UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM10-Q/AAMENDMENT NO. 1

|                                                    |  |                                                                                        
|--------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|S                                                   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009OR
|£                                                   |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD FROM   TO                
|COMMISSION FILE NUMBER: 0-12944                    



ZYGO CORPORATION(Exact name of registrant as specified in its charter)



|                                                                      |  |                                               
|--------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction ofincorporation or organization) |  | 06-0864500(I.R.S. Employer Identification No.)

|                                                                                    |  |                
|----------------------------------------------------------------------------------- |  | ---------------
|Laurel Brook Road, Middlefield, Connecticut(Address of principal executive offices) |  | 06455(zip code)

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

N/A(Former name, former address, and former fiscal year, if changed from last report)



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.(1)YESSNO£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
  to submit and post such files).(2)YES£NO£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

|                         |  |                    |  |                                                                    |  |                           
|------------------------ |  | ------------------ |  | ------------------------------------------------------------------ |  | --------------------------
|Large accelerated filer£ |  | Accelerated filerS |  | Non-accelerated filer£(Do not check if a smallerreporting company) |  | Smaller reporting company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES£NOS

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

16,989,808 shares of Common Stock, $.10 Par Value, at November 2, 2009





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|(1)
|   
|(2)





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EXPLANATORY NOTE
This
    Amendment No. 1 on Form 10-Q/A (this Form 10-Q/A) to
    the Companys Quarterly Report on Form 10-Q for the quarterly period
    ended September 30, 2009, initially filed with the Securities and Exchange
    Commission (the SEC) on November 9, 2009, (the Original
    Filing), is being filed
  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
    amended, to amend the Original Filing to reflect restatements of the Companys
    Condensed Consolidated Statements of Cash Flows, Note 2, Discontinued
    Operations, and the Liquidity and Capital Resources section of
  Managements Discussion and Analysis on page 22. In addition, the Notes
  to Condensed Consolidated Financial Statements were amended to include Note
  18, Restatements, which summarizes the changes made to our restated
  Condensed Consolidated Statements of Cash Flows. Item 4,
  Controls and Procedures has also been amended related to the impact
  on internal control of such restatement. The restatement of the Condensed Consolidated
  Statement of Cash Flows was primarily related to the presentation of net cash
  provided by operations from continuing operations and net cash used for operating
  activities from discontinued operations. Such errors related to the incorrect
  inclusion of the loss from discontinued operations in net cash provided by
  operating activities from continuing operations, as well as an accrued liability
  increase incorrectly reflected as a use of cash for discontinued operations
  instead of a source of cash, an income tax benefit incorrectly included as
  an offset to operating expenses in the detail of discontinued operations for
  the three months ended September 30, 2008, and the incorrect inclusion of an
  allowance for doubtful accounts related to discontinued operations in the parenthetical
  disclosure on the balance sheet as of September 30, 2009. In addition, in Note
  14, Derivatives and Hedging Activities, the number of foreign exchange
  contracts was inadvertently left blank. The correct number of 6 contracts was
  added. In Note
  15, Income Taxes, the effective tax rate percentage for the three
  month periods ended September 30, 2009 and 2008 were corrected from 16% and
  37% to 22% and 32%, respectively.
No other changes were made to this Quarterly Report, including events
that occurred subsequently to the Original Filing. See Note 18 to the Condensed
  Consolidated Financial Statements for the additional information regarding
  the restatement and the Overview in Item 2 Managements Discussion and
  Analysis of Financial Condition and Results of Operations for additional information
related to the changes in Item 2.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form 10-Q/A Quarterly Report regarding our financial performance, condition and operations, and the business strategy, plans, anticipated sales, orders, market acceptance, growth rates, market opportunities, and objectives of
  management of the Company for future operations are forward-looking statements. Forward-looking statements are intended to provide managements current expectations or plans for the future operating and financial performance of the Company based upon information currently available and
  assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as anticipate, believe, estimate, expect, intend, plans, strategy, project, and other words of similar meaning in connection with a discussion of future operating or financial
  performance. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are fluctuations in capital spending of
  our customers; fluctuations in net sales to our major customer; manufacturing and supplier risks; risks of order cancellations, push-outs and de-bookings; dependence on timing and market acceptance of new product development; rapid technological and market change; risks in international operations;
  risks related to the reorganization of our business; dependence on proprietary technology and key personnel; length of the sales cycle; environmental regulations; investment portfolio returns; fluctuations in our stock price; the risk that anticipated growth opportunities may be smaller than anticipated or
  may not be realized; and the risk related to the Companys transition to new senior management.
Any forward-looking statements included in this Quarterly Report speak only as of the date of this document. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q/A. Further information on
  potential factors that could affect our business is described in this Form 10-Q/A and in our reports on file with the Securities and Exchange Commission, including our Form 10-K, as amended, for the fiscal year ended June 30, 2009.
2

PART IFINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(Thousands, except per share amounts)
Three Months EndedSeptember 30,2009
    
    2008Net sales
    
    
    $
    
    21,325
    
    
    
    $
    
    37,493Cost of goods sold
    
    
    
    14,151
    
    
    
    
    21,006Gross profit
    
    
    
    7,174
    
    
    
    
    16,487Selling, general, and administrative expenses
    
    
    
    6,555
    
    
    
    
    9,085Research, development, and engineering expenses
    
    
    
    3,647
    
    
    
    
    5,306Provision for doubtful accounts and notes
    
    
    
    221
    
    
    
    
    382Operating profit (loss)
    
    
    
    (3,249
    )
    
    
    
    
    1,714Other income (expense)Interest income
    
    
    
    51
    
    
    
    
    369Miscellaneous income (expense)
    
    
    
    60
    
    
    
    
    (444
    )Total other income (expense)
    
    
    
    111
    
    
    
    
    (75
    )Earnings (loss) from continuing operations before income taxes, including non-controlling interest
    
    
    
    (3,138
    )
    
    
    
    
    1,639Income tax expense
    
    
    
    (682
    )
    
    
    
    
    (531
    )Net earnings (loss) from continuing operations
    
    
    
    (3,820
    )
    
    
    
    
    1,108Loss from discontinued operations, net of tax
    
    
    
    (1,835
    )
    
    
    
    
    (329
    )Net earnings (loss) including non-controlling interest
    
    
    
    (5,655
    )
    
    
    
    
    779Net earnings attributable to non-controlling interest
    
    
    
    132
    
    
    
    
    276Net earnings (loss) attributable to Zygo Corporation
    
    
    $
    
    (5,787
    )
    
    
    
    $
    
    503Net earnings (loss) from continuing operations attributable to Zygo Corporation
    
    
    $
    
    (3,952
    )
    
    
    
    $
    
    832Basic and dilutedEarnings (loss) per share attributable to Zygo CorporationContinuing operations
    
    
    $
    
    (0.23
    )
    
    
    
    $
    
    0.05Discontinued operations
    
    
    
    (0.11
    )
    
    
    
    
    (0.02
    )Net earnings (loss) per share
    
    
    $
    
    (0.34
    )
    
    
    
    $
    
    0.03Weighted average shares outstandingBasic shares
    
    
    
    16,943
    
    
    
    
    16,775Diluted shares
    
    
    
    16,943
    
    
    
    
    17,162Amounts Attributable to Zygo CorporationNet earnings (loss) from continuing operations attributable to Zygo Corporation
    
    
    
    (3,952
    )
    
    
    
    
    832Discontinued operations, net of tax
    
    
    
    (1,835
    )
    
    
    
    
    (329
    )Net earnings (loss) attributable to Zygo Corporation
    
    
    $
    
    (5,787
    )
    
    
    
    $
    
    503See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Thousands, except share amounts)
September 30,2009
    
    June 30,2009AssetsCurrent assets:Cash and cash equivalents
    
    
    $
    
    35,721
    
    
    
    $
    
    32,723Marketable securities
    
    
    
    3,005
    
    
    
    
    4,015Receivables, net of allowance for doubtful accounts of $2,774 and $2,550, respectively
    
    
    
    19,999
    
    
    
    
    20,874Inventories
    
    
    
    28,162
    
    
    
    
    30,452Prepaid expenses and other
    
    
    
    1,729
    
    
    
    
    1,527Income tax receivable
    
    
    
    307
    
    
    
    
    1,022Current assets of discontinued operations
    
    
    
    25
    
    
    
    
    294Total current assets
    
    
    
    88,948
    
    
    
    
    90,907Marketable securities
    
    
    
    603
    
    
    
    
    499Property, plant, and equipment, net
    
    
    
    26,110
    
    
    
    
    27,325Intangible assets, net
    
    
    
    4,203
    
    
    
    
    4,211Other assets
    
    
    
    1,013
    
    
    
    
    1,013Non-current assets of discontinued operations
    
    
    
    
    
    
    
    
    144Total assets
    
    
    $
    
    120,877
    
    
    
    $
    
    124,099Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    
    $
    
    5,848
    
    
    
    $
    
    5,089Accrued progress payments and deferred revenue
    
    
    
    6,636
    
    
    
    
    5,924Accrued salaries and wages
    
    
    
    3,016
    
    
    
    
    3,508Other accrued liabilities
    
    
    
    5,388
    
    
    
    
    6,313Income tax payable
    
    
    
    615
    
    
    
    
    Current liabilities of discontinued operations
    
    
    
    690
    
    
    
    
    331Total current liabilities
    
    
    
    22,193
    
    
    
    
    21,165Long-term income tax payable
    
    
    
    1,826
    
    
    
    
    1,826Other long-term liabilities
    
    
    
    1,013
    
    
    
    
    1,081Non-current liabilities of discontinued operations
    
    
    
    364
    
    
    
    
    Commitments and contingenciesStockholders equity:Common stock, $0.10 par value per share:40,000,000 shares authorized; 19,144,935 shares issued (19,044,331 at June 30, 2009); 16,983,500 shares outstanding (16,914,978 at June 30, 2009)
    
    
    
    1,914
    
    
    
    
    1,904Additional paid-in capital
    
    
    
    156,848
    
    
    
    
    156,176Retained earnings
    
    
    
    (39,337
    )
    
    
    
    
    (33,550
    )Accumulated other comprehensive income (loss):Foreign currency translation effect
    
    
    
    268
    
    
    
    
    (306
    )Treasury stock, at cost, 2,161,435 shares (2,129,353 at June 30, 2009)
    
    
    
    (25,848
    )
    
    
    
    
    (25,641
    )Total stockholders equityZygo Corporation
    
    
    
    93,845
    
    
    
    
    98,583Non-controlling interest
    
    
    
    1,636
    
    
    
    
    1,444Total stockholders equity
    
    
    
    95,481
    
    
    
    
    100,027Total liabilities and stockholders equity
    
    
    $
    
    120,877
    
    
    
    $
    
    124,099See accompanying notes to condensed consolidated financial statements.
4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY(Unaudited)(Thousands)
Common Stock
    
    AdditionalPaid-InCapital
    
    Treasury Stock
    
    RetainedEarnings
    
    AccumulatedOtherComprehensiveIncome (Loss)
    
    TotalZygo Corp.
    
    Non-ControllingInterest
    
    TotalEquity
    
    ComprehensiveIncome (Loss)Attributableto Zygo Corp.Shares
    
    Amount
    
    Shares
    
    AmountBalance at June 30, 2008
    
    
    
    16,732
    
    
    
    $
    
    1,882
    
    
    
    $
    
    152,663
    
    
    
    
    2,092
    
    
    
    $
    
    (25,390
    )
    
    
    
    $
    
    32,514
    
    
    
    $
    
    855
    
    
    
    $
    
    162,524
    
    
    
    $
    
    2,266
    
    
    
    $
    
    164,790Comprehensive income (loss):Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    503
    
    
    
    
    
    
    
    
    
    503
    
    
    
    
    276
    
    
    
    
    779
    
    
    
    $
    
    503Unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,063
    )
    
    
    
    
    (1,063
    )
    
    
    
    
    (239
    )
    
    
    
    
    (1,302
    )
    
    
    
    
    (1,063
    )$
    
    (521
    )Non-cash compensation charges related to stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,022
    
    
    
    
    
    
    
    
    
    1,022Employee stock purchase
    
    
    
    13
    
    
    
    
    2
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    123Restricted stock vesting and related tax effect
    
    
    
    40
    
    
    
    
    5
    
    
    
    
    (5
    )
    
    
    
    
    13
    
    
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    (117
    )Exercise of employee stock options and related tax effect
    
    
    
    25
    
    
    
    
    2
    
    
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    
    
    177Balance at September 30, 2008
    
    
    
    16,810
    
    
    
    $
    
    1,891
    
    
    
    $
    
    153,976
    
    
    
    
    2,105
    
    
    
    $
    
    (25,507
    )
    
    
    
    $
    
    33,017
    
    
    
    $
    
    (169
    )
    
    
    
    $
    
    163,208
    
    
    
    $
    
    2,303
    
    
    
    $
    
    165,511Balance at June 30, 2009
    
    
    
    16,915
    
    
    
    $
    
    1,904
    
    
    
    $
    
    156,176
    
    
    
    
    2,129
    
    
    
    $
    
    (25,641
    )
    
    
    
    $
    
    (33,550
    )
    
    
    
    $
    
    (306
    )
    
    
    
    $
    
    98,583
    
    
    
    $
    
    1,444
    
    
    
    $
    
    100,027Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,787
    )
    
    
    
    
    
    
    
    
    
    (5,787
    )
    
    
    
    
    132
    
    
    
    
    (5,655
    )
    
    
    
    $
    
    (5,787
    )Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    574
    
    
    
    
    60
    
    
    
    
    634
    
    
    
    
    574$
    
    (5,213
    )Non-cash compensation charges related to stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674
    
    
    
    
    
    
    
    
    
    674Restricted stock vesting and related tax effect
    
    
    
    68
    
    
    
    
    12
    
    
    
    
    (12
    )
    
    
    
    
    32
    
    
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (212
    )
    
    
    
    
    
    
    
    
    
    (212
    )Exercise of employee stock options and related tax effect
    
    
    
    1
    
    
    
    
    (2
    )
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    13Balance at September 30, 2009
    
    
    
    16,984
    
    
    
    $
    
    1,914
    
    
    
    $
    
    156,848
    
    
    
    
    2,161
    
    
    
    $
    
    (25,848
    )
    
    
    
    $
    
    (39,337
    )
    
    
    
    $
    
    268
    
    
    
    $
    
    93,845
    
    
    
    $
    
    1,636
    
    
    
    $
    
    95,481See accompanying notes to condensed consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(Thousands of dollars)
Three Months EndedSeptember 30,2009
    
    2008(As RestatedSee Note 18)
    
    (As RestatedSee Note 18)Cash provided by (used for) operating activities:Net earnings (loss) including non-controlling interest
    
    
    $
    
    (5,655
    )
    
    
    
    $
    
    779Adjustments to reconcile net earnings (loss) to cash provided by (used for) operating activities from continuing operations:Loss from discontinued operations
    
    
    
    1,835
    
    
    
    
    329Depreciation and amortization
    
    
    
    1,638
    
    
    
    
    1,981Loss on disposal of assets
    
    
    
    9
    
    
    
    
    25Deferred income taxes
    
    
    
    (63
    )
    
    
    
    
    277Impairment of marketable securities
    
    
    
    
    
    
    
    
    99Provision for doubtful accounts
    
    
    
    221
    
    
    
    
    382Compensation cost related to share-based payment arrangements
    
    
    
    667
    
    
    
    
    1,012Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    
    
    (9
    )Other
    
    
    
    (88
    )
    
    
    
    
    115Changes in operating accounts, excluding the effect of acquisition:Receivables
    
    
    
    1,026
    
    
    
    
    2,201Inventories
    
    
    
    2,547
    
    
    
    
    (3,159
    )Prepaid expenses
    
    
    
    548
    
    
    
    
    (1,090
    )Accounts payable, accrued expenses, and taxes payable
    
    
    
    279
    
    
    
    
    1,750Net cash provided by operating activities from continuing operations
    
    
    
    2,964
    
    
    
    
    4,692Net cash used in operating activities from discontinued operations
    
    
    
    (701
    )
    
    
    
    
    (578
    )Cash provided by (used for) investing activities:Additions to property, plant, and equipment
    
    
    
    (245
    )
    
    
    
    
    (2,046
    )Purchase of marketable securities
    
    
    
    (999
    )
    
    
    
    
    (5,187
    )Additions to intangibles and other assets
    
    
    
    (142
    )
    
    
    
    
    (103
    )Proceeds from the sale and maturity of marketable securities
    
    
    
    2,000
    
    
    
    
    7,700Proceeds from the sale of other assets
    
    
    
    1
    
    
    
    
    Net cash provided by investing activities
    
    
    
    615
    
    
    
    
    364Cash provided by (used for) financing activities:Employee stock purchase
    
    
    
    
    
    
    
    
    122Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    
    
    9Restricted stock vesting and related tax benefits
    
    
    
    (212
    )
    
    
    
    
    (118
    )Exercise of employee stock options
    
    
    
    12
    
    
    
    
    177Net cash provided by (used for) financing activities
    
    
    
    (200
    )
    
    
    
    
    190Effect of exchange rate changes on cash and cash equivalents
    
    
    
    320
    
    
    
    
    (656
    )Net increase in cash and cash equivalents
    
    
    
    2,998
    
    
    
    
    4,012Cash and cash equivalents, beginning of year
    
    
    
    32,723
    
    
    
    
    26,421Cash and cash equivalents, end of period
    
    
    $
    
    35,721
    
    
    
    $
    
    30,433Supplemental Cash Flow Information
Net income tax payments (refunds) amounted to ($445) and $904 for the three months ended September 30, 2009 and 2008, respectively.
See accompanying notes to condensed consolidated financial statements.
6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except for per share amounts)
Note 1: Accounting Policies
Basis of Presentation and Principles of Consolidation
Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. The accompanying condensed consolidated financial statements include
  the accounts of Zygo Corporation and its subsidiaries (ZYGO, we, us, our or the Company). The Company follows accounting principles generally accepted in the United States of America (US GAAP). ZYGOs reporting currency is the U.S. dollar. The functional currency of the majority of
  our foreign subsidiaries is their local currency and, as such, amounts included in the consolidated statements of operations are translated at the weighted-average exchange rates for the period. Assets and liabilities are translated at period-end exchange rates and resulting foreign exchange translation
  adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). All transactions and accounts with the subsidiaries have been eliminated from the condensed consolidated financial statements. The results of operations for the three months
  ended September 30, 2009 are not necessarily indicative of the results to be expected for the full fiscal year.
The Condensed Consolidated Balance Sheet at September 30, 2009, the Condensed Consolidated Statements of Operations for the three months ended September 30, 2009 and 2008, and the Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2009 and 2008
  are unaudited but, in managements opinion, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of the interim periods. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated
  financial statements and notes included in our Annual Report on Form 10-K, as amended, for the year ended June 30, 2009, including items incorporated by reference therein.
Discontinued Operations
The Company classifies operations as discontinued when the operations have either ceased, or are expected to be disposed of in a sale transaction in the near term, and the operations and cash flows of all discontinued operations have been eliminated or will be eliminated upon consummation of the
  expected sale transaction, and the Company will not have any significant continuing involvement in the discontinued operations. Authoritative guidance related to the impairment or disposal of long-lived assets requires the calculation of estimated fair value less cost to sell of long-lived assets for assets
  held for sale. The calculation of estimated fair value less cost to sell includes significant estimates and assumptions, including, but not limited to: operating projections; excess working capital levels; property values; and the anticipated costs involved in the selling process.
As more fully described in Note 2, Discontinued Operations, we have discontinued the Singapore IC packaging operations of our Vision Systems product line, which is included in our Metrology Solutions segment.
Reclassification
Certain amounts have been reclassified to conform with current-year presentations related to discontinued operations and non-controlling interests.
Subsequent Events
We evaluated events occurring between the end of our fiscal quarter, September 30, 2009, and November 9, 2009 when the condensed consolidated financial statements were originally issued.
7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Adoption of New Accounting Pronouncements
On July 1, 2009, we adopted authoritative guidance issued by the Financial Accounting Standards Board (FASB) on changes to the accounting and reporting of non-controlling interests. This guidance requires that ownership interests in subsidiaries held by parties other than the parent be clearly
  identified, labeled, and presented in the consolidated balance sheets within equity, but separate from the parents equity. Furthermore, the amount of consolidated net income (loss) attributable to the parent and to the non-controlling interest must be clearly identified and presented on the face of the
  consolidated statement of operations. The new guidance is reflected in the condensed consolidated financial statements for all periods presented.
On July 1, 2009, we adopted authoritative guidance issued by the FASB on business combinations. The guidance provides specific guidance on how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
  acquirer, and goodwill acquired or any bargain purchase gains. The adoption of the new guidance did not have a material effect on our consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning on July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that
  are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue
  arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is
  required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption
  of this new guidance will not have a material impact on our financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning on July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of power over such
  entities, and additional disclosures for variable interests. We believe adoption of this new guidance will not have a material impact on our financial statements.
Note 2: Discontinued Operations
We discontinued the Singapore IC packaging operations of our Vision Systems product line, included in our Metrology Solutions segment. During the quarter ended September 30, 2009, the company determined that it would sell or otherwise close down such operations. As of September 30, 2009,
  operations have substantially ceased at this location. In accordance with authoritative guidance, the results of operations for the aforementioned operations are presented in the Companys Condensed Consolidated Financial Statements as discontinued operations. In addition, adjustments are made to the
  carrying value of assets held for sale if the carrying value exceeds their estimated fair value less cost to sell.
8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
The following table summarizes the operating results of our discontinued operations for the three months ended September 30, 2009 and 2008:
Three Months EndedSeptember 30,2009
    
    2008Net sales
    
    
    $
    
    321
    
    
    
    $
    
    899Non-cash impairment charge
    
    
    
    (678
    )
    
    
    
    
    Operating expenses
    
    
    
    (1,478
    )
    
    
    
    
    (1,298
    )*Loss before income taxes
    
    
    
    (1,835
    )
    
    
    
    
    (399
    )Income taxes benefit
    
    
    
    
    
    
    
    
    70
    *Loss from discontinued operations, net of tax
    
    
    $
    
    (1,835
    )
    
    
    
    $
    
    (329
    )*
    
    
    
    The summarized operating results of our discontinued operations for the three months ended September 30, 2008 have been restated to correctly classify income taxes benefit of $70 previously included in operating expenses. See Note 18 to the Condensed Consolidated Financial Statements.The following table sets forth the assets and liabilities of our discontinued operations included in the Condensed Consolidated Balance Sheets of the Company as of September 30, 2009 and June 30, 2009:
September 30,2009
    
    June 30,2009Receivables
    
    
    $
    
    
    
    
    
    $
    
    269Other assets
    
    
    
    25
    
    
    
    
    25Current assets of discontinued operations
    
    
    $
    
    25
    
    
    
    $
    
    294Property, plant, and equipment
    
    
    $
    
    
    
    
    
    $
    
    144Non-current assets of discontinued operations
    
    
    $
    
    
    
    
    
    $
    
    144Accounts payable
    
    
    $
    
    214
    
    
    
    $
    
    102Accrued expenses and other current liabilities
    
    
    
    476
    
    
    
    
    229Current liabilities of discontinued operations
    
    
    $
    
    690
    
    
    
    $
    
    331Other long-term liabilities
    
    
    $
    
    364
    
    
    
    $
    
    Non-current liabilities of discontinued
    
    
    $
    
    364
    
    
    
    $
    
    Note 3: Restructuring and related costs
During fiscal 2009, we initiated restructuring actions related to ongoing cost reduction efforts comprised of workforce reductions and the consolidation of manufacturing operations in Tucson, Arizona. During the three months ended September 30, 2009, we recorded additional severance charges.
  During this same period, restructuring charges (severance) totaled $84, of which $71 was included in research, development, and engineering and $13 was included in selling, general, and administration.
The following table summarizes the accrual balances and utilization by cost type for the fiscal 2009 and fiscal 2008 restructuring actions:
September 30, 2009Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2009
    
    
    $
    
    262
    
    
    
    $
    
    452
    
    
    
    $
    
    714Restructuring charges
    
    
    
    84
    
    
    
    
    
    
    
    
    
    84Payments
    
    
    
    (63
    )
    
    
    
    
    (56
    )
    
    
    
    
    (119
    )Balance at September 30, 2009
    
    
    $
    
    283
    
    
    
    $
    
    396
    
    
    
    $
    
    6799

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
June 30, 2008Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2008
    
    
    $
    
    226
    
    
    
    $
    
    
    
    
    
    $
    
    226Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments
    
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    (226
    )Balance at September 30, 2008
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    Note 4: Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with U.S. GAAP. For the three months ended September 30, 2009, 2,071,598 (for the three months ended September 30, 2008, 1,307,681) of the Companys outstanding stock options and restricted stock awards (Stock Grants) were
  excluded from the calculation of diluted earnings per share because they were antidilutive.
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding for the periods presented:
Three Months EndedSeptember 30,2009
    
    2008Basic weighted average shares outstanding
    
    
    
    16,942,509
    
    
    
    
    16,775,150Dilutive effect of stock options and restricted shares
    
    
    
    
    
    
    
    
    387,347Diluted weighted average shares outstanding
    
    
    
    16,942,509
    
    
    
    
    17,162,497Note 5: Fair Value Measurements
Authoritative guidance related to fair value measurements and disclosures establishes a valuation hierarchy for disclosure of the inputs to the valuation method used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in
  active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level
  3 inputs are unobservable inputs based on the managements assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2009 and 2008:
Assets and Liabilities Measured at Fair Value:
Total carryingvalue atSeptember 30,2009
    
    Fair value measurements at September 30, 2009Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Trading securities
    
    
    $
    
    603
    
    
    
    $
    
    603
    
    
    
    $
    
    
    
    
    
    $
    
    Foreign currency hedge
    
    
    
    (161
    )
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    
    
    Total
    
    
    $
    
    442
    
    
    
    $
    
    603
    
    
    
    $
    
    (161
    )
    
    
    
    $
    
    10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Assets and Liabilities Measured at Fair Value:
Total carryingvalue atSeptember 30,2008
    
    Fair value measurements at September 30, 2008Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Trading securities
    
    
    $
    
    489
    
    
    
    $
    
    489
    
    
    
    $
    
    
    
    
    
    $
    
    Available-for-sale securities
    
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210Foreign currency hedge
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    Total
    
    
    $
    
    663
    
    
    
    $
    
    489
    
    
    
    $
    
    (36
    )
    
    
    
    $
    
    210When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant
  information. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.
Note 6: Share-Based Payments
We recorded share-based compensation expense for the three months ended September 30, 2009 and 2008 of $674 and $1,022, respectively, with a related tax benefit of $243 and $368, respectively. Of these amounts, $7 and $9 were recorded as part of discontinued operations for the three months
  ended September 30, 2009 and 2008.
Stock Options
We utilized the Black-Scholes valuation method to determine the weighted average fair value of the stock option grants for both fiscal 2010 and 2009 stock option valuations. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest
  rate, dividend yield, exercise price, and forfeiture rate. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense. Under the assumptions indicated below, the weighted-average fair value of stock option grants for the three months ended September 30,
  2009 and 2008 were $3.67 and $4.43, respectively. During the three months ended September 30, 2009 and 2008, we issued an aggregate of 140,000 and 137,000 options, respectively.
The table below indicates the key assumptions used in the option valuation calculations for options granted in the periods presented and a discussion of our methodology for developing each of the assumptions used in the valuation model:
Three Months EndedSeptember 30,2009
    
    2008Term
    
    
    
    5.1 Years
    
    
    
    
    4.6 YearsVolatility
    
    
    
    59.8
    %
    
    
    
    
    45.5
    %Dividend yield
    
    
    
    0.0
    %
    
    
    
    
    0.0
    %Risk-free interest rate
    
    
    
    2.5
    %
    
    
    
    
    2.9
    %Forfeiture rate
    
    
    
    10.8
    %
    
    
    
    
    9.5
    %TermThis is generally the period of time over which the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. An increase in the expected term will increase compensation expense.
11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
VolatilityThis is a measure of the amount by which a price has fluctuated or is expected to fluctuate. Volatilities are based on implied volatilities from traded options of ZYGOs shares, historical volatility of ZYGOs shares, and other factors, such as expected changes in volatility arising from planned
  changes in ZYGOs business operations. An increase in the expected volatility will increase compensation expense.
Dividend YieldWe did not make any dividend payments during the last five fiscal years and we have no plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.
Risk-Free Interest RateThis is the U.S. Treasury rate for the week of the grant having a term equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense.
Forfeiture RateThis is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.
Restricted Stock
Our share-based compensation expense also includes the effects of the issuance of restricted stock and restricted stock units. The compensation expense related to restricted stock awards is determined based on the market price of our stock at the date of grant applied to the total number of shares
  that are anticipated to fully vest, which is then amortized over the expected term. During the three months ended September 30, 2009 and 2008, an aggregate of 268,000 and 156,700 shares of restricted stock units were issued at a weighted average grant price of $5.38 and $10.68, respectively. Generally,
  the restrictions on the restricted stock and restricted stock units granted to employees lapse at a rate of 50% after three years and the remaining 50% after the fourth year.
Note 7: Receivables
At September 30, 2009 and June 30, 2009, receivables were as follows:
September 30,2009
    
    June 30,2009Trade
    
    
    $
    
    19,093
    
    
    
    $
    
    19,601Receivable from Nanometrics for sale of certain assets
    
    
    
    3,349
    
    
    
    
    3,392Other
    
    
    
    331
    
    
    
    
    43122,773
    
    
    
    
    23,424Allowance for doubtful accounts
    
    
    
    (2,774
    )
    
    
    
    
    (2,550
    )$
    
    19,999
    
    
    
    $
    
    20,874On June 17, 2009, we and Nanometrics Incorporated (Nanometrics) announced that Nanometrics purchased inventory and certain other assets relating to ZYGOs Semiconductor Solutions business for approximately $3,392 and that the two companies entered into a supply agreement. Under an
  exclusive OEM supply agreement aimed at wafer-based markets, ZYGO will provide interferometer sensors to Nanometrics for incorporation into the UnifireÔline of products, as well as Nanometrics family of automated metrology systems. Nanometrics will assume all inventory, backlog and customer
  sales and support responsibilities.
12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Note 8: Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At September 30, 2009 and June 30, 2009, inventories were as follows:
September 30,2009
    
    June 30,2009Raw materials and manufactured parts
    
    
    $
    
    15,409
    
    
    
    $
    
    15,214Work in process
    
    
    
    9,489
    
    
    
    
    11,313Finished goods
    
    
    
    3,264
    
    
    
    
    3,925$
    
    28,162
    
    
    
    $
    
    30,452Note 9: Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates, on an ongoing basis, the carrying value of our property, plant, and equipment and makes adjustments when impairments are identified. Depreciation is based on the
  estimated useful lives of the various classes of assets and is computed using the straight-line method. At September 30, 2009 and June 30, 2009, property, plant, and equipment were as follows:
September 30,2009
    
    June 30,2009
    
    EstimatedUseful Life(Years)Land
    
    
    $
    
    615
    
    
    
    $
    
    615
    
    
    
    
    Building and improvements
    
    
    
    17,390
    
    
    
    
    17,390
    
    
    
    
    15-40Machinery, equipment, and office furniture
    
    
    
    56,356
    
    
    
    
    55,938
    
    
    
    
    3-8Leasehold improvements
    
    
    
    1,003
    
    
    
    
    908
    
    
    
    
    1-5Construction in progress
    
    
    
    361
    
    
    
    
    570
    
    
    
    
    75,725
    
    
    
    
    75,421Accumulated depreciation
    
    
    
    (49,615
    )
    
    
    
    
    (48,096
    )$
    
    26,110
    
    
    
    $
    
    27,325Depreciation expense was $1,429 and $1,819 for the three months ended September 30, 2009 and 2008, respectively.
Note 10: Intangible Assets
Intangible assets include patents, trademarks, customer relationships and technology, and a covenant not-to-compete. The cost of patents, trademarks, customer relationships and technology is amortized on a straight-line basis over estimated useful lives ranging from 5-17 years. We entered into a non-
  compete agreement with a former officer and director of the Company effective February 28, 2009. The agreement calls for payments over a four year period of declining amounts totaling $878, which includes $27 of imputed interest. As of September 30, 2009, current liabilities include $181 and long-term
  liabilities include $229 related to the payments under this agreement. We are amortizing the value of the non-compete over four years on a declining balance method.
Intangible assets, at cost, at September 30, 2009 and June 30, 2009 were as follows:
September 30,2009
    
    June 30,2009Patents and trademarks
    
    
    $
    
    5,664
    
    
    
    $
    
    5,586Covenant not-to-compete
    
    
    
    851
    
    
    
    
    8516,515
    
    
    
    
    6,437Accumulated amortization
    
    
    
    (2,312
    )
    
    
    
    
    (2,226
    )Total
    
    
    $
    
    4,203
    
    
    
    $
    
    4,21113

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Intangible amortization expense was $204 and $148 for the three months ended September 30, 2009 and 2008, respectively. Amortization expense related to certain intangible assets is included in Cost of goods sold in the Condensed Consolidated Statements of Operations.
Note 11: Warranty
A limited warranty is provided on our products for periods ranging from 3 to 24 months and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires management to make estimates of product return rates and expected costs to
  repair or replace products under warranty. If actual return rates or repair and replacement costs, or both, differ significantly from managements estimates, adjustments to the expense will be required.
The following is a reconciliation of the accrued warranty liability, which is included in the Other accrued liabilities in the Condensed Consolidated Balance Sheets:
Three Months EndedSeptember 30,2009
    
    2008Beginning balance
    
    
    $
    
    1,614
    
    
    
    $
    
    1,263Reductions for payments made
    
    
    
    (253
    )
    
    
    
    
    (287
    )Changes in accruals related to pre-existing warranties
    
    
    
    (33
    )
    
    
    
    
    182Changes in accruals related to warranties made in the current period
    
    
    
    216
    
    
    
    
    379Ending balance
    
    
    $
    
    1,544
    
    
    
    $
    
    1,537Note 12: Segment Information
ZYGOs Metrology Solutions division (segment) consists of OEM and in-line products primarily for the semiconductor and industrial markets. The Optical Systems division (segment) consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace industries,
  which are included in the industrial market. For the three months ended September 30, 2009 and 2008, segment sales and gross profit are as follows:
Three Months EndedSeptember 30,2009
    
    2008Metrology SolutionsSales
    
    
    $
    
    15,977
    
    
    
    $
    
    26,838Gross profit
    
    
    $
    
    7,471
    
    
    
    $
    
    13,247Gross profit as a % of sales
    
    
    
    47
    %
    
    
    
    
    49
    %Optical SystemsSales
    
    
    $
    
    5,348
    
    
    
    $
    
    10,655Gross profit
    
    
    $
    
    (297
    )
    
    
    
    $
    
    3,240Gross profit as a % of sales
    
    
    
    6
    %
    
    
    
    
    30
    %TotalSales
    
    
    $
    
    21,325
    
    
    
    $
    
    37,493Gross profit
    
    
    $
    
    7,174
    
    
    
    $
    
    16,487Gross profit as a % of sales
    
    
    
    34
    %
    
    
    
    
    44
    %Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not evaluated by our chief operating decision-maker. Substantially all of our operating expenses, long-lived assets, and depreciation and amortization are U.S. based.
14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Sales by geographic area were as follows:
Three Months EndedSeptember 30,2009
    
    2008Americas
    
    
    $
    
    13,285
    
    
    
    $
    
    16,954Europe
    
    
    
    2,317
    
    
    
    
    4,282Japan
    
    
    
    3,829
    
    
    
    
    9,658Pacific Rim
    
    
    
    1,894
    
    
    
    
    6,599Total
    
    
    $
    
    21,325
    
    
    
    $
    
    37,493Note 13: Transactions with Stockholder
Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $989 and $7,207 (5% and 19% of net sales, respectively) for the three months ended September 30, 2009
  and 2008, respectively. Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At September 30, 2009 and June 30, 2009, there were, in the aggregate, $258 and $592, respectively, of trade accounts receivable from Canon.
Note 14: Derivatives and Hedging Activities
We enter into foreign currency forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are not designated as cash flow, fair value, or
  net investment hedges under authoritative guidance on accounting for derivative instruments and hedging activities and, therefore, are marked-to-market with changes in fair value recorded in the Condensed Consolidated Statement of Operations. These contracts are entered into for periods consistent with
  the expected currency transaction exposures, generally three to six months. Any gains and losses on the fair value of these contracts are expected to substantially offset corresponding losses and gains on the underlying transactions.
As of September 30, 2009, we had six currency contracts outstanding involving our Japanese and German operations with notional amounts aggregating $2,470. These foreign currency hedges are not considered designated hedging instruments. For the three months ended September 30, 2009 and 2008,
  we recognized net unrealized losses of $147 and $36, respectively, from foreign currency forward contracts. These unrealized losses are substantially offset by foreign exchange gains on intercompany balances recorded by our subsidiary and are recorded in Miscellaneous income (expense) on our
  Condensed Consolidated Statements of Operations.
The following table summarizes the fair value of derivative instruments as of September 30, 2009:
Derivitives not designated as hedging instruments
    
    
    
    Balance Sheet LocationForeign exchange contracts
    
    
    
    6*
    
    
    Accrued expenses
    
    
    $
    
    161*
    
    
    
    In the Original Filing, the number of contracts was inadvertently left blank. See Note 18.Note 15: Income Taxes
Three Months EndedSeptember 30,2009
    
    2008Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %Income tax expense
    
    
    $
    
    (682
    )
    
    
    
    
    22
    %*
    
    
    
    $
    
    (531
    )
    
    
    
    
    32
    %**
    
    
    
    In
          the Original Filing  the effective Tax Rate % for the three months
ended September 30, 2009 and 2008 was 16% and 37%, respectively. Such amounts
were originally calculated incorrectly.15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Income tax expense for the three months ended September 30, 2009 included income taxes in state and foreign jurisdictions. We recorded no net deferred tax benefit for the operating loss incurred in this period, creating the situation where we have income tax expense in a loss period. We continue
  to maintain a valuation allowance on all of our net deferred tax assets totaling $41,175 at September 30, 2009. In future periods, the valuation allowance could be reduced based upon sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.
We previously adopted the authoritative guidance for accounting for uncertainty in income taxes. Due to our net operating loss carry-forwards, we have accrued no interest and penalties for the unrecognized tax benefits; however, our accounting policy is to recognize interest related to unrecognized
  tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits accordingly. For the quarter ended September 30, 2009, we did not
  recognize an additional liability or realize any benefit for uncertain tax positions. The total liability for uncertain tax liabilities was $1,825 at September 30, 2009 and June 30, 2009. We are not aware of any tax positions that would create a material adjustment to the unrecognized tax benefits during the
  next twelve months.
We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Because of our significant NOL and credit carry-forwards, we remain subject to U.S. federal income tax audit adjustments for years after June 30, 2001. We are no longer subject to state and
  foreign income tax audit or tax adjustments for years prior to June 30, 2005. We are currently under an income tax audit by the IRS for domestic taxes for the period ended June 30, 2007.
Note 16: Commitments and Contingencies
We are aware of certain levels of contamination on our property which are below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. The future effect of environmental matters, including potential liabilities, is often difficult to
  estimate. Presently, we are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may potentially be responsible. We will record an environmental reserve when it is both probable that a liability has been incurred and the amount of any liability can
  be reasonably estimated, whether a claim has been asserted or unasserted.
Note 17: Subsequent Events
On October 5, 2009, we announced a strategic business relationship with Toho Technology Corporation (Toho), pursuant to which Toho will have the exclusive right to certain technology in the manufacturing and distribution of products to the large substrate Flat Panel Display (FPD) market. As
  part of this strategic relationship, we will be selling sensor heads to Toho, to be incorporated into the FPD systems they sell. The agreement with Toho also provides for a royalty payment to the Company on 5% of the sales price of each FPD system sold by Toho during the first five years of the
  agreement.
On October 21, 2009, we announced that our Chief Executive Officer, J. Bruce Robinson, 67, will be retiring after leading the Company for over ten years. Mr. Robinson will transition from his current role as CEO and director into a non-director consulting position for us. The transition is expected
  to occur during the second half of our current fiscal year. The Board of Directors identified a number of strategic initiatives for Mr. Robinson to be involved with during his transition, and the Company entered into an Agreement with Mr. Robinson that includes payments for the successful achievement
  of these initiatives. Incentive payments under the Agreement could aggregate up to $300, with an additional $106 of consulting payments during each of the four years of the consultancy.
16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except for per share amounts)
Note 18: Restatements
Subsequent to the issuance of its September 30, 2009 condensed consolidated financial statements, the Company identified certain errors relating to the presentation of cash flows for the three months ended September 30, 2009 and 2008. The changes were primarily related to the presentation of net
  cash provided by operations from continuing operations and net cash used for operating activities from discontinued operations. Such errors related to the incorrect inclusion of the loss from discontinued operations in net cash provided by operating activities from continuing operations as well as an
  accrued liability increase incorrectly reflected as a use of cash for discontinued operations instead of a source of cash. Additionally, other corrections were made to cash flow statement items related to the allocation of amounts related to discontinued operations. The changes to the condensed consolidated
  statements of cash flows are as follows:
As ReportedThree Months EndedSeptember 30,
    
    As RestatedThree Months EndedSeptember 30,2009
    
    2008
    
    2009
    
    2008Net earnings (loss) from continuing operations
    
    
    $
    
    (3,952
    )
    
    
    
    $
    
    832
    
    
    
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    
    (1,835
    )
    
    
    
    
    (329
    )
    
    
    
    
    
    
    
    
    
    Net earnings (loss) including non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,655
    )
    
    
    
    
    779Adjustment to reconcile net earnings to cash:Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,835
    
    
    
    
    329Loss on disposal of assets
    
    
    
    9
    
    
    
    
    (298
    )
    
    
    
    
    9
    
    
    
    
    25Deferred income taxes
    
    
    
    (63
    )
    
    
    
    
    207
    
    
    
    
    (63
    )
    
    
    
    
    277Provision for doubtful accounts
    
    
    
    221
    
    
    
    
    632
    
    
    
    
    221
    
    
    
    
    382Compensation cost related to share-based payment arrangements
    
    
    
    674
    
    
    
    
    1,012
    
    
    
    
    667
    
    
    
    
    1,012Noncontrolling interest
    
    
    
    132
    
    
    
    
    276
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    (89
    )
    
    
    
    
    115
    
    
    
    
    (88
    )
    
    
    
    
    115Change in receivables
    
    
    
    1,026
    
    
    
    
    1,951
    
    
    
    
    1,026
    
    
    
    
    2,201Change in accounts payable, accrued expenses, and taxes payable
    
    
    
    1,342
    
    
    
    
    1,750
    
    
    
    
    279
    
    
    
    
    1,750Net cash provided by operating activities from continuing operations
    
    
    
    2,198
    
    
    
    
    3,970
    
    
    
    
    2,964
    
    
    
    
    4,692Net cash used for operating activities from discontinued operations
    
    
    
    65
    
    
    
    
    144
    
    
    
    
    (701
    )
    
    
    
    
    (578
    )Additionally, certain corrections were made to the Notes to the Condensed Consolidated Financial Statements as follows:
An error was corrected in the discontinued operations schedule included in Note 2 to the Condensed Consolidated Financial Statements for the three months ended September 30, 2008. The change was related to an income tax benefit being included in operating expenses. The changes to that
  schedule are as follows:
As ReportedThree Months EndedSeptember 30,
    
    As RestatedThree Months EndedSeptember 30,2009
    
    2008
    
    2009
    
    2008Operating expenses
    
    
    
    (1,478
    )
    
    
    
    
    (1,228
    )
    
    
    
    
    (1,478
    )
    
    
    
    
    (1,298
    )Loss before income taxes
    
    
    
    (1,835
    )
    
    
    
    
    (329
    )
    
    
    
    
    (1,835
    )
    
    
    
    
    (399
    )Income taxes benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70In
    addition, in Note 14, Derivatives and Hedging Activities,
    the number of foreign exchange contracts was inadvertently left blank. The
    correct number of 6 contracts was added. Note 15, Income Taxes,
was also corrected to reflect a correction to the tax rate, presented
in each of the periods. The tax rates for the
    three months ended September 30, 2009 and 2008 were corrected to 22% and
32%, respectively, from 16% and 37%, respectively.

Also,
    the parenthetical disclosure of the allowance for doubtful accounts as of
    September 30, 2009 on the balance sheet incorrectly included amounts pertaining
     to discontinued operations and has been corrected from $3,305
to $2,774.

17

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. We conduct the majority of our manufacturing in our 153,500square foot facility in Middlefield, Connecticut and our 39,780 square foot facility in Tucson, Arizona.
Subsequent
    to the issuance of its September 30, 2009 condensed consolidated financial
    statements, the Company identified certain errors relating to the presentation
    of cash flows for the three months ended September 30, 2009 and 2008. The
    correction of these errors impacted disclosures made in Liquidity and Capital
    Resources whereby the cash flow from operating activities from continuing
    operations changed to $3.0 and $4.7 for the three months ended September
    30, 2009 and 2008, respectively, from $2.2 and $4.0 for the three months
    ended September 30, 2009 and 2008, respectively. Also, the cash flow from
    operating activities from discontinued operations changed to $(0.7) million
    and $(0.6) million for the three months ended September 30, 2009 and 2008,
    respectively, from $0.1 million and $0.1 million for the three months ended
    September 30, 2009 and 2008, respectively. See Note 18 to the Condensed Consolidated
    Financial Statements. Additionally, in the Results of Operations section
    of this Managements Discussion and
  Analysis of Financial Condition and Results of Operations, a section titled
  Discontinued Operations was added to discuss the results of discontinued operations.
Orders for the three months ended September 30, 2009 (our first quarter of fiscal 2010) were $22.7 million, as compared with $14.8 million and $28.8 million for the fourth quarter and first quarter, respectively, of fiscal 2009. Orders for our Metrology Solutions segment accounted for 68% of the
  orders received, with the Optical Systems segment accounting for 32% of orders. The increase in orders from the fourth quarter of fiscal 2009 is due to increases in the Metrology Solutions segment of $5.1 million and of $2.8 million in the Optical Systems segment. The increase in Metrology Solutions
  segment orders was primarily for our instruments products and extended over a number of different industries. The $6.1 million decline in orders from the same period of the prior year occurred primarily in the Metrology Solutions segment, which experienced reduced orders across all product lines
  except for Vision Systems, which increased by $1.4 million. Within the Optics Systems segment, orders increased by $1.2 million compared with the three months ended September 30, 2008, primarily due to an increase in orders of laser fusion optics of $2.0 million and contract manufacturing of $0.8
  million, partially offset by a declines in orders in precision optics of $1.6 million. Our Metrology Solutions segment now includes an OEM product category, which consists of lithography products, display sensor heads, and semiconductor sensor heads. Our Optical Systems segment continues to include our
  optical components and electro-optics contract manufacturing products.
In October 2009, we announced a strategic business relationship with Toho Technology Corporation (Toho) of Nagoya, Japan, pursuant to which Toho will have the exclusive right to certain technology in the manufacturing and distribution of products to the large substrate Flat Panel Display
  (FPD) market. Leveraging Tohos strength in manufacturing and design, proximity to the Asian market, and significant presence in the FPD market, allows us to accelerate the deployment of our technology and sale of sensor heads, while enhancing customer application and service support.
In September 2009, we discontinued the Singapore IC packaging operations related to our Vision Systems business due to continuing operating losses and net cash outflows. The results of operations for the aforementioned operations are presented in the Companys Condensed Consolidated Financial
  Statements as discontinued operations.
In response to the decline in sales and orders, we have taken and continue to take various actions to mitigate the effects on our company of the downturn in the global economy, including reductions in work force, pay reductions, unpaid furloughs, suspension of our matching 401-K program, and a
  reduction in director fees. Further restructuring actions and related charges continue to be reviewed, as appropriate.
18

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed
  consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures at the date of our condensed consolidated financial statements. On an on-going basis, management evaluates its estimates and
  judgments, including those related to bad debts, inventories, marketable securities, warranty obligations, income taxes, long-lived assets, and share-based payments. Management bases its estimates and judgments on historical experience and current market conditions and on various other factors that are
  believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As
  discussed in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009, as amended, management considers the Companys policies on revenue recognition and allowance for
  doubtful accounts; inventory valuation; other than temporary impairment of marketable securities; share-based compensation; warranty costs; accounting for income taxes; valuation of long-lived assets; and accruals for health insurance to be critical accounting policies due to the estimates, assumptions, and
  application of judgment involved in each.
On July 1, 2009, we adopted authoritative guidance that changes the accounting and reporting for minority interests. Minority interests have been recharacterized as non-controlling interests and are reported as a component of equity separate from the parents equity. Purchases or sales of equity
  interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the non-controlling interest will be included in consolidated net income on the face of the condensed consolidated statements of operations, and upon a loss of control, the
  interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. We have classified non-controlling interest (previously minority interest) as a component of equity for all periods presented. The new guidance is reflected in the condensed consolidated
  financial statements for all periods presented.
19

RESULTS OF OPERATIONS
Net Sales
Fiscal 2010
    
    Fiscal 2009Amount
    
    Net Sales%
    
    Amount
    
    Net Sales%(Dollars in millions)Quarter ended September 30Metrology Solutions
    
    
    $
    
    16.0
    
    
    
    
    75
    %
    
    
    
    $
    
    26.8
    
    
    
    
    71
    %Optical Systems
    
    
    
    5.3
    
    
    
    
    25
    %
    
    
    
    
    10.7
    
    
    
    
    29
    %Total
    
    
    $
    
    21.3
    
    
    
    
    100
    %
    
    
    
    $
    
    37.5
    
    
    
    
    100
    %Overall, net sales for the three months ended September 30, 2009 decreased 43% as compared with the prior year period, reflecting decreases in Metrology Solutions segment sales of 40% and in Optical Systems segment sales of 50%. The decrease in Metrology Solutions segment net sales was
  primarily due to volume decreases in lithography of $4.6 million, instruments of $4.0 million, and display solutions of $3.9 million, partially offset by sales increases in semiconductor solutions of $1.2 million and vision systems of $0.4 million. These volume decreases, in large measure, are due to a
  reduction in orders that appears to be tied directly to the general global economic downturn, most notably in the semiconductor industry. A decrease in orders from Canon accounted for the majority of the decrease in lithography sales. The decrease in the Optical Systems segment sales was primarily due
  to decreases in contract manufacturing and precision optics of $3.9 million and $1.3 million, respectively. The decrease in contract manufacturing sales is primarily related to reductions in shipments to multiple customers based on their respective inventory needs.
Sales in U.S. dollars for the three months ended September 30, 2009 and 2008 were approximately 67% and 77% of total net sales, respectively, with the remaining 33% and 23%, respectively, being in Euro or Yen. For our sales which are based in foreign currency, we are exposed to foreign
  exchange fluctuations from the time customers are invoiced in foreign currency until collection occurs. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar, or in the general economic conditions in our export markets, could materially impact the sales of our
  products in these markets and our Condensed Consolidated Financial Position and Results of Operations.
Gross Profit by Segment
Fiscal 2010
    
    Fiscal 2009Amount
    
    GrossProfit %
    
    Amount
    
    GrossProfit %(Dollars in millions)Quarter ended September 30Metrology Solutions
    
    
    $
    
    7.5
    
    
    
    
    47
    %
    
    
    
    $
    
    13.3
    
    
    
    
    49
    %Optical Systems
    
    
    
    (0.3
    )
    
    
    
    
    6
    %
    
    
    
    
    3.2
    
    
    
    
    30
    %Total
    
    
    $
    
    7.2
    
    
    
    
    34
    %
    
    
    
    $
    
    16.5
    
    
    
    
    44
    %Gross profit as a percentage of net sales for the three months ended September 30, 2009 was 34%, which represents a decrease of ten percentage points from the comparable prior year period. Within the Metrology Solutions segment, the slight decrease in gross profit as a percentage of net sales for
  the three months ended September 30, 2009 as compared with the prior year period was primarily due to unabsorbed factory costs due to lower net sales. Within the Optical Systems segment, the decrease in gross profit as a percentage of net sales for the three months ended September 30, 2009 as
  compared with the prior year period was primarily due to unabsorbed costs due to lower net sales and production issues related to certain optics resulting in increased manufacturing costs and delayed shipments. Production issues were substantially resolved during the quarter. During the first quarter of
  fiscal 2010, we continued to take actions to reduce costs in both segments in light of the decline in orders, including pay reductions and unpaid furloughs.
20

Selling, General, and Administrative Expenses (SG&A)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended September 30
    
    
    $
    
    6.6
    
    
    
    
    31
    %
    
    
    
    $
    
    9.1
    
    
    
    
    24
    %SG&A expenses decreased in the three months ended September 30, 2009 by $2.5 million from the comparable prior year period, primarily due a reduction in personnel-related expenses of $1.1 million and the elimination of costs related to semiconductor products of $0.5 million in conjunction with the
  transaction with Nanometrics in June 2009. Other cost reductions included decreases in travel of $0.4 million as part of our expense management and in legal costs of $0.3 million.
Research, Development, and Engineering Expenses (RD&E)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended September 30
    
    
    $
    
    3.6
    
    
    
    
    17
    %
    
    
    
    $
    
    5.3
    
    
    
    
    14
    %RD&E for the three months ended September 30, 2009 decreased by $1.7 million, as compared with the prior year period. The decrease in RD&E was primarily due to the elimination of costs related to the semiconductor product line in June 2009.
Provision for Doubtful Accounts and Notes
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended September 30
    
    
    $
    
    0.2
    
    
    
    
    1
    %
    
    
    
    $
    
    0.4
    
    
    
    
    1
    %Provision for doubtful accounts and notes for the three months ended September 30, 2009 decreased by $0.2 million as compared with the prior year period but remained at 1% as a percentage of sales.
Other Income (Expense)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended September 30
    
    
    $
    
    0.1
    
    
    
    
    1
    %
    
    
    
    $
    
    (0.1
    )
    
    
    
    
    0
    %Other income (expense) for the three months ended September 30, 2009 increased by $0.2 million as compared with the prior year period, primarily due to an increase in investment income.
Income Tax Benefit (Expense)
Fiscal 2010
    
    Fiscal 2009Amount
    
    Tax Rate%
    
    Amount
    
    Tax Rate%(Dollars in millions)Quarter ended September 30
    
    
    $
    
    (0.7
    )
    
    
    
    
    22
    %
    
    
    
    $
    
    (0.5
    )
    
    
    
    
    32
    %Income tax expense for the three months ended September 30, 2009 included income taxes in state and foreign jurisdictions, which could not be offset by current and prior net operating losses. We continue to maintain a valuation allowance on all of our net deferred tax assets totaling $41.2 million at
  September 30, 2009. In future periods, the valuation allowance could be reduced based upon sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.
21

Discontinued Operations
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Three months ended September 30
    
    
    $
    
    (1.8
    )
    
    
    
    
    8
    %
    
    
    
    $
    
    (0.3
    )
    
    
    
    
    1
    %Loss from discontinued operations for the three months ended September 30, 2010 increased by $1.5 primarily due to severance and other closure costs, including provisions for doubtful accounts receivables and equipment impairments.
TRANSACTIONS WITH STOCKHOLDER
Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $1.0 million and $7.2 million (5% and 19% of net sales, respectively) for the three months ended
  September 30, 2009 and 2008, respectively. Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At September 30, 2009 and June 30, 2009, there were, in the aggregate, $0.2 million and $0.6 million, respectively, of trade accounts receivable from
  Canon.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital
  expenditures, customer credit requirements, investments in businesses, expenses related to our partnerships and leadership transition, and the adequacy of available bank lines of credit.
The distress in the financial markets has led to severely diminished liquidity and credit availability, rating downgrades and declining valuations of certain investments, and extreme volatility in security prices. We have assessed the implications the distress in the financial markets has on our current
  business and determined that there has not been a significant impact to our financial position, results of operations, or liquidity during the first three months of fiscal 2010, other than the indirect effect that the current uncertainty in global economic conditions resulting from the recent disruption in credit
  markets has had on customer demand for our products.
We currently have no debt or lines of credit. In the future, if the need for debt or credit lines arose there is no assurance that we would be able to secure such financing due to the lack of credit availability in the financial markets or our own financial position.
At September 30, 2009, cash and marketable securities were $38.7 million, an increase of $2.0 million from $36.7 million at June 30, 2009. Our marketable securities consist of corporate bonds ($2.0 million), a government security ($1.0 million), and a mutual fund of $0.6 million. One additional
  investment in an auction rate security is valued at zero. We believe there are no additional impairments in our investments for the three months ended September 30, 2009.
We hold two corporate bonds, one invested in the financial services sector and one in the retail sector. The individual bonds have a value at maturity of $1.0 million each. We have the ability and intent to hold all the securities to maturity, the last maturity of which is on December 1, 2009.
The cash equivalents balance in our money market account, which is invested primarily in U.S. government securities, is $18.0 million as of September 30, 2009. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.
We have $5.3 million of gross accounts receivable related to our display customers which are overdue. Of this amount, $1.7 million has been reserved for. We have agreed to payment terms with several display customers and are in negotiations with other customers. Although we believe such amounts
  are collectible, our liquidity will be affected by the timing of the receipt of such payments. We have not experienced significant delays in payments from non-display customers.
22

We believe we have sufficient operating flexibility and cash reserves to maintain adequate amounts of liquidity and to meet our future liquidity requirements for at least the next twelve months. The impact of continued market volatility, however, cannot be predicted.
Cash Flow from Operating Activities
Three MonthsEndedSeptember 30,2009
    
    2008(Dollars in millions)Net cash flows provided by operating activities from continuing operations
    
    
    $
    
    3.0
    
    
    
    $
    
    4.7Net cash flows provided by operating activities from discontinued operations
    
    
    $
    
    (0.7
    )
    
    
    
    $
    
    (0.6
    )Cash
    flows from operating activities from continuing operations for the first
    three months of fiscal 2010 decreased by $1.7 million as compared with the
    prior year period. This was primarily due to a negative change in net income
    from continuing operations of $4.9 million, offset by the positive change
    in inventory related cash flows of $5.7 million. The change in inventory
    related cash flows is primarily a result of decreasing inventory levels in
    the three months ended September 30, 2009 as we continue to manage inventory
    levels down to our current order rate
Cash Flow from Investing Activities
Three MonthsEndedSeptember 30,2009
    
    2008(Dollars
            in millions)Net cash flows provided by investing activities
    
    
    $
    
    0.6
    
    
    
    $
    
    0.4Cash flows provided by investing activities for the first three months of fiscal 2010 increased by $0.2 million as compared with the prior year period. This increase was primarily related to a decrease in fixed asset additions of $1.8 million, partially offset by a decrease in net purchases and proceeds
  from marketable securities of $1.5 million.
Cash Flow from Financing Activities
Three MonthsEndedSeptember 30,2009
    
    2008(Dollars
            in millions)Net cash flows provided by (used for) financing activities
    
    
    $
    
    (0.2
    )
    
    
    
    $
    
    0.2Cash flows used for financing activities in the three months ended September 30, 2009 decreased by $0.4 million as compared with the prior year period. For the three months ended September 30, 2009, minimal exercises of employee stock options occurred.
OFF-BALANCE SHEET ARRANGEMENTS
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating parts of our business that are not consolidated into our financial statements. We have not guaranteed any obligations of a third party.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes that have occurred in our quantitative and qualitative market risk disclosures during the three months ended September 30, 2009 except for the ongoing economic uncertainty which is impacting us through decreased orders and order push-outs by some of our
  customers. Our exposure to market risk is presented in Item 7a., Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K, as amended, for the year ended June 30, 2009, filed with the Securities and Exchange Commission (the 2009 Annual Report).
Current uncertainty in global economic conditions resulting from among other things, the recent disruptions in credit and financial markets, poses a risk to the overall economy that could impact
23

customer demand for our products, impact our ability to manage relationships with our customers, suppliers and creditors, or cause supplier or customer disruptions resulting from tighter credit markets, among other risks.
Item 4. Controls and Procedures
As
    previously disclosed in a Current Report on Form 8-K which we filed on May
    14, 2010 and as described in our Explanatory Note to this Form 10-Q/A and
    Note 18 to our accompanying condensed consolidated financial statements included
    herein, we determined that accounting errors were made in our statements
    of cash flows. The errors relate to the allocation of cash flows from operating
    activities between continuing operations and discontinued operations. Based
    on the impact of the aforementioned accounting errors, we determined to restate
    our interim financial statements as of and for the periods ending September
    30, 2009 and 2008 and December 31, 2009 and 2008.
The Companys management has evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2009. Based on that
  evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded, as a result of the material weakness described in the following paragraph, that the Companys disclosure controls and procedures were not effective as of such date.
Management has determined that the internal control deficiency that resulted in the aforementioned accounting errors is a material weakness in internal controls over financial reporting. The material weakness existed at September 30, 2009 and was not identified until May 10, 2010. We are in the
  process of developing a remediation plan to address such deficiency, which we expect to implement in the fourth quarter of fiscal 2010. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and
  operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In response to this material weakness in internal control, management performed additional analyses and other post-closing procedures to ensure our restated condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly,
  management, including our Chief Executive Officer and Chief Financial Officer, believes the restated condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Except as described in the preceding paragraph, there have been no changes in the Companys internal control over financial reporting during the first quarter of fiscal 2010 that materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
24

PART IIOTHER INFORMATION
Item 1A. Risk Factors
In addition to the information set forth below and elsewhere in this report, the reader should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2009 Annual Report, which could materially affect our business, financial condition, or future results. The risks described in
  our 2009 Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
Reorganization activities could adversely affect our ability to execute our business strategy.
We have been in the process of reorganizing our business structure due to worldwide market conditions or other factors that have reduced the demand for our products and services. The reorganization includes the discontinuation of our Singapore IC packaging operations and other personnel cost
  reductions. As a result of these and other initiatives, our ability to execute our business strategy going forward could be adversely affected in a number of ways, including the loss of key employees; diversion of managements attention from normal daily operations of the business; diminished ability to
  respond to customer requirements, both as to products and services; loss of reputation with our customers if we exit a business line; increased difficulty in maintaining existing orders and collecting accounts receivable; and disruption of our engineering and manufacturing processes. Depending on market
  conditions, we may implement additional restructuring initiatives in future periods.
We are in the process of a significant management change which may impact our ability to execute our business strategy in the near term.
In October 2009, our Chief Executive Officer announced his impending retirement and the Board of Directors initiated a search for his successor. The market for senior managers who are qualified for the chief executive office of a public company is intensely competitive, and successful recruitment
  and development of executive talent is key to the Companys competitive position. While our current Chief Executive Officer will remain with the Company during the search and transition period, our business may be disrupted during that time. As a result of the transition, the attention of senior
  management and the Board of Directors may be diverted from the Companys business and current and potential customers may delay or forego commitments or decisions regarding orders for products and services Furthermore, if we are not able to attract and retain a qualified new Chief Executive
  Officer, our ability to execute our business strategy could be adversely affected.
Potential changes in U.S. Tax Law could materially affect our future results.
In May 2009, President Obama and the U.S. Treasury Department proposed changing certain of the U.S. tax rules for U.S. corporations doing business outside the United States. The proposed changes include limiting the ability of U.S. corporations to deduct expenses attributable to offshore earnings,
  modifying the foreign tax credit rules and further restricting the ability of U.S. corporations to transfer funds between foreign subsidiaries without triggering U.S. income tax. Although the scope of the proposed changes remains unclear and the likelihood of enactment is uncertain, it is possible that these
  or other changes in the U.S. tax laws could increase our effective tax rate and adversely affect our after-tax profitability.
25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases during the quarter ended September 30, 2009 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.
Period
    
    Total number ofshares purchased(2)
    
    Average pricepaid per share
    
    Total number ofshares purchased aspart of publiclyannouncedplans or programs(1)
    
    Approximate dollarvalue of shares thatmay yet be purchasedunder the plans orprograms (in millions)July 1, 2009July 31, 2009
    
    
    
    96
    
    
    
    
    4.79
    
    
    
    
    
    
    
    
    $
    
    5.0August 1, 2009August 31, 2009
    
    
    
    31,829
    
    
    
    
    6.62
    
    
    
    
    
    
    
    
    $
    
    5.0September 1, 2009September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    5.0

(1)
    
    
    
    In August 2007, our Board of Directors authorized the repurchase of up to $25.0 million of our outstanding common stock. During the three months ended September 30, 2009, there were no repurchases of common stock in the open market. The share repurchases have been effected pursuant to
      plans in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. This rule allows public companies to adopt written, pre-arranged stock trading plans when they do not have material, non-public information in their possession. The adoption of this stock trading plan allows us to
      repurchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.(2)
    
    
    
    Shares were repurchased from certain of our employees in satisfaction of withholding tax obligations arising from the vesting of their restricted stock.Item 6. Exhibits
(a)
    
    Exhibits:31.1
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200226

SIGNATURE
Pursuant to the requirements 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.
ZYGOCORPORATION
    
    (Registrant)/s/ Chris L. KoliopoulosChris L. KoliopoulosPresident and Chief Executive Officer
/s/ Walter A. ShephardWalter A. ShephardVice President, Finance, Chief Financial Officer, and Treasurer
Date: May 17, 2010
27

EXHIBIT INDEX
31.1
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002