UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q

|(Mark One)                                                                                                                                                                                                                                                                                                                                                                                   |                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                             |                                             
|[X]      QUARTERLY
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                             |                                             
|For the quarterly
        period ended                                                                                                                                                                                                                                                                                                                                                       | September
            30, 2007              
|                                                                                                                                                                                                                                                                                                                                                                                            
|or                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                            
|[   ]    TRANSITION
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF 1934                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                            
|For the transition period
        from                                                                                                                                                                                                                                                                                                                                                       |                                             
|                                                                                                                                                                                                                                                                                                                                                                                             |                                             
|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.
|                                                                                                                                                                                                                                                                                                                                                                                            
|xYESo NO                                                                                                                                                                                                                                                                                                                                                                                    

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 filero                                                                                                     | Accelerated filerx | Non-accelerated filero
|---------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----------------------
|                                                                                                                             |                    |                       
|Indicate by check mark whether
        the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
    Act). |                   
|                                                                                                                             | oYESx 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.

18,014,006 shares of Common Stock, $.10 Par Value, at November 1, 2007

1

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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 sales, orders, and growth rates, market
opportunities, 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 timing and market acceptance of 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. Any forward-looking statements included in this Quarterly Report speak only as of the date of this document. We undertake no obligation to publicly update or revise forward-looking statements to reflect
events or circumstances occurring after the date of this Form 10-Q. 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 for
the fiscal year ended June 30, 2007.

2

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PART I - Financial Information

Item 1. Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(Thousands, except per share amounts)

|                                                        |  | Three
        Months Ended September 30,
|------------------------------------------------------- |  | ----------------------------------------
|                                                        |  | 2007                                    
|                                                       
|                                                       
|Net sales                                               |  | $                                       
|Cost of goods sold                                      |  |                                         
|Gross
        profit                                    |  |                                         
|                                                        |  |                                         
|Selling, general, and administrative
        expenses   |  |                                         
|Research, development, and
        engineering expenses |  |                                         
|Operating
        profit (loss)                         |  |                                         
|                                                        |  |                                         
|Other income                                            |  |                                         
|Interest
        income                                 |  |                                         
|Miscellaneous
        income                            |  |                                         
|Total
        other income                              |  |                                         
|Earnings
        (loss) before income taxes and         |  |                                         
|minority
        interest                               |  |                                         
|                                                        |  |                                         
|Income tax benefit (expense)                            |  |                                         
|Minority interest                                       |  |                                         
|Net earnings (loss)                                     |  | $                                       
|                                                        |  |                                         
|                                                        |  |                                         
|Basic - Earnings (loss) per
        share               |  | $                                       
|Diluted - Earnings (loss)
        per share             |  | $                                       
|                                                        |  |                                         
|Weighted average shares outstanding                     |  |                                         
|Basic
        shares                                    |  |                                         
|Diluted
        shares                                  |  |                                         

See accompanying notes to condensed consolidated financial statements.

3

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CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)(Thousands, except share amounts)

|                                                                                |  | September
          30, 2007 |         | June
        30, 2007
|------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---------------------
|Assets                                                                          |  |                              |         |                      
|Current assets:                                                                 |  |                              |         |                      
|Cash
        and cash equivalents                                               |  | $                            | 19,578  |                      
|Marketable
        securities                                                   |  |                              | 21,835  |                      
|Receivables,
        net of allowance for doubtful accounts                     |  |                              |         |                      
|of
        $333 and $333, respectively                                          |  |                              | 30,909  |                      
|Inventories                                                                     |  |                              | 43,534  |                      
|Prepaid
        expenses                                                        |  |                              | 2,453   |                      
|Deferred
        income taxes                                                   |  |                              | 15,275  |                      
|Total
        current assets                                                    |  |                              | 133,584 |                      
|                                                                                |  |                              |         |                      
|Marketable securities                                                           |  |                              | 20,904  |                      
|Property, plant, and equipment,
        net                                     |  |                              | 36,423  |                      
|Deferred income taxes                                                           |  |                              | 6,406   |                      
|Intangible assets, net                                                          |  |                              | 6,247   |                      
|Other assets                                                                    |  |                              | 1,017   |                      
|Total assets                                                                    |  | $                            | 204,581 |                      
|                                                                                |  |                              |         |                      
|Liabilities and Stockholders'
          Equity                                  |  |                              |         |                      
|Current liabilities:                                                            |  |                              |         |                      
|Payables                                                                        |  | $                            | 6,488   |                      
|Progress
        payments and deferred revenue                                  |  |                              | 12,798  |                      
|Accrued
        salaries and wages                                              |  |                              | 3,486   |                      
|Other
        accrued liabilities                                               |  |                              | 4,809   |                      
|Income
        taxes payable                                                    |  |                              | 610     |                      
|Total
        current liabilities                                               |  |                              | 28,191  |                      
|                                                                                |  |                              |         |                      
|Other long-term liabilities                                                     |  |                              | 2,577   |                      
|Minority interest                                                               |  |                              | 1,279   |                      
|                                                                                |  |                              |         |                      
|Commitments and contingencies                                                   |  |                              |         |                      
|                                                                                |  |                              |         |                      
|Stockholders' equity:                                                           |  |                              |         |                      
|Common
        stock, $0.10 par value per share:                                |  |                              |         |                      
|40,000,000
        shares authorized;                                           |  |                              |         |                      
|18,731,126
        shares issued (18,692,478 at June 30, 2007);                 |  |                              |         |                      
|17,904,438
        shares outstanding (18,242,192 at June 30, 2007)             |  |                              | 1,873   |                      
|Additional
        paid-in capital                                              |  |                              | 149,964 |                      
|Retained
        earnings                                                       |  |                              | 30,331  |                      
|Accumulated
        other comprehensive income:                                 |  |                              |         |                      
|Currency
        translation effects                                            |  |                              | 614     |                      
|                                                                                |  |                              | 182,782 |                      
|Less
        treasury stock, at cost, 826,688 shares (450,286 at June 30, 2007) |  |                              | 10,248  |                      
|Total
        stockholders' equity                                              |  |                              | 172,534 |                      
|Total liabilities and
          stockholders' equity                            |  | $                            | 204,581 |                      

See accompanying notes to condensed consolidated financial statements.

4

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

|                                                                       |  | Three
        Months Ended September 30,
|---------------------------------------------------------------------- |  | ----------------------------------------
|                                                                       |  | 2007                                    
|                                                                      
|Cash used for operating activities:                                    |  |                                         
|Net earnings (loss)                                                    |  | $                                       
|                                                                      
|Adjustments to reconcile
        net earnings (loss) to cash           |  |                                         
|used for
        operating activities:                                 |  |                                         
|Depreciation
        and amortization                                  |  |                                         
|Deferred
        income taxes                                          |  |                                         
|Compensation
        cost related to share-based payments arrangements |  |                                         
|Excess
        tax benefits from share-based payment arrangements      |  |                                         
|Minority
        interest                                              |  |                                         
|Other,
        net                                                     |  |                                         
|Changes
        in operating accounts:                                 |  |                                         
|Receivables                                                            |  |                                         
|Inventories                                                            |  |                                         
|Prepaid
        expenses                                               |  |                                         
|Accounts
        payable, accrued expenses, and taxes payable          |  |                                         
|Net cash
        used for operating activities                         |  |                                         
|Cash provided by (used for)
        investing activities:              |  |                                         
|Additions to property,
        plant, and equipment                    |  |                                         
|Purchase of marketable
        securities                              |  |                                         
|Additions to intangibles
        and other assets                      |  |                                         
|Proceeds from the maturity
        of marketable securities            |  |                                         
|Net cash
        provided by (used for) investing activities           |  |                                         
|Cash provided by (used for)
        financing activities:              |  |                                         
|Employee stock purchase                                                |  |                                         
|Repurchase of common
        stock                                     |  |                                         
|Exercise of employee
        stock options                             |  |                                         
|Excess tax benefits
        from share-based payment arangements       |  |                                         
|Net cash
        provided by (used for) financing activities           |  |                                         
|Effect of exchange rate changes
        on cash and cash equivalents   |  |                                         
|Net increase (decrease) in
        cash and cash equivalents           |  |                                         
|Cash and cash equivalents,
        beginning of period                 |  |                                         
|Cash and cash equivalents,
        end of period                       |  | $                                       

Supplemental Cash Flow InformationIncome
tax payments amounted to $400 and $896 for the three months ended September 30,
2007 and 2006, respectively.

See accompanying notes to condensed consolidated financial statements.

5

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

Note 1: Principles of Consolidation and PresentationZygo
Corporation is a worldwide supplier of optical metrology instruments, precision
optics, and electro-optical design and manufacturing services, serving customers
in the semiconductor capital equipment and industrial  markets. The accompanying
condensed consolidated financial statements include the accounts of Zygo Corporation
and its subsidiaries (ZYGO, we, us, our or Company).
The Company follows  accounting principles generally accepted in the United States
of America. All material transactions and accounts with the subsidiaries have
been eliminated from the condensed consolidated financial statements. The results
of operations for the three  months ended September 30, 2007 are not necessarily
indicative of the results to be expected for the full fiscal year.

The Condensed Consolidated Balance Sheet at September 30, 2007, the Condensed Consolidated Statements of Operations for the three months ended September 30, 2007 and 2006, and the Condensed Consolidated Statements of Cash
Flows for the three months ended September 30, 2007 and 2006 are unaudited but, in managements opinion, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of the interim
periods. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended June 30, 2007, including items
incorporated by reference therein.

Note 2: Earnings Per ShareBasic
and diluted earnings per share are calculated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. For the three months ended September 30, 2007,
2,640,220 of the Companys outstanding stock options and restricted stock
awards (Stock Grants) were excluded from the calculation of diluted
earnings per share because they were antidilutive. The Company had a net loss
for the  quarter ended September 30, 2007 and, therefore, basic and diluted net
loss per common share for this period was the same. For the three months ended
September 30, 2006, 913,479 of the Companys outstanding Stock Grants were
excluded from the  calculation of diluted earnings per share because they were
antidilutive. The Stock Grants could potentially dilute basic earnings per
share in the future.

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

|                                         |  | Three
        Months Ended September 30,
|---------------------------------------- |  | ----------------------------------------
|                                         |  | 2007                                    
|Basic weighted average shares            |  |                                         
|outstanding                              |  | 18,193,330                              
|Dilutive effect of stock
        options |  |                                         
|restricted
        shares                |  | -                                       
|Diluted weighted average
        shares  |  |                                         
|outstanding                              |  | 18,193,330                              

Note 3: Recent Accounting PronouncementsIn
February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value, with unrealized
gains and losses related to these financial instruments reported in earnings
at each  subsequent reporting date. The provisions of SFAS 159 are effective
for our fiscal year beginning July 1, 2008. The Company is in the process of
evaluating the impact of SFAS 159 on our financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for our fiscal year beginning July 1, 2008. We are currently evaluating the impact of the provisions of SFAS 157 on our company.

6

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Note 4: Share-Based PaymentsWe
recorded share-based compensation expense for the three months ended September
30, 2007 and 2006 of $735 and $601, respectively, with a related tax benefit
of $268 and $216, respectively.

Stock Options

An independent third party assisted the Company in determining the Black-Scholes weighted average assumptions utilized in both fiscal 2008 and 2007 stock option valuations. The key assumptions for this valuation method
include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Many of these assumptions are judgmental and highly sensitive in the determination of compensation
expense. Under the assumptions indicated below, the weighted-average fair value of stock option grants for the three months ended September 30, 2007 and 2006 were $5.05 and $5.93, respectively. The table below indicates the key assumptions used in
the option valuation calculations for options granted in the three months ended September 30, 2007 and 2006, and a discussion of our methodology for developing each of the assumptions used in the valuation model:

|                        |  | Three
        Months Ended September 30,
|----------------------- |  | ----------------------------------------
|                        |  | 2007                                    
|Term                    |  | 4.0 Years                               
|Volatility              |  | 45.7                                    
|Dividend yield          |  | 0.0                                     
|Risk-free interest rate |  | 4.2                                     
|Forfeiture rate         |  | 11.0                                    

Term This is generally the period of time over which the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. An increase in
the expected term will increase compensation expense.

Volatility This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. Volatilities are based on implied volatilities from traded options of
ZYGOs shares, historical volatility of ZYGOs shares, and other factors, such as expected changes in volatility arising from planned changes in ZYGOs business operations. An increase in the expected volatility will increase
compensation expense.

Dividend Yield We did not make any dividend payments during the last five fiscal years and we have no plans to pay dividends in the foreseeable future. An increase in the
dividend yield will decrease compensation expense.

Risk-Free Interest Rate This is the U.S. Treasury rate for the week of the grant having a term equal to the expected term of the option. An increase in the risk-free interest
rate will increase compensation expense.

Forfeiture Rate This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. An increase in the forfeiture
rate will decrease compensation expense.

Restricted Stock

Our share-based compensation expense also includes the effects of restricted stock grants and units. The compensation expense related to restricted stock awards is determined based on the market price of our stock at the
date of grant applied to the total number of shares that are anticipated to fully vest, which is then amortized over the expected term.

7

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Note 5: Comprehensive IncomeOur
total comprehensive income was as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Three
        Months Ended September 30, |         |          |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | -------- | --------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2007                                     |         | 2006    
|Net earnings
        (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $                                        | (944    | )        |         
|Unrealized
        loss on marketable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                          |         |          |         
|securities,
        net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                          | -       |          |         
|Foreign
        currency translation effect                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                          | 409     |          |         
|Comprehensive
        income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $                                        | (535    | )        |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|Note 6: InventoriesInventories are stated at the lower
        of cost (determined on a first-in, first-out basis) or market. At September
        30, 2007 and June 30, 2007, inventories were as follows:                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | September
          30,                  |         |          | June 30,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2007                                     |         |          | 2007    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|Raw materials
        and manufactured parts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | $                                        | 20,155  |          |         
|Work in process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                          | 16,682  |          |         
|Finished goods                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                          | 6,697   |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                        | 43,534  |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|Note 7: Property, Plant, and
          EquipmentProperty, plant, and equipment are
      stated at cost. Maintenance and repairs are charged to expense as incurred.
      Management evaluates, on an ongoing basis, the carrying value of our property,
      plant, and equipment and makes adjustments when impairments are identified.
      Depreciation is based on the estimated useful lives of the various classes
      of assets and is computed using the straight-line method. At September
      30, 2007 and June 30, 2007, property, plant, and equipment were as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | September
          30,                  |         | June 30, |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2007                                     |         | 2007     |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $                                        | 615     |          |         
|Building and
        improvements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                          | 17,141  |          |         
|Machinery, equipment,
        and office furniture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                          | 56,314  |          |         
|Leasehold improvements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                          | 800     |          |         
|Construction
        in progress                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          | 4,999   |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          | 79,869  |          |         
|Accumulated depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                          | (43,446 | )        |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                        | 36,423  |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|Depreciation expense for the three
        months ended September 30, 2007 and 2006 was $1,674 and $1,520, respectively.
              
              Note 8: Intangible
                    AssetsIntangible assets include
                patents and trademarks. The cost of intangible assets is amortized
                on a straight-line basis over estimated useful lives ranging
                from 11-17 years. Intangible assets, at cost, at September 30,
                2007 and June 30, 2007 were as follows:                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |         |          |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | September
          30,                  |         | June 30, |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2007                                     |         | 2007     |         
|Patents and trademarks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $                                        | 7,722   |          |         
|Accumulated amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                          | (1,475  | )        |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $                                        | 6,247   |          |         

Intangible amortization expense was $85 and $74 for the three months ended September 30, 2007 and 2006, respectively. Amortization expense related to certain intangible assets is included in cost of goods sold in the
Condensed Consolidated Statements of Operations.

8

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Note 9: WarrantyA
limited warranty is provided on our products for periods ranging from 3 to 18
months and allowances for estimated warranty costs are recorded during the period
of sale. The determination of such allowances requires  management to make estimates
of product return rates and expected costs to repair or replace products under
warranty. If actual return rates or repair and replacement costs, or both, differ
significantly from managements estimates, adjustments
to the expense will be required.

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Three
        Months Ended September 30, |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 2007                                     |       
|Beginning Balance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $                                        | 1,552 
|Reductions
        for payments made                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                          | (430  
|Changes
        in accruals related to pre-existing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                          |       
|warranties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                          | (28   
|Changes
        in accruals related to warranties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                          |       
|made
        in the current period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                          | 375   
|Ending Balance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $                                        | 1,469 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                         
|Note
            10: Segment InformationDuring the second quarter of fiscal
        2007, we reorganized the business into two operating divisions  Metrology
        and Optics. Beginning with the second fiscal quarter, we began reporting
        our segments as Metrology and Optics. Prior to the second quarter, our
        segments were reported as Semiconductor and Industrial. Prior year segment
        information has been restated in a manner consistent with our new reporting
        segments.
        ZYGOs Metrology division
            (segment) consists of OEM and in-line products primarily for the
            semiconductor and industrial markets. The Optics division (segment)
            consists of components and opto-mechanical assemblies primarily for
            the medical, defense, and aerospace industries, which are included
            in the industrial market. For the three months ended September 30,
            2007 and 2006, segment sales and gross profit are as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                          |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Three
        Months Ended September 30,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | 2007                                     |       
|Metrology                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                          |       
|Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $                                        | 19,925
|Gross
        profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $                                        | 8,182 
|Gross
        profit as a % of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                          | 41    
|Optics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                          |       
|Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $                                        | 11,789
|Gross
        profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $                                        | 2,870 
|Gross
        profit as a % of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                          | 24    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                          |       
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                          |       
|Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $                                        | 31,714
|Gross
        profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $                                        | 11,052
|Gross
        profit as a % of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                          | 35    

Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not evaluated by our chief operating decision-maker. Substantially all of our operating expenses,
assets, and depreciation and amortization are U.S. based.

9

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Sales by geographic area were as follows:

|            |  | Three
        Months Ended September 30, |       
|----------- |  | ---------------------------------------- | ------
|            |  | 2007                                     |       
|            |  |                                          |       
|Americas    |  | $                                        | 15,538
|Europe      |  |                                          | 4,117 
|Japan       |  |                                          | 9,892 
|Pacific Rim |  |                                          | 2,167 
|Total       |  | $                                        | 31,714

Note 11: Transactions with StockholderSales
to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain
of our products in Japan and a subsidiary of Canon Inc. (collectively referred
to as Canon), amounted to $5,564 (18% of net
sales) for the three months ended September 30, 2007 as compared with $12,617
(31% of net sales) for the comparable prior year period. Selling prices of products
sold to Canon are based, generally, on the terms customarily given to distributors.
At  September 30, 2007 and June 30, 2007, there were, in the aggregate, $2,172
and $4,515, respectively, of trade accounts receivable from Canon.

Note 12: Hedging ActivitiesWe
enter into foreign currency forward contracts to reduce the impact of adverse
fluctuations on earnings associated with foreign currency exchange rate changes.
We do not enter into any derivative transactions for  speculative purposes. These
contracts are not designated as cash flow, fair value, or net investment hedges
under 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 Condensed Consolidated Statement of Operations. These contracts are entered
into for periods consistent with the expected currency transaction exposures,
generally three to six months. Any gains and losses  on the fair value of these
contracts should largely offset corresponding losses and gains on the underlying
transactions.

As of September 30, 2007, we had six currency contracts outstanding involving our Japanese operations with notional amounts aggregating $8,100. For the three months ended September 30, 2007 and 2006, we recognized net
unrealized losses of $583 and net unrealized gains of $159, respectively, from foreign currency forward contracts. These gains and losses are substantially offset by foreign exchange losses and gains on intercompany balances recorded by our
subsidiaries. These net gains and losses are included in other income in the Condensed Consolidated Statements of Operations.

|Note 13: Income Tax Benefit (Expense) |  | Fiscal
          2008 |     |   | Fiscal
        2007
|------------------------------------- |  | --------------------- | --- | - | -------------------
|                                      |  |                       |     |   |                    
|                                      |  | Amount                |     | % |                    
|                                     
|Quarter ended September 30            |  | $                     | 361 |   |                    

The income tax rate for the three months ended September
30, 2007 was 36% as compared with 35% for the three months ended September 30,
2006. This increase in the tax rate is primarily impacted by the loss of the
deduction attributable to the Extraterritorial Income Exclusion (EIE),
which was repealed effective January 1, 2007, partially offset by an increase
in earnings in foreign jurisdictions that have a lower tax rate.

We adopted the provisions of FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, on
July 1, 2007. As a result of this adoption, we recognized a liability for unrecognized
income tax benefits of $1,535, an increase in income tax receivables
of $616, and a charge of approximately $919 to the July 1, 2007
retained earnings balance. As of the adoption date, we had gross tax-affected
unrecognized tax benefits of $1,784, of which $1,168, if recognized,
would affect the effective tax rate. Due to our net operating loss carryforwards,
we have accrued no interest and penalties for the unrecognized tax benefits;
however, our accounting policy is to recognize interest related to unrecognized
tax benefits in interest expense. Penalties, if incurred, would be recognized
as a component of income tax expense. In the normal course of business, we provide
for uncertain tax positions and adjust our unrecognized tax benefits accordingly.
We are not aware of any tax positions that would create a significant adjustment
to the unrecognized tax benefits during the next 12 months.

We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. We are no longer subject to U.S. federal income tax audit or tax adjustments for years prior to June 30, 1997. We
are no longer subject to state and foreign income tax audit or tax adjustments for years prior to June 30, 2000 and June 30, 2003, respectively. We are currently not under income tax audit in any jurisdictions.

10

---



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

OVERVIEW

Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial
markets. We conduct the majority of our manufacturing in our 153,500 square foot facility in Middlefield, Connecticut and our 39,780 square foot facility in Tucson, Arizona.

During the second quarter of fiscal 2007, we reorganized our business into two operating divisions  Metrology and Optics. Consistent with this reorganization, beginning with the second quarter of fiscal 2007, we are
reporting our operating segments as Metrology and Optics. Prior year segment information has been restated in a manner consistent with our new reporting segments. The Metrology division (segment) consists of OEM and in-line products. The Optics
division (segment) consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace markets. These two business segments continue to serve two global markets: semiconductor and industrial.

Orders for the three months ended September 30, 2007 were $36.5 million. Orders from our Metrology division accounted for 60% of the orders received, with the Optics division accounting for the remaining 40%. We continue to
experience a decreased level of orders for our lithography OEM products and anticipate this trend to continue through the second quarter of fiscal 2008. We also have experienced push-outs of orders in the semiconductor capital equipment
sector.

Sales for the three months ended September 30, 2007 were adversely affected by delays in customers' acceptance of several large systems (approximately $4.0 million) and delays in shipments of certain products due to late
deliveries of key parts from suppliers (approximately $1.5 million). Earnings were further affected by unabsorbed factory costs due to low sales volume. Optics sales represent an increasing percentage of our sales. These sales generally have a lower
gross profit as a percentage of sales than our Metrology sales.

We are now expecting fiscal 2008 revenues to be approximately 5%-10% below the $181 million of sales achieved in fiscal 2007. This reflects growth in certain areas, partially offsetting the downturn in the lithography and
semiconductor markets. We continue to anticipate fiscal 2008 sales and earnings to be skewed toward the second half of the year when we expect to see a strengthening in orders and shipments.

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related
disclosures at the date of our condensed consolidated financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, marketable securities, warranty obligations,
income taxes, long-lived assets, and share-based payments. Management bases its estimates and judgments on historical experience and current market conditions and on various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As discussed in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007, management considers the
Companys policies on revenue recognition and Allowance for Doubtful Accounts; Inventory Valuation; Other than Temporary Impairment of Marketable Securities; share-based compensation; warranty costs; accounting for income taxes; valuation of
long-lived assets; and accruals for health insurance to be critical accounting policies due to the estimates, assumptions, and application of judgment involved in each.

As discussed below and in Note 13 to the Condensed Consolidated Financial Statements, we have adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, on July 1, 2007. Other than these changes, there have been no significant changes in our critical accounting estimates during the first three months of fiscal 2008. In the ordinary course of business there is inherent uncertainty
in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon managements evaluation of the facts, circumstances, and information available at the reporting
date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be

11

---



sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest has also been recognized.

RESULTS OF OPERATIONS

|Net Sales                          |           |                       |   |                     |           |        |   |   |   |           |  |    
|---------------------------------- | --------- | --------------------- | - | ------------------- | --------- | ------ | - | - | - | --------- |  | ---
|                                   |           | Fiscal
          2008 |   | Fiscal
        2007
|                                   |           |                       |   |                     | Net Sales |        |   |   |   | Net Sales
|(Dollars in millions)              |           | Amount                |   | %                   |           | Amount |   | %
|Quarter ended
        September 30 |           |                       |   |                     |           |        |   |   |   |           |  |    
|                                   | Metrology |                       | $ | 19.9                |           | 63     | % |   | $ | 31.8      |  | 77 
|                                   | Optics    |                       |   | 11.8                |           | 37     | % |   |   | 9.3       |  | 23 
|                                   | Total     |                       | $ | 31.7                |           | 100    | % |   | $ | 41.1      |  | 100

Overall, net sales decreased 23% in the three months ended September 30, 2007 from the comparable prior year period, reflecting a decrease in metrology segment sales of 37% and an increase in optics segment sales of 27%, as
compared to the first quarter of fiscal 2007. The decrease in metrology sales was primarily due to volume decreases in lithography, semiconductor systems, and display systems of $13.3 million, partially offset by a sales increase in our core
instruments sales of $1.5 million. Lithography sales decreased by $6.6 million, primarilydue to a decrease of $7.1 million in Canon sales. Lithography
sales to Canon represented 10% of total sales in the three months ended September 30, 2007, as compared with 21% in the comparable prior year period. There were no semiconductor system sales in the three months ended September 30, 2007, and for the
same period, display systems were adversely affected by the delay in anticipated acceptances of three systems. The increase in optics segment sales was attributable to an increase in optical assemblies of $1.7 million, which includes deliveries of
optical assemblies for the National Ignition Facility and medical device equipment, and laser fusion optics of $0.7 million.

Sales in U.S. dollars for the three months ended September 30, 2007 were approximately 73% of total net sales, with the remaining 27% being in Euro or Yen. For our sales which are based in foreign currency,
we are exposed to foreign exchange fluctuations from the time customers are invoiced in foreign currency until collection occurs. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can impact the sales
of our products in export markets, as would changes in the general economic conditions in those markets. In the absence of a substantial increase in sales orders in currencies 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 condensed consolidated financial position and results of operations.

|Gross Profit by Segment            |           |                       |   |                     |       |        |   |                  |   |       |  |   
|---------------------------------- | --------- | --------------------- | - | ------------------- | ----- | ------ | - | ---------------- | - | ----- |  | --
|                                   |           | Fiscal
          2008 |   | Fiscal
        2007
|                                   |           |                       |   |                     | Gross |        |   |                  |   | Gross
|(Dollars in millions)              |           | Amount                |   | Margin
          %  |       | Amount |   | Margin
        %
|Quarter ended
        September 30 |           |                       |   |                     |       |        |   |                  |   |       |  |   
|                                   | Metrology |                       | $ | 8.2                 |       | 41     | % |                  | $ | 14.7  |  | 47
|                                   | Optics    |                       |   | 2.9                 |       | 24     | % |                  |   | 3.1   |  | 33
|                                   | Total     |                       | $ | 11.1                |       | 35     | % |                  | $ | 17.8  |  | 43

Gross profit as a percentage of net sales for the three months ended September 30, 2007 was 35%, a decrease of eight percentage points from the comparable prior year period. Within the Metrology division,
the decrease in gross profit as a percentage of net sales is primarily due to unabsorbed costs due to lower lithography sales volume. Within the Optics division, the decrease in gross profit as a percentage of net sales is primarily due to
unabsorbed costs due to lower than expected sales volume as we experienced delayed parts shipments from suppliers that decreased our manufacturing capacity in the period. In addition, shipments for the initial production run of the helmet mounted
display units carry no margin due to cost over-runs on the initial units. Final units of the initial production run are expected to be completed in the second quarter of fiscal 2008. Our overall gross profit as a percentage of net sales was also
adversely affected by the shift in product mix. Sales in the Metrology division, which carry an overall higher gross margin as compared with the Optics division, accounted for 63% of total net sales in the three months ended September 30, 2007 as
compared with 77% of our total net sales in the comparable prior year period.

12

---



|Selling, General,
          and Administrative Expenses ("SG&A")                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------------- | --- | -------------------- |  | --------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | Fiscal
          2008 |     | Fiscal
        2007 
|(Dollars in
          millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  | Amount                |     | %
          of Sales |  | Amount  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Quarter ended September
        30                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  | $                     | 7.4 |                      |  | 23      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|SG&A expenses decreased
        by $0.1 million in the three months ended September 30, 2007 from the
        comparable prior year period. The decrease
        in SG&A primarily was attributable to lower administration expense
        related to decreased bonus and profit
        sharing expenses based on the first quarter results, partially offset
        by increased salaries and marketing activity in the Metrology
        segment within the semiconductor and display solutions units.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Research, Development,
          and Engineering Expenses ("RD&E")                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |                       |     |                      | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | Fiscal
          2008 |     | Fiscal
        2007 
|(Dollars in
          millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  | Amount                |     | %
          of Sales |  | Amount  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Quarter ended September
        30                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  | $                     | 5.6 |                      |  | 18      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|The increase in RD&E
        for the three months ended September 30, 2007 as compared with the comparable
        prior year period primarily was attributable
        to continued development efforts within our Metrology segment, including
        our semiconductor initiatives and, to
        a lesser extent, in display, and optical assemblies. We continue to focus
        and build on our semiconductor initiatives
        as one of our core areas of expected future growth.            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Other Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |                       |     |                      |  |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | Fiscal
          2008 |     | Fiscal
        2007 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|(Dollars in millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | Amount                |     | %
          of Sales |  | Amount  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Quarter ended September
        30                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  | $                     | 1.0 |                      |  | 3       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Other income for the
        three months ended September 30, 2007 increased by $0.2 million from
        the comparable prior year period. This
        increase primarily was attributable to foreign currency net unrealized
        and realized gains.                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Income Tax Benefit
    (Expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  | Fiscal
          2008 |     | Fiscal
        2007 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  | Tax Rate
|(Dollars in millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | Amount                |     | %                    |  | Amount  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |  |                       |     |                      |  |         
|Quarter ended September
        30                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  | $                     | 0.4 |                      |  | 36      

The income tax rate for the three months ended September 30, 2007 was 36% as compared with 35% in the comparable prior year period. This increase in the tax rate is primarily due to the loss of the deduction attributable to
the Extraterritorial Income Exclusion (EIE), which was repealed effective January 1, 2007, partially offset by an increase in earnings in foreign jurisdictions that have a comparatively lower tax rate.

TRANSACTIONS WITH STOCKHOLDER

Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $5.6 million (18%
of net sales) for the three months ended September 30, 2007 as compared with $12.6 million (31% of net sales) for the comparable prior year period. Selling prices of products sold to Canon are based, generally, on the terms customarily given to
distributors. At September 30, 2007 and June 30, 2007, there were, in the aggregate, $2.2 million and $4.5 million, respectively, of trade accounts receivable from Canon.

13

---



LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2007, cash and marketable securities were $62.3 million, a decrease of $7.9 million from $70.2 million at June 30, 2007, primarily due to the repurchase of our common stock under our stock buyback
programof $4.9 million and the payment of profit sharing and bonus amounts accrued at June 30, 2007 of $5.3 million. Cash flows used by operating
activities were $1.6 million for the three months ended September 30, 2007 as compared with cash flows used by operating activities of $2.4 million for the comparable prior year period. The difference in operating cash flows for the three months of
fiscal 2008 as compared with the prior year period primarily was attributable to a decrease in payments on accounts payable and accrued expenses resulting in an increase in cash flows of $5.9 million, offset by a decrease in earnings of $4.6
million.

Acquisitions of property, plant, and equipment totaled $1.8 million during the three months ended September 30, 2007.

There were no borrowings outstanding under our $3.0 million bank line of credit agreement at September 30, 2007 or June 30, 2007. The agreement contains certain financial covenants which, among others,
relate to debt service and consolidated debt ratios. The agreement expires in November 2007 and is expected to be renewed. Although cash requirements will fluctuate based on the timing and extent of various factors, management believes that cash
generated from operations, together with the liquidity provided by existing cash and marketable securities balances and borrowing capability, will be sufficient to satisfy our liquidity requirements for the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating parts of our business that are not consolidated
into our financial statements. We have not guaranteed any obligations of a third party.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes that have occurred in our quantitative and qualitative market risk disclosures during the three months ended September 30, 2007. 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 for the year ended June 30, 2007 filed with the Securities and Exchange Commission.

Item 4. Controls and Procedures

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and
procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. In designing, implementing, 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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation, as of the end of the period covered by this report, of the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period,
our disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in
ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred in our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

14

---



PART II - Other Information

Item 1A. Risk Factors

In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30,
2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our purchases during the quarter ended September 30, 2007 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

|                                               |  |                            |  |                          |  | Total number of             |  | Approximate dollar              
|---------------------------------------------- |  | -------------------------- |  | ------------------------ |  | --------------------------- |  | --------------------------------
|                                               |  |                            |  |                          |  | shares purchased as         |  | value of shares that            
|                                               |  |                            |  |                          |  | part of publicly            |  | may yet be purchased            
|                                               |  | Total number of            |  | Average price            |  | announced                   |  | under the plans or              
|Period                                         |  | shares
          purchased |  | paid
          per share |  | plans
          or programs |  | programs
          (in millions)
|                                              
|July 1, 2007 - July 31, 2007                   |  | -                          |  | -                        |  | -                           |  | $25.0                           
|August 1, 2007 - August 31,
        2007       |  | 92,500                     |  | $12.85                   |  | 92,500                      |  | $23.8                           
|September 1, 2007 - September
        30, 2007 |  | 283,902                    |  | $13.12                   |  | 283,902                     |  | $20.1                           

In August 2007, our Board of Directors authorized the repurchase of up to $25.0 million of our outstanding common stock. During the three months ended September 30, 2007, the repurchases occurred from time to time as market
conditions warranted through transactions in the open market. The initial share repurchases have been effected pursuant to a plan in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. This rule allows public companies to adopt
written, pre-arranged stock trading plans when they do not have material, non-public information in their possession. The adoption of this stock trading plan allowed us to repurchase our shares during periods when we otherwise might be prevented
from doing so under insider trading laws or because of self-imposed trading blackout periods.

Item 6. Exhibits

|(a) | Exhibits:
|--- | ---------
|   
|    | 31.1     
|   
|    | 31.2     
|   
|    | 32.1     
|   
|    | 32.2     
|   

15

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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 RobinsonJ. Bruce RobinsonChairman and Chief Executive Officer
      /s/ Walter A. ShephardWalter A. ShephardVice President, Finance, Chief Financial
          Officer, andTreasurer
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Date: November 9, 2007

16

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EXHIBIT INDEX

|31.1 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|31.2 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|    
|32.1 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                            
|    
|32.2 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                            
|    

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