355
     State                                             560                  (33)                  527
                                                  --------             --------              --------

                                                  $  1,247             $    635              $  1,882
                                                  ========             ========              ========

</TABLE>

                                      F-20

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         The  significant  components of deferred  income tax expense  (benefit)
attributable  to income from  operations  for the years ended December 31, 1998,
1997 and 1996 are as follows (in thousands):
<TABLE>
                                                             1998                 1997                 1996
                                                             ----                 ----                 ----


<S>                                                         <C>                  <C>                  <C>
Deferred tax expense (exclusive of the effects of
     other components listed below)
                                                            $    420             $    304             $  1,035

Decrease in valuation allowance for deferred income
     taxes                                                      (230)                (300)                (400)
                                                            --------             ---------            --------

Deferred income tax expense attributable to income
from operations                                             $    190             $      4             $    635
                                                            ========             ========             ========

</TABLE>


         The tax effect of temporary  differences  that give rise to significant
portions of the deferred tax assets and deferred tax  liabilities  are presented
below (in thousands):


<TABLE>
                                                                                  1998              1997

                                                                                  ----              ----
<S>                                                                            <C>               <C>    
Deferred tax assets:

     Accounts receivable                                                       $     228         $     169
     Inventories                                                                   1,248               694
     Accrued liability - compensation related expense                                152               168
     Accrued liability - pension                                                     498               338
     Other nondeductible reserves and accruals                                         9                 9
     Investment in Joint Venture                                                     373               215
     Net operating loss carryforward benefit                                         323               230
     Credit carryforwards benefit                                                  1,200               716
                                                                               ---------         ---------

         Total gross deferred tax assets                                           4,031             2,539
         Less valuation allowance                                                   (100)             (330)
                                                                               ---------         ---------

         Net deferred tax assets                                                   3,931             2,209

Deferred tax liabilities                                                          (2,520)             (608)
                                                                               ---------         ---------

Net deferred tax assets                                                        $   1,411         $   1,601
                                                                               =========         =========
</TABLE>

                                      F-21
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         The valuation allowance for deferred tax assets as of December 31, 1998
and 1997 was $100,000 and $330,000,  respectively.  Based on the Company's level
of net income and projected  future  earnings,  the Company  believes that it is
more likely than not that a portion of the  deferred  tax asset will be realized
in the  future.  During  1998,  the portion of the  deferred  tax asset which is
expected to be realized increased from 1997; therefore,  the Company reduced its
valuation  allowance by $230,000.  The  remaining  valuation  allowance  relates
primarily to the risk that a portion of the tax credit  carryforwards  and state
operating loss carryforwards will not be used before they expire.

         At December 31, 1998,  the Company had the following  income tax credit
available to offset future income taxes (in thousands):
                                                  Amount          Expires

Alternative Minimum Tax Credit                    $1,037         Indefinite

12 - Major Customers

         The   approximate  net  product  sales  by  the  Company  to  customers
accounting  for 10% or  more of  total  net  annual  sales  are as  follows  (in
thousands):

                         1998                1997                      1996
                         ----                ----                      ---- 
  Customer             Amount    %          Amount     %              Amount   %
   --------            ------    -          ------     -              ------   -

       A               25,959    37           6,601    11
       B                6,932    10           8,906    14
       C                                     $9,522    15           $7,902    13

     Substantially  all  of  the  Company's  business  is to  customers  in  the
telecommunications  and data  communications  industries.  International  sales,
primarily in Asia and Europe,  accounted  for 15%, 20% and 18% of total sales in
1998, 1997 and 1996, respectively.  

     In 1998 due to the Company's  settlement of a multi-year  suppply  contract
with Corning,  the Company  recognized  other income of $3.5 million in 1998 and
$.5 million in 1997.


                                      F-22
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


13 - Commitments

         In October 1998, the Company entered into a new license  agreement with
Lucent  Technologies  Inc.  where by the Company is obligated to pay Lucent $4.0
million in four installments: $1,250,000 in 1999, $1,000,000 in 2000, $1,000,000
in 2001 and $750,000 in 2002.

     All of the Company's  leases are on a month to month basis. The Company has
no lease  commitments for 1999 and 2000.  

     Total rent expense for the years ended December 31, 1998, 1997 and 1996 was
$58,000, $301,000 and $634,000, respectively.

14 - Employee Benefit Plans

a)  Defined Benefit Pension Plan

     Effective  January 1, 1998,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 132 (SFAS 132), "Employers'  Disclosures about Pensions
and Other  Post-retirement  Benefits," which requires additional  disclosures on
changes in the benefit obligation and fair value of plan assets during the year.
All prior periods presented have been restated in accordance with SFAS 132.

     The Company sponsors a defined benefit pension plan covering  substantially
all of its employees.  The benefits are based on years of service and an average
of the  employee's  highest ten  consecutive  years of earnings.  The  Company's
funding  policy has been to contribute  annually the maximum  amount that can be
deducted for federal income tax purposes.  Contributions are intended to provide
not only for benefits attributed to service to date, but also for those expected
to be earned in the future.

                                      F-23

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         The  following  table sets forth the plan's  funded  status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1998 and
1997.

         Actuarial present value of benefit obligations (in thousands):
<TABLE>
                                                                                      1998             1997
                                                                                      ----             ----


          <S>                                                                       <C>               <C>    
          Change in benefit obligation
               Benefit obligation at beginning of year                              $   2,229         $   1,740
               Service cost                                                               375               285
               Interest cost                                                              167               130
               Actuarial gain                                                             360                74
               Benefits paid                                                               (3)               --
                                                                                    ---------         ---------
               Benefit obligation at end of year                                    $   3,128         $   2,229
                                                                                    ---------         ---------

          Change in plan assets
               Fair value of assets at beginning of year                           $    1,848        $    1,195
               Actuarial return on plan assets                                            493               302
               Employer contribution                                                      252               350
               Fair value of plan assets at end of year                            $    2,593        $    1,847
                                                                                   ----------        ----------

               Funded status                                                       $     (535)       $     (382)
               Unrecognized net actuarial loss                                            148               137
               Unrecognized prior service cost                                            (23)              (25)
                                                                                   ----------        ----------
               Accrued pension cost                                                $     (410)       $     (270)
                                                                                   ==========        ==========
</TABLE>

         Net  pension  cost  for  1998,  1997 and 1996  included  the  following
components:

<TABLE>

                                                                          1998             1997              1996
                                                                          ----             ----              ----
         <S>                                                            <C>               <C>              <C>      
          Service cost - benefits earned during period                  $     375         $     285        $     289
          Interest cost on projected benefit obligation                       167               130              103
          Actual return on assets                                            (166)             (302)            (129)
          Net amortization and deferral                                        17               213               65
                                                                        ---------         ---------        ---------
          Net pension cost                                              $     393         $     326        $     328
                                                                        =========         =========        =========
</TABLE>

         Assumptions used in the accounting as of December 31 were as follows:
<TABLE>

                                                                             1998               1997
                                                                             ----               ----
          <S>                                                                <C>                <C> 
          Discount rate                                                      7.0%               7.5%
          Rates of increase in compensation levels                           5.0%               5.0%
          Expected long-term rate of return on assets                        8.5%               8.5%
</TABLE>

                                       F-24
<PAGE>
                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996

b)  Supplemental Retirement Agreements

         The Company entered into supplemental  retirement  agreements with five
executive  officers in 1996. These agreements provide benefits based on years of
service and average eligible pay for executives.  The following table sets forth
the funded  status of the  agreements  and amounts  recognized  in the Company's
consolidated balance sheets at December 31, 1998 and 1997.

         Actuarial present value of benefit obligations (in thousands):
<TABLE>

                                                                             1998              1997
                                                                             ----              ----

<S>                                                                      <C>               <C>    
Change in benefit obligation
     Benefit obligation at beginning of year                             $   1,526         $    1,325
     Service cost                                                              113                111
     Interest cost                                                             107                 90
                                                                          --------          ---------
     Benefit obligation at end of year                                    $  1,746           $  1,526
                                                                          --------           --------


     Funded status                                                       $  (1,746)        $   (1,526)
     Unrecognized net actuarial loss                                           (76)               (76)
     Unrecognized prior service cost                                           892                994
                                                                         ---------         ----------
     Accrued pension cost                                                $    (930)        $     (608)
                                                                         =========         ==========
</TABLE>

         Net  pension  cost  for  1998,  1997 and 1996  included  the  following
components:
<TABLE>

                                                                             1998              1997             1996
                                                                             ----              ----             ----

         <S>                                                               <C>               <C>               <C>    
         Service cost - benefits earned during period                      $   113           $   111           $   116
         Interest cost on projected benefit obligation                         107                90                84
         Net amortization and deferral                                         102               102                 2
                                                                           -------           -------           -------
         Net pension cost                                                  $   322           $   303           $   202
                                                                           =======           =======           =======
</TABLE>

         Assumptions used in the accounting as of December 31 were as follows:
<TABLE>

                                                                             1998               1997
                                                                             ----               ----
         <S>                                                                 <C>                <C> 
         Discount rate                                                       7.0%               7.0%
         Rates of increase in compensation levels                            5.0%               5.0%
         Expected long-term rate of return on assets                         8.5%               8.5%
         COLA increase                                                       3.5%               3.5%
</TABLE>

                                      F-25
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


c)  Defined Contribution Pension Plan

         The  Company  sponsors a defined  contribution  pension  plan  covering
substantially  all of its  employees.  Employer  contributions  to the  plan are
discretionary   and  amounted  to  $300,000  and  $361,000  in  1997  and  1996,
respectively. No contribution was provided for during 1998.

d)  Directors Retirement Plan

         In December 1995 the Company adopted a Directors  Retirement Plan which
provides  for  retirement  benefits  for all  outside  directors  with five full
calendar  years of  service  as of the  later  of age 70 or the  date of  actual
retirement as a director.  There was no expense in 1998, 1997 or 1996 to provide
for past service costs. During 1998, the plan was funded with $51,000.

e)  Bonus Plans

         The Company  sponsors an Employee  Profit  Sharing  Plan  covering  all
employees.  This plans provide for the payment of bonuses if certain performance
objectives are obtained. Bonuses of $554,000, $1.367 million and $1.448 million,
respectively, were charged to operations in 1998, 1997 and 1996.

15 - Acquisitions/Joint Venture

a)  Applied Photonic Devices, Inc.

         On May 23, 1995 the Company purchased all the outstanding capital stock
of Applied  Photonic  Devices,  Inc.  ("APD")  for cash and common  stock  worth
approximately $3.9 million. The Company also retired  approximately  $600,000 of
APD bank debt.  The purchase  method of  accounting  was used and the results of
operations of APD are included in the consolidated financial statements from May
23,  1995.  Goodwill of $3.3  million  resulted  from the purchase and was being
amortized over 15 years. Amortization expense amounted to $217,000 in 1996.

     In December 1996, the Company announced the formation of General Photonics,
a 50-50 joint  venture  between the Company  and General  Cable.  General  Cable
purchased certain assets of the Company's  optical fiber cable subsidiary,  APD,
for  approximately  $5.8 million and then contributed them to General  Photonics
for a 50% equity  interest.  APD  contributed  its  remaining  assets to General
Photonics in exchange  for its 50% equity  interest.  The net assets,  including
goodwill,  of General  Photonics totaled $10.2 million at December 31, 1996. The
Company  accounts for its interest in the joint  venture under the equity method
and no gain or loss was recognized as a result of this transaction.

b)  General Phontonics, LLC.

     The following is summarized financial information for the Company's joint
venture.

<TABLE>

                         1998           1997
                         ----           ----

<S>                     <C>             <C>
Current Assets          $ 4,600         $ 7,006
Other Assets              4,480           3,908
Current Liablities        1,853           1,640

Total Revenues          $ 9,507          $12,583
Net Income              $(2,047)         $ ( 708)

</TABLE>

                                      F-26

<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


         The  following  pro forma  statement of  operations  for the year ended
December  31,  1996  presents  the results of  operations  as if the Company had
entered into the joint venture as of January 1, 1996 (in thousands):

Statement of Operations (unaudited)
<TABLE>

                                                                                            1996
                                                                                            ----
          <S>                                                                              <C>    
            Sales                                                                          $51,413
          Net Income                                                                       $ 3,716
                                                                                           -------
          Net income per Share of Common Stock                                             $   .63
                                                                                           =======
</TABLE>

16 - Business Segments

         Effective  January 1, 1998, the Company adopted  Statement of Financial
Accounting  Standards  No. 131 (SFAS  131),  "Disclosures  about  Segments of an
Enterprise  and Related  Information"  which has changed the method of reporting
information about its businesses. Based upon the criteria described in SFAS 131,
the  Company now reports  three  business  segments,  Optical  Fiber,  Specialty
Products and Cable. All prior periods presented have been restated in accordance
with SFAS 131.

     The Company conducts its operations through two business segments - Optical
Fiber and Specialty  Products.  A third segment,  Cabling,  was sold in December
1996 in conjuction with the formation of General  Photonics.  SpecTran retains a
50%  equity  interest  in  General  Photonics  and  SpecTran's  share of General
Photonics financial results for 1997 and 1998 is reported on the equity method.

         Optical Fiber develops,  manufactures and markets  specialty  multimode
and   single-mode   fiber  for  data   communications   and   telecommunications
applications.

         Specialty  Products   develops,   manufactures  and  markets  specialty
multimode  and  single-mode  fiber and  value-added  fiber  optic  products  for
industrial, transportation, communication, medical applications and geophysical.

                                      F-27
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


     Cabling  developed,  manufactured and marketed  communications-grade  fiber
optic cable primarily for the customer premises market.

         Summarized Financial  information by business segment is as follows (in
thousands):

                                                    REVENUES

                                    1998               1997             1996
                                    ----               ----             ----
Optical Fiber                      50,801             44,871           34,274
Specialty Products                 20,055             17,186           13,879
Cable                                  --                 --           13,418
                                ---------          ---------           ------
                                   70,856             62,057           61,571
                                   ======             ======           ======

                                             INCOME (LOSS) FROM OPERATIONS

                                     1998              1997              1996
                                     ----              ----              ----
Optical Fiber                        6,276            10,357             7,684
                                     -----            ------             -----
Specialty Products                  (1,553)              234             1,752
                                    ------           -------             -----
Corporate                           (5,154)           (4,570)           (3,834)
                                    ------          --------            ------
                                      (431)            6,021             5,602
                                    ======            ======             =====

                                      F-28
<PAGE>

                                                       ASSETS
<TABLE>

                                         1998                         1997                         1996
                                         ----                         ----                         ----
<S>                                    <C>                           <C>                          <C>   
Optical Fiber                          72,447                        51,645                       23,379
Specialty Products                     19,953                        22,867                       10,760
Cable (APD)                                --                            --                        5,277
Cable (Investment in JV)                3,458                         4,420                           --
Corporate                               9,561                        13,173                       23,039
                                     --------                      --------                   ----------
                                      105,419                        92,105                       62,455
                                     ========                      ========                   ==========
</TABLE>

                                                    DEPRECIATION
<TABLE>

                                        1998                          1997                        1996
                                        ----                          ----                        ----
<S>                                    <C>                           <C>                          <C>  
Optical Fiber                          3,817                         1,650                        1,359
Specialty Products                     1,630                         1,209                          914
Cable                                     --                            --                          142
Corporate                                760                           716                          124
                                   -----------                   ----------                   ---------
                                        6,207                        3,575                        2,539
                                   ==========                    =========                    =========
</TABLE>

                                                CAPITAL EXPENDITURES
<TABLE>

                                        1998                          1997                       1996
                                        ----                          ----                       ----
<S>                                    <C>                           <C>                          <C>  
Optical Fiber                          17,423                        29,394                       6,461
Specialty Products                        868                        11,379                       2,725
Cable                                      --                            --                         761
Corporate                               1,180                           384                       1,153
                                  ------------                  ------------                 ----------
                                       19,471                        41,157                      11,100
                                  ===========                   ===========                  ==========
</TABLE>

         The following table presents  revenues by country based on the location
of the use of the product or services (in thousands):
<TABLE>

                                          1998                         1997                         1996
                                          ----                         ----                         ----
<S>                                  <C>                          <C>                          <C>      
United States                        $  60,321                    $  49,337                    $  50,481
Taiwan                                      12                        1,352                        1,737
Switzerland                              1,221                        1,272                        2,406
Netherlands                              1,372                          180                          130
Malaysia                                    --                        1,488                          111
Japan                                    1,138                          642                          225
Israel                                   1,675                          100                          142
India                                      415                          998                          577
Germany                                    845                          770                        1,112
China                                      954                        2,825                        2,030

Total Other                              2,903                        3,093                        2,620

Total                                $  70,856                    $  62,057                    $  61,571

</TABLE>
                                      F-29
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


17 - Quarterly Financial Information (unaudited)
In thousands of dollars except per share data
<TABLE>

Quarters                         First             Second              Third            Fourth
--------------------------- ------------------ ------------------ ------------------ -----------------

1998
<S>                            <C>                  <C>                <C>               <C>    
Net Sales (See A)              $15,112              $16,358            $19,288           $20,098
Gross Profit                     5,111                2,553              5,414             5,801
Net Income                         864               (1,393)               504               536
Earnings per Common
   Share-Basic                     .12                  .20                .07               .08
Earnings per Common
   Share-Diluted                   .12                 (.20)               .07               .08

1997
Net Sales                      $16,228              $15,881            $15,638           $14,310
Gross Profit                     6,542                6,162              5,777             4,795
Net Income                       1,122                1,330              1,151             1,239
Earnings per Common
   Share-Basic                     .18                  .19                .17               .18
Earnings per Common
   Share-Diluted                   .17                  .18                .16               .17
</TABLE>

A)   Due to a change in accounting  treatment of certain fiber sales,  sales and
     cost of  sales  for the  first  three  quarters  of 1998  were  reduced  by
     $115,000, $674,000 and $775,000 respectively.  This change had no effect on
     previously reported net income or earnings per share.

                                      F-30
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


18 - Contingencies

         On November  6, 1998,  the Company  announced  that it would  contest a
complaint filed in the United States District Court in Boston,  MA on October 2,
1998,  purportedly as a class action suit.  Titled Cruise v. Cannon, et al., the
complaint  alleges that the Company and three of its current or former  officers
and  directors  violated   securities  laws  by  misrepresenting  the  Company's
financial condition and financial results during 1998. The suit purports to be a
class action on behalf of all  individuals  who purchased the Company's stock on
the open market from February 25, 1998 to July 17, 1998. The suit alleges, among
other things, that there were public  misrepresentations or failures to disclose
material  facts during that period  which  allegedly  artificially  inflated the
price of the Company's common stock in the  marketplace.  The complaint seeks an
undisclosed  amount of  compensatory  damages and costs and expenses,  including
plaintiff's  attorney's  fees and such further relief as the Court may deem just
and proper.  The Company believes the action is totally without merit,  believes
that  it has  highly  meritorious  defenses  and it  intends  to  defend  itself
vigorously.

19 - Related Parties

     The Company paid approximately  $158,000,  in 1998 for legal fees to a firm
having a member who is also a director of the Company.

     The Company paid  approximately  $38,000,  in 1998 for consulting fees to a
firm having a member who is also a director of the Company.

                                      F-31
<PAGE>

                              SPECTRAN CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           December 31, 1998, 1997 and 1996


                 Schedule I - Valuation and Qualifying Accounts
              For the Years Ended December 31, 1998, 1997 and 1996
                              Dollars in Thousands

<TABLE>

                      Column A                            Column B           Column C           Column D          Column E
                      --------                            --------           --------           --------          --------
                                                         Balance at         Additions                             Balance
                                                          Beginning        Charged to                             at End
                    Description                           of Period         Expenses          Deductions         of Period

<S>                                                   <C>                <C>                <C>               <C>
For the Year Ended December 31, 1998:

   Allowance - Net Deferred Tax Asset                 $          330     $        --        $        230      $         100
                                                      ==============     ===========        ============      =============

   Allowance for Doubtful Accounts                    $          389     $       624        $        490      $         523
                                                      ==============     ===========        ============      =============

   Allowance for Obsolete Inventory                   $          976     $     1,322        $         --      $       2,298
                                                      ==============     ===========        ============      =============


For the Year Ended December 31, 1997:

   Allowance - Net Deferred Tax Asset                 $          630     $        --        $        300      $         330
                                                      ==============     ===========        ============      =============

   Allowance for Doubtful Accounts                    $          218     $       171        $         --      $         389
                                                      ==============     ===========        ============      =============

   Allowance for Obsolete Inventory                   $          273     $       703        $         --      $         976
                                                      ==============     ===========        ============      =============


For the Year Ended December 31, 1996:

   Allowance - Net Deferred Tax Asset                 $        1,030     $        --        $        400      $         630
                                                      ==============     ===========        =============     =============

   Allowance for Doubtful Accounts                    $          265     $        --        $         47      $         218
                                                      ==============     ===========        ============      =============

   Allowance for Obsolete Inventory                   $          467     $        --        $        194      $         273
                                                      ==============     ===========        ============      =============
</TABLE>

                                      F-32