Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File No.: 0-16182

AXSYS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

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

Common Stock, par value $.01 per share

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

None

        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  ý    No  

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  o

        Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the close of business June 28, 2002, $26,528,618.

        Common Stock outstanding at March 14, 2003: 4,655,611 shares.

Documents Incorporated by Reference

PART I

Item 1.    BUSINESS

        Axsys Technologies, Inc. (together with its subsidiaries, unless the context suggests otherwise, "Axsys" or "we") is a leading designer and manufacturer of precision opto-mechanical components and subassemblies found in high performance aerospace, defense and commercial equipment and systems. In addition, we distribute precision ball bearings for use in a variety of industrial and commercial applications.

        Axsys was incorporated in the State of Delaware in 1968. Our common stock is traded on the Nasdaq Stock Market under the symbol "AXYS."

        We sell our components, subsystems and bearings to a variety of original equipment manufacturers ("OEM"s), serving the following markets:

•

Aerospace and defense



•

Industrial automation OEM and maintenance repair operations ("MRO")



•

Semiconductor and related electronics capital equipment



•

High-performance graphic art and medical imaging capital equipment

        We are organized into three groups:

•

Aerospace and Defense Group



•

Commercial Products Group



•

Distributed Products Group

        The Aerospace and Defense Group designs, manufactures and sells high-end components such as precision position sensors, high-performance motors, precision metal optics, precision machined light-weight structures and opto-mechanical and electro-mechanical subassemblies. Our products enable OEMs to improve imaging, positional performance (accuracy, resolution, speed and power), and weight requirements in their systems. Principal markets for our products include OEMs serving the aerospace and defense markets. The Aerospace and Defense Group is comprised of:

•

Axsys Technologies—Motion Control Division in San Diego, California



•

Axsys Technologies—Precision Machined Products in Cullman, Alabama



•

Axsys Technologies—Precision Optical Products in Rochester Hills, Michigan

        The Commercial Products Group designs, manufactures and sells airbearing scanners, micro-positioning stages and laser-based distance measuring interferometers and autofocus. Our products are sold to OEMs enabling them to increase the accuracy and throughput of their systems. Principal markets for our products include OEMs serving the graphic arts and semiconductor capital equipment and recently, the medical imaging market. The Commercial Products Group is located in Rochester Hills, Michigan.

        The Distributed Products Group distributes precision ball bearings, spherical plain bearings and bushings, acquired from various domestic and international sources, to OEMs and MRO distributors. The bearings and bushings are used in a variety of industrial automation and commercial markets. Additionally, our Distributed Products Group designs, manufactures and sells mechanical-bearing subassemblies for a variety of customers. The Distributed Products group is comprised of AST Bearings division located in Montville, New Jersey with a distribution center in Irvine, California.

2

Market Overview

        Axsys' products are sold to OEMs in a variety of markets, which demand the precision and performance of our products and capabilities.

        Aerospace and Defense.    The aerospace and defense market principally consists of OEMs that manufacture weapon subsystems (for example, night vision and targeting pods and flight control systems) and complete systems (for example, aircraft air-to-air missiles and reconnaissance satellites). In general, these OEMs are designing leading-edge products, the performance of which is enhanced through the use of one or more of our capabilities:

•

precision positioning;



•

highly accurate reflective optics; and



•

light-weight, high strength structural components.

        The market for our products also includes direct sales to the U.S. and foreign defense agencies for spares requirements. In 2002, the market for Axsys products has been strong due to the increased spending by the Department of Defense generally, as well as the increased use of electro-optical systems within the US and foreign government arsenals. These electro-optical systems are used for thermal imaging, reconnaissance and weapons targeting. Defense applications include fixed- and rotary-winged aircraft, missile seeker heads, land and sea vehicles as well as reconnaissance satellites. In addition, these products are used on research satellites and newly developed biological detection systems being employed for homeland security. All of these programs incorporate high-performance components provided by suppliers like Axsys, such as precision metal optics, high performance motors and sensors and precision-machined structures.

        High-performance graphic art and medical imaging capital equipment.    The high-performance graphic art and medical imaging capital equipment market for our products consists of OEMs who manufacture sophisticated equipment used to electronically image photo-sensitive media for, among others, graphic arts, newspaper plate and medical radiography markets. Electronic imaging involves controlling the position of a modulated laser beam to expose photosensitive media. The position of this beam can be controlled by rotating a reflective optic by use of a high speed airbearing scanner under the laser beam or by precisely positioning the laser beam or the media under one another with an X-Y micro-positioning stage. In recent years, our customers have demanded increased resolution and throughput capabilities in these high-end systems. With a view to achieving these capabilities, we use reflective optics, high-speed motors, airbearings and sophisticated electronic controls.

        Semiconductor and related electronic capital equipment.    We sell products to OEMs in the semiconductor and related electronic capital equipment markets that produce fabricating and test equipment for integrated circuits, reticles, flat panel displays and electronic components including printed circuit boards. Our customers require accurate, precise and repeatable positioning of these devices for their equipment. We believe that as the density of circuits has increased, there has been increased requirement for the airbearing and direct drive positioning technology produced by Axsys. We also supply a variety of components and subassemblies to these markets, including:

•

direct drive rotary motors;



•

high speed rotary airbearing scanners and imaging engines;



•

laser interferometers and autofocus; and



•

integrated micro-positioning stages.

        Industrial Automation.    We sell our products to a wide range of applications in industrial and commercial markets, including machine tools, motion control components and to OEMs for use in

3

many types of automation equipment. We also sell to MRO distributors who supply replacement parts for older equipment. Our OEM and MRO customers principally purchase precision bearings and assemblies that require short lead-times.

Business Strategy

        We are a vertically integrated supplier of precision components and subassemblies for high-technology applications. We design and manufacture components and subassemblies for OEMs of aerospace guidance, thermal imaging, graphic arts, medical imaging and semiconductor and related electronic capital equipment. Our products are designed to increase the accuracy and throughput of equipment produced by OEMs. A focus of our business strategy is to utilize our vertically integrated component manufacturing experience and resources and our electro-mechanical and opto-mechanical integration capabilities in the design of higher-level subassemblies that employ our micro-positioning and precision optical technologies. Other key elements of this business strategy include the following:

        We plan to use our vertically integrated position to grow our subsystems business. Our strategy is to continue to develop subsystems by integrating our core component technologies with our electro-mechanical and opto-mechanical integration capabilities. This strategy is designed to enable us to provide our customers with high performance systems at competitive prices. We are currently investigating providing integration services for several of our OEM customers in other markets, including:

•

integration of our metal optics, motion control components and beryllium structures for next generation defense forward looking infrared (FLIR) applications;



•

integration of our metal optics, motors and sophisticated electronic controls for beam stabilization and control in laser material processing applications;



•

development of airbearing stages.

        We also expect to enhance our market position through acquisitions and strategic alliances and divestures of non-core businesses. We have historically expanded our market presence and capabilities through acquisitions. We have also divested operations that were not part of our core businesses.

        In early 2002, in response to the depressed market conditions that we anticipated would continue throughout the year, we began to evaluate our ongoing investment requirements in our data storage and photonics equipment businesses in light of their potential returns. This led to the divestiture of our data storage test equipment subsidiary, Teletrac, Inc. ("Teletrac") and our two photonic automation businesses ("Automation Group").

•

On April 5, 2002, we sold all of the stock of Teletrac to Storage Test Solutions ("STS") of Aurora, Colorado. Teletrac, which was based in Santa Barbara, California, designed and manufactured high-performance spin stands that are used in the test and certification of data storage recording heads found in magnetic disk drives. As a result of the sale, we closed our Santa Barbara manufacturing facility and relocated our micro-positioning stage, laser interferometer and autofocus product lines to our Imaging Systems division located in Rochester Hills, Michigan.



•

On October 28, 2002, we sold all of the stock of Automation Engineering, Inc. ("AEI"), a wholly owned subsidiary, to an investor group. AEI was part of Axsys' Automation Group. AEI designed and manufactured flexible automated assembly systems sold to the photonic industry.



•

On November 5, 2002, we sold substantially all of the net assets of our Fiber Automation division ("FAD") to Palomar Technologies, Inc. FAD, which was part of the Automation Group, designed and manufactured nano-positioning stages and photonic characterization and development tools for the photonic markets.

4

        We review and consider possible acquisitions on an ongoing basis; however, no specific acquisitions are being negotiated as of the date of this report.

        We will continue to focus on improving operating efficiencies.    Our focus has been toward eliminating waste in all aspects of the organization, measured in reduced cycle time, material costs, scrap and rework. By implementing this process, we have reduced, and expect to continue to reduce, our design and manufacturing lead times as well as manufacturing costs in order to become more competitive in the marketplace.

        We continue to evaluate new market and application opportunities to leverage our core capabilities. In order to grow our sales at a rate in excess of the markets we serve, we continually evaluate new markets and applications that can benefit from our core capabilities. Examples include our success in developing an airbearing laser scanner for use in a medical imaging application as well as the development of fast steering mirrors to serve the laser material marking and engraving market.

Technologies, Products, and Capabilities

        We utilize several key manufacturing technologies and have developed software and systems integration capabilities that enable us to design and manufacture a wide variety of high-performance precision optical and micro-positioning component systems. These core competencies include:

        Magnetics.    We design, manufacture and sell high-performance motors and precision resolvers using state-of-the-art magnetic technologies and materials. Applications for these high-performance components include precision micro-positioning systems for semiconductor processing and inspection equipment, pick and place robotic handlers, missile-seeker head systems, guidance systems and satellite actuators.

        Precision Machining.    Axsys manufactures precision-machined components made from beryllium, beryllium alloys and other specialty materials. Applications include precision optics, airbearings, heat sinks, structural housings and gimbals. Our airbearings provide high-speed precision positioning and are used in high-speed scanners for digital imaging and weapons guidance systems. Our heat sinks are used to dissipate heat in high-performance avionics and satellite electronics, and our gimbals are used in various applications, including positioning optical sensors in FLIR night vision systems. We also manufacture optical substrates used internally and by our customers in a variety of precision metal optical applications such as weapon fire control systems and space-borne instruments.

        Precision Optics.    We design and manufacture a broad range of precision metal optical components. Our precision optic products are generally made from beryllium or aluminum and are used in applications where performance requirements cannot be met with glass optics. The advantages of our optics include lighter weight, thermal stability and ease of mechanical interface with housing and actuation devices. We sell our precision metal optical components for use in high speed electro-mechanical scanners, weapons fire control systems, FLIR night vision weapons systems and high-performance space-borne instruments used on weather, mapping and scientific satellites.

        Electronics.    Axsys designs and manufactures several key electronic components for the electronics capital equipment and high-end digital imaging markets including laser interferometers and electronic controllers and drives. Our electronics components control the speed and position of electro-mechanical systems, such as precision motors, actuators, X-Y positioning stages and laser scanners. Laser interferometers, which are designed to permit precise linear position sensing, are sold to customers principally in the electronics capital equipment market. Electronic controllers coordinate the positioning and speed of electro-mechanical systems by interfacing with other motion control components. Drives provide power to a motor based on input from the controller in order to achieve a designated position or to achieve a specific speed.

5

        The following table summarizes the component products manufactured and services provided by Axsys, by the technologies they incorporate:

Core Manufacturing Technologies

        Integration Capabilities.    We have introduced products integrating our core technologies and integration capabilities to provide high-performance electro-mechanical and opto-mechanical subassemblies for our customers. Our precision subassemblies include X-Y micro-positioning stages and rotary positioning subassemblies such as actuators, opto-mechanical laser scanners and imaging subsystems. We also produce laser tracking autofocus subassemblies that employ motion control and optics technologies. The X-Y micro-positioning stage subassemblies are used in high-precision or high-performance applications, such as semiconductor alignment positioning subsystems for use in manufacturing or inspection. The rotary positioning subassemblies are used in applications such as night vision systems for defense contractors and cluster tool robotics in electronics capital equipment. Graphic art and medical imaging equipment manufacturers and semiconductor inspection equipment manufacturers use laser scanning and imaging subassemblies. The laser autofocus is used to automatically focus a microscope and is sold to OEMs that manufacture automated optical inspection machines used in the electronics capital equipment market.

6

        The following table illustrates how our technologies, products and capabilities are integrated to develop subsystems and systems:

TECHNOLOGIES AND CAPABILITIES

        Precision Ball Bearings. We distribute a wide range of precision ball bearings varying in size, precision tolerance, lubrication and price. We also provide certain value-added services, such as bearing subassemblies, bearing relubrication, clean room handling of products and engineering consultation.

Competition

        The markets for our products are competitive. We compete primarily on the basis of our ability to design and engineer products to meet performance specifications set by our customers. Most of our customers are OEMs that purchase component parts or subassemblies, which they incorporate into their end products. Product pricing, quality, customer support, experience, reputation and financial stability are also important competitive factors.

        There are a limited number of competitors in each of the markets for the various types of precision optical and positioning components and subassemblies that we manufacture and sell. Our competitors, especially those in the precision optical product lines, typically sell a smaller number of products than we do and are often well entrenched. Some of these competitors have substantially greater resources than we do. We believe that the breadth of our technologies and product offerings provides us with a competitive advantage over certain manufacturers that supply only discrete components or are not vertically integrated with enabling technologies.

        There are numerous competitors in markets to which we distribute our precision ball bearings. These competitors vary in size and include other bearing manufacturers and distributors. We believe that our product breadth and availability, combined with the value-added services we supply, provide competitive advantages.

7

        We expect our competitors to continue to improve the design and performance of their products. We cannot assure you that our competitors will not develop enhancements to, or future generations of, competitive products that will offer superior price or performance features or that new processes or technologies will not emerge that render our products less competitive or obsolete. Increased competitive pressure could lead to lower prices for Axsys' products, thereby adversely affecting our business, financial condition and results of operations. We cannot assure you that we will be able to compete successfully in the future.

Customers

        Our customers include OEMs and end-users that design or utilize high-precision, performance and throughput equipment. We sell our products primarily to OEM customers in the aerospace and defense, high-end graphic art and semiconductor capital equipment markets, and industrial automation markets.

        There is no customer or group of affiliated customers for whom sales during 2002 were in the aggregate 10% or more of consolidated net sales, and, in our opinion, there is no customer, the loss of which would have a material adverse effect on our operations taken as a whole.

        In 2002, 2001 and 2000, Axsys had aggregate sales, both military and non-military, directly to the U.S. Government, including its agencies and departments, of approximately $4.6 million, $3.0 million and $1.9 million, respectively. These sales accounted for approximately 5.7% of total net sales in 2002, 3.4% in 2001 and 2.0% in 2000. Approximately 36.7% of net sales in 2002, 31.7% in 2001 and 25.6% in 2000 were derived from subcontracts with U.S. Government contractors. The majority of these contracts may be subject to termination at the convenience of the U.S. Government, and certain contracts may also be subject to renegotiation. Currently, we are not aware of any proposed termination or renegotiation of such contracts that would have a material adverse effect on our business.

        Because a substantial part of our business is derived directly from contracts with the U.S. Government, or its agencies or departments or indirectly through subcontracts with U.S. Government contractors, our results of operations could be materially affected by changes in U.S. Government expenditures for products using component parts that Axsys produces. However, we believe that the broad number and diversity of our product applications and the strength of our engineering capabilities may lessen our exposure to such risk.

Sales, Marketing and Customer Support

        As of December 31, 2002, we employed 54 sales, marketing and customer support personnel throughout our organization, compared to 58 employees in similar functions at the end of 2001. We organize our sales staff by market segments with a view to building on existing customer relationships and improving cross-selling opportunities. We utilize two OEM components sales organizations, one focused on aerospace and defense customers and the other focused on high-performance commercial customers. We have a separate distributed products sales force that is focused on selling ball bearings, bushings and assemblies, principally to commercial and industrial oriented OEMs as well as MRO distributors.

        As of December 31, 2002, our direct sales organization included 17 direct sales field personnel, most of whom have engineering backgrounds, with the remainder involved in inside sales, customer service, program management, contract administration and applications engineering. We believe that our sales effort is enhanced by having engineering-trained sales personnel available to meet with customers' engineering personnel. Our application and design engineers are also involved in the sales process.

8

        We also sell our products through a significant number of manufacturer's sales representatives and agents. Although we believe that we have satisfactory relationships with these sales representatives and agents, we cannot assure you that these relationships will continue to be satisfactory or will continue at all.

Domestic and Foreign Sales

        For information concerning our domestic and foreign net sales and identifiable assets from continuing operations, see Note 9 to the Consolidated Financial Statements.

Research and Development

        We seek to develop new component products and subsystems and improve existing products in order to keep pace with the increasing performance requirements of our customers. We devote significant resources, a portion of which is reimbursed by customers, to development programs directed at creating new products and product enhancements, as well as developing new applications for existing products. Because we believe that our ability to compete effectively depends in part on maintaining and enhancing our expertise in applying new technologies and developing new products, we dedicate substantial resources to engineering, research and development. At December 31, 2002, we employed 63 individuals in engineering, research and development functions. We cannot assure you that our product development efforts will be successful in producing products that respond to technological changes or new products introduced by others.

        Our costs associated with research and development expenses were $1.0 million in 2002, $1.7 million in 2001, and $3.3 million in 2000. These amounts are net of cost reimbursements from our customers that were not material in relation to research and development expenditures in any period. We intend to direct our research and development activities toward integrating our various technologies and continuing to develop subsystems.

Raw Materials; Suppliers

        The raw materials and components that we purchase are generally available from multiple suppliers. However, beryllium, a material used extensively by the Precision Machined Products operation of our Aerospace & Defense Group, is only available from Brush Wellman, Inc. ("Brush Wellman"), the sole U.S. supplier. Historically, we have had an excellent relationship with Brush Wellman and have not encountered problems in obtaining our supply requirements. However, the partial or complete loss of Brush Wellman as a supplier of beryllium, or production shortfalls or interruptions that otherwise impair the supply of beryllium to Axsys, would have a material adverse effect on our business, financial condition and results of operations. If such conditions were to occur, it is uncertain whether alternative sources could be developed.

        In addition, we purchase a substantial amount of ball bearings that we distribute from two foreign suppliers. While we believe that we could obtain alternate sources of supply, any interruption in the flow of products from these suppliers, or significant increases in the cost of these products, could have an adverse effect on our business, financial condition and results of operations.

Patents and Trademarks

        We are not dependent upon any single patent or trademark. We have a combination of patents, trademarks and trade secrets, non-disclosure agreements and other forms of intellectual property protection covering our proprietary technology. Although we believe that our patents and trademarks may have value, we believe that our future success will depend primarily on the innovation, technical expertise, manufacturing and marketing abilities of our personnel. We cannot assure you as to the degree of protection offered by our patents. We cannot assure you that we will be able to maintain the

9

confidentiality of our trade secrets or that our non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or other disclosure.

        Competitors in the United States and foreign countries, many of which have substantially greater resources, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products. Although we believe that our products do not infringe on the patents or other proprietary rights of third parties, we cannot assure you that third parties will not assert infringement claims against us or that such claims will not be successful.

Environmental Regulation

        We believe that we are currently in compliance in all material respects with federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to the protection of the environment and that any non-compliance with such laws will not have a material adverse effect upon our business, financial condition, results of operations, capital expenditures, earnings or competitive position. We cannot assure you, however, (a) that changes in federal, state or local laws, regulations or regulatory policy or the discovery of unknown problems or conditions will not in the future require substantial expenditures or (b) as to the extent of our liabilities, if any, for past failures, if any, to comply with applicable environmental laws, regulations and permits, any of which also could have a material adverse effect on our business, financial condition or results of operations.

        Axsys has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to three third-party waste disposal sites. Although liability under CERCLA is joint and several, meaning that liability can exceed a PRP's pro rata share of cleanup costs, we believe, based on currently available information, that costs associated with these sites will not have a material adverse effect on our business and financial condition. It is possible, however, that our results of operations for a particular fiscal period could be materially affected.

        Pursuant to a remedial plan approved by the Ohio Environmental Protection Agency ("Ohio EPA") in 1993, we are continuing a process of investigating soils and groundwater at a site formerly owned by a division of Axsys, and we have conducted certain remedial work at this site including soil removal. We have incurred approximately $600,000 to date. We have been pursuing an alternate closure plan related to this site. This plan is subject to the approval of the Ohio EPA. Based on the advice of our consultants, we increased our accrued liabilities relating to this site to approximately $744,000, with a resulting charge to discontinued operations in 2000 of $601,000, before a tax benefit of $235,000. Based on the advice of our environmental consultants, we believe that the Ohio EPA is likely to allow use of our proposed alternate plan. We anticipate receiving approval of the plan from the Ohio EPA in mid-2003 and will reassess the estimated costs of remediation of the site upon approval. We cannot assure you that the Ohio EPA will approve the alternate plan. If approval were not received, costs to Axsys could increase substantially. In addition, even if approval is received, the costs actually incurred may exceed the accruals established. We anticipate that actual expenditures will be incurred over a period of several years.

        During 1999, we sold the land and building of our previously discontinued Sensor Systems division in St. Petersburg, Florida. We have conducted investigations of soil and groundwater at the former facility and received approval of our investigation plan from the Florida Department of Environmental Protection. We will continue to conduct additional soil and groundwater investigations at the site. Based on the advice of our consultants, we increased our accrued liabilities relating to this site to approximately $854,000, with a resulting charge to discontinued operations in 2000 of $657,000, before a tax benefit of $257,000. We have incurred approximately $280,000 to date.

10

        On December 21, 2001, we received a letter from the United States Environmental Protection Agency ("EPA") notifying us that we are considered to be a potentially responsible party at a site located in Prospect, Connecticut, which until 1978 was owned by a former subsidiary. The letter also demanded payment of approximately $25,000 in past response costs and unspecified future costs. Although we may be obligated under CERCLA for contributions towards response costs incurred as a result of alleged releases of hazardous substances at the site, we are still investigating our responsibilities to the site. In addition, it is our policy to accrue environmental cleanup related costs when those costs are believed to be probable and can be reasonably estimated. The quantification of environmental exposure, if any, with respect to this site requires an assessment of many factors, including the quality of information available, the assessment stage of each investigation, preliminary findings and the length of time involved in remediation. As we have not determined if any liability exists, we cannot estimate a meaningful range of exposure. We have responded to the EPA's demand and are awaiting a response.

        We use or generate certain hazardous substances in our manufacturing and engineering facilities. We believe that our handling of these substances is in compliance with applicable local, state and federal environmental, safety and health regulations at each operating location. We invest in protective equipment, process controls and specialized training to minimize risks to employees, surrounding communities and the environment due to the presence and handling of these hazardous substances. We periodically conduct employee physical examinations and workplace air monitoring regarding these substances. When exposure problems or potential have been indicated, we implement corrective actions. In general, re-occurrence has been minimal or non-existent. We do not carry environmental impairment insurance.

Employees

        As of December 31, 2002, we employed 557 persons, including 391 in manufacturing, 54 in sales, 63 in engineering and 49 in administration. Axsys considers its relations with its employees to be satisfactory. There has been no significant interruption of operations due to labor disputes.

Item 2. PROPERTIES

        Axsys leases its executive office, located at 175 Capital Boulevard in Rocky Hill, Connecticut.    The principal plants and other significant properties at February 1, 2003 are:

        Management believes that Axsys' facilities are generally sufficient to meet its current and reasonably anticipated manufacturing, distribution and related requirements. Management, however, periodically reviews space requirements to ascertain whether Axsys' facilities are sufficient to meet its needs.

Item 3. LEGAL PROCEEDINGS

        Axsys is a defendant in various lawsuits, none of which is expected to have a material adverse effect on Axsys' business or financial position. It is possible, however, that our results of operations for a particular fiscal period could be materially affected. See "Business—Environmental Regulations."

11

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

        None during the quarter ended December 31, 2002.

PART II

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

        Axsys' common stock trades on the Nasdaq National Market ("Nasdaq") under the Symbol "AXYS". The following table sets forth the range of high and low sales prices as reported by Nasdaq:

        On March 14, 2003, the high and low sales price were $7.25 and $7.05, respectively.

        On March 14, 2003, the approximate number of holders of record of Axsys' common stock was 539.

Dividend Policy

        Axsys has applied and currently intends to continue to apply its retained and current earnings toward the development of its business and to finance its growth. Axsys did not pay dividends on its common stock during the three years ended December 31, 2002, and does not anticipate paying cash dividends in the foreseeable future.

12

Item 6.    SELECTED FINANCIAL DATA

        The following selected financial data for the five fiscal years presented below is derived from Axsys' audited Consolidated Financial Statements as adjusted to reflect the discontinuance of the Fiber Automation Division and Automation Engineering, Inc. in 2002 and Beau Interconnect and Sensor Systems business segments in 1999 and 1998, respectively. The data should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto included elsewhere herein.

(1)

In the third quarter of 2002, the Automation Group was divested, which included the Fiber Automation Division and Automation Engineering, Inc., a wholly owned subsidiary. Accordingly, the Automation Group has been accounted for as discontinued operations and the operating results have been reported separately from continuing operations for all applicable periods and are not reflected in the above table. Revenues applicable to these discontinued operations were $1.2 million in 2002, $3.1 million in 2001 and $1.4 million in 2000.

(2)

In September 2000, Teletrac acquired the stock of Westlake Technology Corporation ("Westlake"). This acquisition was accounted for under the purchase method of accounting and, accordingly, the

13

results of Westlake's operations have been included in Axsys' Consolidated Statements of Operations since the date of acquisition. See Note 3 to the Consolidated Financial Statements.

(3)

In March 2000, we sold the Beau Interconnect division ("Beau"). Accordingly, Beau has been accounted for as a discontinued operation and the related net assets and operating results have been reported separately from continuing operations in all years presented. Revenues applicable to this discontinued operation were $846,000 during 2000 and $19.3 million during 1999 and $18.0 million during 1998. The net assets of Beau at December 31, 1999 have been included in current assets. All prior periods have been restated to reflect the divestiture.

(4)

Includes the effects of a pre-tax special charge of $784,000 and an impairment of assets charge of $8,993,000 in 1999.

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

Acquisitions and Divestitures

        During the fourth quarter of 2002, we sold our Automation Group, comprised of the Fiber Automation Division ("FAD") and Automation Engineering, Inc. ("AEI").

        On November 5, 2002, we sold the net assets of FAD to Palomar Technologies, Inc. FAD designed and manufactured nano-positioning stages and fiber alignment test tools. FAD has been accounted for as a discontinued operation and the related net assets and operating results have been reported separately from continuing operations in all years presented. Revenues applicable to this discontinued operation were $0.4 million in 2002 and $0.6 million in 2001. There were no revenues in 2000.

        On October 28, 2002, we sold all of the stock of AEI, a wholly owned subsidiary, to an investor group. AEI designed and manufactured flexible automation systems for the photonics market. AEI has been accounted for as a discontinued operation and the related net assets and operating results have been reported separately from continuing operations in all years presented. Revenues applicable to this discontinued operation were $0.7 million in 2002, $2.5 million in 2001 and $1.4 million in 2000. AEI was merged with Axsys on October 18, 2000.

        On April 5, 2002, we sold all of the stock of our Teletrac, Inc. subsidiary to Storage Test Solutions ("STS") of Aurora, Colorado. Teletrac, which was based in Santa Barbara, California, designed and manufactured high-performance spin stands that are used in the test and certification of data storage recording heads found in magnetic disk drives. As a result of the sale, we closed our Santa Barbara manufacturing facility and relocated our micro-positioning stage, laser interferometer and autofocus product lines to our Imaging Systems division located in Rochester Hills, Michigan. Axsys sold the stock of Teletrac in exchange for an interest-bearing $850,000 note, which provides for payments equal to ten percent of the revenues generated from the sales of spin stands by STS with the balance, if any, due in five years. Because of the uncertain market conditions for data storage products and the terms of the note, Axsys has reserved the entire value of this note and will record any principal and interest payments as ordinary income during the period received. As a result of this sale, an asset impairment and cost of sale charge of $1.0 million has been included in Axsys' Consolidated Statement of Operations. Under applicable accounting principles, Teletrac has not been treated as a discontinued operation.

        During June of 2001, we closed a manufacturing support facility located in Manchester, Connecticut. The costs associated with closing the California and Connecticut operations are included in continuing operations.

        On September 30, 2000, Teletrac acquired Westlake Technology Corporation ("Westlake"). This acquisition has been accounted for using the purchase accounting method. Accordingly, the results of

14

Westlake have been included in Axsys' Consolidated Statement of Operations since the date of acquisition.

        On March 17, 2000, Axsys sold the net assets of the Beau Interconnect division for $31.8 million in cash and recorded an after-tax gain of approximately $14.1 million in the first quarter of 2000. Beau designed and manufactured interconnect-devices, barrier terminal blocks and connectors. Beau has been accounted for as a discontinued operation and the related net assets and operating results have been reported separately from continuing operations. Revenues applicable to this discontinued operation during 2000 were $846,000.

Results of Operations

        The following tables set forth selected financial data from continuing operations on a consolidated and segment basis for the years ended December 31, 2002, 2001, and 2000. The segment tables, shown below, exclude one-time charges, which are shown separately.

Consolidated Overview

(in thousands and as a percentage of sales)

        Overall sales from continuing operations for the year ended December 31, 2002 decreased compared to 2001 and 2000. As indicated below, the Aerospace and Defense segment has seen modest growth over the prior two years while depressed markets have impacted the Commercial Products and Distributed Products segments.

Aerospace and Defense Segment

(in thousands and as a percentage of sales)

        Sales in the Aerospace and Defense segment increased 6.9% for the year ended December 31, 2002 compared to 2001. In addition, sales in this segment increased 20.2% for the year ended December 31, 2001 compared to 2000. The increases in revenue are primarily due to increased sales of our beryllium machined products and increased sales of our optical components to the aerospace and defense market.

        Gross margin as a percent of sales for the year ended December 31, 2002 increased compared to the prior year. Operational improvements, including improved quality, material procurement and facility management, have contributed to improved margins compared to 2001. Significant

15

improvements in gross margin for the year ended December 31, 2001 compared to 2000 were primarily the result of a Cost Reduction Program implemented in June of 2001. (See Note 2 of the Consolidated Financial Statements.)

Commercial Products Segment

(in thousands and as a percentage of sales)

        Sales in the Commercial Products segment declined 32.8% for the year ended December 31, 2002 as compared to 2001, while sales in 2001 were down 13.9% compared to 2000. On April 5, 2002, we sold our data storage business in Santa Barbara, California, which had sales of $2.1 million in 2001 and $3.6 million in 2000. These sales are included in the above table. Additionally, the decline in shipments is partially a result of a general downturn in the market for air bearing scanners, which began in the second quarter of 2001.

        Gross margin, as a percent of sales, increased during 2002 as compared to 2001, reflecting operational improvements including the closure of the Santa Barbara facility during the second quarter of 2002 and the closure of a manufacturing support facility in Connecticut during the second quarter of 2001. (See Note 2 of the Consolidated Financial Statements.) The 3.3% decline in gross margin from fiscal year 2001 compared to 2000 was primarily the result of a decline in data storage sales.

Distributed Products Segment

(in thousands and as a percentage of sales)

        Sales in the Distributed Products segment declined 12.5% for the year ended December 31, 2002 as compared to 2001, while sales in fiscal year 2001 declined by 26.3% compared to fiscal year 2000. The decline in revenue is driven primarily by the overall weakness in the U.S. economy. In 2001 and 2002, conditions were very weak in the industrial automation and commercial markets for our precision ball bearings, including lower sales to electronic capital equipment markets, which had been particularly strong in 2000.

        Gross margin as a percent of sales decreased 2.6% in 2002 compared to 2001, primarily due to additional excess inventory reserves taken in 2002 as a result of lower sales volumes. Gross margin, as a percentage of sales, decreased by 0.9% in fiscal year 2001 compared to fiscal year 2000, which was the result of decreased revenues.    Adjusting for the inventory reserve adjustments in 2002, gross margin

16

percentages have remained relatively stable despite decreased revenues, as we have reacted to the depressed market conditions by lowering overhead and reducing spending.

One- time Charges included in Cost of Sales (Non-allocated)

(in thousands and as a percentage of sales)

During 2002, we recorded a one-time charge of $136 thousand for the elimination of some small product lines resulting from the closure of the California facility. During the second quarter of 2001, in conjunction with the Cost Reduction Plan, we recorded a one-time charge of $7.7 million, which primarily included a $4.4 million charge for excess and obsolete inventory disposals and $2.9 million charge for loss contract reserves for two long-term government contracts. During the first quarter of 2000, we recorded a one-time charge of $2.6 million when we re-evaluated slow moving and potentially obsolete inventory as part of the Strategic Realignment Plan. These charges are included in cost of sales but are not allocated to a particular segment. (See Note 2 of the Consolidated Financial Statements.)

Operating Expenses

(in thousands and as a percentage of sales)

        Selling, general and administrative expenses.    Selling, general and administrative ("SG&A") expenses were $16.3 million in 2002 compared to $18.5 million in 2001, a net decrease of $2.2 million. The decrease is primarily a result of the closure of the California and Connecticut facilities, which accounted for savings of $1.0 million for 2002 compared to the prior year, lower incentive compensation as a result of lower revenues and lower overall spending. SG&A expenses were 13.0% lower in fiscal year 2001 compared to fiscal year 2000 primarily as a result of the 2001 Cost Reduction Plan. (See Note 2 of the Consolidated Financial Statements.)

        Research and development expenses.    Research and development ("R&D") expenses were $1.0 million in 2002 compared to $1.7 million in 2001. The decrease was primarily due to the closure of the California and Connecticut facilities. The 48.3% reduction in R&D spending in 2001 as compared to 2000 is a result of the June 2001 closure of the Connecticut facility, which was primarily an R&D facility. (See Note 2 to the Consolidated Financial Statements.)

        Restructuring charges.    Costs categorized as restructuring charges were $1.9 million in 2002, $1.4 million in 2001 and $1.8 million in 2000. (See Note 2 to the Consolidated Financial Statements.)

        During 2002, restructuring charges included $0.3 million for termination expenses incurred in connection with the restructuring of the business, $1.0 million associated with asset write-downs and severance expenses resulting from the sale of Teletrac and $0.6 million of costs relating to the relocation of some Commercial OEM product lines from Santa Barbara, California to Rochester Hills, Michigan.

17

        During 2001, in conjunction with the Cost Reduction Plan, Axsys recorded restructuring charges of $1.4 million. The restructuring charges were recorded for severance pay and benefits for sixty employees and exit costs relating to the closing of two facilities.

        During 2000, in conjunction with the Strategic Realignment Plan, Axsys recorded a restructuring charge of $1.8 million for a workforce reduction of 50 employees and the relocation or consolidation of two facilities.

Other Income and Expenses

        Interest income and expense, net.    Net interest expense was $22 thousand in the year ended December 31, 2002, compared to net interest income of $153 thousand and $496 thousand in 2001 and 2000, respectively. The decline in interest income since 2000 is a result of lower prevailing interest rates and lower average investment balances. In addition, interest income of $39 thousand in 2002, $64 thousand in 2001 and $96 thousand in 2000, from a note receivable, has declined as the principal balance has been reduced.

        Other income and expense, net.    Net other income in 2002 was $10 thousand compared to other income of $207 thousand in 2001 and $324 thousand in 2000. During 2002, we recorded a charge of $232 thousand for the disposal of fixed assets. We also received income of $298 thousand in 2002, $232 thousand in 2001 and $233 thousand in 2000, which was recovered from a fully reserved note from the 1998 sale of Sensor Systems.

        Taxes.    The consolidated effective tax rate for continued and discontinued operations was 2.6% for the year ended December 31, 2002 compared to 37.0% in 2001 and 39.1% in 2000. The changes in the effective rates are primarily due to the establishment of a valuation allowance partially offset by an anticipated capital loss carry back benefit relating to the sale of Teletrac, Inc. The effective tax rate for discontinued operations in 2002 is 37.8%. The tax provision for continuing operations for 2002 was $3.0 million primarily as a result of two events. In accordance with the Statement of Financial Accounting Standards No. 109, in 2002 we established a $4.6 million valuation allowance against our deferred tax asset. As we record income in the future, we will reduce this valuation allowance accordingly. The tax expense recorded as a result of the valuation allowance was partially offset by a tax benefit resulting from a permanent book and tax basis difference on the sale of Teletrac, Inc. At December 31, 2002, we continued to recognize a portion of our deferred tax asset as we have a prudent and feasible tax planning strategy, which we would implement before allowing any of our deferred tax benefits to expire.

        Discontinued operations.    During the third quarter of 2002, we decided to divest our Automation Group. We completed the disposal of the Group in the fourth quarter of 2002. During 2002, we recorded a special charge of $1.7 million, net of taxes, which included $729 thousand for the impairment of assets and $980 thousand of closing related expenses. These costs are discussed in more detail in Note 4 to the Consolidated Financial Statements. The loss, net of tax, from these operations included in discontinued operations was $2.7 million in 2002 compared to $1.9 million in 2001 and $0.4 million in 2000. The remainder of the loss from discontinued operations in 2002 included a $203 thousand charge for an environmental related expense for a previously divested operation, which was partially offset by $24 thousand of income from the reversal of unutilized reserves primarily associated with the sale of the Beau Interconnect division in 2000.

        In March 2000, we sold the Beau Interconnect division. Results of operations from the discontinued business have been reported separately from continuing operations in all periods presented. The sale of Beau resulted in a gain of $22.5 million before a tax provision of $8.4 million. We also recorded a charge of $1.3 million, before a tax benefit of $0.5 million, to increase environmental accruals for the remediation of two former operating sites. During 2000, our

18

environmental consultants advised us to increase these accruals to better reflect the ongoing costs to complete the remediation of these sites. (See Note 4 to the Consolidated Financial Statements.)

        Net income.    We had a net loss of $7.1 million in 2002, a new loss of $7.2 million in 2001 and net income of $9.5 million in 2000. During 2002, we sold our Automation Group, which resulted in a net loss of $4.4 million including both operating losses and loss on the sale. In addition, we recorded a tax provision of $2.9 million from continuing operations, which was primarily the result of the establishment of a valuation allowance to reduce our net deferrred tax assets. In 2001, we recorded a restructuring and special charge associated with our Cost Reduction Plan of $5.8 million, net of taxes. In addition, our Automation Group incurred a net loss of $1.9 million. During 2000, we sold our Beau division, which resulted in a net gain of $14.1 million and recorded a restructuring and special charge associated with our Strategic Realignment Plan of $3.3 million, net of taxes.

Liquidity and Capital Resources

        Axsys funds its operations primarily from cash flow generated by operations, cash on hand and, to a limited extent, capital lease financing. As of December 31, 2002, cash and cash equivalents totaled $9.9 million.

        Net cash provided by or (used in) operations was $1.8 million, ($1.8) million and ($9.0) million for the years ended December 31, 2002, 2001 and 2000, respectively. In 2002, Axsys' net loss of $7.1 million included a $4.6 million deferred tax valuation allowance, $2.7 million of depreciation and $856 thousand of losses on capital asset disposals. In 2002, we received a $3.5 million federal income tax refund. We also incurred $4.0 million in cash costs related to our discontinued Automation Group. During 2002, we collected $2.5 million in customer advances for our beryllium-based products offset by $1.4 million in increased inventories for these products.

        In 2001, Axsys' net loss of $7.2 million was offset by depreciation and amortization of $2.9 million as well as working capital changes. Accounts receivable declined $3.1 million, reflecting lower fourth quarter sales in 2001. Inventory levels declined by $3.8 million, including the effects of inventory write-downs taken with the 2001 Cost Reduction Plan. Current tax receivable increased by $3.6 million, due to an anticipated significant tax refund, which was received in 2002, for net operating losses generated in 2001. Trade accounts payable declined by $2.5 million in response to lower production volume and reduced year-end capital spending compared to the prior year. Long-term liabilities increased $1.8 million, which was primarily the result of a reserve for a loss on a long-term government contract.

        In 2000, our net income of $9.5 million, which included the non-operating gain on the sale of Beau of $14.1 million, was offset by depreciation and amortization of $3.1 million. Axsys made income tax payments of $4.9 million related to the gain on the sale of Beau. Accounts receivable balances increased by $2.2 million due to higher billings at the end of the fourth quarter in 2000. This effect was partially offset by a decrease in inventories and other assets.

        Net cash (used in) or provided by investing activities was ($0.8) million, ($2.3) million and $28.0 million for the years ended December 31, 2002, 2001 and 2000, respectively. Investing activities in 2002 were principally related to capital spending of $1.5 million, which was lower than spending levels in 2001 and 2000. Significant investments in 2002 and 2001 were focused on upgrading precision machining capabilities and test and measurement equipment for imaging and motion control products. Capital spending in 2000 included an investment of $1.3 million to expand the Motion Control manufacturing facility as well as investments in telecommunications infrastructure. In 2000, the major source of funds was the $31.8 million in gross proceeds from the divestment of Beau in March 2000.

        Net cash (used in) financing activities was ($0.9) million, ($0.8) million and ($4.6) million for the years ended December 31, 2002, 2001 and 2000, respectively. In general, cash used in financing

19

activities is for the repayment of capital leases. In addition, in 2000, Axsys repaid the outstanding balance of $4.6 million on borrowings under an $11.0 million senior secured revolving credit facility in conjunction with the sale of Beau on March 17, 2000. The credit facility was subsequently terminated.

        As of December 31, 2002, Axsys had no significant obligations or commitments for capital expenditures other than those arising in the ordinary course of business. Management believes that the Company has sufficient funds on hand to finance its operations, capital expenditures, and working capital requirements for the foreseeable future.

        The following table reflects a summary of our contractual cash obligations and other commercial commitments as of December 31, 2002:

Backlog

        A substantial portion of our business is of a build-to-order nature requiring various engineering, manufacturing, testing and other processes to be performed prior to shipment. As a result, a significant portion of our annual sales is in our backlog of orders. Our backlog of orders increased by 26 percent or $12.7 million, to $61.5 million at December 31, 2002 from $48.8 million at December 31, 2001. Strong bookings in the Aerospace and Defense segment during 2002 have contributed to our increased backlog. We believe that a substantial portion of our backlog of orders at December 31, 2002 will be shipped over the next twelve months.

Critical Accounting Policies

        Our significant accounting policies and methods used in the preparation of our Consolidated Financial Statements are described in Note 1 to the Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by us.

        General.    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to inventory valuation and the adequacy of allowances for doubtful accounts, inventory valuation, long-term loss contract reserves and environmental contingencies. Actual amounts could differ significantly from these estimates.

        Allowance for doubtful accounts.    We periodically review the aging of our accounts receivable over ninety days to identify potentially uncollectible accounts and establish reserves based on experience and discussion with customers. Actual write-offs could differ from our allowance for doubtful accounts. If circumstances change, (i.e., higher than expected defaults or an unexpected material adverse change in a customers ability to meet its financial obligations) our estimates of recoverability of amounts due to us could be reduced by a material amount.

20

        Inventory valuation.    We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. We regularly review inventory quantities on hand and record a provision for excess or obsolete inventory based on current requirements and historical usage. As demonstrated during 2002, demand for our products can fluctuate. A significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess or obsolete inventory quantities on hand. In addition, some of our industries are characterized by rapid technological change or frequent new product development that could result in an increase in the amount of obsolete inventory on hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess or obsolete inventory.    In the future, if our inventory were determined to be overvalued, we would be required to recognize those costs in our cost of goods sold at the time of such determination. Likewise, if our inventory is undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize additional operating income at the time of sale. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results.

        Long-term loss contract reserves:    Two long-term contracts are covered by a loss contract reserve. We accrued for these contracts based on the contract price and the current cost structure. To the extent future manufacturing costs (i.e., labor rates and material costs) change, our loss contract reserves will be impacted.

        Environmental contingencies.    We are currently involved in several environmental remediation projects. We accrue for environmental contingencies when (1) responsibility for clean-up is determined and (2) costs are probable and reasonably estimatable. When costs are not probable and reasonably estimatable, no accrual is made. As discussed in Note 4 to the Consolidated Financial Statements, we have accrued our estimate of the probable costs for the resolution of these claims. These estimates have been developed in consultation with outside environmental consultants handling these matters and are based upon an analysis of the anticipated remediation plans. We do not anticipate these projects will have a material adverse effect on our consolidated financial position. It is possible, however, that future results of operations could be materially affected by changes in our assumptions.

Recently Issued Accounting Standards

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, including Certain Costs Incurred in a Restructuring" (EITF 94-3). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In addition, SFAS No. 146 establishes that fair value is the basis for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of adoption of SFAS 146 is dependent on our activities subsequent to adoption.

        In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 148, "Accounting for Stock-Based Compensation—Transition and Disclosure". SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition

21

guidance and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions for this Form 10-K. The Company will continue to account for stock-based compensation under the provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees" using the "intrinsic value" method. Accordingly, the adoption of SFAS 148 is not anticipated to have a material effect on the Company's financial position, results of operations, or cash flows.

Cautionary Factors That May Affect Future Results

        This filing contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding our ability to reduce design and manufacturing lead times and manufacturing costs, our ability to integrate existing technologies, our ability to implement our strategy to develop and sell, among other things, higher level subsystems, the changes to be achieved from our cost reduction efforts, our objective to grow through strategic acquisitions and anticipated expenditures for environmental remediation. One can identify these forward-looking statements by the use of the words such as "expect," "anticipate," "plan," "may," "will," "estimate" or other similar expressions. Discussion containing such forward-looking statements is found in the material set forth under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as within the filing generally. One should understand that many factors could cause actual results to differ from those expressed or implied in the forward-looking statements. These factors include those discussed below as well as inaccurate assumptions. Axsys cautions the reader, however, that this list of factors may not be exhaustive.

Risk Factors

        The following risk factors should be considered carefully in addition to the other information contained in this filing.

        The Aerospace and Defense industry, which represents the majority of our sales, is subject to economic cycles.    A significant portion of our business and business development efforts is concentrated in the aerospace and defense industry. Our business depends, in significant part, upon the U.S. Government's continued demand in the area of defense for high-end, high performance components and subsystems of the type that we manufacture. Approximately 42% of our net sales in 2002, 35% of net sales in 2001 and 28% in 2000 were derived directly from contracts with the U.S. Government, or its agencies or departments, or indirectly from subcontracts with U.S. Government contractors. The majority of these Government contracts are subject to termination and renegotiation. As a result, our business, financial condition and results of operations may be materially affected by changes in U.S. Government expenditures for defense. In addition, we cannot assure you that current and future Government programs will continue to use our products.

        Our operating results may vary substantially due to factors that are difficult to forecast.    Factors such as announcements of technological innovations or new products by Axsys or our competitors, domestic and foreign general economic conditions and the cyclical nature of the industries that we serve could cause substantial variations in our operating results. The defense, aerospace, semiconductor, electronics capital equipment, high-performance graphic art, medical imaging capital equipment, industrial automation OEM and MRO markets, each of which represents a significant market for our products, have historically been subject to substantial economic fluctuations due to changing demands for their products and services, introduction of new products and product obsolescence. Any future fluctuations arising from these or other conditions could have an adverse impact on our business, financial condition or results of operations. We have experienced, and expect to continue to experience,

22

significant fluctuations in our quarterly and annual operating results due to a variety of factors, including:

•

market acceptance of new and enhanced versions of our products



•

timing and shipment of significant orders



•

mix of products sold



•

length of sales cycles



•

plant openings and closings



•

the timing of acquisitions or dispositions



•

delays in raw materials shipments, as well as other manufacturing delays and disruptions;



•

completion of large projects



•

the level of backlog of orders



•

domestic and foreign general economic conditions, and



•

demand in the markets that we serve

        To some extent, primarily in our bearing distribution division, our net sales and operating results for a specific quarter will depend upon generating orders to be shipped in the same quarter in which the order is received. The failure to receive anticipated orders or delays in shipments near the end of a particular quarter, due, for example, to unanticipated rescheduling or cancellations of shipments by our customers or unexpected manufacturing difficulties, may cause our net sales in a particular quarter to fall significantly below expectations, which could have a material adverse effect on our business, financial condition and results of operations for such quarter.

        The rapid pace of technological change will require continuous new product development.    Our success will continue to depend in substantial part upon our ability to introduce new products that keep pace with technological developments and evolving industry standards and to apply appropriate levels of engineering, research and development resources necessary to keep pace with these developments. In addition, our success will depend on how well we respond to changes in customer requirements and achieve market acceptance for our products and capabilities. Any failure by Axsys to anticipate or respond adequately to technological developments and customer requirements could have a material adverse effect on our business, financial condition and results of operations. In order to develop new products successfully, we are dependent upon close relationships with our customers and their willingness to share proprietary information about their requirements and participate in collaborative efforts with us. We cannot assure you that our customers will continue to provide us with timely access to information or that we will be successful in developing and marketing new products and services or their enhancements. In addition, we cannot assure you that the new products and services or their enhancements, if any, that we develop, will achieve market acceptance.

        Our markets are extremely competitive.    We compete primarily on the basis of our ability to design and engineer our products to meet performance specifications set by our customers, most of whom are OEMs who purchase component parts or subsystems for inclusion in their end products. Product pricing and quality, customer support, experience, reputation and financial stability are also important competitive factors.

        There are a limited number of competitors in each of the markets for the various types of precision optical and positioning components and subsystems that we sell. Our competitors, especially those in the precision optical and positioning product lines, are typically focused on a smaller number of product offerings than we are, and they are often well entrenched. Some of our competitors have

23

substantially greater resources than we do. Our competitors could develop enhancements to or future generations of competitive products that will offer superior price or performance features to ours. In addition, new processes or technologies could emerge that render our products less competitive or obsolete.

        In addition, a substantial investment is required by an existing or potential customer to integrate components and subsystems into their product design. We believe that once a customer has selected particular components or subsystems from one vendor, the customer generally relies upon that vendor to provide equipment for the specific product application and may seek to rely upon that vendor to meet other component or subsystem requirements. Accordingly, Axsys may be at a competitive disadvantage with respect to a prospective customer that chooses to utilize a competitor's components or subsystems.

        Further, there are numerous competitors in markets to which we distribute precision ball bearings. Our competitors, who vary in size, include other ball bearings distributors as well as ball bearing manufacturers.

        The bases of competition in the industries in which we compete could shift and we may not be able to compete successfully.

        Our levels of international sales and purchases could pose risks to our operating results.    Our international sales from continuing operations accounted for approximately 18.1% of net sales in 2002, 21.0% in 2001, and 19.7% in 2000. In addition, our products are sold to domestic customers who use them in products they sell to international markets. Also, we purchase a substantial portion of our ball bearing products from two foreign suppliers and certain other products from other foreign suppliers. Our international sales and purchases are subject to a number of risks generally associated with international operations, including general economic conditions, import and export duties and restrictions, currency fluctuations, changes in regulatory requirements, tariffs and other barriers, political and economic instability and potentially adverse tax consequences. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

        We may not be able to successfully manage expanded operations and acquisitions.    As part of our business development strategy, we plan to pursue acquisitions in order to expand our product offerings, add to or enhance our base of technical and sales personnel or provide desirable customer relationships. This growth could result in a significant strain on our managerial, financial, engineering and other resources. The rate of our future expansion, if any, in combination with the complexity of the technologies involved in our businesses, may demand an unusually high level of managerial effectiveness in anticipating, planning, coordinating and meeting our operational needs as well as the needs of our customers. Additionally, we cannot assure you that Axsys will be able to acquire complementary businesses on a cost-effective basis, integrate acquired operations into our organization effectively, retain and motivate key personnel, or retain customers of acquired firms. We compete for attractive acquisition candidates with other companies or investors, and that competition could increase the cost of pursuing our acquisition strategy or reduce the number of attractive candidates to be acquired. Although Axsys reviews and considers possible acquisitions on an on-going basis, no specific acquisitions are being negotiated or planned as of the date of this report.

        Many key product components come from single source suppliers.    A significant portion of our precision machining business depends on the adequate supply of specialty metals, such as beryllium, at competitive prices and on reasonable terms. We currently procure all of our beryllium from Brush Wellman, the sole U.S. supplier, and expect to continue to rely on Brush Wellman for beryllium for the foreseeable future. Although we have not experienced significant problems with our supplier in the past, we cannot assure you that such relationship will continue or that we will continue to obtain such supplies at cost levels that would not adversely affect our gross margins. The partial or complete loss of

24

Brush Wellman as a supplier of beryllium, or production shortfalls or interruptions that otherwise impair our supply of beryllium, would have a material adverse effect on our business, financial condition and results of operations. It is uncertain whether alternative sources of supply could be developed without a material disruption in our ability to provide beryllium products to our customers.

        Although we have not experienced significant problems with our other suppliers in the past, we cannot assure you that such relationships will continue or that, in the event of a termination of our relationships with those other suppliers, we would be able to obtain alternative sources of supply without a material disruption in our ability to provide products to our customers. In addition, we purchase a substantial amount of ball bearings that we distribute from two foreign suppliers. Any material disruption in our supply of products would have a material adverse effect on our business, financial condition or results of operations.

        Our future success depends on our ability to retain key personnel.    Axsys' success depends to a significant extent on the continued services of our key executive officers and senior management personnel. The loss of the services of one or more of these individuals may have a material adverse effect on our business, financial condition and results of operations. We do not maintain key man life insurance on our executive officers. In addition, since our continued success is largely dependent upon our ability to design, manufacture and sell high-performance components and subsystems for the high-performance technology market, we are particularly dependent upon our ability to identify, attract, motivate and retain qualified technical personnel, including engineers and skilled machinists, with the requisite educational background and industry experience. Our employees may voluntarily terminate their employment with us at any time, and competition for personnel is intense. Accordingly, we cannot assure that we will be successful in retaining our existing personnel. The loss of the services of a significant number of our technical or skilled personnel, or the future inability to attract technical or skilled personnel, could have a material adverse effect on our business, financial condition and results of operations.

        We must protect our intellectual property rights.    The patents of competitors could impact our business. Our ability to compete effectively with other companies will depend, in part, on our ability to maintain the proprietary nature of our technology. We rely upon a combination of patents, trademarks and trade secrets, non-disclosure agreements and other forms of intellectual property protection to safeguard our proprietary technology. We cannot assure you as to the degree of protection offered by these patents. We also cannot assure you that we will be able to maintain the confidentiality of our trade secrets or that our non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information.

        Competitors in the United States and foreign countries, many of which have substantially greater resources than we do and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products. Although we believe that our existing products do not infringe on the patents or other proprietary rights of third parties, third parties could assert infringement claims against us and such claims could be successful.

        We must comply with strict environmental regulations; both compliance and non-compliance could result in material liabilities or costs.    We are subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our engineering, research and development and manufacturing activities. Failure to comply with applicable environmental requirements could result in substantial liability to Axsys, suspension or cessation of our operations, restrictions on our ability to expand our operations or requirements for the acquisition of additional equipment or other significant expense, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot

25

assure you (a) that changes in federal, state or local laws, regulations or regulatory policy, or the discovery of unknown problems or conditions, will not in the future require substantial expenditures, or (b) as to the extent of our liabilities, if any, for past failures, if any, to comply with applicable environmental laws, regulations and permits, any of which also could have a material adverse effect on our business, financial condition and results of operations.

        During 2000, Axsys recorded a charge to discontinued operations of $1.3 million, before a tax benefit of $0.5 million, relating to increases in reserves for certain environmental costs associated with formerly owned properties. The current accruals of $1.2 million associated with these sites assume that various approvals will be received from state regulatory authorities. However, we cannot assure you that we will receive these approvals. If these approvals are not received, our costs could increase substantially. In addition, even if such approvals are received, the costs actually incurred may exceed the reserves established.

        During December 2001, we received a letter from the United States Environmental Protection Agency ("EPA") notifying us that we are considered to be a potentially responsible party at a site located in Prospect, Connecticut, which until 1978 was owned by a former subsidiary. It is our policy to accrue environmental cleanup related costs only when those costs are believed to be probable and can be reasonably estimated. The quantification of environmental exposure with respect to this site, if any, requires an assessment of many factors, including the quality of information available, the assessment stage of each investigation, preliminary findings and the length of time involved in remediation. In 2002, Axsys recorded a charge to discontinued operations of $203 thousand, net of taxes relating to attorney fees for researching our connection to the site and our response to the EPA.

        We have made and continue to make investments in protective equipment, process controls, manufacturing procedures and training in order to minimize the risks to our employees, surrounding communities and the environment due to the presence and handling of hazardous materials. The failure to properly handle these materials could lead to harmful exposure for employees or to the discharge of certain hazardous waste materials. Since Axsys does not carry environmental impairment insurance, such a failure could lead to a material adverse effect on our business, financial condition and results of operations. Also, environmental problems could develop in the future which would have a material adverse effect on our business, financial condition and results of operations.

        We must continue to invest significant resources to maintain and upgrade our manufacturing capabilities.    We have invested, and intend to continue to invest, in state-of-the-art equipment in order to increase, expand, update or relocate our manufacturing capabilities and facilities. Changes in technology or sales growth beyond currently established manufacturing capabilities would require that we make further investment. We cannot assure you that we will generate sufficient funds from operations to finance any required investment or that other sources of funding will be available on terms acceptable to us, if at all. In addition, any further expansion could negatively impact our business, financial condition or results and operations.

        One shareholder controls a significant block of Axsys stock and this concentration could affect important operating decisions.    The Chairman of the Board and Chief Executive Officer of Axsys owns approximately 27% of the outstanding common stock as of December 31, 2002. As a result, he will have the ability to exert influence with respect to corporate actions, including the election of directors and certain sales or mergers and acquisitions.

        Our stock price has been volatile and may continue to fluctuate substantially.    The price of our common stock may be subject to significant fluctuations. That price volatility may be attributable, at least in part, to the limited number of shares generally available for sale in the public market. In addition, factors, such as, actual or anticipated quarterly fluctuations in our financial results, changes in recommendations or earnings estimates by securities analysts, announcements of technological

26

innovations or new commercial products or services and the timing of announcements of acquisitions or dispositions by Axsys or our competitors, as well as conditions in our markets generally, may have a significant adverse effect on the market price of our common stock. Furthermore, the stock market historically has experienced volatility which has particularly affected the market prices of securities of many technology companies and which sometimes has been unrelated to the operating performances of such companies.

        Certain anti-takeover provisions could cause harm to our shareholders.    Our Certificate of Incorporation, as amended (the "Certificate of Incorporation"), our By-Laws (the "By-Laws") and the Delaware General Corporation Law ("DGCL") contain various provisions which could delay or impede the removal of incumbent directors and could make a merger, tender offer or proxy contest involving Axsys more difficult, even if such a transaction would be beneficial to the interests of the shareholders, or could discourage a third party from attempting to acquire control of Axsys.

        We have authorized 4,000,000 shares of our preferred stock, none of which is currently outstanding, and which we could issue without further shareholder approval and upon terms and conditions, and having rights, privileges and preferences, as the Board of Directors may determine. We have no current plans to issue any preferred stock.

        The By-Laws include provisions establishing advance notice procedures with respect to shareholder proposals and director nominations, and permitting the calling of special shareholder meetings only by the written consent of three-quarters of the Board of Directors or the Chairman of the Board. The Certificate of Incorporation provides that in lieu of a meeting, action may be taken by written consent of our shareholders only by unanimous consent. These provisions could have the effect of delaying, deterring or preventing a change in control of Axsys, and may adversely affect the voting and other rights of holders of common stock.

        In addition, we are subject to section 203 of the DGCL, which, among other things and subject to various exceptions, restricts certain business transactions between a corporation and a shareholder owning 15% or more of the corporation's outstanding voting stock (an "interested shareholder") for a period of three years from the date the shareholder becomes an interested shareholder. These provisions may have the effect of delaying or preventing a change of control of Axsys without action by the shareholders and, therefore, could adversely affect the price of our common stock. In the event of a change of control of Axsys, the vesting of outstanding options issued under our long-term stock incentive plan may be accelerated at the discretion of the committee administering the plan or may be required to be accelerated under certain circumstances provided for in incentive agreements.

Absence of Dividends on Common Stock.

        Axsys does not anticipate paying dividends on its common stock in the foreseeable future.

Item 7a.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Axsys' market risk sensitive instruments do not subject Axsys to material market risk exposures.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The response to this Item is included in Item 14(a) of this Report.

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

        No reference is necessary since the information was previously reported.

27

PART III

        The information required by items 10, 11, 12 and 13 of Part III, other than the table required by Item 201(d) of Regulation S-K, is incorporated by reference to Axsys' definitive proxy statement for its 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following the end of Axsys' fiscal year ended December 31, 2002. If such proxy statement is not so filed, that information will be filed as an amendment to this Form 10-K within 120 days following the end of Axsys' fiscal year ended December 31, 2002.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

        Except for the information concerning equity compensation plans, the information required by this item is incorporated by reference from our 2003 Proxy Statement under the caption, "Securities Ownership of Directors and Officers." The following table gives information about our equity securities that may be issued under equity compensation plans as of December 31, 2002. Those securities are shares of common stock that can be issued under our existing Long-Term Stock Incentive Plan.

Item 14.    CONTROLS AND PROCEDURES

        Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based upon that evaluation, the chief executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic SEC filings.

        Subsequent to the date the Company carried out its evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls.

28

PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (2) and (d) Financial Statements

        See accompanying index to consolidated financial statements and schedule.

(a)(3)Exhibits

29

(b)  Reports on Form 8-K

        None during the quarter ended December 31, 2002.

30

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: March 24, 2003

        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 indicated this the 24^th day of March 2003.

31

CERTIFICATION

I, Stephen W. Bershad, certify that:

1.

I have reviewed this annual report on Form 10-K of Axsys Technologies, Inc.

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c.

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

32

CERTIFICATION

I, David A. Almeida, certify that:

1.

I have reviewed this annual report on Form 10-K of Axsys Technologies, Inc.

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c.

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

33

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) and (2) and ITEM 14(d)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2002

AXSYS TECHNOLOGIES, INC.

FORM 10-K—ITEM 14(a)(1) and (2) and Item 14(d)

AXSYS TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

        The following consolidated financial statements of Axsys Technologies, Inc. are included in Item 8:

        All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

F-1

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Axsys Technologies, Inc.:

        We have audited the accompanying consolidated balance sheets of Axsys Technologies, Inc., a Delaware corporation, and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(d). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Axsys Technologies, Inc. and subsidiaries, at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        As discussed in Note 1 to the Consolidated Financial Statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets".

ERNST & YOUNG LLP

Hartford, Connecticut
February 28, 2003

F-2

AXSYS TECHNOLOGIES, INC.

Consolidated Balance Sheets
(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

F-3

AXSYS TECHNOLOGIES, INC.

Consolidated Statements of Operations
(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

F-4

AXSYS TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows
(Dollars in thousands)

See accompanying notes to consolidated financial statements.

F-5

AXSYS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)