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

FORM 10-Q/AAMENDMENT NO.1

(Mark One)


|                                                                      |                                                                                           
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------
|x                                                                     | QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                                     
|For the quarterly period ended     December 31, 2005                 
|                                                                     
|or                                                                   
|                                                                     
|o                                                                     | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                     
|For the transition period from ________________ to
  ________________

Commission File Number   0-12944

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

|                                                                                     |                                        | 
|------------------------------------------------------------------------------------ | -------------------------------------- | 
|Delaware                                                                             | 06-0864500                             | 
|                                                                                     |                                        | 
|(State or other jurisdiction of incorporation or
  organization)                     | (I.R.S. Employer
  Identification No.) | 
|                                                                                     |                                        | 
|Laurel Brook Road, Middlefield, Connecticut                                          | 06455                                  | 
|                                                                                     |                                        | 
|(Address of principal executive offices)                                             | (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.

oYES   
xNO

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

|                           |                      |                         
|-------------------------- | -------------------- | ------------------------
|Large accelerated filer  o | Accelerated filer  x | Non-accelerated filer  o

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

o YES   x NO

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.

18,057,864 shares
of Common Stock, $.10 Par Value, at February 1, 2006

---



EXPLANATORY NOTE

Zygo Corporation (ZYGO, we, us, our, or
Company) is restating our previously issued consolidated financial statements
for the second quarter of fiscal 2006 (Restatement), because of inadvertent
accounting errors in the consolidation of our intercompany revenues from
certain of our foreign operations for those periods. Further information on the
adjustments can be found in Note 2, Restatement of Financial Statements, to
the accompanying consolidated financial statements

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 December 31, 2005, initially filed with the Securities
and Exchange Commission (the SEC) on February 7, 2006, (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 consolidated balance sheet as of December 31,
2005 and the Companys consolidated statements of operations for the three- and
six-months ended December 31, 2005 and 2004 and cash flows for the six-month
periods ended December 31, 2005 and 2004 and the notes related thereto. For a
more detailed description of the Restatement, see Note 2, Restatement of
Financial Statements, to the accompanying consolidated financial statements
and the section entitled Restatement in Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in this
Form 10-Q/A.

Concurrent with the filing of this Form 10-Q/A, we are filing
  Amendment No. 2 on Form 10-K/A (the Form 10-K/A) to our Annual Report
  on Form 10-K for the year ended June 30, 2005 to reflect restatement of the
  Companys consolidated balance sheets as of June 30, 2005 and 2004 and
  the Companys consolidated statements of operations, cash flows, and stockholders
  equity for the years ended June 30, 2005, 2004, and 2003 and the notes related
  thereto. In addition, we are concurrently filing Amendment No. 2 on Form 10-Q/A
  for the quarter ended September 30, 2005 to reflect restatement of the Companys
  consolidated balance sheet as of September 30, 2005 and the Companys consolidated
  statements of operations and cash flows for the three-month periods ended September
  30, 2005 and 2004 and the notes related thereto.

For the convenience of the reader, this
Form 10-Q/A sets forth the Original Filing in its entirety. However, this
Form 10-Q/A amends and restates only Items 1, 2, and 4 of Part I
of the Original Filing, in each case, solely as a result of, and to reflect,
the Restatement, and no other information in the Original Filing is amended
hereby. The foregoing items have not been updated to reflect other events
occurring after the Original Filing or to modify or update those disclosures
affected by subsequent events. This Form 10-Q/A continues to speak as of the
filing date of the Original Filing for the quarterly period ended December 31,
2005. In addition, pursuant to the rules of the SEC, Item 6 of
Part II of the Original Filing has been amended to contain currently dated
certifications from the Companys Chief Executive Officer and Chief Financial
Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002. The certifications of the Companys Chief Executive Officer and Chief
Financial Officer are attached to this Form 10-Q/A as Exhibits 31.1, 31.2,
and 32.1.

The Company has not amended and does not intend to
amend its previously filed Quarterly Reports on Form 10-Q for the periods
affected by the Restatement prior to June 30, 2005. For this reason, the
consolidated financial statements and related financial information for the
affected periods contained in such reports should no longer be relied upon.

2

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FORWARD LOOKING STATEMENTS

All statements other than statements of historical fact included in
this Form 10-Q Quarterly Report regarding our financial position, business
strategy, plans, anticipated growth rates, and objectives of management for
future operations (as well as these factors as they may apply to our customers,
suppliers, and others with whom we have critical business relationships) are
forward-looking statements. Forward-looking statements are intended to provide
managements current expectations or plans for the future operating and
financial performance 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, dependence on new product development, rapid technological and
market change, risks in international operations, dependence on proprietary
technology and key personnel, length of the sales cycle, environmental
regulations, and stock price fluctuations. Further information on potential
factors that could affect our business is described 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, 2005.

3

---



PART I - Financial Information

Item 1.
Financial Statements

CONSOLIDATED
STATEMENTS OF OPERATIONS 
(UNAUDITED)(Thousands, except per share amounts)

|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ---------- | - | ---------- | ------ | - | - | ------ | -
|                                                                                |  | Three Months Ended December 31, |        | Six Months Ended December 31, |  
|                                                                                |  |                                 |        |                               |  
|                                                                                |  | 2005                            |        | 2004                          |   | 2005       |   | 2004       |       
|                                                                                |  |                                 |        |                               |   |            |   |            |       
|                                                                                |  | (Restated)                      |        | (Restated)                    |   | (Restated) |   | (Restated) |       
|Net sales                                                                       |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Products                                                                        |  | $                               | 37,997 |                               | $ | 33,318     |   | $          | 68,365 |   | $ | 59,043 |  
|Development services                                                            |  |                                 | 5,611  |                               |   | 2,477      |   |            | 9,572  |   |   | 4,172  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 | 43,608 |                               |   | 35,795     |   |            | 77,937 |   |   | 63,215 |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Cost of goods sold                                                              |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Products                                                                        |  |                                 | 22,367 |                               |   | 21,030     |   |            | 40,638 |   |   | 36,210 |  
|Development services                                                            |  |                                 | 4,049  |                               |   | 1,725      |   |            | 6,954  |   |   | 3,021  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 | 26,416 |                               |   | 22,755     |   |            | 47,592 |   |   | 39,231 |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Gross profit                                                                    |  |                                 | 17,192 |                               |   | 13,040     |   |            | 30,345 |   |   | 23,984 |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Selling, general, and administrative expenses                                   |  |                                 | 8,159  |                               |   | 5,723      |   |            | 14,527 |   |   | 11,382 |  
|Research, development, and engineering expenses                                 |  |                                 | 3,428  |                               |   | 3,672      |   |            | 6,968  |   |   | 6,880  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Operating profit                                                                |  |                                 | 5,605  |                               |   | 3,645      |   |            | 8,850  |   |   | 5,722  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Other income                                                                    |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Interest income                                                                 |  |                                 | 411    |                               |   | 175        |   |            | 828    |   |   | 354    |  
|Miscellaneous income, net                                                       |  |                                 | 84     |                               |   | 222        |   |            | 207    |   |   | 166    |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Total other income                                                              |  |                                 | 495    |                               |   | 397        |   |            | 1,035  |   |   | 520    |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Earnings from continuing operations before income
taxes and minority
  interest |  |                                 | 6,100  |                               |   | 4,042      |   |            | 9,885  |   |   | 6,242  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Income tax expense                                                              |  |                                 | (2,060 | )                             |   | (1,418     | ) |            | (3,502 | ) |   | (2,185 | )
|Minority interest                                                               |  |                                 | (360   | )                             |   | (270       | ) |            | (510   | ) |   | (386   | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Earnings from continuing operations                                             |  |                                 | 3,680  |                               |   | 2,354      |   |            | 5,873  |   |   | 3,671  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Discontinued TeraOptix operations, net of tax                                   |  |                                 |       |                               |   | (49        | ) |            |       |   |   | (110   | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Charges and adjustments on the disposal of TeraOptix, net of
tax                |  |                                 |       |                               |   | (114       | ) |            |       |   |   | (118   | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Loss from discontinued operations                                               |  |                                 |       |                               |   | (163       | ) |            |       |   |   | (228   | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Net earnings                                                                    |  | $                               | 3,680  |                               | $ | 2,191      |   | $          | 5,873  |   | $ | 3,443  |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Basic- Earnings (loss) per share:                                               |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Continuing operations                                                           |  | $                               | 0.20   |                               | $ | 0.13       |   | $          | 0.33   |   | $ | 0.20   |  
|Discontinued operations                                                         |  |                                 |       |                               |   | (0.01      | ) |            |       |   |   | (0.01  | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Net earnings                                                                    |  | $                               | 0.20   |                               | $ | 0.12       |   | $          | 0.33   |   | $ | 0.19   |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Diluted - Earnings (loss) per share:                                            |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Continuing operations                                                           |  | $                               | 0.20   |                               | $ | 0.13       |   | $          | 0.32   |   | $ | 0.20   |  
|Discontinued operations                                                         |  |                                 |       |                               |   | (0.01      | ) |            |       |   |   | (0.01  | )
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Net earnings                                                                    |  | $                               | 0.20   |                               | $ | 0.12       |   | $          | 0.32   |   | $ | 0.19   |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Weighted average shares outstanding:                                            |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Basic shares                                                                    |  |                                 | 18,031 |                               |   | 17,930     |   |            | 18,022 |   |   | 17,926 |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Diluted shares                                                                  |  |                                 | 18,340 |                               |   | 18,130     |   |            | 18,225 |   |   | 18,099 |  
|                                                                                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  

See accompanying notes to consolidated
financial statements.

4

---



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

|                                                                                                                                                    |  |                   |         |               |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------- | - | ------- | -
|                                                                                                                                                    |  | December 31, 2005 |         | June 30, 2005 |  
|                                                                                                                                                    |  |                   |         |               |  
|                                                                                                                                                    |  | (Restated)        |         |               |   |        
|Assets                                                                                                                                              |  |                   |         |               |   |         |  
|Current
  assets:                                                                                                                                   |  |                   |         |               |   |         |  
|Cash and cash equivalents                                                                                                                           |  | $                 | 13,457  |               | $ | 20,949  |  
|Marketable securities                                                                                                                               |  |                   | 20,169  |               |   | 17,242  |  
|Receivables, net of allowance for doubtful
  accounts                                                                                               |  |                   |         |               |   |         |  
|of $544 and $663, respectively                                                                                                                      |  |                   | 30,578  |               |   | 28,124  |  
|Inventories                                                                                                                                         |  |                   | 32,980  |               |   | 33,727  |  
|Prepaid expenses                                                                                                                                    |  |                   | 2,050   |               |   | 2,126   |  
|Deferred income taxes                                                                                                                               |  |                   | 9,537   |               |   | 8,895   |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Total current assets                                                                                                                                |  |                   | 108,771 |               |   | 111,063 |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Marketable
  securities                                                                                                                             |  |                   | 23,915  |               |   | 18,711  |  
|Property,
  plant, and equipment, net                                                                                                               |  |                   | 31,540  |               |   | 31,420  |  
|Deferred
  income taxes                                                                                                                             |  |                   | 19,120  |               |   | 22,333  |  
|Intangible
  assets, net                                                                                                                            |  |                   | 5,892   |               |   | 5,638   |  
|Other assets                                                                                                                                        |  |                   | 884     |               |   | 1,017   |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Total assets                                                                                                                                        |  | $                 | 190,122 |               | $ | 190,182 |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Liabilities and Stockholders Equity                                                                                                                |  |                   |         |               |   |         |  
|Current
  liabilities:                                                                                                                              |  |                   |         |               |   |         |  
|Payables                                                                                                                                            |  | $                 | 11,212  |               | $ | 13,510  |  
|Accrued progress payments                                                                                                                           |  |                   | 18,446  |               |   | 21,713  |  
|Accrued salaries and wages                                                                                                                          |  |                   | 5,116   |               |   | 6,220   |  
|Other accrued liabilities                                                                                                                           |  |                   | 3,923   |               |   | 4,731   |  
|Income taxes payable                                                                                                                                |  |                   | 1,540   |               |   | 1,510   |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Total current liabilities                                                                                                                           |  |                   | 40,237  |               |   | 47,684  |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Other
  long-term liabilities                                                                                                                       |  |                   | 97      |               |   | 96      |  
|Minority
  interest                                                                                                                                 |  |                   | 1,138   |               |   | 1,249   |  
|Commitments
  and contingencies                                                                                                                     |  |                   |         |               |   |         |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Stockholders
  equity:                                                                                                                             |  |                   |         |               |   |         |  
|Common Stock, $.10 par value per share:                                                                                                             |  |                   |         |               |   |         |  
|40,000,000 shares authorized;18,481,941
  shares issued (18,423,026 at June 30, 2005);18,034,736 shares outstanding
  (17,975,821 at June 30, 2005) |  |                   | 1,848   |               |   | 1,842   |  
|Additional paid-in capital                                                                                                                          |  |                   | 143,854 |               |   | 142,111 |  
|Retained earnings                                                                                                                                   |  |                   | 8,440   |               |   | 2,567   |  
|Accumulated other comprehensive income
  (loss):                                                                                                    |  |                   |         |               |   |         |  
|Currency translation effects                                                                                                                        |  |                   | (230    | )             |   | (112    | )
|Net unrealized gain on marketable
  securities                                                                                                      |  |                   | 25      |               |   | 32      |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|                                                                                                                                                    |  |                   | 153,937 |               |   | 146,440 |  
|Less treasury stock, at cost (447,205
  shares)                                                                                                     |  |                   | 5,287   |               |   | 5,287   |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Total stockholders equity                                                                                                                          |  |                   | 148,650 |               |   | 141,153 |  
|                                                                                                                                                    |  |                   |         |               |   |         |  
|Total liabilities and stockholders equity                                                                                                          |  | $                 | 190,122 |               | $ | 190,182 |  
|                                                                                                                                                    |  |                   |         |               |   |         |  

See accompanying notes to consolidated financial
statements.

5

---



CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of dollars)

|                                                                                  |  |                               |         |            |   |        |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ---------- | - | ------ | -
|                                                                                  |  | Six Months Ended December 31, |        
|                                                                                  |  |                               |        
|                                                                                  |  | 2005                          |         | 2004       |  
|                                                                                  |  |                               |         |            |  
|                                                                                  |  | (Restated)                    |         | (Restated) |  
|Cash provided by operating activities:                                            |  |                               |         |            |   |        |  
|Net earnings                                                                      |  | $                             | 5,873   |            | $ | 3,443  |  
|                                                                                 
|Adjustments to reconcile net earnings to
  cash provided by operating activities: |  |                               |         |            |   |        |  
|Loss from discontinued operations                                                 |  |                               |        |            |   | 228    |  
|Depreciation and amortization                                                     |  |                               | 3,004   |            |   | 3,014  |  
|Deferred income taxes                                                             |  |                               | 2,571   |            |   | 2,104  |  
|Compensation cost related to share-based
  payments arrangements                  |  |                               | 1,190   |            |   |       |  
|Excess tax benefits from share-based
  payment arrangements                       |  |                               | (14     | )          |   |       |  
|Minority interest                                                                 |  |                               | 510     |            |   | 386    |  
|Other, net                                                                        |  |                               | 93      |            |   | 209    |  
|Changes in operating accounts:                                                    |  |                               |         |            |   |        |  
|Receivables                                                                       |  |                               | (2,335  | )          |   | 2,830  |  
|Inventories                                                                       |  |                               | 841     |            |   | (9,499 | )
|Prepaid expenses                                                                  |  |                               | 76      |            |   | 402    |  
|Accounts payable, accrued expenses, and
  taxes payable                           |  |                               | (7,565  | )          |   | 4,096  |  
|                                                                                  |  |                               |         |            |   |        |  
|Net cash provided by continuing operations                                        |  |                               | 4,244   |            |   | 7,213  |  
|Net cash used for discontinued operations                                         |  |                               |        |            |   | (125   | )
|                                                                                  |  |                               |         |            |   |        |  
|Net cash provided by operating activities                                         |  |                               | 4,244   |            |   | 7,088  |  
|                                                                                  |  |                               |         |            |   |        |  
|Cash used for investing activities:                                               |  |                               |         |            |   |        |  
|Additions to property, plant, and
  equipment, net                                |  |                               | (3,027  | )          |   | (6,015 | )
|Purchase of marketable securities                                                 |  |                               | (19,711 | )          |   | (4,019 | )
|Additions to intangibles and other assets                                         |  |                               | (487    | )          |   | (515   | )
|Proceeds from the maturity of marketable
  securities                             |  |                               | 11,538  |            |   | 2,100  |  
|                                                                                  |  |                               |         |            |   |        |  
|Net cash used for investing activities                                            |  |                               | (11,687 | )          |   | (8,449 | )
|                                                                                  |  |                               |         |            |   |        |  
|Cash provided by (used for) financing
  activities:                               |  |                               |         |            |   |        |  
|Employee stock purchase                                                           |  |                               | 307     |            |   | 339    |  
|Exercise of employee stock options                                                |  |                               | 252     |            |   | 139    |  
|Excess tax benefits from share-based
  payment arangements                        |  |                               | 14      |            |   |       |  
|Dividend payment to minority interest                                             |  |                               | (622    | )          |   |       |  
|                                                                                  |  |                               |         |            |   |        |  
|Net cash provided by (used for) financing
  activities                            |  |                               | (49     | )          |   | 478    |  
|                                                                                  |  |                               |         |            |   |        |  
|Net decrease in cash and cash equivalents                                         |  |                               | (7,492  | )          |   | (883   | )
|Cash and cash equivalents, beginning of
  period                                  |  |                               | 20,949  |            |   | 17,462 |  
|                                                                                  |  |                               |         |            |   |        |  
|Cash and cash equivalents, end of period                                          |  | $                             | 13,457  |            | $ | 16,579 |  
|                                                                                  |  |                               |         |            |   |        |  

See accompanying notes to consolidated
financial statements.

6

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in
thousands, except for per share amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Principles of Consolidation and Presentation

Zygo
Corporation is a worldwide developer and supplier of high performance metrology
instruments, high precision optics, optical assemblies, and automation for the
semiconductor and industrial markets. The accompanying consolidated financial statements
include the accounts of Zygo Corporation and its subsidiaries (ZYGO, we,
us, our or Company). All material transactions and accounts with the
subsidiaries have been eliminated from the consolidated financial statements.
The results of operations for the three and six months ended December 31, 2005
are not necessarily indicative of the results to be expected for the full
fiscal year.

The
Consolidated Balance Sheet at December 31, 2005, the Consolidated Statements of
Operations for the three and six months ended December 31, 2005 and 2004, and
the Consolidated Statements of Cash Flows for the six months ended December 31,
2005 and 2004 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
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in our June 30, 2005
Annual Report on Form 10-K, as amended, including items incorporated by
reference therein.

Earnings Per Share

Basic and
diluted earnings per share are calculated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.

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

|                                                       |  |                                 |            |                               |  |            |  |      |            |  |  |            | 
|------------------------------------------------------ |  | ------------------------------- | ---------- | ----------------------------- |  | ---------- |  | ---- | ---------- |  |  | ---------- | 
|                                                       |  | Three Months Ended December 31, |            | Six Months Ended December 31, | 
|                                                       |  |                                 |            |                               | 
|                                                       |  | 2005                            |            | 2004                          |  | 2005       |  | 2004 |           
|                                                       |  |                                 |            |                               |  |            |  |      |           
|Basic weighted average shares outstanding              |  |                                 | 18,030,783 |                               |  | 17,929,640 |  |      | 18,022,006 |  |  | 17,926,471 | 
|Dilutive effect of stock options and restricted shares |  |                                 | 308,925    |                               |  | 199,903    |  |      | 203,237    |  |  | 172,265    | 
|                                                       |  |                                 |            |                               |  |            |  |      |            |  |  |            | 
|Diluted weighted average shares outstanding            |  |                                 | 18,339,708 |                               |  | 18,129,543 |  |      | 18,225,243 |  |  | 18,098,736 | 
|                                                       |  |                                 |            |                               |  |            |  |      |            |  |  |            | 

Share-Based Payments

In December
2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R),
Share-Based Payment (as amended). SFAS No. 123(R) eliminates the alternative
to use the intrinsic value method of accounting that was provided in SFAS No.
123, which generally resulted in no compensation expense recorded in the
financial statements related to the issuance of equity awards to employees and
directors. SFAS No. 123(R) requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements.
SFAS No. 123(R) establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all companies to
apply a fair-value-based measurement method in accounting generally for all
share-based payment transactions with employees.

On July 1,
2005, we adopted SFAS No. 123(R) using a modified prospective method resulting
in the recognition of share-based compensation expense for the three and six
months ended December 31, 2005 of $524 and $764, net of related tax expense of
$292 and $426, respectively. Prior period amounts have not been restated. Under
this application, we are required to record compensation expense for all awards
granted after the date of adoption and for the unvested portion of previously
granted awards that remain outstanding at the date of adoption. In addition, we
made changes to our employee stock purchase plan for periods beginning after
July 1, 2005, which rendered the plan non-compensatory in accordance with SFAS
No. 123(R).

7

---



Prior to the
adoption of SFAS No. 123(R), we applied Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for our plans. The following table details the
effect on net earnings and earnings per share had compensation expense for the
employee share-based awards been recorded in the three and six months ended
December 31, 2004 based on the fair value method under SFAS No. 123.

|                                                                                                                      |  |                                           |       |                                         |   |        |  
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ----- | --------------------------------------- | - | ------ | -
|                                                                                                                      |  | Three Months
  Ended
  December 31
  2004 |       | Six Months
  Ended
  December 31
  2004 |  
|                                                                                                                      |  |                                           |       |                                         |  
|                                                                                                                      |  | (Restated)                                |       | (Restated)                              |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Net earnings, as reported                                                                                             |  | $                                         | 2,191 |                                         | $ | 3,443  |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Deduct: Total stock-based compensation expense determined under fair
  value based method, net of related tax effects |  |                                           | (383  | )                                       |   | (1,636 | )
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Pro forma net earnings                                                                                                |  | $                                         | 1,808 |                                         | $ | 1,807  |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Earnings per share:                                                                                                   |  |                                           |       |                                         |   |        |  
|Basic - as reported                                                                                                   |  | $                                         | 0.12  |                                         | $ | 0.19   |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Basic - pro forma                                                                                                     |  | $                                         | 0.10  |                                         | $ | 0.10   |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Diluted - as reported                                                                                                 |  | $                                         | 0.12  |                                         | $ | 0.19   |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  
|Diluted - pro forma                                                                                                   |  | $                                         | 0.10  |                                         | $ | 0.10   |  
|                                                                                                                      |  |                                           |       |                                         |   |        |  

Share Based Compensation Plans

Zygo has two
share-based compensation plans, which are described hereafter. The Zygo
Corporation 2002 Equity Incentive Plan (2002 Plan) permits the granting of
stock options to purchase shares of common stock and the granting of restricted
stock up to a total of 1,500,000 shares. The exercise price per share of common
stock covered by an option may not be less than the par value per share on the
date of grant, and in the case of an incentive stock option, the exercise price
may not be less than the market value per share on the date of grant. These
options generally vest over a four year period at a rate of 25% each year.
Generally, restricted stock awards have 50% of their restrictions lapse after
three years and the remaining 50% lapse after four years. The 2002 Plan will
expire on August 27, 2012. Pursuant to the terms of the 2002 Plan, the Board of
Directors may also amend the 2002 Plan to authorize the grant of other types of
equity-based awards, without further action by our stockholders. Options issued
to non-employee directors are now issued under this plan. Non-employee
directors are granted fully exercisable options to purchase 6,000 shares of
common stock on an annual basis and each new non-employee director is granted
fully exercisable options to purchase 12,000 shares of common stock on his or
her first day of service, in all instances at the market value per share on the
date of grant.

The Zygo
Corporation Amended and Restated Non-Employee Director Stock Option Plan
(Director Plan) permits the granting of non-qualified options to purchase a
total of 620,000 shares (adjusted for splits) of common stock at prices not
less than the market value of the stock on the date of grant. Under the terms
of the Director Plan, as amended on September 24, 1999, each new non-employee
director (other than a person who was previously an employee of ZYGO or any of
our subsidiaries) was granted an option to purchase 8,000 shares of common
stock, generally, on his or her first day of service as a non-employee director;
and each other non-employee director was granted an option to purchase 3,000
shares of common stock on an annual basis. All options were fully exercisable
on the date of grant and had a 10-year term. The Director Plan, as amended,
will expire on November 17, 2009. The Company ceased granting options under
this plan in fiscal 2003 and does not intend to grant further options under the
Director Plan.

8

---



We use the
Black-Scholes option-pricing model to calculate the fair value of share based
awards. 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 and six months ended December 31, 2005 were $6.79 and
$5.41, respectively. The weighted-average fair value of stock option grants for
the three and six months ended December 31, 2004 were $6.25 and $5.86,
respectively. The table below indicates the key assumptions used in the option
valuation calculations for options granted in the three and six months ended December
31, 2005 and 2004 and a discussion of our methodology for developing each of
the assumptions used in the valuation model:

|                          |  |                                 |           |                               |  |           |  |      |           |  |  |           | 
|------------------------- |  | ------------------------------- | --------- | ----------------------------- |  | --------- |  | ---- | --------- |  |  | --------- | 
|                          |  | Three Months Ended December 31, |           | Six Months Ended December 31, | 
|                          |  |                                 |           |                               | 
|                          |  | 2005                            |           | 2004                          |  | 2005      |  | 2004 |          
|                          |  |                                 |           |                               |  |           |  |      |          
|Term                      |  |                                 | 4.1 Years |                               |  | 4.5 Years |  |      | 4.1 Years |  |  | 4.5 Years | 
|Volatility                |  |                                 | 52.9%     |                               |  | 71.0%     |  |      | 52.9%     |  |  | 71.0%     | 
|Dividend
  Yield          |  |                                 | 0.0%      |                               |  | 0.0%      |  |      | 0.0%      |  |  | 0.0%      | 
|Risk-free
  interest rate |  |                                 | 4.4%      |                               |  | 3.2%-3.4% |  |      | 3.9%-4.4% |  |  | 3.2%-3.5% | 
|Forfeiture
  rate         |  |                                 | 10.6%     |                               |  | 4.0%      |  |      | 10.6%     |  |  | 4.0%      | 

Term - This is 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.

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.

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.

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.

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.

The following
table summarizes information about our stock options granted under our
share-based compensation plans for the six months ended December 31, 2005.
Included in the information below are outstanding options from the Zygo
Corporation Amended and Restated Non-Qualified Stock Option Plan which expired
in fiscal 2003, to the extent the options remain available for exercise.

|                                       |  |                     |           |                                     |   |                                                   |  |                                               |      |  |   |       | 
|-------------------------------------- |  | ------------------- | --------- | ----------------------------------- | - | ------------------------------------------------- |  | --------------------------------------------- | ---- |  | - | ----- | 
|                                       |  | Number of
  Options |           | Weighted
  Average
  Exercise Price |   | Weighted
  Average
  Remaining
  Contractual life |  | Aggregate 
  Intrinsic Value
  (in thousands) |     
|                                       |  |                     |           |                                     |   |                                                   |  |                                               |     
|Balance, July 1, 2005                  |  |                     | 2,069,175 |                                     | $ | 26.95                                             |  |                                               |      |  |   |       | 
|Granted                                |  |                     | 186,000   |                                     | $ | 11.80                                             |  |                                               |      |  |   |       | 
|Exercised                              |  |                     | (24,172   | )                                   | $ | 8.47                                              |  |                                               |      |  |   |       | 
|Forfeited                              |  |                     | (31,033   | )                                   | $ | 46.71                                             |  |                                               |      |  |   |       | 
|                                       |  |                     |           |                                     |   |                                                   |  |                                               |      |  |   |       | 
|                                      
|Options outstanding, December 31, 2005 |  |                     | 2,199,970 |                                     | $ | 25.59                                             |  |                                               | 6.30 |  | $ | 6,974 | 
|                                       |  |                     |           |                                     |   |                                                   |  |                                               |      |  |   |       | 
|Options exercisable, December 31, 2005 |  |                     | 1,650,042 |                                     | $ | 30.88                                             |  |                                               | 5.99 |  | $ | 4,555 | 
|                                       |  |                     |           |                                     |   |                                                   |  |                                               |      |  |   |       | 

As of December
31, 2005 there was $2,368 of total unrecognized compensation cost related to
stock options. These costs are expected to be recognized over a weighted
average period of 1.6 years.

9

---



The total
intrinsic value of stock options exercised was $145 and the total fair value of
stock awards vested was $1,275 during the six months ended December 31, 2005.

Cash received
from stock option exercises for the six months ended December 31, 2005 was
$205. The income tax benefits from share based arrangements totaled $52, all of
which were attributable to stock option exercises.

The following
table summarizes information about restricted stock awards granted under
share-based compensation plans for the six months ended December 31, 2005:

|                                          |  |        |         |                                             |   |       | 
|----------------------------------------- |  | ------ | ------- | ------------------------------------------- | - | ----- | 
|                                          |  | Shares |         | Weighted
  Average Grant-
  Date Fair Value |  
|                                          |  |        |         |                                             |  
|                                          |  |        |         |                                             |   |       | 
|Non Vested
  Balance at July 1, 2005      |  |        |        |                                             | $ |      | 
|Granted                                   |  |        | 130,500 |                                             | $ | 10.43 | 
|Vested                                    |  |        |        |                                             | $ |      | 
|Forfeited                                 |  |        |        |                                             | $ |      | 
|                                          |  |        |         |                                             |   |       | 
|                                          |  |        |         |                                             |   |       | 
|Non Vested
  Balance at December 31, 2005 |  |        | 130,500 |                                             | $ | 10.43 | 
|                                          |  |        |         |                                             |   |       | 

These
restricted stock awards were issued under the 2002 Equity Incentive Plan and
50% of the restrictions lapse after three years and the remaining 50% lapse
after four years.

As of December
31, 2005 there was $945 of total unrecognized compensation costs related to
restricted stock awards. These costs are expected to be recognized over a
weighted average period of 4.0 years.

At December
31, 2005 an aggregate of 533,112 shares remained available for future grants
under our share-based compensation plans, which cover stock awards and stock
options. The Company issues shares to satisfy stock option exercises and
restricted stock awards.

Comprehensive Income

Our total
comprehensive income was as follows:

|                                                     |  |                                 |       |                               |   |            |   |            |       |   |   |       |  
|---------------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | ---------- | - | ---------- | ----- | - | - | ----- | -
|                                                     |  | Three Months Ended December 31, |       | Six Months Ended December 31, |  
|                                                     |  |                                 |       |                               |  
|                                                     |  | 2005                            |       | 2004                          |   | 2005       |   | 2004       |      
|                                                     |  |                                 |       |                               |   |            |   |            |      
|                                                     |  | (Restated)                      |       | (Restated)                    |   | (Restated) |   | (Restated) |      
|Net earnings                                         |  | $                               | 3,680 |                               | $ | 2,191      |   | $          | 5,873 |   | $ | 3,443 |  
|Unrealized loss on marketable securities, net of
tax |  |                                 | (3    | )                             |   | (8         | ) |            | (7    | ) |   | (20   | )
|                                                     |  |                                 |       |                               |   |            |   |            |       |   |   |       |  
|Foreign currency translation effect                  |  |                                 | (57   | )                             |   | 486        |   |            | (118  | ) |   | 561   |  
|                                                     |  |                                 |       |                               |   |            |   |            |       |   |   |       |  
|Comprehensive income                                 |  | $                               | 3,620 |                               | $ | 2,669      |   | $          | 5,748 |   | $ | 3,984 |  
|                                                     |  |                                 |       |                               |   |            |   |            |       |   |   |       |  

Inventories

Inventories
are stated at the lower of cost (determined on a first-in, first-out basis) or
market. At December 31, 2005 and June 30, 2005, inventories were as follows:

|                                       |  |                     |        |                 |   |        | 
|-------------------------------------- |  | ------------------- | ------ | --------------- | - | ------ | 
|                                       |  | December 31,
  2005 |        | June 30,
  2005 |  
|                                       |  |                     |        |                 |  
|Raw
  materials and manufactured parts |  | $                   | 15,698 |                 | $ | 14,320 | 
|Work in
  process                      |  |                     | 14,471 |                 |   | 15,927 | 
|Finished
  goods                       |  |                     | 2,811  |                 |   | 3,480  | 
|                                       |  |                     |        |                 |   |        | 
|                                       |  | $                   | 32,980 |                 | $ | 33,727 | 
|                                       |  |                     |        |                 |   |        | 

10

---



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 December 31, 2005 and June 30, 2005, property, plant, and equipment
were as follows:

|                                           |  |                     |         |                 |   |                                   |   |  |       |  |  | 
|------------------------------------------ |  | ------------------- | ------- | --------------- | - | --------------------------------- | - |  | ----- |  |  | 
|                                           |  | December 31,
  2005 |         | June 30,
  2005 |   | Estimated
  Useful Life
  (Years) |   |  |      
|                                           |  |                     |         |                 |   |                                   |   |  |      
|Land                                       |  | $                   | 615     |                 | $ | 615                               |   |  |      |  |  | 
|Building and improvements                  |  |                     | 15,750  |                 |   | 15,759                            |   |  | 1540 |  |  | 
|Machinery, equipment, and office furniture |  |                     | 48,287  |                 |   | 45,501                            |   |  | 38   |  |  | 
|Leasehold improvements                     |  |                     | 706     |                 |   | 715                               |   |  | 15   |  |  | 
|Construction in progress                   |  |                     | 2,785   |                 |   | 2,997                             |   |  |      |  |  | 
|                                           |  |                     |         |                 |   |                                   |   |  |       |  |  | 
|                                           |  |                     | 68,143  |                 |   | 65,587                            |   |  |       |  |  | 
|Accumulated depreciation                   |  |                     | (36,603 | )               |   | (34,167                           | ) |  |       |  |  | 
|                                           |  |                     |         |                 |   |                                   |   |  |       |  |  | 
|                                           |  | $                   | 31,540  |                 | $ | 31,420                            |   |  |       |  |  | 
|                                           |  |                     |         |                 |   |                                   |   |  |       |  |  | 

Depreciation
expense for the three months ended December 31, 2005 and 2004 was $1,431 and
$1,380, respectively. Depreciation expense for the six months ended December
31, 2005 and 2004 was $2,801 and $2,757, respectively.

Intangible
Assets

Intangible
assets include patents, trademarks, and license agreements. The cost of
intangible assets is amortized on a straight-line basis over estimated useful
lives ranging from 4-20 years. Intangible assets, at cost, at December 31, 2005
and June 30, 2005 were as follows:

|                         |  |                     |        |                 |   |        |   |  |  |  |  | 
|------------------------ |  | ------------------- | ------ | --------------- | - | ------ | - |  |  |  |  | 
|                         |  | December 31,
  2005 |        | June 30,
  2005 |   |        |   |  | 
|                         |  |                     |        |                 |   |        |   |  | 
|Patents and trademarks   |  | $                   | 6,923  |                 | $ | 6,556  |   |  |  |  |  | 
|License agreements       |  |                     | 1,350  |                 |   | 1,350  |   |  |  |  |  | 
|                         |  |                     |        |                 |   |        |   |  |  |  |  | 
|                         |  |                     | 8,273  |                 |   | 7,906  |   |  |  |  |  | 
|Accumulated amortization |  |                     | (2,381 | )               |   | (2,268 | ) |  |  |  |  | 
|                         |  |                     |        |                 |   |        |   |  |  |  |  | 
|Total                    |  | $                   | 5,892  |                 | $ | 5,638  |   |  |  |  |  | 
|                         |  |                     |        |                 |   |        |   |  |  |  |  | 

Intangible
amortization expense was $61 and $111 for the three months ended December 31,
2005 and 2004, respectively, and $168 and $224 for the six months ended
December 31, 2005 and 2004, respectively. Amortization expense related to
certain intangible assets is included in cost of goods sold in the Consolidated
Statements of Operations.

Warranty

A limited
warranty is provided on our products for periods ranging from 3 to 12 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 may be required.

The following
is a reconciliation of the accrued warranty liability, which is included in the
other accrued liabilities in the Consolidated Balance Sheets:

|                                                                         |  |                               |       |      |   |       |   |  |  |  |  | 
|------------------------------------------------------------------------ |  | ----------------------------- | ----- | ---- | - | ----- | - |  |  |  |  | 
|                                                                         |  | Six Months Ended December 31, |       |      |   |       |  
|                                                                         |  |                               |       |      |   |       |  
|                                                                         |  | 2005                          |       | 2004 |   |       |   |  |  | 
|                                                                         |  |                               |       |      |   |       |   |  |  | 
|Beginning balance                                                        |  | $                             | 1,396 |      | $ | 1,486 |   |  |  |  |  | 
|Reductions for payments made                                             |  |                               | (612  | )    |   | (720  | ) |  |  |  |  | 
|Changes in accruals related to pre-existing
  warranties                 |  |                               | 144   |      |   | (66   | ) |  |  |  |  | 
|Changes in accruals related to warranties
  issued in the current period |  |                               | 647   |      |   | 438   |   |  |  |  |  | 
|                                                                         |  |                               |       |      |   |       |   |  |  |  |  | 
|Ending balance                                                           |  | $                             | 1,575 |      | $ | 1,138 |   |  |  |  |  | 
|                                                                         |  |                               |       |      |   |       |   |  |  |  |  | 

Supplemental Cash Flow Information

Income tax
payments amounted to $777 and $644 for the six months ended December 31, 2005
and 2004, respectively.

11

---



NOTE 2: RESTATEMENT OF FINANCIAL STATEMENTS

We are
restating our consolidated financial statements for the second quarter of fiscal
2006 to account for corrections in the accounting of intercompany transactions
from certain of our foreign operations. In addition, certain disclosures in
Notes 1, 5, and 6 to the consolidated financial statements contained in this
report have been restated to reflect the corrections. The corrections are the
result of our failure to identify and eliminate certain intercompany revenues
attributed to our Singapore and Taiwan offices, which resulted in our
overstating reported revenues, from fiscal 2001 through the second quarter of
fiscal 2006. The tax effects on the corrections and other minor adjustments
have also been reflected in these restatements.

The impact of the corrections on the consolidated balance sheets
  and consolidated statements of operations is shown in the accompanying tables.
  Adjustments to the statement of operations for the three and six months ended
  December 31, 2005 and 2004 primarily represent adjustments to sales to correct
  the overstatement of revenues and failing to properly eliminate intercompany
  revenues. Income tax expense was adjusted to reflect the income tax effects
  of the adjustments noted for overstating revenues. In addition, the statements
  of operations reflect minor adjustments to correct other miscellaneous items
  identified in the course of the review of the intercompany transactions, none
  of which were individually significant. Balance sheet adjustments for December
  31, 2005 primarily represent adjustments to retained earnings and currency translation
  effects to correct the balance sheet for overstating revenues and failing to
  properly identify and eliminate intercompany revenues resulting in an improper
  entry to currency translation effects. In addition, deferred taxes were adjusted
  to reflect the income tax effects of the adjustments noted for overstating revenues.
  The balance sheet also reflects minor adjustments to correct other miscellaneous
  items identified in the course of the review of the intercompany transactions,
  none of which were significant individually or in the aggregate.

12

---



The following table presents the effect of the Restatement on
the consolidated statement of operations for the three months ended December
31, 2005:

|                                                                                |  |                            |        |             |   |             |   |   |        |  
|------------------------------------------------------------------------------- |  | -------------------------- | ------ | ----------- | - | ----------- | - | - | ------ | -
|                                                                                |  | As
  previously
  reported |        | Adjustments |   | As Restated |  
|                                                                                |  |                            |        |             |   |             |  
|Net sales                                                                       |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  | $                          | 38,212 |             | $ | (215        | ) | $ | 37,997 |  
|Development services                                                            |  |                            | 5,611  |             |   |            |   |   | 5,611  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 43,823 |             |   | (215        | ) |   | 43,608 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Cost of goods sold                                                              |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  |                            | 22,357 |             |   | 10          |   |   | 22,367 |  
|Development services                                                            |  |                            | 4,049  |             |   |            |   |   | 4,049  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 26,406 |             |   | 10          |   |   | 26,416 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Gross profit                                                                    |  |                            | 17,417 |             |   | (225        | ) |   | 17,192 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Selling, general, and administrative expenses                                   |  |                            | 8,159  |             |   |            |   |   | 8,159  |  
|Research, development and engineering expenses                                  |  |                            | 3,428  |             |   |            |   |   | 3,428  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Operating profit                                                                |  |                            | 5,830  |             |   | (225        | ) |   | 5,605  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Other income                                                                    |  |                            |        |             |   |             |   |   |        |  
|Interest income                                                                 |  |                            | 411    |             |   |            |   |   | 411    |  
|Miscellaneous income, net                                                       |  |                            | 88     |             |   | (4          | ) |   | 84     |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Total other income                                                              |  |                            | 499    |             |   | (4          | ) |   | 495    |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Earnings from continuing operations before income
taxes and minority
  interest |  |                            | 6,329  |             |   | (229        | ) |   | 6,100  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Income tax expense                                                              |  |                            | (2,142 | )           |   | 82          |   |   | (2,060 | )
|Minority interest                                                               |  |                            | (360   | )           |   |            |   |   | (360   | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings                                                                    |  | $                          | 3,827  |             | $ | (147        | ) | $ | 3,680  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings per share:                                                         |  |                            |        |             |   |             |   |   |        |  
|Basic                                                                           |  | $                          | 0.21   |             | $ | (0.01       | ) | $ | 0.20   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted                                                                         |  | $                          | 0.21   |             | $ | (0.01       | ) | $ | 0.20   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Weighted average number of shares:                                              |  |                            |        |             |   |             |   |   |        |  
|Basic                                                                           |  |                            | 18,031 |             |   | 18,031      |   |   | 18,031 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted                                                                         |  |                            | 18,340 |             |   | 18,340      |   |   | 18,340 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  

13

---



The following table presents the effect of the Restatement on
the consolidated statement of operations for the three months ended December
31, 2004:

|                                                                                |  |                            |        |             |   |             |   |   |        |  
|------------------------------------------------------------------------------- |  | -------------------------- | ------ | ----------- | - | ----------- | - | - | ------ | -
|                                                                                |  | As
  previously
  reported |        | Adjustments |   | As Restated |  
|                                                                                |  |                            |        |             |   |             |  
|Net sales                                                                       |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  | $                          | 33,530 |             | $ | (212        | ) | $ | 33,318 |  
|Development services                                                            |  |                            | 2,477  |             |   |            |   |   | 2,477  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 36,007 |             |   | (212        | ) |   | 35,795 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Cost of goods sold                                                              |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  |                            | 21,024 |             |   | 6           |   |   | 21,030 |  
|Development services                                                            |  |                            | 1,725  |             |   |            |   |   | 1,725  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 22,749 |             |   | 6           |   |   | 22,755 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Gross profit                                                                    |  |                            | 13,258 |             |   | (218        | ) |   | 13,040 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Selling, general, and administrative expenses                                   |  |                            | 5,723  |             |   |            |   |   | 5,723  |  
|Research, development and engineering expenses                                  |  |                            | 3,672  |             |   |            |   |   | 3,672  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Operating profit                                                                |  |                            | 3,863  |             |   | (218        | ) |   | 3,645  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Other income                                                                    |  |                            |        |             |   |             |   |   |        |  
|Interest income                                                                 |  |                            | 175    |             |   |            |   |   | 175    |  
|Miscellaneous income, net                                                       |  |                            | 243    |             |   | (21         | ) |   | 222    |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Total other income                                                              |  |                            | 418    |             |   | (21         | ) |   | 397    |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Earnings from continuing operations before income
taxes and minority
  interest |  |                            | 4,281  |             |   | (239        | ) |   | 4,042  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Income tax expense                                                              |  |                            | (1,542 | )           |   | 124         |   |   | (1,418 | )
|Minority interest                                                               |  |                            | (275   | )           |   | 5           |   |   | (270   | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Earnings from continuing operations                                             |  |                            | 2,464  |             |   | (110        | ) |   | 2,354  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Discontinued TeraOptix operations, net of tax                                   |  |                            | (49    | )           |   |            |   |   | (49    | )
|Charges related to the disposal of TeraOptix, net of tax                        |  |                            | (114   | )           |   |            |   |   | (114   | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Loss from discontinued operations                                               |  |                            | (163   | )           |   |            |   |   | (163   | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings                                                                    |  | $                          | 2,301  |             | $ | (110        | ) | $ | 2,191  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Basic - Earnings (loss) per share:                                              |  |                            |        |             |   |             |   |   |        |  
|Continuing operations                                                           |  | $                          | 0.14   |             | $ | (0.01       | ) | $ | 0.13   |  
|Discontinued operations                                                         |  |                            | (0.01  | )           |   |            |   |   | (0.01  | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings                                                                    |  | $                          | 0.13   |             | $ | (0.01       | ) | $ | 0.12   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted - Earnings (loss) per share:                                            |  |                            |        |             |   |             |   |   |        |  
|Continuing operations                                                           |  | $                          | 0.14   |             | $ | (0.01       | ) | $ | 0.13   |  
|Discontinued operations                                                         |  |                            | (0.01  | )           |   |            |   |   | (0.01  | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings                                                                    |  | $                          | 0.13   |             | $ | (0.01       | ) | $ | 0.12   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Weighted average number of shares:                                              |  |                            |        |             |   |             |   |   |        |  
|Basic                                                                           |  |                            | 17,930 |             |   | 17,930      |   |   | 17,930 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted                                                                         |  |                            | 18,130 |             |   | 18,130      |   |   | 18,130 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  

14

---



The following table presents the effect of the Restatement on
the consolidated statement of operations for the six months ended December 31,
2005:

|                                                                                |  |                            |        |             |   |             |   |   |        |  
|------------------------------------------------------------------------------- |  | -------------------------- | ------ | ----------- | - | ----------- | - | - | ------ | -
|                                                                                |  | As
  previously
  reported |        | Adjustments |   | As Restated |  
|                                                                                |  |                            |        |             |   |             |  
|Net sales                                                                       |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  | $                          | 68,833 |             | $ | (468        | ) | $ | 68,365 |  
|Development services                                                            |  |                            | 9,572  |             |   |            |   |   | 9,572  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 78,405 |             |   | (468        | ) |   | 77,937 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Cost of goods sold                                                              |  |                            |        |             |   |             |   |   |        |  
|Products                                                                        |  |                            | 40,619 |             |   | 19          |   |   | 40,638 |  
|Development services                                                            |  |                            | 6,954  |             |   |            |   |   | 6,954  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            | 47,573 |             |   | 19          |   |   | 47,592 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Gross profit                                                                    |  |                            | 30,832 |             |   | (487        | ) |   | 30,345 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Selling, general, and administrative expenses                                   |  |                            | 14,570 |             |   | (43         | ) |   | 14,527 |  
|Research, development and engineering expenses                                  |  |                            | 6,968  |             |   |            |   |   | 6,968  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Operating profit                                                                |  |                            | 9,294  |             |   | (444        | ) |   | 8,850  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Other income                                                                    |  |                            |        |             |   |             |   |   |        |  
|Interest income                                                                 |  |                            | 828    |             |   |            |   |   | 828    |  
|Miscellaneous income, net                                                       |  |                            | 216    |             |   | (9          | ) |   | 207    |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Total other income                                                              |  |                            | 1,044  |             |   | (9          | ) |   | 1,035  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Earnings from continuing operations before income
taxes and minority
  interest |  |                            | 10,338 |             |   | (453        | ) |   | 9,885  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Income tax expense                                                              |  |                            | (3,665 | )           |   | 163         |   |   | (3,502 | )
|Minority interest                                                               |  |                            | (510   | )           |   |            |   |   | (510   | )
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings                                                                    |  | $                          | 6,163  |             | $ | (290        | ) | $ | 5,873  |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Net earnings per share:                                                         |  |                            |        |             |   |             |   |   |        |  
|Basic                                                                           |  | $                          | 0.34   |             | $ | (0.02       | ) | $ | 0.33   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted                                                                         |  | $                          | 0.34   |             | $ | (0.02       | ) | $ | 0.32   |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Weighted average number of shares:                                              |  |                            |        |             |   |             |   |   |        |  
|Basic                                                                           |  |                            | 18,022 |             |   | 18,022      |   |   | 18,022 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  
|Diluted                                                                         |  |                            | 18,225 |             |   | 18,225      |   |   | 18,225 |  
|                                                                                |  |                            |        |             |   |             |   |   |        |  

15

---



The
following table presents the effect of the Restatement on the consolidated
statement of operations for the six months ended December 31, 2004:

|                                                                                |  |                         |        |             |   |               |   |   |        |  
|------------------------------------------------------------------------------- |  | ----------------------- | ------ | ----------- | - | ------------- | - | - | ------ | -
|                                                                                |  | As
  previouslyreported |        | Adjustments |   | As
  Restated |  
|                                                                                |  |                         |        |             |   |               |  
|Net sales                                                                       |  |                         |        |             |   |               |   |   |        |  
|Products                                                                        |  | $                       | 59,413 |             | $ | (370          | ) | $ | 59,043 |  
|Development services                                                            |  |                         | 4,172  |             |   |              |   |   | 4,172  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         | 63,585 |             |   | (370          | ) |   | 63,215 |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Cost of
  goods sold                                                            |  |                         |        |             |   |               |   |   |        |  
|Products                                                                        |  |                         | 36,193 |             |   | 17            |   |   | 36,210 |  
|Development services                                                            |  |                         | 3,021  |             |   |              |   |   | 3,021  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         | 39,214 |             |   | 17            |   |   | 39,231 |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Gross profit                                                                    |  |                         | 24,371 |             |   | (387          | ) |   | 23,984 |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Selling, general, and administrative
  expenses                                 |  |                         | 11,382 |             |   |              |   |   | 11,382 |  
|Research, development and engineering
  expenses                                |  |                         | 6,880  |             |   |              |   |   | 6,880  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Operating profit                                                                |  |                         | 6,109  |             |   | (387          | ) |   | 5,722  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Other income                                                                    |  |                         |        |             |   |               |   |   |        |  
|Interest income                                                                 |  |                         | 354    |             |   |              |   |   | 354    |  
|Miscellaneous income,
net                                                       |  |                         | 214    |             |   | (48           | ) |   | 166    |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Total other income                                                              |  |                         | 568    |             |   | (48           | ) |   | 520    |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Earnings from continuing
operations before
  income taxes and minority interest |  |                         | 6,677  |             |   | (435          | ) |   | 6,242  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Income tax expense                                                              |  |                         | (2,404 | )           |   | 219           |   |   | (2,185 | )
|Minority interest                                                               |  |                         | (397   | )           |   | 11            |   |   | (386   | )
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Earnings from continuing operations                                             |  |                         | 3,876  |             |   | (205          | ) |   | 3,671  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Discontinued TeraOptix operations, net of
  tax                                 |  |                         | (110   | )           |   |              |   |   | (110   | )
|Charges related to the disposal of
  TeraOptix, net of tax                      |  |                         | (118   | )           |   |              |   |   | (118   | )
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Loss from discontinued
operations                                               |  |                         | (228   | )           |   |              |   |   | (228   | )
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Net earnings                                                                    |  | $                       | 3,648  |             | $ | (205          | ) | $ | 3,443  |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Basic - Earnings (loss) per share:                                              |  |                         |        |             |   |               |   |   |        |  
|Continuing
operations                                                           |  | $                       | 0.22   |             | $ | (0.01         | ) | $ | 0.20   |  
|Discontinued
operations                                                         |  |                         | (0.01  | )           |   |              |   |   | (0.01  | )
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Net
  earnings                                                                  |  | $                       | 0.20   |             | $ | (0.01         | ) | $ | 0.19   |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Diluted - Earnings (loss) per share:                                            |  |                         |        |             |   |               |   |   |        |  
|Continuing
operations                                                           |  | $                       | 0.21   |             | $ | (0.01         | ) | $ | 0.20   |  
|Discontinued
operations                                                         |  |                         | (0.01  | )           |   |              |   |   | (0.01  | )
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Net
  earnings                                                                  |  | $                       | 0.20   |             | $ | (0.01         | ) | $ | 0.19   |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Weighted average number of shares:                                              |  |                         |        |             |   |               |   |   |        |  
|Basic                                                                           |  |                         | 17,926 |             |   | 17,926        |   |   | 17,926 |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  
|Diluted                                                                         |  |                         | 18,099 |             |   | 18,099        |   |   | 18,099 |  
|                                                                                |  |                         |        |             |   |               |   |   |        |  

16

---



The following table presents the effect of
the Restatement on the consolidated balance sheet as of December 31, 2005:

|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ----------- | - | ------------- | - | - | ------- | -
|                                                                                          |  | As 
  previously reported |         | Adjustments |   | As
  Restated |  
|                                                                                          |  |                           |         |             |   |               |  
|Assets                                                                                    |  |                           |         |             |   |               |   |   |         |  
|Current assets:                                                                           |  |                           |         |             |   |               |   |   |         |  
|Cash and cash
equivalents                                                                 |  | $                         | 13,457  |             | $ |              |   | $ | 13,457  |  
|Marketable securities                                                                     |  |                           | 20,169  |             |   |              |   |   | 20,169  |  
|Receivables, net of allowance
for doubtful
  accounts of $544                             |  |                           | 30,579  |             |   | (1            | ) |   | 30,578  |  
|Inventories                                                                               |  |                           | 32,980  |             |   |              |   |   | 32,980  |  
|Prepaid expenses                                                                          |  |                           | 2,064   |             |   | (14           | ) |   | 2,050   |  
|Deferred income taxes                                                                     |  |                           | 9,537   |             |   |              |   |   | 9,537   |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Total current
assets                                                                      |  |                           | 108,786 |             |   | (15           | ) |   | 108,771 |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Marketable securities                                                                     |  |                           | 23,915  |             |   |              |   |   | 23,915  |  
|Property, plant, and equipment, net                                                       |  |                           | 31,540  |             |   |              |   |   | 31,540  |  
|Deferred income taxes                                                                     |  |                           | 18,100  |             |   | 1,020         |   |   | 19,120  |  
|Intangible assets, net                                                                    |  |                           | 5,892   |             |   |              |   |   | 5,892   |  
|Other assets                                                                              |  |                           | 884     |             |   |              |   |   | 884     |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Total assets                                                                              |  | $                         | 189,117 |             | $ | 1,005         |   | $ | 190,122 |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Liabilities and Stockholders
Equity                                                      |  |                           |         |             |   |               |   |   |         |  
|Current liabilities:                                                                      |  |                           |         |             |   |               |   |   |         |  
|Accounts payable                                                                          |  | $                         | 11,212  |             | $ |              |   | $ | 11,212  |  
|Accrued progress
payments                                                                 |  |                           | 18,515  |             |   | (69           | ) |   | 18,446  |  
|Accrued salaries and
wages                                                                |  |                           | 5,116   |             |   |              |   |   | 5,116   |  
|Other accrued
expenses                                                                    |  |                           | 3,973   |             |   | (50           | ) |   | 3,923   |  
|Income taxes payable                                                                      |  |                           | 1,540   |             |   |              |   |   | 1,540   |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Total current
liabilities                                                                 |  |                           | 40,356  |             |   | (119          | ) |   | 40,237  |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Other long-term liabilities                                                               |  |                           | 97      |             |   |              |   |   | 97      |  
|Minority interest                                                                         |  |                           | 1,138   |             |   |              |   |   | 1,138   |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Commitments and contingencies                                                             |  |                           |         |             |   |               |   |   |         |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Stockholders equity:                                                                     |  |                           |         |             |   |               |   |   |         |  
|Common stock, $.10 par value
per share:                                                   |  |                           |         |             |   |               |   |   |         |  
|40,000,000 shares authorized;
  18,471,782 shares issued;
  18,024,577 shares outstanding |  |                           | 1,848   |             |   |              |   |   | 1,848   |  
|Additional paid-in
capital                                                                |  |                           | 143,854 |             |   |              |   |   | 143,854 |  
|Retained earnings                                                                         |  |                           | 9,977   |             |   | (1,537        | ) |   | 8,440   |  
|Accumulated other
comprehensive income (loss):                                            |  |                           |         |             |   |               |   |   |         |  
|Currency translation
effects                                                              |  |                           | (2,891  | )           |   | 2,661         |   |   | (230    | )
|Net
  unrealized gain on marketable securities                                            |  |                           | 25      |             |   |              |   |   | 25      |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|                                                                                          |  |                           | 152,813 |             |   | 1,124         |   |   | 153,937 |  
|Less treasury stock, at cost;
447,205 common shares                                       |  |                           | 5,287   |             |   |              |   |   | 5,287   |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Total stockholders
equity                                                                |  |                           | 147,526 |             |   | 1,124         |   |   | 148,650 |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  
|Total liabilities and stockholders
equity                                                |  | $                         | 189,117 |             | $ | 1,005         |   | $ | 190,122 |  
|                                                                                          |  |                           |         |             |   |               |   |   |         |  

17

---



NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In December
2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, that
amends Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. The
adoption of SFAS No. 153 in fiscal 2006 is not expected to have a material
effect on our financial position or results of operations.

In May 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
primarily changes the requirements for the accounting for and reporting of a
change in accounting principle for all voluntary changes or when an accounting
pronouncement does not include specific transition provisions. This applies to
any future accounting changes beginning in fiscal 2007.

In
November 2005, the FASB issued FASB Staff Positions (FSP) SFAS 115-1 and
SFAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments. FSP SFAS 115-1 and SFAS 124-1 address the
determination as to when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of an impairment loss.
They also include accounting considerations subsequent to the recognition of an
other-than-temporary impairment and require certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. We will be adopting FSP SFAS 115-1 and SFAS 124-1 beginning in
fiscal 2007 and expect the effect on our consolidated financial statements to
be immaterial.

NOTE 4: DIVESTITURES AND DISCONTINUED
OPERATIONS

In September
2002, we committed to a planned disposition of our TeraOptix business unit
(TeraOptix). We discontinued all operations by January 2003. The sale of the
facility was completed in March 2005 for $1,918, net of selling expenses.

The results
and loss on disposal of the TeraOptix business unit have been presented as
separate line items in the accompanying Consolidated Statements of Operations
as Discontinued TeraOptix operations, net of tax, for all periods presented.
The components of cash flow from discontinued operations are as follows:

|                                                                      |  |                                                   |   |      |   | 
|--------------------------------------------------------------------- |  | ------------------------------------------------- | - | ---- | - | 
|                                                                      |  |                                                   |  
|                                                                      |  | For the six
  
  months ended 
  December 31,2004 |  
|                                                                      |  |                                                   |  
|Cash flow from operating activities from
  discontinued operations:   |  |                                                   |   |     
|Loss from discontinued
operations                                     |  |                                                   | $ | (228 | ) | 
|Loss on sale and impairment of
assets                                 |  |                                                   |   | 179  |   | 
|Deferred income
taxes                                                 |  |                                                   |   | (54  | ) | 
|Other, net                                                            |  |                                                   |   | (22  | ) | 
|                                                                      |  |                                                   |   |      |   | 
|Net cash used for operating activities from
  discontinued operations |  |                                                   | $ | (125 | ) | 
|                                                                      |  |                                                   |   |      |   | 

There was no
cash flow impact from discontinued operations in fiscal 2006.

18

---



NOTE 5: SEGMENT INFORMATION

We operate in
two principal business segments globally: Semiconductor and Industrial. The
segment data is presented below in a manner consistent with managements
internal measurement of the business.

|                             |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|---------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ---------- | - | ---------- | ------ | - | - | ------ | -
|                             |  | Three Months Ended December 31, |        | Six Months Ended December 31, |  
|                             |  |                                 |        |                               |  
|                             |  | 2005                            |        | 2004                          |   | 2005       |   | 2004       |       
|                             |  |                                 |        |                               |   |            |   |            |       
|                             |  | (Restated)                      |        | (Restated)                    |   | (Restated) |   | (Restated) |       
|Semiconductor                |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                               | 24,212 |                               | $ | 18,415     |   | $          | 42,648 |   | $ | 34,259 |  
|Gross profit                 |  |                                 | 9,369  |                               |   | 7,077      |   |            | 16,511 |   |   | 13,471 |  
|Gross profit as a % of
sales |  |                                 | 39     | %                             |   | 38         | % |            | 39     | % |   | 39     | %
|                             |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Industrial                   |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                               | 19,396 |                               | $ | 17,380     |   | $          | 35,289 |   | $ | 28,956 |  
|Gross profit                 |  |                                 | 7,823  |                               |   | 5,963      |   |            | 13,834 |   |   | 10,513 |  
|Gross profit as a % of
sales |  |                                 | 40     | %                             |   | 34         | % |            | 39     | % |   | 36     | %
|                             |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Total                        |  |                                 |        |                               |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                               | 43,608 |                               | $ | 35,795     |   | $          | 77,937 |   | $ | 63,215 |  
|Gross profit                 |  |                                 | 17,192 |                               |   | 13,040     |   |            | 30,345 |   |   | 23,984 |  
|Gross profit as a % of
sales |  |                                 | 39     | %                             |   | 36         | % |            | 39     | % |   | 38     | %

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

ZYGOs
Metrology, which includes development services, Optical Systems Solutions, and
Precision Positioning Systems (PPS) product lines are sold into its two business
segments. Supplementary sales and gross profit data by product line is as
follows:

|                             |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|---------------------------- |  | --------------------------------------- | ------ | ------------------------------------- | - | ---------- | - | ---------- | ------ | - | - | ------ | -
|                             |  | Three Months
        Ended December 31, |        | Six Months
        Ended December 31, |  
|                             |  |                                         |        |                                       |  
|                             |  | 2005                                    |        | 2004                                  |   | 2005       |   | 2004       |       
|                             |  |                                         |        |                                       |   |            |   |            |       
|                             |  | (Restated)                              |        | (Restated)                            |   | (Restated) |   | (Restated) |       
|Metrology                    |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                                       | 24,049 |                                       | $ | 15,877     |   | $          | 40,306 |   | $ | 26,485 |  
|Gross profit                 |  |                                         | 10,959 |                                       |   | 7,396      |   |            | 18,326 |   |   | 11,808 |  
|Gross profit as a % of sales |  |                                         | 46     | %                                     |   | 47         | % |            | 45     | % |   | 45     | %
|                             |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Optical Systems Solutions    |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                                       | 9,069  |                                       | $ | 10,692     |   | $          | 18,565 |   | $ | 17,323 |  
|Gross profit                 |  |                                         | 1,791  |                                       |   | 1,733      |   |            | 3,531  |   |   | 3,132  |  
|Gross profit as a % of sales |  |                                         | 20     | %                                     |   | 16         | % |            | 19     | % |   | 18     | %
|                             |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|PPS                          |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                                       | 10,490 |                                       | $ | 9,226      |   | $          | 19,066 |   | $ | 19,407 |  
|Gross profit                 |  |                                         | 4,442  |                                       |   | 3,911      |   |            | 8,488  |   |   | 9,044  |  
|Gross profit as a % of sales |  |                                         | 42     | %                                     |   | 42         | % |            | 45     | % |   | 47     | %
|                             |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Total                        |  |                                         |        |                                       |   |            |   |            |        |   |   |        |  
|Sales                        |  | $                                       | 43,608 |                                       | $ | 35,795     |   | $          | 77,937 |   | $ | 63,215 |  
|Gross profit                 |  |                                         | 17,192 |                                       |   | 13,040     |   |            | 30,345 |   |   | 23,984 |  
|Gross profit as a % of sales |  |                                         | 39     | %                                     |   | 36         | % |            | 39     | % |   | 38     | %

19

---



Substantially
all of our operating expenses, assets, and depreciation and amortization are
U.S. based. Sales by geographic area were as follows:

|            |  |                                 |        |                               |   |            |  |            |        |  |   |        | 
|----------- |  | ------------------------------- | ------ | ----------------------------- | - | ---------- |  | ---------- | ------ |  | - | ------ | 
|            |  | Three Months Ended December 31, |        | Six Months Ended December 31, |  
|            |  |                                 |        |                               |  
|            |  | 2005                            |        | 2004                          |   | 2005       |  | 2004       |       
|            |  |                                 |        |                               |   |            |  |            |       
|            |  | (restated)                      |        | (restated)                    |   | (restated) |  | (restated) |       
|            |  |                                 |        |                               |   |            |  |            |        |  |   |        | 
|Domestic    |  | $                               | 13,975 |                               | $ | 11,988     |  | $          | 26,985 |  | $ | 20,033 | 
|Europe      |  |                                 | 4,859  |                               |   | 4,854      |  |            | 7,640  |  |   | 7,501  | 
|Japan       |  |                                 | 19,381 |                               |   | 15,393     |  |            | 33,543 |  |   | 29,450 | 
|Pacific Rim |  |                                 | 5,393  |                               |   | 3,560      |  |            | 9,769  |  |   | 6,231  | 
|            |  |                                 |        |                               |   |            |  |            |        |  |   |        | 
|Total       |  | $                               | 43,608 |                               | $ | 35,795     |  | $          | 77,937 |  | $ | 63,215 | 
|            |  |                                 |        |                               |   |            |  |            |        |  |   |        | 

NOTE 6: RELATED PARTY TRANSACTIONS AND MAJOR
CUSTOMER

Sales to Canon
Inc., one of our significant stockholders, and Canon Sales Co., Inc., a
distributor of certain of our products in Japan and a subsidiary of Canon Inc.,
amounted to $15,628 (36% of net sales) and $27,981 (36% of net sales) for the
second quarter and six months ended December 31, 2005, as compared with $12,758
(36% of net sales) and $25,350 (40% of net sales) for the comparable prior year
periods. These sales include revenues generated from the development agreements
referenced below. Selling prices of products sold to Canon Inc. and Canon Sales
Co., Inc. are based, generally, on the terms customarily given to distributors.
Revenues generated from the development agreements are recorded on a cost-plus
basis. At December 31, 2005 and June 30, 2005, there were, in the aggregate,
$7,431 and $3,951, respectively, of trade accounts receivable from Canon Inc.
and Canon Sales Co., Inc.

In September
2002, we entered into a contract with Canon Inc. related to the development of
certain interferometers. In March 2004, we signed a preliminary agreement to
begin further add-on work; the definitive agreement for this additional work
was signed in December 2004. In February 2005, we entered into two additional
agreements with Canon Inc. related to the development of prototype production
tools and accessories. During the three and six months ended December 31, 2005,
we recognized revenue in the semiconductor segment of $5,611 and $9,572,
respectively, for these contracts compared with $2,477 and $4,172,
respectively, for the comparable prior year periods. In addition, Canon Inc.
paid us progress payments in accordance with the terms of the developmental
contract. The total progress payments related to the developmental contract
remaining at December 31, 2005 were $9,175.

NOTE 7: HEDGING ACTIVITIES

During the
third quarter of fiscal 2005, we began entering 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 SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as
amended, and therefore, are marked-to-market with changes in fair value
recorded in the Statement of Operations. These contracts are entered into for
periods consistent with the currency transaction exposures, generally three to
six months. Any gains and losses on the fair value of these contracts would
largely offset corresponding losses and gains on the underlying transactions.

As of December
31, 2005, we had seven foreign currency forward contracts (yen) outstanding
aggregating to $2,641. For the three months ended December 31, 2005, we
recognized a loss from foreign currency forward contracts of $23. For the six
months ended December 31, 2005, we recognized a gain of $59. These gains and
losses are included in other income in the Consolidated Statements of
Operations. These gains and losses are substantially offset by foreign exchange
losses and gains on intercompany balances recorded by our subsidiaries. We did
not enter into any derivative instruments to hedge foreign currency exposure
prior to the third quarter of fiscal 2005.

NOTE 8: INCOME TAXES

The effective
tax rate for the three months ended December 31, 2005 decreased by a percentage
point to 34% as compared with the prior year period of 35%. The decrease in the
effective tax rate was due to the release of tax reserves in a foreign
jurisdiction, accounting for a four percentage point decrease in the rate. This
decrease was partially offset by an increase in the effective tax rate
primarily due to increased income in foreign operations, which operate in
higher tax jurisdictions, and an increase in tax upon additional monies
repatriated from these foreign operations. The effective tax rate of 35% for
the six months ended December 31, 2005, while consistent with the comparable
prior year, was affected by the release of tax reserves and the increased
income in foreign operations.

20

---



Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Introduction

Zygo Corporation designs, develops, and manufactures ultra-high
precision measurement solutions and optical components and systems. ZYGOs
measurement solutions are designed to improve quality, increase productivity,
and decrease the overall cost of manufacturing and product development for
high-technology manufacturing processes. The Companys optical component and
systems products provide high-end solutions for laser fusion research, imaging
systems, and measurement system components. We conduct the
majority of our manufacturing in our 153,500 square foot facility in
Middlefield, Connecticut.

We serve the semiconductor and industrial markets through our three
core product lines, metrology, optical systems solutions, and precision
positioning systems. Our semiconductor product offerings include OEM solutions
and major technology development projects for the semiconductor capital
equipment industry and direct supplied in-line automated yield improvement
systems for both flat panel displays and advanced semiconductor packaging
manufacturing. Our industrial market products serve the automotive, consumer
electronics, defense/aerospace, and all markets other than semiconductor.
Industrial market products include optical components, optical systems and
measurement-based process control systems for defense, aerospace, and medical
device customers and measurement-based process control and yield-enhancement
systems for automotive and consumer electronics customers.

Our
development services have produced a significant amount of our revenue over the
past two years. In September 2002, we entered into a contract with Canon Inc.
related to the development of certain interferometers. In March 2004, we signed
a preliminary agreement to begin further add-on work; the definitive agreement
for this additional work was signed in December 2004. In February 2005, we
entered into two additional agreements with Canon Inc. related to the
development of prototype production tools and accessories. During the three and
six months ended December 31, 2005, we recognized $5.6 million and $9.6
million, respectively, of revenue from these development services contracts as
compared with $2.5 million and $4.2 million, respectively, in the prior year
comparable periods. The development services contracts that were signed in
fiscal 2005 were cost plus contracts and were expected to represent
approximately $41.0 million in additional revenue through the first six months
of fiscal 2007. We currently expect total revenues of approximately $37.0
million, with the reduction due to estimated costs being less than anticipated.
To date, a total of $23.8 million of this revenue has been recognized. To the
extent that total actual costs on the contracts may be less than currently
anticipated, the resulting development services revenue could be less than the
currently estimated value of the contract. Additionally, our period over period
comparable sales in the future could be adversely affected if we do not
continue to provide these development services at similar levels or do not
expand our overall business sufficiently to offset the decline in development
services revenue.

We achieved an
order level for the second quarter of fiscal 2006 of $50.1 million as compared
with $38.3 million for the first quarter of fiscal 2006 and $39.4 million for
the second quarter of fiscal 2005. This order flow increased backlog at
December 31, 2005 to $77.0 million. Orders in the semiconductor segment of $25.9
million increased $6.1 million, or 31%, as compared with the first quarter of
fiscal 2006; and increased $5.9 million, or 30%, as compared with the second
quarter of fiscal 2005. We continue to receive orders from the flat panel
market of the semiconductor segment and expect orders from that market to
continue for the immediate future. We also experienced an increase in
lithography orders over the prior year period, which continued a strengthening
in that market area over the last six months. Orders in the industrial segment
of $24.2 million increased by $5.6 million, or 30%, as compared with the first
quarter of fiscal 2006 and $4.8 million, or 25%, as compared with the second
quarter of fiscal 2005. Orders in the industrial segment were fueled primarily
by government contracts for the National Ignition Facility in both our Tucson
and Middlefield facilities.

Beginning in the first quarter
of fiscal 2006, we were required to record the expense of share-based payment
transactions. Under the modified prospective method, we were not required to
restate the prior year financial statements or include in the current year any
expenses related to stock option grants vested as of June 30, 2005. In the
quarter ended December 31, 2005, operating income was reduced by $0.8 million
of share-based payment compensation expense, affecting cost of goods sold by
$0.2 million, selling, general, and administrative expenses (SG&A) by
$0.5 million, and research, development, and engineering expenses (RD&E)
by $0.1 million. Share-based compensation expense reduced our quarterly diluted
earnings per share by $0.03. For the six months ended December 31, 2005,
operating income was reduced by $1.2 million of share-based payment
compensation expense, affecting cost of goods sold by $0.3 million, SG&A by
$0.7 million, and RD&E expenses by $0.2 million. Share-based compensation
expense reduced our six month diluted earnings per share by $0.04. The
share-based compensation expense related to current outstanding stock options
and restricted shares and to future issuances of stock options which are
presently known to us is estimated to be approximately $0.4 million in each of
the third and fourth quarters of fiscal 2006.

21

---



Restatement

We are
restating our consolidated financial statements for the second quarter of
fiscal 2006 for corrections in the accounting of intercompany transactions from
certain of our foreign operations. The corrections are the result of our
failure to identify and eliminate certain intercompany revenues attributed to
our Singapore and Taiwan offices, which resulted in our overstating reported
revenues, from fiscal 2001 through the second quarter of fiscal 2006. The tax
effects on the corrections and other minor adjustments have also been reflected
in these restatements.

The restated financial statements do not affect our business outlook
  for future fiscal periods, nor impact our cash position or future cash flows
  from operations. The impact of the corrections on the consolidated balance sheets
  and consolidated financial statements of operations is shown in note 2 to our
  consolidated financial statements included in this Form 10-Q/A

Net Sales

|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|---------------------------- |  | ----------- | ---- | ------------- |  | ---------- | - | ------------- | ---- |  |  | --- | -
|                             |  | Fiscal 2006 |      | Fiscal 2005   | 
|                             |  |             |      |               | 
|(In millions)                |  | Amount      |      | Net Sales
  % |  | Amount     |   | Net Sales
  % |     
|                             |  |             |      |               |  |            |   |               |     
|                             |  | (Restated)  |      | (Restated)    |  | (Restated) |   | (Restated)    |     
|Quarter ended December 31    |  |             |      |               |  |            |   |               |      |  |  |     |  
|Semiconductor                |  | $           | 18.6 |               |  | 43         | % | $             | 15.9 |  |  | 44  | %
|Developmental Services       |  |             | 5.6  |               |  | 13         | % |               | 2.5  |  |  | 7   | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total Semiconductor          |  |             | 24.2 |               |  | 56         | % |               | 18.4 |  |  | 51  | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total Industrial             |  |             | 19.4 |               |  | 44         | % |               | 17.4 |  |  | 49  | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total                        |  | $           | 43.6 |               |  | 100        | % | $             | 35.8 |  |  | 100 | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Six months ended December 31 |  |             |      |               |  |            |   |               |      |  |  |     |  
|Semiconductor                |  | $           | 33.0 |               |  | 43         | % | $             | 30.1 |  |  | 48  | %
|Developmental Services       |  |             | 9.6  |               |  | 12         | % |               | 4.2  |  |  | 6   | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total Semiconductor          |  |             | 42.6 |               |  | 55         | % |               | 34.3 |  |  | 54  | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total Industrial             |  |             | 35.3 |               |  | 45         | % |               | 29.0 |  |  | 46  | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  
|Total                        |  | $           | 77.9 |               |  | 100        | % | $             | 63.3 |  |  | 100 | %
|                             |  |             |      |               |  |            |   |               |      |  |  |     |  

Net sales in
the semiconductor segment increased 32% in the second quarter of fiscal 2006 as
compared with the prior year. This increase was due primarily to an increase in
developmental services of $3.1 million and flat panel sales of $0.9 million.
For the six month period ended December 31, 2005, the semiconductor segment
increased 24% as compared with the prior year period due to an increase in
developmental services of $5.4 million, flat panel sales of $2.0 million, and
new product sales of $0.5 million.

Net sales in
the industrial segment increased by 11% in the second quarter of fiscal 2006 as
compared with the prior year period primarily due to increased volume related
to contract manufacturing shipments and optical systems assemblies. For the six
month period ended December 31, 2005, the industrial segment net sales
increased 22% as compared with the prior year period due to increased volume
related to contract manufacturing and optical systems assemblies of $3.3
million, sales increase of $1.3 million related to new customers in South Korea
and China, and a $0.6 million sales increase volume increases to automotive
customers in Europe.

Sales in U.S.
dollars for the three and six months of fiscal 2006 were $35.0 million, or 80%,
and $64.8, or 83%, respectively, of total net sales for the periods. 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 can impact the sales of our products
in export markets, as would changes in the general economic conditions in those
markets. Management believes the percentage of sales in foreign currencies may
increase in the current year due to an increase in sales denominated in yen to
Japanese customers. In the absence of a substantial increase in sales orders in
currency other than U.S. dollars, we believe a 10% appreciation or depreciation
of the U.S. dollar against the euro and yen would have an immaterial impact on
our consolidated financial position and results of operations.

22

---



Gross Profit by
Segment

|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|---------------------------- |  | ----------- | ---- | ---------------- |  | ------ | - | ----------------- | ---- |  |  | -- | -
|                             |  | Fiscal 2006 |      | Fiscal
  2005    | 
|                             |  |             |      |                  | 
|(In
  millions)              |  | Amount      |      | Gross
  Profit % |  | Amount |   | Gross 
  Profit % |     
|                             |  |             |      |                  |  |        |   |                   |     
|                            
|Quarter ended December 31    |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Semiconductor                |  | $           | 7.8  |                  |  | 42     | % | $                 | 6.2  |  |  | 39 | %
|Developmental services       |  |             | 1.6  |                  |  | 29     | % |                   | 0.8  |  |  | 32 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total Semiconductor          |  |             | 9.4  |                  |  | 39     | % |                   | 7.0  |  |  | 38 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total Industrial             |  |             | 7.8  |                  |  | 40     | % |                   | 6.0  |  |  | 34 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total                        |  | $           | 17.2 |                  |  | 39     | % | $                 | 13.0 |  |  | 36 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Six months ended December 31 |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Semiconductor                |  | $           | 13.9 |                  |  | 42     | % | $                 | 12.3 |  |  | 41 | %
|Developmental services       |  |             | 2.6  |                  |  | 27     | % |                   | 1.2  |  |  | 29 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total Semiconductor          |  |             | 16.5 |                  |  | 39     | % |                   | 13.5 |  |  | 39 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total Industrial             |  |             | 13.8 |                  |  | 39     | % |                   | 10.5 |  |  | 36 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  
|Total                        |  | $           | 30.3 |                  |  | 39     | % | $                 | 24.0 |  |  | 38 | %
|                             |  |             |      |                  |  |        |   |                   |      |  |  |    |  

Gross profit
as a percentage of sales for the three and six months of fiscal 2006 increased
over the comparable periods in the prior year primarily due to an increase in
the industrial segment margins while the semiconductor segment margins remained
relatively stable. Industrial segment margins increased on the improved margins
in our optical systems products. Improved operations and increased volume have
led to these improved margins. During the comparable fiscal 2005 periods, the
gross profit percentage was negatively impacted by new product ramp-up expenses
for opto-mechanical assemblies and under absorbed factory overhead due to a
production delay of certain assemblies. The overall semiconductor segment
margins stayed relatively stable despite a decrease in development services
margins. Margins on semiconductor product sales increased primarily due to
improved factory performance. General factory costs, including warranty,
factory efficiency costs, and inventory related costs, were lower than in the
prior year.

Selling, General, and
Administrative Expenses (SG&A)

|                             |  |             |      |               |  |        |  |   |            |  |  |     | 
|---------------------------- |  | ----------- | ---- | ------------- |  | ------ |  | - | ---------- |  |  | --- | 
|                             |  | Fiscal 2006 |      | Fiscal
  2005 | 
|                             |  |             |      |               | 
|(In millions)                |  | Amount      |      | % of Sales    |  | Amount |  |   | % of Sales | 
|                             |  |             |      |               |  |        |  |   |            | 
|                             |  |             |      |               |  |        |  |   |            |  |  |     | 
|Quarter ended December 31    |  | $           | 8.2  |               |  | 19%    |  | $ | 5.7        |  |  | 16% | 
|Six months ended December 31 |  | $           | 14.5 |               |  | 19%    |  | $ | 11.4       |  |  | 18% | 

The second
quarter increase in SG&A was primarily due to increased employee expenses,
including management incentives, of $0.9 million, share-based compensation
expense of $0.5 million, and increased selling expenses related to new market
initiatives of $0.2 million, primarily related to the new offices in Korea,
Taiwan, and mainland China. For the six months ended December 31, 2005, the
increase in SG&A was due to share-based compensation expense of $0.7
million, increased selling and general expenses related to new initiatives in
our west coast operations of $0.5 million, increased employee expenses, including
management incentives, of $0.4 million, and costs associated with increasing
our presence in the Pacific Rim with the opening of new offices within the last
year in Korea, Taiwan, and mainland China, of $0.3 million, to support
anticipated future growth.

23

---



Research, Development, and
Engineering Expenses (RD&E)

|                               |  |             |     |               |  |        |  |            |     |  |  |     | 
|------------------------------ |  | ----------- | --- | ------------- |  | ------ |  | ---------- | --- |  |  | --- | 
|                               |  | Fiscal 2006 |     | Fiscal
  2005 | 
|                               |  |             |     |               | 
|(In
  millions)                |  | Amount      |     | % of Sales    |  | Amount |  | % of Sales |    
|                               |  |             |     |               |  |        |  |            |    
|                               |  |             |     |               |  |        |  |            |     |  |  |     | 
|Quarter ended December 31      |  | $           | 3.4 |               |  | 8%     |  | $          | 3.7 |  |  | 10% | 
|Six months ended December
  31 |  | $           | 7.0 |               |  | 9%     |  | $          | 6.9 |  |  | 11% | 

RD&E for
the second quarter and first six months of fiscal 2006 was relatively flat with
the prior year comparable period but was positively impacted by a reimbursement
from a customer of $0.7 million for research costs incurred. Without the
customer reimbursement our RD&E would have increased over the prior year.
Current year initiatives are focused in the semiconductor segment, most notably
in the display and packaging markets, and include the opening of our Oregon
engineering and product development office. Share-based compensation expense
included in RD&E for the second quarter and six month period ended December
31, 2005 was $0.1 million and $0.2 million, respectively.

Income Tax

|                             |  |             |     |                          |  |        |  |                          |     |  |  |     | 
|---------------------------- |  | ----------- | --- | ------------------------ |  | ------ |  | ------------------------ | --- |  |  | --- | 
|                             |  | Fiscal 2006 |     | Fiscal
  2005            | 
|                             |  |             |     |                          | 
|(In
millions)                |  | Amount      |     | Effective
  Tax Rate
  % |  | Amount |  | Effective
  Tax Rate
  % |    
|                             |  |             |     |                          |  |        |  |                          |    
|                             |  |             |     |                          |  |        |  |                          |     |  |  |     | 
|Quarter ended December 31    |  | $           | 2.1 |                          |  | 34%    |  | $                        | 1.4 |  |  | 35% | 
|Six months ended December 31 |  | $           | 3.5 |                          |  | 35%    |  | $                        | 2.2 |  |  | 35% | 

The effective
tax rate for the quarter decreased due to the release of tax reserves in a
foreign jurisdiction, which accounted for a four percentage point decrease in
the rate. This decrease was partially offset by an increase in the effective
tax rate of two percentage points primarily due to increased income in foreign
operations, which operate in higher tax jurisdictions, and an increase in tax
upon additional monies repatriated from these foreign operations. The effective
tax rate for the six months ended December 31, 2005, while consistent with the
comparable prior year period, was affected by the release of tax reserves and
the increased income in foreign operations.

RELATED PARTY TRANSACTIONS

Sales to Canon
Inc., one of our significant stockholders, and Canon Sales Co., Inc., a
distributor of certain of our products in Japan and a subsidiary of Canon Inc.,
amounted to $15.6 million (36% of net sales) and $28.0 million (36% of net
sales) for the second quarter and six months ended December 31, 2005, as
compared with $12.8 million (36% of net sales) and $25.4 million (40% of net
sales) for the comparable prior year periods. These sales include revenues
generated from the development agreements referenced below. Selling prices of
products sold to Canon Inc. and Canon Sales Co., Inc. are based, generally, on
the terms customarily given to distributors. Revenues generated from the
development agreements are recorded on a cost-plus basis. At December 31, 2005
and June 30, 2005, there were, in the aggregate, $7.4 million and $4.0 million,
respectively, of trade accounts receivable from Canon Inc. and Canon Sales Co.,
Inc.

In September
2002, we entered into a contract with Canon Inc. related to the development of
certain interferometers. In March 2004, we signed a preliminary agreement to
begin further add-on work; the definitive agreement for this additional work
was signed in December 2004. In February 2005, we entered into two additional
agreements with Canon Inc. related to the development of prototype production
tools and accessories. During the three and six months ended December 31, 2005,
we recognized revenue in the semiconductor segment of $5.6 million and $9.6
million, respectively, from these contracts as compared with $2.5 million and
$4.2 million, respectively, for the comparable prior year periods. According to
the terms of the agreements, we also receive progress payments during the
course of the contract. As of December 31, 2005 and June 30, 2005, we received
$9.2 million and $11.3 million, respectively, of progress payments in excess of
services performed.

LIQUIDITY AND CAPITAL RESOURCES

We maintained
cash, cash equivalents, and marketable securities at December 31, 2005 totaling
$57.5 million, an increase of $0.6 million, from $56.9 million at June 30,
2005. At December 31, 2005, working capital was $68.5 million, an increase of
$5.1 million from $63.4 million at June 30, 2005. Major fluctuations in
working capital included increases in accounts receivable of $2.3 million
coupled with decreases in progress payments of $3.4 million, accounts payable
of $2.3 million, and accrued liabilities of $1.9 million, which were partially
offset by a $4.6 million decrease in cash and short term marketable securities
as the result of purchasing additional long term marketable securities. Our
$3.0 million line of credit expired during the quarter. The line of

24

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credit was
renewed subsequent to the end of the quarter in substantially the same terms as
the expired line of credit. There have been no borrowings under the line of
credit.

Acquisitions
of property, plant, and equipment totaled $1.6 million and $3.0 during the
three and six months ended December 31, 2005. Management believes that cash
generated from operations, together with the liquidity provided by existing
cash balances, will be sufficient to satisfy our liquidity requirements for the
next 12 months.

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT
JUDGMENTS, AND ESTIMATES

The discussion
and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these 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
consolidated financial statements. On an on-going basis, management evaluates
its estimates and judgments, including those related to bad debts, inventories,
warranty obligations, income taxes, and long-lived assets. Management bases its
estimates and judgments on historical experience and 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. We consider certain accounting policies
related to revenue recognition and allowance for doubtful accounts, inventory
valuation, warranty costs, accounting for income taxes, and valuation of
long-lived assets to be critical policies due to the estimates and judgments
involved in each.

Share-Based Payments

In December
2004, FASB issued SFAS 123(R), Share-Based Payment (as amended). SFAS No.
123(R) eliminates the alternative to use the intrinsic value method of
accounting that was provided in SFAS No. 123, which generally resulted in no
compensation expense recorded in the financial statements related to the
issuance of equity awards to employees. SFAS No. 123(R) requires that the cost
resulting from all share-based payment transactions be recognized in the
financial statements. SFAS No. 123(R) establishes fair value as the measurement
objective in accounting for share-based payment arrangements and requires all
companies to apply a fair-value-based measurement method in accounting for
generally all share-based payment transactions with employees. This method
includes estimates and judgments pertaining to term, volatility, risk-free
interest rates, dividend yields and forfeiture rates.

Revenue Recognition and Allowance for
Doubtful Accounts

We recognize
revenue based on guidance provided in SEC Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition and in accordance with the Emerging Issues Task
Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, our price is
fixed or determinable, and collectibility is reasonably assured. We recognize
revenue on our standard products when title passes to the customer upon
shipment. While our standard products generally require installation, the
installation is considered a perfunctory performance obligation. Standard
products do not have customer acceptance criteria. Generally, software is a
component of our standard product and, as such, is not separately recognized as
revenue. We have standard rights of return that we account for as a warranty
provision under SFAS No. 5, Accounting for Contingencies. We do not have any
price protection agreements or other post shipment obligations. For custom
equipment where customer acceptance is part of the sales agreement, revenue is
recognized when the customer has accepted the product. In cases where custom
equipment does not have customer acceptance as part of the sales agreement, we
recognize revenue upon shipment as long as the system meets the specifications
as agreed upon with the customer. Certain transactions have multiple
deliverables, with the deliverables clearly defined. To the extent that the
secondary deliverables are other than perfunctory, we recognize the revenue on
each deliverable, if separable, or on the completion of all deliverables, if
not separable, all in a manner consistent with SAB No. 104 and EITF 00-21.
Standalone software products are recognized as revenue when they are shipped.
Revenue generated from development contracts are recorded on a cost-plus basis
in the period services are rendered.

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

Inventory Valuation

Inventories
are valued at the lower of cost or market, cost being determined on a first-in,
first-out basis. Management evaluates the need to record adjustments for
impairment of inventory on a monthly basis. Our policy is to assess the
valuation of all inventories, including raw materials, work-in-process, and
finished goods. Obsolete inventory or inventory in excess of

25

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managements
estimated future usage is written down to estimated market value, if less than
its cost. Contracts with fixed prices are evaluated to determine if estimated
total costs will exceed revenues. A loss provision is recorded when the
judgment is made that actual costs incurred plus estimated costs remaining to
be incurred will exceed total revenues from the contract. Inherent in the estimates
of market value are managements estimates related to current economic trends,
future demand for our products, and technological obsolescence. Significant
management judgments must be made when providing for obsolete and excess
inventory and losses on contracts. If actual market conditions are different
than those projected by management, additional inventory write-downs and loss
accruals may be required.

Warranty Costs

We provide for
the estimated cost of product warranties at the time revenue is recognized. We
consider historical warranty costs actually incurred and specifically
identified circumstances to establish the warranty liability. The warranty
liability is reviewed on a quarterly basis. Should actual costs or revised
estimated costs differ from managements prior estimates, revisions to the
estimated warranty liability would be required.

Accounting for Income Taxes

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

Valuation of Long-Lived Assets

In accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the carrying value of intangible assets and other long-lived assets is
reviewed on a regular basis for the existence of facts or circumstances, both
internally and externally, that may suggest impairment. Some factors we
consider important, which could trigger the impairment review, include a
significant decrease in the market value of an asset, a significant change in
the extent or manner in which an asset is used, a significant adverse change in
the business climate that could affect the value of an asset, an accumulation
of costs for an asset in excess of the amount originally expected, a current
period operating or cash flow loss combined with a history of operating or cash
flow losses or a projection that demonstrates continuing losses, and a current
expectation that, more likely than not, a long-lived asset will be disposed of
significantly before the end of its estimated useful life.

If such
circumstances exist, we evaluate the carrying value of long-lived assets to
determine if impairment exists based upon estimated undiscounted future cash
flows over the remaining useful life of the assets and comparing that value
with the carrying value of the assets. If the carrying value of the assets is
greater than the estimated future cash flows, the assets are written down to
the estimated fair value. We determine the estimated fair value of the assets
based on a current market value of the assets. If a current market value is not
readily available, a projected discounted cash flow method is applied using a
discount rate determined by management to be commensurate with the risk
inherent in the current business model. Our cash flow estimates are based upon
managements best estimates, using appropriate and customary assumptions and
projections at the time.

Health Insurance

We are
self-insured for the majority of our group health insurance. We rely on claims
experience in determining an adequate liability for claims incurred, but not
reported. To the extent actual claims exceed estimates; we may be required to
record additional expense. A one percent change in actual claims would have an
annual impact of approximately $25,000 on our financial condition and results
of operations.

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.

26

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RISK FACTORS THAT MAY IMPACT FUTURE RESULTS

Risk factors
that may impact future results include those disclosed in our Form 10-K, as
amended, for the year ended June 30, 2005.

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 first six months of fiscal 2006. In the
third quarter of fiscal 2005, we began hedging certain intercompany transactions
by entering into 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 entered into for periods consistent with the currency transaction
exposures, generally three to six months. Generally, any gains and losses on
the fair value of these contracts are expected to be largely offset by losses
and gains on the underlying transactions.

For discussion
of our exposure to market risk, refer to Item 7a., Quantitative and
Qualitative Disclosures about Market Risk, presented in our Annual Report on
Form 10-K, as amended, for the year ended June 30, 2005 filed with the
Securities and Exchange Commission.

Item 4. Controls and Procedures

As previously disclosed in a Current Report on Form 8-K which
  we filed on March 29, 2006 and as described in our Explanatory Note to this
  Form 10-Q/A and note 2 to our accompanying consolidated financial statements
  included herein, in connection with conducting an internal review of our tax
  return, we determined that inadvertent accounting errors were made in the consolidation
  of our intercompany revenues from certain of our foreign operations. The errors
  are the result of our failure to identify and eliminate certain intercompany
  revenues attributed to our Singapore and Taiwan offices, which resulted in our
  overstating reported revenues, from fiscal 2001 through the second quarter of
  fiscal 2006. Based on the impact of the aforementioned accounting errors, we
  determined to restate our financial statements as of June 30, 2005 and 2004
  and for each of the years in the three-year period ended June 30, 2005, as well
  as interim financial statements for the quarters ended September 30, 2005 and
  December 31, 2005. Our restated consolidated financial statements for fiscal
  years 2005, 2004, and 2003 included in our Form 10-K/A being filed concurrently
  herewith also include disclosure of restated quarterly results for 2005 and
  2004.

Management has
determined that the internal control deficiency that resulted in the
aforementioned accounting errors is a material weakness, as defined by the
Public Company Accounting Oversight Boards Auditing Standard No. 2. We
have determined that the material weakness was that we did not maintain
adequate controls and procedures to ensure that intercompany accounts were
properly reconciled and intercompany transactions were properly identified and
eliminated in the consolidation process. The Public Company Accounting
Oversight Board has defined a material weakness as a significant deficiency,
or combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.

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. We had carried out an evaluation, as of December 31, 2005, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. In light of
the material weakness in internal control over financial reporting referenced
above, our Chief Executive Officer and Chief Financial Officer now have
concluded that our disclosure controls and procedures were not effective at a
reasonable assurance level as of December 31, 2005.

In response to
this material weakness, management performed additional analyses and other
post-closing procedures to ensure our restated 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 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.

During the period from April to May 2006, we implemented remedial
  measures to address the identified material weakness. We improved procedures
  related to the recording and reporting of our inter-company transactions, including
  dedicating additional resources to our consolidation processes and the procedures
  and controls surrounding the consolidation process, and increased review and
  approval controls by senior financial personnel over the personnel that perform
  the consolidation. These improved procedures included ensuring that the inter-company
  activity is properly identified and eliminated in consolidation.

27

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PART II - Other Information

Item 4.     Submission of Matters to a Vote of Security
Holders

The Annual
Meeting of Stockholders was held on November 10, 2005. The following matter was
submitted to a vote of the Companys stockholders:

| |                                                   |                                                                                                                                                       
| | ------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Proposal No.
  1 - Election of Board of Directors
|
| |                                                   | The
  following individuals, all whom were Zygo Corporation directors immediately
  prior to the vote, were elected as a result of the following vote:

|                     |            |           | 
|-------------------- | ---------- | --------- | 
|                     | For        | Against   | 
|                     |            |           | 
|Eugene G.
  Banucci  | 15,866,659 | 74,204    | 
|Yousef A.
  El-Mansy | 15,861,655 | 79,208    | 
|Paul F.
  Forman     | 15,790,858 | 150,005   | 
|Samuel H.
  Fuller   | 15,867,476 | 73,387    | 
|Seymour E.
  Liebman | 15,797,807 | 143,056   | 
|Robert G.
  McKelvey | 14,703,868 | 1,236,995 | 
|J. Bruce
  Robinson  | 15,799,880 | 140,983   | 
|Robert B.
  Taylor   | 15,746,264 | 194,599   | 
|Carol P.
  Wallace   | 15,862,516 | 78,347    | 
|Bruce W.
  Worster   | 15,874,168 | 66,695    | 
|Carl A.
  Zanoni     | 15,852,672 | 88,191    | 

There
were no other matters submitted to a vote of our stockholders.

Item 6. Exhibits

|    |           |                                                                       
|--- | --------- | ----------------------------------------------------------------------
|(a) | Exhibits: |                                                                       
|    |           |                                                                       
|    | 31.1      | Certification
  of Chief Executive Officer under Rule 13a-14(a)       
|    | 31.2      | Certification
  of Chief Financial Officer under Rule 13a-14(a)       
|    | 32.1      | Certification
  of Chief Executive Officer and Chief Financial Officer

28

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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.

| |                                                                   |                   
| | ----------------------------------------------------------------- | ------------------
| |                                                                   | Zygo
  Corporation
| |                                                                   |                   
| |                                                                   | (Registrant)      
| |                                                                   |                   
| | /s/ J. Bruce
  Robinson                                          
| |                                                                  
| | J. Bruce
  Robinson                                              
| | President,
  Chairman, and Chief Executive Officer               
| |                                                                  
| | /s/ Walter
  A. Shephard                                         
| |                                                                  
| | Walter A.
  Shephard                                             
| | Vice
  President, Finance, Chief Financial Officer, and Treasurer

Date: June 26, 2006

29

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