UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM10-Q/AAmendment No. 1

(Mark One)

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|-------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|S                                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009OR
|£                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD FROM   TO               
|COMMISSION FILE NUMBER: 0-12944                   



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



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

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

(860) 347-8506Registrant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. YESSNO£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
  registrant was required to submit and post such files).(1)YES£NO£

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

17,410,525 shares of Common Stock, $.10 Par Value, at February 1, 2010





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|(1)





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EXPLANATORY NOTE
This
    Amendment No. 1 on Form 10-Q/A (this Form 10-Q/A) to the Companys
    Quarterly Report on Form 10-Q for the quarterly period ended December 31,
    2009, initially filed with the Securities and Exchange Commission (the SEC)
    on February 9, 2010, (the Original Filing), is being filed
  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
    amended, to amend the Original Filing to reflect restatements of the Companys
    Condensed Consolidated Statements of Cash Flows, Note 7, Receivables,
    Note 15, Income Taxes and the Liquidity and Capital Resources
  section of Managements Discussion and Analysis on page 24. In addition,
  the Notes to Condensed Consolidated Financial Statements were amended to include
  Note 18, Restatements, which summarizes the changes made to our
  restated Condensed Consolidated Statements of Cash Flows. Item 4, Controls
  and Procedures has also been amended related to
  the impact on internal control of such restatements. The restatement of the
  Condensed Consolidated Statement of Cash Flows was primarily related to the
  presentation of net cash provided by operations from continuing operations
  and net cash used for operating activities from discontinued operations. Such
  errors related to the incorrect inclusion of the loss from discontinued operations
  in net cash provided by operating activities from continuing operations, as
  well as an accrued liability increase incorrectly reflected as a use of cash
for discontinued operations instead of a source of cash. In
    addition, there was an incorrect inclusion of an allowance for a doubtful
    account related to discontinued operations in the parenthetical disclosure
    on the balance sheet as of December 31, 2009 and the incorrect inclusion
    of such amount in the disclosure of gross trade receivables and the allowance
    for doubtful accounts in Note 7. Clarifying parenthesis was added to correct
    the presentation of the three and six months income tax benefit amounts for
    fiscal 2009 in Note 15. Also in Note 15, the effective tax rates were corrected
    for the three and six month periods ended December 31, 2008 from 34% and
    33% to 35% and 36%, respectively.No
  other changes were made to this Quarterly Report, including events that occurred
  subsequently to the Original Filing. See Note 18 to the Condensed
  Consolidated Financial Statements for the additional information regarding
  the restatement and the Overview in Item 2 Managements Discussion and
  Analysis of Financial Condition and Results of Operations for additional information
related to the changes in Item 2.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form 10-Q/A Quarterly Report regarding financial performance, condition and operations, and the business strategy, plans, anticipated revenues, bookings, market acceptance, growth rates, market opportunities, and objectives of
  management of the Company for future operations are forward-looking statements. Forward-looking statements are intended to provide managements current expectations or plans for the future operating and financial performance of the Company based upon information currently available and
  assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as anticipate, believe, estimate, expect, intend, plans, strategy, project, and other words of similar meaning in connection with a discussion of future operating or financial
  performance. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. Among the important factors that could cause actual events to differ materially from those in the forward-looking statements are fluctuations in capital spending of
  our customers; fluctuations in net sales to our major customer; manufacturing and supplier risks; risks of order cancellations, push-outs and de-bookings; dependence on timing and market acceptance of new product development; rapid technological and market change; risks in international operations;
  risks related to the reorganization of our business; dependence on proprietary technology and key personnel; length of the revenue cycle; environmental regulations; investment portfolio returns; fluctuations in our stock price; the risk that anticipated growth opportunities may be smaller than anticipated or
  may not be realized; risks related to the acquisition of Zemetrics and integration of the business and employees; the risk related to the Companys transition to new senior management, and the risk associated with unsolicited proposals to purchase the outstanding shares of common stock of the company.
Any forward-looking statements included in this Quarterly Report speak only as of the date of this document. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q/A. Further information on
  potential factors that could affect our business is described in this Form 10-Q/A and in our reports on file with the Securities and Exchange Commission, including our Form 10-K, as amended, for the fiscal year ended June 30, 2009.
2

PART IFINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(Thousands, except per share amounts)
Three Months EndedDecember 31,
    
    Six Months EndedDecember 31,2009
    
    2008
    
    2009
    
    2008Net sales
    
    
    $
    
    26,081
    
    
    
    $
    
    33,400
    
    
    
    $
    
    47,406
    
    
    
    $
    
    70,893Cost of goods sold
    
    
    
    15,128
    
    
    
    
    21,144
    
    
    
    
    29,279
    
    
    
    
    42,150Gross profit
    
    
    
    10,953
    
    
    
    
    12,256
    
    
    
    
    18,127
    
    
    
    
    28,743Selling, general, and administrative expenses
    
    
    
    8,533
    
    
    
    
    12,144
    
    
    
    
    15,088
    
    
    
    
    21,229Research, development, and engineering expenses
    
    
    
    3,896
    
    
    
    
    5,561
    
    
    
    
    7,543
    
    
    
    
    10,867Provision for doubtful accounts and notes
    
    
    
    (168
    )
    
    
    
    
    617
    
    
    
    
    53
    
    
    
    
    999Operating loss
    
    
    
    (1,308
    )
    
    
    
    
    (6,066
    )
    
    
    
    
    (4,557
    )
    
    
    
    
    (4,352
    )Other incomeInterest income
    
    
    
    23
    
    
    
    
    291
    
    
    
    
    74
    
    
    
    
    660Miscellaneous income
    
    
    
    24
    
    
    
    
    467
    
    
    
    
    84
    
    
    
    
    23Total other income
    
    
    
    47
    
    
    
    
    758
    
    
    
    
    158
    
    
    
    
    683Loss from continuing operations before income taxes, including non-controlling interest
    
    
    
    (1,261
    )
    
    
    
    
    (5,308
    )
    
    
    
    
    (4,399
    )
    
    
    
    
    (3,669
    )Income tax benefit (expense)
    
    
    
    308
    
    
    
    
    1,853
    
    
    
    
    (374
    )
    
    
    
    
    1,322Net loss from continuing operations
    
    
    
    (953
    )
    
    
    
    
    (3,455
    )
    
    
    
    
    (4,773
    )
    
    
    
    
    (2,347
    )Loss from discontinued operations, net of tax
    
    
    
    (639
    )
    
    
    
    
    (214
    )
    
    
    
    
    (2,474
    )
    
    
    
    
    (543
    )Net loss including non-controlling interest
    
    
    
    (1,592
    )
    
    
    
    
    (3,669
    )
    
    
    
    
    (7,247
    )
    
    
    
    
    (2,890
    )Net earnings attributable to non-controlling interest
    
    
    
    313
    
    
    
    
    372
    
    
    
    
    445
    
    
    
    
    648Net loss attributable to Zygo Corporation
    
    
    $
    
    (1,905
    )
    
    
    
    $
    
    (4,041
    )
    
    
    
    $
    
    (7,692
    )
    
    
    
    $
    
    (3,538
    )Basic and diluted - Loss per share attributable to Zygo CorporationContinuing operations
    
    
    $
    
    (0.07
    )
    
    
    
    $
    
    (0.23
    )
    
    
    
    $
    
    (0.31
    )
    
    
    
    $
    
    (0.18
    )Discontinued operations
    
    
    
    (0.04
    )
    
    
    
    
    (0.01
    )
    
    
    
    
    (0.15
    )
    
    
    
    
    (0.03
    )Net loss per share
    
    
    $
    
    (0.11
    )
    
    
    
    $
    
    (0.24
    )
    
    
    
    $
    
    (0.45
    )
    
    
    
    $
    
    (0.21
    )Weighted average shares outstandingBasic and diluted shares
    
    
    
    16,993
    
    
    
    
    16,834
    
    
    
    
    16,968
    
    
    
    
    16,805Amounts Attributable to Zygo CorporationNet loss from continuing operations attributable to Zygo Corporation
    
    
    
    (1,266
    )
    
    
    
    
    (3,827
    )
    
    
    
    
    (5,218
    )
    
    
    
    
    (2,995
    )Discontinued operations, net of tax
    
    
    
    (639
    )
    
    
    
    
    (214
    )
    
    
    
    
    (2,474
    )
    
    
    
    
    (543
    )Net loss attributable to Zygo Corporation
    
    
    $
    
    (1,905
    )
    
    
    
    $
    
    (4,041
    )
    
    
    
    $
    
    (7,692
    )
    
    
    
    $
    
    (3,538
    )See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Thousands, except share amounts)
December 31, 2009
    
    June 30, 2009AssetsCurrent assets:Cash and cash equivalents
    
    
    $
    
    37,745
    
    
    
    $
    
    32,723Marketable securities
    
    
    
    1,000
    
    
    
    
    4,015Receivables, net of allowance for doubtful accounts of $2,778 and $2,550, respectively
    
    
    
    21,015
    
    
    
    
    20,874Inventories
    
    
    
    24,383
    
    
    
    
    30,452Prepaid expenses and other
    
    
    
    1,846
    
    
    
    
    1,527Income tax receivable
    
    
    
    1,252
    
    
    
    
    1,022Current assets of discontinued operations
    
    
    
    78
    
    
    
    
    294Total current assets
    
    
    
    87,319
    
    
    
    
    90,907Marketable securities
    
    
    
    627
    
    
    
    
    499Property, plant, and equipment, net
    
    
    
    24,886
    
    
    
    
    27,325Intangible assets, net
    
    
    
    4,172
    
    
    
    
    4,211Other assets
    
    
    
    1,011
    
    
    
    
    1,013Non-current assets of discontinued operations
    
    
    
    
    
    
    
    
    144Total assets
    
    
    $
    
    118,015
    
    
    
    $
    
    124,099Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    
    $
    
    4,870
    
    
    
    $
    
    5,089Accrued progress payments and deferred revenue
    
    
    
    5,440
    
    
    
    
    5,924Accrued salaries and wages
    
    
    
    3,764
    
    
    
    
    3,508Other accrued liabilities
    
    
    
    5,143
    
    
    
    
    6,313Income tax payable
    
    
    
    673
    
    
    
    
    Current liabilities of discontinued operations
    
    
    
    474
    
    
    
    
    331Total current liabilities
    
    
    
    20,364
    
    
    
    
    21,165Long-term income tax payable
    
    
    
    1,826
    
    
    
    
    1,826Other long-term liabilities
    
    
    
    1,361
    
    
    
    
    1,081Non-current liabilities of discontinued operations
    
    
    
    365
    
    
    
    
    Commitments and contingenciesStockholders equity:Common stock, $0.10 par value per share: 40,000,000 shares authorized; 19,178,001 shares issued (19,044,331 at June 30, 2009); 17,008,800 shares outstanding (16,914,978 at June 30, 2009)
    
    
    
    1,918
    
    
    
    
    1,904Additional paid-in capital
    
    
    
    157,341
    
    
    
    
    156,176Accumulated deficit
    
    
    
    (41,242
    )
    
    
    
    
    (33,550
    )Accumulated other comprehensive income (loss):Foreign Currency translation effect
    
    
    
    306
    
    
    
    
    (306
    )Treasury stock, at cost, 2,169,201 shares (2,129,353 at June 30, 2009)
    
    
    
    (25,874
    )
    
    
    
    
    (25,641
    )Total stockholders equity - Zygo Corporation
    
    
    
    92,449
    
    
    
    
    98,583Non-controlling interest
    
    
    
    1,650
    
    
    
    
    1,444Total stockholders equity
    
    
    
    94,099
    
    
    
    
    100,027Total liabilities and stockholders equity
    
    
    $
    
    118,015
    
    
    
    $
    
    124,099See accompanying notes to condensed consolidated financial statements.
4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY(Unaudited)(Thousands)
Common Stock
    
    AdditionalPaid-InCapital
    
    Treasury Stock
    
    RetainedEarnings/AccumulatedDeficit
    
    AccumulatedOtherComprehensiveIncome (Loss)
    
    TotalZygoCorp.
    
    Non-ControllingInterest
    
    TotalEquity
    
    ComprehensiveIncome (Loss)Attributableto Zygo Corp.Shares
    
    Amount
    
    Shares
    
    AmountBalance at June 30, 2008
    
    
    
    16,732
    
    
    
    $
    
    1,882
    
    
    
    $
    
    152,663
    
    
    
    
    2,092
    
    
    
    $
    
    (25,390
    )
    
    
    
    $
    
    32,514
    
    
    
    $
    
    855
    
    
    
    $
    
    162,524
    
    
    
    $
    
    2,266
    
    
    
    $
    
    164,790Comprehensive income (loss):Net (loss) earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,538
    )
    
    
    
    
    
    
    
    
    
    (3,538
    )
    
    
    
    
    648
    
    
    
    
    (2,890
    )
    
    
    
    $
    
    (3,538
    )Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,193
    )
    
    
    
    
    (1,193
    )
    
    
    
    
    (326
    )
    
    
    
    
    (1,519
    )
    
    
    
    
    (1,193
    )$
    
    (4,692
    )Non-cash compensation charges related to stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    
    
    
    
    
    
    1,652Employee stock purchase
    
    
    
    13
    
    
    
    
    2
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    123Restricted stock vesting and related tax effect
    
    
    
    84
    
    
    
    
    9
    
    
    
    
    (10
    )
    
    
    
    
    14
    
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135
    )
    
    
    
    
    
    
    
    
    
    (135
    )Exercise of employee stock options and related tax effect
    
    
    
    26
    
    
    
    
    2
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    
    
    185Dividend Paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,302
    )
    
    
    
    
    (1,302
    )Balance at December 31, 2008
    
    
    
    16,855
    
    
    
    $
    
    1,895
    
    
    
    $
    
    154,609
    
    
    
    
    2,106
    
    
    
    $
    
    (25,524
    )
    
    
    
    $
    
    28,976
    
    
    
    $
    
    (299
    )
    
    
    
    $
    
    159,657
    
    
    
    $
    
    1,286
    
    
    
    $
    
    160,943Balance at June 30, 2009
    
    
    
    16,915
    
    
    
    $
    
    1,904
    
    
    
    $
    
    156,176
    
    
    
    
    2,129
    
    
    
    $
    
    (25,641
    )
    
    
    
    $
    
    (33,550
    )
    
    
    
    $
    
    (306
    )
    
    
    
    $
    
    98,583
    
    
    
    $
    
    1,444
    
    
    
    $
    
    100,027Comprehensive income (loss):Net (loss) earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,692
    )
    
    
    
    
    
    
    
    
    
    (7,692
    )
    
    
    
    
    445
    
    
    
    
    (7,247
    )
    
    
    
    $
    
    (7,692
    )Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    612
    
    
    
    
    612
    
    
    
    
    (239
    )
    
    
    
    
    373
    
    
    
    
    612$
    
    (7,080
    )Non-cash compensation charges related to stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,170
    
    
    
    
    
    
    
    
    
    1,170Restricted stock vesting and related tax effect
    
    
    
    93
    
    
    
    
    15
    
    
    
    
    (15
    )
    
    
    
    
    40
    
    
    
    
    (238
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (238
    )
    
    
    
    
    
    
    
    
    
    (238
    )Exercise of employee stock options and related tax effect
    
    
    
    1
    
    
    
    
    (1
    )
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    14Balance at December 31, 2009
    
    
    
    17,009
    
    
    
    $
    
    1,918
    
    
    
    $
    
    157,341
    
    
    
    
    2,169
    
    
    
    $
    
    (25,874
    )
    
    
    
    $
    
    (41,242
    )
    
    
    
    $
    
    306
    
    
    
    $
    
    92,449
    
    
    
    $
    
    1,650
    
    
    
    $
    
    94,099See accompanying notes to condensed consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(Thousands)
Six Months Ended December 31,2009
    
    2008(As RestatedSee Note 18)
    
    (As RestatedSee Note 18)Cash provided by (used for) operating activities:Net loss including non-controlling interest
    
    
    $
    
    (7,247
    )
    
    
    
    $
    
    (2,890
    )Adjustments to reconcile net loss to cash provided by operating activities from continuing operations:Loss from discontinued operations
    
    
    
    2,474
    
    
    
    
    543Depreciation and amortization
    
    
    
    3,121
    
    
    
    
    3,989Loss on disposal of assets
    
    
    
    22
    
    
    
    
    69Deferred income taxes
    
    
    
    (61
    )
    
    
    
    
    (2,391
    )Impairment of marketable securities
    
    
    
    
    
    
    
    
    238Provision for doubtful accounts
    
    
    
    227
    
    
    
    
    1,014Compensation cost related to share-based payment arrangements
    
    
    
    1,117
    
    
    
    
    1,632Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    
    
    (9
    )Other
    
    
    
    (146
    )
    
    
    
    
    Changes in operating accounts:Receivables
    
    
    
    (127
    )
    
    
    
    
    4,225Inventories
    
    
    
    6,364
    
    
    
    
    (3,498
    )Prepaid expenses
    
    
    
    (504
    )
    
    
    
    
    (495
    )Accounts payable, accrued expenses, and taxes payable
    
    
    
    (1,142
    )
    
    
    
    
    1,902Net cash provided by operating activities from continuing operations
    
    
    
    4,098
    
    
    
    
    4,329Net cash used for operating activities from discontinued operations
    
    
    
    (1,309
    )
    
    
    
    
    (1,531
    )Cash provided by investing activities:Additions to property, plant, and equipment
    
    
    
    (625
    )
    
    
    
    
    (3,021
    )Purchase of marketable securities
    
    
    
    (999
    )
    
    
    
    
    (8,174
    )Additions to intangibles and other assets
    
    
    
    (312
    )
    
    
    
    
    (314
    )Proceeds from the sale and maturity of marketable securities
    
    
    
    4,000
    
    
    
    
    18,892Proceeds from the sale of other assets
    
    
    
    291
    
    
    
    
    Net cash provided by investing activities
    
    
    
    2,355
    
    
    
    
    7,383Cash used for financing activities:Employee stock purchase
    
    
    
    
    
    
    
    
    122Dividend payment to minority interest
    
    
    
    
    
    
    
    
    (1,301
    )Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    
    
    9Restricted stock vesting and related tax benefits
    
    
    
    (238
    )
    
    
    
    
    (134
    )Exercise of employee stock options
    
    
    
    13
    
    
    
    
    185Net cash used for financing activities
    
    
    
    (225
    )
    
    
    
    
    (1,119
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    103
    
    
    
    
    (796
    )Net increase in cash and cash equivalents
    
    
    
    5,022
    
    
    
    
    8,266Cash and cash equivalents, beginning of year
    
    
    
    32,723
    
    
    
    
    26,421Cash and cash equivalents, end of period
    
    
    $
    
    37,745
    
    
    
    $
    
    34,687Supplemental Cash Flow Information
Net cash paid for income tax amounted to $418 and $1,172 for the six months ended December 31, 2009 and 2008, respectively.
See accompanying notes to condensed consolidated financial statements.
6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share amounts)
Note 1: Accounting Policies
Basis of Presentation and Principles of Consolidation
Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. The accompanying condensed consolidated financial statements include
  the accounts of Zygo Corporation and its subsidiaries (ZYGO, we, us, our or the Company). The Company follows accounting principles generally accepted in the United States of America (US GAAP). ZYGOs reporting currency is the U.S. dollar. The functional currency of the majority of
  our foreign subsidiaries is their local currency and, as such, amounts included in the consolidated statements of operations are translated at the weighted-average exchange rates for the period. Assets and liabilities are translated at period-end exchange rates and resulting foreign exchange translation
  adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). All transactions and accounts with the subsidiaries have been eliminated from the condensed consolidated financial statements. The results of operations for the three and six
  months ended December 31, 2009 are not necessarily indicative of the results to be expected for the full fiscal year.
The Condensed Consolidated Balance Sheet at December 31, 2009, the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2009 and 2008, and the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2009 and
  2008 are unaudited but, in managements opinion, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of the interim periods. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated
  financial statements and notes included in our Annual Report on Form 10-K, as amended, for the year ended June 30, 2009, including items incorporated by reference therein.
Discontinued Operations
The Company classifies operations as discontinued when the operations have either ceased, or are expected to be disposed of in a sale transaction in the near term, and the operations and cash flows of all discontinued operations have been eliminated or will be eliminated upon the ceasing of
  operations or the consummation of an expected sale transaction, and the Company will not have any significant continuing involvement in the discontinued operations. Authoritative guidance related to the impairment or disposal of long-lived assets requires the calculation of estimated fair value less cost
  to sell of long-lived assets for assets held for sale. The calculation of estimated fair value less cost to sell includes significant estimates and assumptions, including, but not limited to: operating projections; excess working capital levels; property values; and the anticipated costs involved in the selling
  process.
As more fully described in Note 2, Discontinued Operations, we have discontinued the Singapore IC packaging metrology operations of our Vision Systems product line, which was included in our Metrology Solutions segment.
Reclassification
Certain amounts have been reclassified to conform with current-year presentations related to discontinued operations and non-controlling interests.
Subsequent Events
We evaluated events occurring between the end of our fiscal quarter, December 31, 2009, and February 9, 2010 when the condensed consolidated financial statements were originally issued.
Adoption of New Accounting Pronouncements
On July 1, 2009, we adopted authoritative guidance issued by the Financial Accounting Standards Board (FASB) on changes to the accounting and reporting of non-controlling interests.
7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
This guidance requires that ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheets within equity, but separate from the parents equity. Furthermore, the amount of consolidated net income (loss) attributable to
  the parent and to the non-controlling interest must be clearly identified and presented on the face of the consolidated statement of operations. The new guidance is reflected in the condensed consolidated financial statements for all periods presented.
On July 1, 2009, we adopted authoritative guidance issued by the FASB on business combinations. The guidance provides specific guidance on how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
  acquirer, and goodwill acquired or any bargain purchase gains. The adoption of the new guidance did not have a material effect on our consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning on July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that
  are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue
  arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is
  required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption
  of this new guidance will not have a material impact on our financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning on July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of power over such
  entities, and additional disclosures for variable interests. We believe adoption of this new guidance will not have a material impact on our financial statements.
Note 2: Discontinued Operations
During the quarter ended September 30, 2009, we determined to sell or otherwise close down the Singapore IC packaging metrology operations of our Vision Systems product line, included in our Metrology Solutions segment. As of December 31, 2009, operations had ceased at this location. In
  accordance with authoritative guidance, the results of operations for the aforementioned operations are presented in the Companys Condensed Consolidated Financial Statements as discontinued operations. In addition, adjustments are made to the carrying value of assets held for sale if the carrying value
  exceeds their estimated fair value less cost to sell.
8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
The following table summarizes the operating results of our discontinued operations for the three and six months ended December 31, 2009 and 2008:
Three Months EndedDecember 31,
    
    Six Months EndedDecember 31,2009
    
    2008
    
    2009
    
    2008Net sales
    
    
    $
    
    344
    
    
    
    $
    
    50
    
    
    
    $
    
    665
    
    
    
    $
    
    949Non-cash charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    (678
    )
    
    
    
    
    Operating expenses
    
    
    
    (983
    )
    
    
    
    
    (309
    )
    
    
    
    
    (2,461
    )
    
    
    
    
    (1,607
    )Loss before income taxes
    
    
    
    (639
    )
    
    
    
    
    (259
    )
    
    
    
    
    (2,474
    )
    
    
    
    
    (658
    )Income tax benefit
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    115Loss from discontinued operations, net of tax
    
    
    $
    
    (639
    )
    
    
    
    $
    
    (214
    )
    
    
    
    $
    
    (2,474
    )
    
    
    
    $
    
    (543
    )The following table sets forth the assets and liabilities of our discontinued operations included in the Condensed Consolidated Balance Sheets of the Company as of December 31, 2009 and June 30, 2009:
December 31,2009
    
    June 30,2009Receivables
    
    
    $
    
    53
    
    
    
    $
    
    269Other assets
    
    
    
    25
    
    
    
    
    25Current assets of discontinued operations
    
    
    $
    
    78
    
    
    
    $
    
    294Property, plant, and equipment
    
    
    $
    
    
    
    
    
    $
    
    144Non-current assets of discontinued operations
    
    
    $
    
    
    
    
    
    $
    
    144Accounts payable
    
    
    $
    
    
    
    
    
    $
    
    102Accrued expenses and other current liabilities
    
    
    
    474
    
    
    
    
    229Current liabilities of discontinued operations
    
    
    $
    
    474
    
    
    
    $
    
    331Other long-term liabilities
    
    
    $
    
    365
    
    
    
    $
    
    Non-current liabilities of discontinued operations
    
    
    $
    
    365
    
    
    
    $
    
    Note 3: Restructuring and related costs
In connection with ongoing cost reduction efforts during fiscal 2009, we initiated restructuring actions related to workforce reductions and the consolidation of manufacturing operations in Tucson, Arizona. During the six months ended December 31, 2009, we recorded restructuring and related charges,
  consisting primarily of additional severance charges, totaling $602, of which $383 was included in selling, general, and administration, and $219 was included in research, development, and engineering.
The following table summarizes the accrual balances and utilization by cost type for the fiscal 2010 and fiscal 2009 restructuring actions:
December 31, 2009Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2009
    
    
    $
    
    262
    
    
    
    $
    
    452
    
    
    
    $
    
    714Restructuring charges
    
    
    
    602
    
    
    
    
    
    
    
    
    
    602Payments
    
    
    
    (310
    )
    
    
    
    
    (111
    )
    
    
    
    
    (421
    )Balance at December 31, 2009
    
    
    $
    
    554
    
    
    
    $
    
    341
    
    
    
    $
    
    8959

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
December 31, 2008Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2008
    
    
    $
    
    226
    
    
    
    $
    
    
    
    
    
    $
    
    226Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments
    
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    (226
    )Balance at December 31, 2008
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    Note 4: Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with U.S. GAAP. For the three and six months ended December 31, 2009, an aggregate of 1,810,846 and 1,978,312, respectively, (for the three and six months ended December 31, 2008, an aggregate of 2,325,660 and 1,988,810,
  respectively) of the Companys outstanding stock options and restricted stock awards (Stock Grants) were excluded from the calculation of diluted earnings per share because they were antidilutive.
The following table sets forth the reconciliation of basic weighted average shares outstanding and diluted weighted average shares outstanding for the periods presented:
Three Months Ended
      December 31,
    
    Six Months Ended
      December 31,2009
    
    2008
    
    2009
    
    2008Basic weighted average shares outstanding
    
    
    
    16,993,467
    
    
    
    
    16,834,363
    
    
    
    
    16,967,988
    
    
    
    
    16,804,757Dilutive effect of stock options and restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    
    16,993,467
    
    
    
    
    16,834,363
    
    
    
    
    16,967,988
    
    
    
    
    16,804,757Basic and diluted weighted average shares are the same for all periods presented due to the net loss in each period.
Note 5. Fair Value Measurements
Authoritative guidance related to fair value measurements and disclosures establishes a valuation hierarchy for disclosure of the inputs to the valuation method used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in
  active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level
  3 inputs are unobservable inputs based on the managements assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2009 and June 30, 2009:
Assets and Liabilities Measured at Fair Value:
Total carryingvalue atDecember 31,2009
    
    Fair value measurements at December 31, 2009Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Trading security
    
    
    $
    
    627
    
    
    
    $
    
    627
    
    
    
    $
    
    
    
    
    
    $
    
    Foreign currency hedge
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    Total
    
    
    $
    
    626
    
    
    
    $
    
    627
    
    
    
    $
    
    (1
    )
    
    
    
    $
    
    Assets and Liabilities Measured at Fair Value:
Total carryingvalue atJune 30, 2009
    
    Fair value measurements at June 30, 2009Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Trading security
    
    
    $
    
    499
    
    
    
    $
    
    499
    
    
    
    $
    
    
    
    
    
    $
    
    Foreign currency hedge
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    Total
    
    
    $
    
    485
    
    
    
    $
    
    499
    
    
    
    $
    
    (14
    )
    
    
    
    $
    
    Trading security consists of a mutual fund invested in international corporations. When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unobservable, the Company uses quotes from
  independent pricing sources. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities, approximates fair value due to their short maturities.
Note 6: Share-Based Payments
We recorded share-based compensation expense for the three months ended December 31, 2009 and 2008 of $496 and $630, respectively, with a related tax benefit of $179 and $227, respectively. We recorded share-based compensation expense for the six months ended December 31, 2009 and 2008 of
  $1,170 and $1,652, respectively, with a related tax benefit of $421 and $595, respectively. For the three months ended December 31, 2009 and 2008, $46 and $10, respectively, were recorded in discontinued operations. For the six months ended December 31, 2009 and 2008, $54 and $20, respectively, were
  recorded in discontinued operations.
Stock Options
We utilized the Black-Scholes valuation method to determine the weighted average fair value of the stock option grants for both fiscal 2010 and 2009 stock option valuations. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest
  rate, dividend yield, exercise price, and forfeiture rate. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense. The weighted-average fair value of stock option grants for the six months ended December 31, 2009 and 2008 were $3.67 and $4.43,
  respectively. During the six months ended December 31, 2009 and 2008, we issued options to purchase an aggregate of 140,000 and 137,000 shares of common stock, respectively. During the three months ended December 31, 2009 and 2008, there were no stock grants issued.
11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
The table below indicates the key assumptions used in the option valuation calculations for options granted in the periods presented and a discussion of our methodology for developing each of the assumptions used in the valuation model:
Six Months Ended
      December 31,2009
    
    2008Term
    
    
    
    5.1 Years
    
    
    
    
    4.6 YearsVolatility
    
    
    
    59.8
    %
    
    
    
    
    45.5
    %Dividend yield
    
    
    
    0.0
    %
    
    
    
    
    0.0
    %Risk-free interest rate
    
    
    
    2.5
    %
    
    
    
    
    2.9
    %Forfeiture rate
    
    
    
    10.8
    %
    
    
    
    
    9.5
    %TermThis is generally the period of time over which the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. An increase in the expected term will increase compensation expense.
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 and historical volatility of ZYGOs shares. An increase in the expected volatility will increase compensation expense.
Dividend YieldWe did not make any dividend payments during the last five fiscal years and we have no plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.
Risk-Free Interest RateThis is the U.S. Treasury rate for the week of the grant having a term equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense.
Forfeiture RateThis is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.
Restricted Stock
Our share-based compensation expense also includes the effects of the issuance of restricted stock and restricted stock units. The compensation expense related to restricted stock awards is determined based on the market price of our stock at the date of grant applied to the total number of shares
  that are anticipated to fully vest, which is then amortized over the expected term. During the three months ended December 31, 2009, an aggregate of 1,000 of restricted stock units were issued at a weighted average grant price of $7.18. During the three months ended December 31, 2008, there were no
  grants of restricted stock. During the six months ended December 31, 2009 and 2008, an aggregate of 269,000 and 156,700 of restricted stock units were issued at a weighted average grant price of $5.39 and $10.68, respectively. Generally, the restrictions on the restricted stock and restricted stock units
  granted to employees lapse at a rate of 50% after three years and the remaining 50% after the fourth year.
12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Note 7: Receivables
At December 31, 2009 and June 30, 2009, receivables were as follows:
December 31,2009
    
    June 30,2009Trade
    
    
    $
    
    19,904
    *
    
    
    
    $
    
    19,601Receivable from Nanometrics for sale of certain assets
    
    
    
    3,349
    
    
    
    
    3,392Other
    
    
    
    540
    
    
    
    
    43123,793
    *
    
    
    
    
    23,424Allowance for doubtful accounts
    
    
    
    (2,778
    )*
    
    
    
    
    (2,550
    )$
    
    21,015
    
    
    
    $
    
    20,874*
    
    
    
    Gross trade accounts receivable for December 31, 2009 and the allowance for doubtful accounts for December 31, 2009 have been restated to remove amounts related to discontinued operations of $192 and $(192), respectively. See Note 18.On June 17, 2009, we and Nanometrics Incorporated (Nanometrics) announced that Nanometrics purchased inventory and certain other assets relating to ZYGOs Semiconductor Solutions business for approximately $3,392 and that the two companies entered into a supply agreement. Under an
  exclusive OEM supply agreement aimed at wafer-based markets, ZYGO will provide interferometer sensors to Nanometrics for incorporation into the UnifireÔline of products, as well as Nanometrics family of automated metrology systems. Under the terms of the agreement, Nanometrics assumed all
  inventory, backlog and customer orders and support responsibilities.
Note 8: Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At December 31, 2009 and June 30, 2009, inventories were as follows:
December 31,2009
    
    June 30,2009Raw materials and manufactured parts
    
    
    $
    
    13,428
    
    
    
    $
    
    15,214Work in process
    
    
    
    7,912
    
    
    
    
    11,313Finished goods
    
    
    
    3,043
    
    
    
    
    3,925$
    
    24,383
    
    
    
    $
    
    30,452Note 9: Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates, on an ongoing basis, the carrying value of our property, plant, and equipment and makes adjustments when impairments are identified. Depreciation is based on the
  estimated useful lives of the various classes of assets and is computed using the straight-line method. At December 31, 2009 and June 30, 2009, property, plant, and equipment were as follows:
13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
December 31,2009
    
    June 30,2009
    
    EstimatedUseful Life(Years)Land
    
    
    $
    
    615
    
    
    
    $
    
    615
    
    
    
    
    Building and improvements
    
    
    
    17,390
    
    
    
    
    17,390
    
    
    
    
    15-40Machinery, equipment, and office furniture
    
    
    
    56,266
    
    
    
    
    55,938
    
    
    
    
    3-8Leasehold improvements
    
    
    
    1,006
    
    
    
    
    908
    
    
    
    
    1-5Construction in progress
    
    
    
    253
    
    
    
    
    570
    
    
    
    
    75,530
    
    
    
    
    75,421Accumulated depreciation
    
    
    
    (50,644
    )
    
    
    
    
    (48,096
    )$
    
    24,886
    
    
    
    $
    
    27,325Depreciation expense was $1,328 and $1,888 for the three months ended December 31, 2009 and 2008, respectively. Depreciation expense was $2,757 and $3,731 for the six months ended December 31, 2009 and 2008, respectively.
Note 10: Intangible Assets
Intangible assets include patents, trademarks, and a covenant not-to-compete. The cost of patents and trademarks is amortized on a straight-line basis over estimated useful lives ranging from 5-17 years. We entered into a non-compete agreement with a former officer and director of the Company
  effective February 28, 2009. The agreement calls for payments over a four year period of declining amounts totaling $878, which includes $27 of imputed interest. As of December 31, 2009, current liabilities include $169 and long-term liabilities include $186 related to the payments under this agreement.
  We are amortizing the value of the non-compete over four years on a declining balance method.
Intangible assets, at cost, at December 31, 2009 and June 30, 2009 were as follows:
December 31,2009
    
    June 30,2009Patents and trademarks
    
    
    $
    
    5,776
    
    
    
    $
    
    5,586Covenant not-to-compete
    
    
    
    851
    
    
    
    
    8516,627
    
    
    
    
    6,437Accumulated amortization
    
    
    
    (2,455
    )
    
    
    
    
    (2,226
    )Total
    
    
    $
    
    4,172
    
    
    
    $
    
    4,211Intangible amortization expense was $145 and $190 for the three months ended December 31, 2009 and 2008, respectively. Intangible amortization expense was $350 and $375 for the six months ended December 31, 2009 and 2008, respectively. Amortization expense related to certain intangible assets
  is included in Cost of goods sold in the Condensed Consolidated Statements of Operations.
Note 11: Warranty
A limited warranty is provided on our products for periods ranging from 3 to 24 months and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires management to make estimates of product return rates and expected costs to
  repair or replace products under warranty. If actual return rates or repair and replacement costs, or both, differ significantly from managements estimates, adjustments to the expense will be required.
The following is a reconciliation of the accrued warranty liability, which is included in the Other accrued liabilities in the Condensed Consolidated Balance Sheets:
14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Six Months Ended
      December 31,2009
    
    2008Beginning balance
    
    
    $
    
    1,614
    
    
    
    $
    
    1,263Reductions for payments made
    
    
    
    (453
    )
    
    
    
    
    (601
    )Changes in accruals related to pre-warranties
    
    
    
    (195
    )
    
    
    
    
    281Changes in accruals related to warranties made in the current period
    
    
    
    418
    
    
    
    
    449Ending balance
    
    
    $
    
    1,384
    
    
    
    $
    
    1,392Note 12: Segment Information
ZYGOs Metrology Solutions division (segment) consists of direct and OEM sales primarily for the semiconductor and industrial markets. The Optical Systems division (segment) consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace industries, which
  are included in the industrial market. For the three and six months ended December 31, 2009 and 2008, segment revenues and gross profit were as follows:
Three Months Ended
      December 31,
    
    Six Months Ended
      December 31,2009
    
    2008
    
    2009
    
    2008Metrology SolutionsSales
    
    
    $
    
    17,157
    
    
    
    $
    
    24,366
    
    
    
    $
    
    33,134
    
    
    
    $
    
    51,204Gross profit
    
    
    $
    
    8,865
    
    
    
    $
    
    11,005
    
    
    
    $
    
    16,342
    
    
    
    $
    
    24,215Gross profit as a % of sales
    
    
    
    52
    %
    
    
    
    
    45
    %
    
    
    
    
    49
    %
    
    
    
    
    47
    %Optical SystemsSales
    
    
    $
    
    8,924
    
    
    
    $
    
    9,034
    
    
    
    $
    
    14,272
    
    
    
    $
    
    19,689Gross profit
    
    
    $
    
    2,088
    
    
    
    $
    
    1,251
    
    
    
    $
    
    1,785
    
    
    
    $
    
    4,528Gross profit as a % of sales
    
    
    
    23
    %
    
    
    
    
    14
    %
    
    
    
    
    13
    %
    
    
    
    
    23
    %TotalSales
    
    
    $
    
    26,081
    
    
    
    $
    
    33,400
    
    
    
    $
    
    47,406
    
    
    
    $
    
    70,893Gross profit
    
    
    $
    
    10,953
    
    
    
    $
    
    12,256
    
    
    
    $
    
    18,127
    
    
    
    $
    
    28,743Gross profit as a % of sales
    
    
    
    42
    %
    
    
    
    
    37
    %
    
    
    
    
    38
    %
    
    
    
    
    41
    %Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not evaluated by our chief operating decision-maker. Substantially all of our operating expenses, long-lived assets, and depreciation and amortization are U.S. based.
Revenues by geographic area were as follows:
Three Months Ended
      December 31,
    
    Six Months Ended
      December 31,2009
    
    2008
    
    2009
    
    2008Americas
    
    
    $
    
    12,932
    
    
    
    $
    
    16,751
    
    
    
    $
    
    26,216
    
    
    
    $
    
    32,806Europe
    
    
    
    3,780
    
    
    
    
    4,400
    
    
    
    
    6,097
    
    
    
    
    8,682Japan
    
    
    
    3,421
    
    
    
    
    8,031
    
    
    
    
    7,249
    
    
    
    
    17,689Pacific Rim
    
    
    
    5,948
    
    
    
    
    4,218
    
    
    
    
    7,844
    
    
    
    
    11,716Total
    
    
    $
    
    26,081
    
    
    
    $
    
    33,400
    
    
    
    $
    
    47,406
    
    
    
    $
    
    70,893Note 13: Transactions with Stockholder
Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $2,031 and $4,914 (8% and 15% of revenues, respectively) for the three months ended December 31, 2009
  and 2008, respectively. For the six months ended December 31, 2009 and 2008, sales to Canon amounted to $3,020 and $12,121, respectively (6% and 17% of revenues, respectively). Selling prices
15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
of products sold to Canon are based, generally, on the terms customarily given to distributors. At December 31, 2009 and June 30, 2009, there were, in the aggregate, $804 and $592, respectively, of trade accounts receivable from Canon.
Note 14: Derivatives and Hedging Activities
We enter into foreign currency forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are not designated as cash flow, fair value, or
  net investment hedges under authoritative guidance on accounting for derivative instruments and hedging activities and, therefore, are marked-to-market with changes in fair value recorded in the Condensed Consolidated Statement of Operations. These contracts are entered into for periods consistent with
  the expected currency transaction exposures, generally three to six months. Any gains and losses on the fair value of these contracts are expected to substantially offset corresponding losses and gains on the underlying transactions.
As of December 31, 2009, we had six currency contracts outstanding involving our Japanese and German operations with notional amounts aggregating $1,870. These foreign currency hedges are not considered designated hedging instruments. For the three months ended December 31, 2009 and 2008,
  we recognized net unrealized gains of $160 and unrealized losses of $285, respectively, from foreign currency forward contracts. For the six months ended December 31, 2009 and 2008, we recognized net unrealized gains of $13 and unrealized losses of $357, respectively, from foreign currency forward
  contracts. These unrealized losses and gains are substantially offset by foreign exchange gains and losses on intercompany balances recorded by our subsidiaries and are recorded in miscellaneous income (expense) on our Condensed Consolidated Statements of Operations.
The following table summarizes the fair value of derivative instruments as of December 31, 2009:
Derivatives not designated as hedging instruments
    
    
    
    Balance Sheet LocationForeign exchange contracts
    
    
    
    6
    
    
    Prepaid expenses
    
    
    $
    
    11Accrued expenses
    
    
    $
    
    12Note 15: Income Taxes
Three Months EndedDecember 31,
    
    Six Months EndedDecember 31,2009
    
    2008
    
    2009
    
    2008Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %Income tax expense (benefit)
    
    
    $
    
    (308
    )
    
    
    
    
    24
    %
    
    
    
    $
    
    (1,853
    )*
    
    
    
    
    35
    %*
    
    
    
    $
    
    374
    
    
    
    
    9
    %
    
    
    
    $
    
    (1,322
    )*
    
    
    
    
    36
    %**
    
    
    
    These are income tax benefits and such amounts have been corrected by adding clarifying parentheses. Such parentheses were incorrectly not included in the Original Filing.
In the Original Filing the effective Tax Rate % for the three and six months ended December 31, 2008 was 34% and 33%, respectively.
Such amounts were originally calculated incorrectly. See Note 18.Income tax benefits for the three months ended December 31, 2009 included $789 related to alternative minimum taxes previously paid, for which a change enacted in tax laws during the quarter allow for an additional carryback period. We recorded no increase in net deferred tax benefit for the
  domestic operating loss incurred in this period. We continue to maintain a valuation allowance on all of our net deferred tax assets totaling $40,874 at December 31, 2009.
We previously adopted the authoritative guidance for accounting for uncertainty in income taxes. Due to our net operating loss carry-forwards, we have accrued no interest and penalties for the unrecognized tax benefits; however, our accounting policy is to recognize interest related to unrecognized
  tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits accordingly. For the quarter ended December 31, 2009, we did not recognize
  an additional liability or realize any benefit for uncertain tax positions.
16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
The total liability for uncertain tax liabilities was $1,825 at both December 31, 2009 and June 30, 2009. We are not currently aware of any tax positions that would require a material adjustment to our unrecognized tax benefits (or liabilities).
We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. We remain subject to U.S. federal income tax audit adjustments for years after June 30, 2001 due to our significant NOL and credit carry-forwards. We are no longer subject to state and foreign
  income tax audit or tax adjustments for years prior to June 30, 2005. We are currently under a federal U.S. income tax audit for domestic taxes for the period ended June 30, 2007. The resolution of this audit may have a future effect on the liabilities or benefits associated with our uncertain tax positions.
Note 16: Commitments and Contingencies
From time to time we are subject to certain legal proceedings and claims that arise in the normal course of our business. At December 31, 2009 we have a reserve of $1,360 for potential royalty claims. In the opinion of management, any excess settlement of the royalty claims above the amount
  recorded is not expected to have an adverse effect on our financial condition, results of operation, or liquidity.
We are aware of certain levels of contamination on our property which are below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. The future effect of environmental matters, including potential liabilities, is often difficult to
  estimate. Presently, we are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may potentially be responsible. We will record an environmental reserve when it is both probable that a liability has been incurred and the amount of any liability can
  be reasonably estimated, whether a claim has been asserted or unasserted.
Note 17: Subsequent Events
On January 19, 2010, we announced that Dr. Chris L. Koliopoulos was appointed President and Chief Executive Officer, effective immediately. With the commencement of his employment, Dr. Koliopoulos also became a member of the Board of Directors of ZYGO. Dr. Koliopoulos succeeds J.
  Bruce Robinson, who announced in October his planned retirement as Chief Executive Officer, and from the Board. On January 22, 2010, we acquired 100% of the outstanding shares of Zemetrics, Inc., a small interferometric metrology company in which Dr. Koliopoulus was a major shareholder, for
  361,212 shares of our common stock. The acquisition of Zemetrics, which has recently introduced an advanced product in the optical instrumentation market, further strengthens our offering in our core markets, which is a strategic focus of ZYGO. The shares of common stock issued in connection with
  the acquisition includes 110,585 shares to satisfy payment of debt owed by Zemetrics to two individuals, one of whom was Dr. Koliopoulos. The fair value of the total shares of stock issued was $3,901, based on the closing stock price of $10.80 per share. Due to the recent date of the acquisition, a
  valuation of the assets acquired is not available at this time. We estimate that the tangible assets will comprise less than $1,000 of the purchase price. The operations of the Zemetrics product line will be included in our Metrology Solutions segment. There were no revenues for Zemetrics in the three and
  six months ended December 31, 2009. In addition, in connection with the acquisition, 110,000 options to purchase shares of our common stock were issued to two founding shareholder employees.
Note 18: Restatements
Subsequent to the issuance of its December 31, 2009 condensed consolidated financial statements, the Company identified certain errors relating to the presentation of cash flows for the six months ended December 31, 2009 and 2008. The changes were primarily related to the presentation of net cash
  provided by operations from continuing operations and net cash used for operating activities from discontinued operations. Such errors related to the incorrect inclusion of the loss from discontinued operations in net cash provided by operating activities from continuing
17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
operations, as well as an accrued liability increase incorrectly reflected as a use of cash for discontinued operations instead of a source of cash. Additionally, other corrections were made to cash flow statement items related to the allocation of amounts related to discontinued operations.
The changes to the condensed consolidated statements of cash flows are as follows:
As ReportedSix Months Ended
      December 31,
    
    As RestatedSix Months Ended
      December 31,2009
    
    2008
    
    2009
    
    2008Adjustment to reconcile net earnings to cash:Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,474
    
    
    
    
    543Compensation costs related to share-based payment arrangements
    
    
    
    1,170
    
    
    
    
    1,632
    
    
    
    
    1,117
    
    
    
    
    1,632Change in receivables
    
    
    
    (180
    )
    
    
    
    
    4,225
    
    
    
    
    (127
    )
    
    
    
    
    4,225Change in accounts payable, accrued expenses, and taxes payable
    
    
    
    112
    
    
    
    
    1,902
    
    
    
    
    (1,142
    )
    
    
    
    
    1,902Net cash provided by operating activities from continuing operations
    
    
    
    2,878
    
    
    
    
    3,786
    
    
    
    
    4,098
    
    
    
    
    4,329Net cash used for operating activities from discontinued operations
    
    
    
    (89
    )
    
    
    
    
    (988
    )
    
    
    
    
    (1,309
    )
    
    
    
    
    (1,531
    )Additionally, certain corrections were made to certain Notes to the condensed consolidated financial statements as follows:
Note 7: Receivables has been restated to reflect a correction in gross trade receivables for December 31, 2009 and the allowance for doubtful accounts for December 31, 2009 to remove amounts belonging in discontinued operations of $192 and $(192), respectively. There was no change to reported
  net trade receivables. In addition, the parenthetical disclosure of the allowance for doubtful accounts on the Condensed Consolidated Balance Sheet as of December 31, 2009 was corrected by $(192), from $2,970 to $2,778.
Note
    15: Income taxes was restated to correct the presentation of the three and
    six months income tax benefit for fiscal 2009. These income tax benefits
    were corrected by adding clarifying parenthesis. Note 15, Income Taxes, was also corrected to reflect a correction to the
tax rate presented in each period for fiscal 2009. The tax rates for the three and
six months ended December 31, 2008 were corrected to 35% and 36%, respectively, from 34% and 33%, respectively.
18

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.
Subsequent
    to the issuance of its December 31, 2009 condensed consolidated financial
    statements, the Company identified certain errors relating to the presentation
    of cash flows for the six months ended December 31, 2009 and 2008. The correction
    of these errors impacted disclosures made in Liquidity and Capital Resources
    whereby the cash flow from operating activities from continuing operations
    changed to $4.1 and $4.3 for the six months ended December 31, 2009 and 2008,
    respectively, from $2.9 and $3.8 for the six months ended December 31, 2009
    and 2008, respectively. Also, the cash flow from operating activities from
    discontinued operations changed to $(1.3) million and $(1.5) for the six
    months ended December 31, 2009 and 2008, respectively, from $(0.1) million
    and $(1.0) million for the six months ended December 31, 2009 and 2008, respectively.
    See Note 18 to the condensed consolidated financial statements. Additionally,
    in the Results of Operations section of this Managements Discussion
    and Analysis of Financial Condition and Results of Operations, a section
    titled Discontinued Operations was added to discuss the results of discontinued
    operations.
On January 19, 2010, we announced that Dr. Chris L. Koliopoulos was appointed President and Chief Executive Officer, effective immediately. With the commencement of his employment, Dr. Koliopoulos also became a member of the Board of Directors of ZYGO. Dr. Koliopoulos succeeds J.
  Bruce Robinson, who announced in October his planned retirement as Chief Executive Officer, and from the Board of Directors. On January 22, 2010, we completed the acquisition of Zemetrics, Inc. (Zemetrics), a small interferometric metrology company in which Dr. Koliopoulos was a major
  shareholder, for 361,212 shares of our common stock. The acquisition of Zemetrics, which has recently introduced an advanced product in the optical instrumentation market, further strengthens our offering in our core markets, which is a strategic focus of ZYGO.
On January 7, 2010, we announced that our Board of Directors received from II-VI Incorporated (II-VI) on January 5, 2010 an unsolicited proposal to acquire all of the outstanding shares of common stock of ZYGO for $10.00 per share in cash or II-VI common stock (subject to a limitation on
  the aggregate amount of II-VI common stock). The Board of Directors has engaged an independent financial advisor and is evaluating this proposal carefully.
Bookings for the three months ended December 31, 2009 (our second quarter of fiscal 2010) were $28.6 million, as compared with $22.7 million and $22.6 million for the first quarter of fiscal 2010 and second quarter of fiscal 2009, respectively. Bookings for our Metrology Solutions segment accounted
  for 58% of the bookings received for the three months ended December 31, 2009, with the Optical Systems segment accounting for 42% of bookings. The increase in bookings from the first quarter of fiscal 2010 is due to increases in the Metrology Solutions segment of $1.1 million and of $4.8 million in
  the Optical Systems segment. The increase in Metrology Solutions segment bookings was primarily for our instruments products and extended over a number of different industries. Within the Optical Systems segment, bookings increased primarily due to an increase in bookings of laser fusion optics of
  $1.7 million and contract manufacturing of $3.8 million, partially offset by a decrease of $1.5 million in contract manufacturing product development services. We received several large bookings in our Optical System segment, including $3.4 million in laser fusion optics, $3.2 million related to the
  Advanced Helmet Mounted Display, and a $2.9 booking for medical device contract manufacturing. We can receive large optics bookings that have delivery dates that span several quarters and the timing of these bookings can cause fluctuations in our bookings from quarter to quarter. The increase in
  bookings from the second quarter of fiscal 2009 is due to an increase of $6.9 million in the Optical Systems segment and a decrease in the Metrology Solutions segment of $0.9 million. The increase in the Optical Systems segment is related to the bookings referred to above. Our Optical Systems segment
  continues to include our optical components and electro-optics contract manufacturing products. Our Metrology Solutions segment
19

now includes an OEM product category, which consists of lithography products, display sensor heads, and semiconductor sensor heads.
On October 5, 2009, we announced a strategic business relationship with Toho Technology Corporation (Toho), pursuant to which Toho will have the exclusive right to certain technology in the manufacturing and distribution of products to the large substrate Flat Panel Display (FPD) market. As
  part of this strategic relationship, we will be selling sensor heads to Toho, to be incorporated into the FPD systems it sells. The agreement with Toho also provides for a royalty payment to the Company of 5% of the sales price of each FPD system sold by Toho during the first five years of the
  agreement.
Over the last three fiscal quarters, we have divested ourselves of our Semiconductor and FPD product lines and shut down our IC packaging operations in Singapore in order to concentrate on our core technologies. We continue to sell OEM sensor heads related to semiconductor and FPD systems
  manufactured through our Instruments product line. The IC packaging metrology operations in Singapore were shut down by December 31, 2009. These changes in our organization are expected to significantly reduce our research, development and engineering (RD&E) spending in the remainder of our
  fiscal year as compared with the prior year. Our RD&E expenses included in continuing operations for the six months ended December 31, 2009 decreased $3.0 million as compared with the prior year period. To a lesser extent, our selling, general and administrative expenses are expected to decrease with
  these changes. The average sales price for the OEM sensors is significantly less than the average sales price of an in-line semiconductor or FPD system. Therefore, our total revenues related to these markets will be less than if we remained in the in-line market. However, we believe these product lines
  will be more profitable in the future with the reduction in operating expenses, combined with the gross profit on the OEM sensor heads.
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, as amended, for the fiscal year ended June 30, 2009, management considers the Companys policies on revenue recognition and allowance for
  doubtful accounts; inventory valuation; other than temporary impairment of marketable securities; share-based compensation; warranty costs; accounting for income taxes; valuation of long-lived assets; and accruals for health insurance to be critical accounting policies due to the estimates, assumptions, and
  application of judgment involved in each.
On July 1, 2009, we adopted authoritative guidance that changes the accounting and reporting for minority interests. Minority interests have been recharacterized as non-controlling interests and are reported as a component of equity separate from the parents equity. Purchases or sales of equity
  interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the non-controlling interest will be included in consolidated net income on the face of the condensed consolidated statements of operations, and upon a loss of control, the
  interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. We have classified non-controlling interest (previously minority interest) as a component of equity for all periods presented. The new guidance is reflected in the condensed consolidated
  financial statements for all periods presented.
20

RESULTS OF OPERATIONS
Net Sales
Fiscal 2010
    
    Fiscal 2009Amount
    
    Net Sales%
    
    Amount
    
    Net Sales%(Dollars in millions)Quarter ended December 31Metrology Solutions
    
    
    $
    
    17.2
    
    
    
    
    66
    %
    
    
    
    $
    
    24.4
    
    
    
    
    73
    %Optical Systems
    
    
    
    8.9
    
    
    
    
    34
    %
    
    
    
    
    9.0
    
    
    
    
    27
    %Total
    
    
    $
    
    26.1
    
    
    
    
    100
    %
    
    
    
    $
    
    33.4
    
    
    
    
    100
    %Six months ended December 31Metrology Solutions
    
    
    $
    
    33.1
    
    
    
    
    70
    %
    
    
    
    $
    
    51.2
    
    
    
    
    72
    %Optical Systems
    
    
    
    14.3
    
    
    
    
    30
    %
    
    
    
    
    19.7
    
    
    
    
    28
    %Total
    
    
    $
    
    47.4
    
    
    
    
    100
    %
    
    
    
    $
    
    70.9
    
    
    
    
    100
    %Overall, revenues for the three months ended December 31, 2009 decreased 22% as compared with the prior year period, reflecting decreases in the Metrology Solutions segment revenues of 30% and in the Optical Solutions segment revenues of 1%. The decrease in Metrology Solutions segment
  revenues was primarily due to volume decreases in display solutions of $3.3 million, lithography of $3.1 million, and instruments of $1.8 million. New business in the Metrology Solutions segment related to Original Equipment Manufacturer (OEM) heads increased revenues by $0.2 million. The decrease
  in display solution revenues is due to the arrangement with Toho in October 2009. We expect the display volume to decrease as we complete acceptance testing on the remaining systems we delivered under bookings placed with us. Future revenue related to display will be derived from the sale of sensor
  heads that will be included in the Metrology Solutions segment related to OEM revenues. These OEM revenues will be less in value than the full display system revenues. Lithography and instrument revenues decreases, in large measure, are due to a reduction in bookings that appears to be tied directly
  to the general global economic downturn, most notably in the semiconductor industry. A decrease in bookings from Canon accounted for the majority of the decrease in lithography revenues. The decrease in the Optical Systems segment revenues of $0.1 million was primarily due to decreases in precision
  optics of $1.1 million, which was partially offset by increased revenues in laser fusion optics of $1.0 million.
Revenues for the six months ended December 31, 2009 decreased 33% as compared with the prior year period, reflecting decreases in the Metrology Solutions segment revenues of 35% and in the Optical Solutions segment revenues of 27%. The decrease in Metrology Solutions segment revenues was
  primarily due to volume decreases in lithography of $7.6 million, display solutions of $7.2 million, and instruments of $6.0 million, partially offset by increased revenues in semiconductor solutions of $1.4 million and vision systems of $1.0 million. New business in the Metrology Solutions segment related to
  OEM heads increased revenues by $0.4 million. These volume decreases in lithography and instruments revenues, in large measure, are due to a reduction in bookings that appears to be tied directly to the general global economic downturn, most notably in the semiconductor industry. A decrease in
  bookings from Canon accounted for the majority of the decrease in lithography revenues. The decrease in display solution revenues is due to the arrangement with Toho in October 2009 as referenced above. The increase in semiconductor revenues was due to the acceptance of a large system in the
  current fiscal year while there were no similar revenues in the prior year. With the sale of the semiconductor product line in June 2009, we will no longer have any large system revenues. Revenues related to semiconductor products will be sensor head revenues that will be included in the Metrology
  Solutions segment related to OEM revenues. The decrease in the Optical Systems segment revenues was primarily due to decreases in contract manufacturing of $3.9 million and in precision optics of $2.4 million, partially offset by increased revenues in laser fusion optics of $0.9 million. The decreases in
  contract manufacturing and precision were related to a reduction in bookings from key customers during the latter part of fiscal 2009 and early in fiscal 2010. We have recently seen an increase in bookings in both of these areas.
21

Revenues in U.S. dollars for the three months ended December 31, 2009 and 2008 were approximately 73% and 76% of total revenues, respectively, with the remaining 27% and 24%, respectively, being in Euro or Yen. Revenues in U.S. dollars for the six months ended December 31, 2009 and 2008
  were approximately 70% and 76% of total revenues, respectively, with the remaining 30% and 24%, respectively, being in Euro or Yen. For our revenues which are based in foreign currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in foreign currency until
  collection occurs. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar, or in the general economic conditions in our export markets, could materially impact the revenues of our products in these markets and our Condensed Consolidated Balance Sheets and
  Statements of Operations.
Gross Profit by Segment
Fiscal 2010
    
    Fiscal 2009Amount
    
    GrossProfit %
    
    Amount
    
    GrossProfit %(Dollars in millions)Quarter ended December 31Metrology Solutions
    
    
    $
    
    8.9
    
    
    
    
    52
    %
    
    
    
    $
    
    11.0
    
    
    
    
    45
    %Optical Systems
    
    
    
    2.1
    
    
    
    
    23
    %
    
    
    
    
    1.3
    
    
    
    
    14
    %Total
    
    
    $
    
    11.0
    
    
    
    
    42
    %
    
    
    
    $
    
    12.3
    
    
    
    
    37
    %Six months ended December 31Metrology Solutions
    
    
    $
    
    16.3
    
    
    
    
    49
    %
    
    
    
    $
    
    24.2
    
    
    
    
    47
    %Optical Systems
    
    
    
    1.8
    
    
    
    
    13
    %
    
    
    
    
    4.5
    
    
    
    
    23
    %Total
    
    
    $
    
    18.1
    
    
    
    
    38
    %
    
    
    
    $
    
    28.7
    
    
    
    
    41
    %Gross profit as a percentage of revenues for the three months ended December 31, 2009 was 42%, which represents an increase of five percentage points from the comparable prior year period. Within the Metrology Solutions segment, the gross profit as a percentage of revenues was 52% for the
  three months ended December 31, 2009 as compared with the prior year comparable period of 45%. This increase was primarily due to improved factory costs and a decrease in low margin display revenues. Within the Optical Systems segment, the gross profit increased as a percentage of revenues to
  24% for the three months ended December 31, 2009 as compared with 14% in the comparable prior year period, primarily due to improving revenues and operations in the current fiscal year. The prior period experienced production issues related to certain optics resulting in increased manufacturing
  costs and delayed shipments. During the second quarter of fiscal 2010, we continued to take actions to reduce costs in both segments in light of the lower order levels, including pay reductions and unpaid furloughs.
Gross profit as a percentage of revenues for the six months ended December 31, 2009 was 38%, which represents a decrease of three percentage points from the comparable prior year period. Within the Metrology Solutions segment, gross profit increased as a percentage of revenues to 49% for the
  six months ended December 31, 2009 as compared with the prior year comparable period of 47% primarily due to improved factory costs and a decrease in low margin display revenues. Within the Optical Systems segment, the gross profit decreased as a percentage of revenues to 13% for the six months
  ended December 31, 2009 as compared with 23% in the comparable prior year period, primarily due to production issues experienced in the first quarter of fiscal 2010 related to certain optics, resulting in increased manufacturing costs and delayed shipments in that quarter.
Selling, General, and Administrative Expenses (SG&A)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended December 31
    
    
    $
    
    8.5
    
    
    
    
    33
    %
    
    
    
    $
    
    12.1
    
    
    
    
    36
    %Six months ended December 31
    
    
    $
    
    15.1
    
    
    
    
    32
    %
    
    
    
    $
    
    21.2
    
    
    
    
    30
    %22

SG&A expenses decreased in the three months ended December 31, 2009 by $3.6 million from the comparable prior year period. This decrease is primarily attributable to $2.2 million of merger related expenses and $1.4 million related to a royalty claim that were recorded in the second quarter of
  fiscal 2009, and a reduction in personnel-related expenses of $0.6 million and the elimination of costs related to semiconductor products of $0.6 million in conjunction with the transaction with Nanometrics in June 2009. The second quarter of fiscal 2010 also included $0.9 million related to the retirement
  of our CEO and search costs for a new CEO, partially offsetting the decreases described above. Other cost reductions included decreases in travel of $0.2 million as part of our expense management. The decrease was also related to SG&A expenses decreased in the six months ended December 31, 2009 by
  $6.1 million from the comparable prior year period, primarily due a reduction in personnel-related expenses of $1.4 million and the elimination of costs related to semiconductor products of $1.2 million in conjunction with the transaction with Nanometrics in June 2009. Other cost reductions included
  decreases in travel of $0.4 million as part of our expense management and in legal costs of $2.2 million related to merger related expenses recorded in fiscal 2009. Fiscal 2009 expenses also included the charge for $1.4 million related to the royalty claim.
Research, Development, and Engineering Expenses (RD&E)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended December 31
    
    
    $
    
    3.9
    
    
    
    
    15
    %
    
    
    
    $
    
    5.6
    
    
    
    
    17
    %Six months ended December 31
    
    
    $
    
    7.5
    
    
    
    
    16
    %
    
    
    
    $
    
    10.9
    
    
    
    
    15
    %RD&E for the three and six months ended December 31, 2009 decreased by $1.7 million and $3.4 million, respectively, as compared with the prior year period. The decrease in RD&E was primarily due to the elimination of costs related to the semiconductor product line in June 2009.
Provision for Doubtful Accounts and Notes
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended December 31
    
    
    $
    
    (0.2
    )
    
    
    
    
    -1
    %
    
    
    
    $
    
    0.6
    
    
    
    
    2
    %Six months ended December 31
    
    
    $
    
    0.1
    
    
    
    
    0
    %
    
    
    
    $
    
    1.0
    
    
    
    
    1
    %Provision for doubtful accounts and notes for the three and six months ended December 31, 2009 decreased by $0.8 million and $0.9 million as compared with the prior year period primarily due to the Solvision note receivable being reserved in fiscal 2009.
Other Income
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended December 31
    
    
    $
    
    
    
    
    
    
    0
    %
    
    
    
    $
    
    0.8
    
    
    
    
    2
    %Six months ended December 31
    
    
    $
    
    0.2
    
    
    
    
    1
    %
    
    
    
    $
    
    0.7
    
    
    
    
    1
    %Other income (expense) for the three and six months ended December 31, 2009 decreased by $0.8 million and $0.5 million, respectively, as compared with the prior year period, primarily due to a decrease in investment income. We changed our investment portfolio and have re-invested maturing
  corporate bonds into low risk government security mutual funds, which carries a significantly lower interest rate than corporate bonds.
23

Income Tax Benefit (Expense)
Fiscal 2010
    
    Fiscal 2009Amount
    
    Tax Rate%
    
    Amount
    
    Tax Rate%(Dollars in millions)Quarter ended December 31
    
    
    $
    
    0.3
    
    
    
    
    24
    %
    
    
    
    $
    
    1.9
    
    
    
    
    35
    %Six months ended December 31
    
    
    $
    
    (0.4
    )
    
    
    
    
    9
    %
    
    
    
    $
    
    1.3
    
    
    
    
    36
    %Income tax benefit for the three months ended December 31, 2009 include a benefit resulting from a tax refund associated with a carry back of AMT losses to earlier tax years. In addition, income tax benefit (expense) for the three and six months ended December 31, 2009 included income tax
  expense in state and foreign jurisdictions, which could not be offset by current and prior net operating losses. We continue to maintain a valuation allowance on all of our net deferred tax assets totaling $40.9 million at December 31, 2009. In future periods, the valuation allowance could be reduced based
  upon sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.
Discontinued Operations
(Dollars in millions)
    
    Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars
            in millions)Quarter ended December 31
    
    
    $
    
    (0.6
    )
    
    
    
    
    2
    %
    
    
    
    $
    
    (0.2
    )
    
    
    
    
    1
    %Six months ended December 31
    
    
    $
    
    (2.5
    )
    
    
    
    
    5
    %
    
    
    
    $
    
    (0.5
    )
    
    
    
    
    1
    %Loss from discontinued operations for the three months ended December 31, 2009 increased by $0.4 primarily due to higher closure costs. The loss from discontinued operations for the six months ended December 31, 2009 increased by $2.0 primarily due to severance and other closure costs, including
  provisions for doubtful accounts receivable and equipment impairments.
TRANSACTIONS WITH STOCKHOLDER
Sales to Canon Inc., a stockholder, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively referred to as Canon), amounted to $2.0 million and $4.9 million (8% and 15% of revenues, respectively) for the three months ended
  December 31, 2009 and 2008, respectively. For the six months ended December 31, 2009 and 2008, sales to Canon amounted to $3.0 million and $12.1 million, respectively (6% and 17% of revenues, respectively). Selling prices of products sold to Canon are based, generally, on the terms customarily given
  to distributors. At December 31, 2009 and June 30, 2009, there were, in the aggregate, $0.8 million and $0.6 million, respectively, of trade accounts receivable from Canon.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital
  expenditures, customer credit requirements, investments in businesses, expenses related to our partnerships and leadership transition, and the adequacy of available bank lines of credit.
The distress in the financial markets has led to severely diminished liquidity and credit availability, rating downgrades and declining valuations of certain investments, and extreme volatility in security prices. We have assessed the implications the distress in the financial markets has on our current
  business and determined that there has not been a significant impact to our financial position, results of operations, or liquidity during the first half of fiscal 2010, other than the indirect effect that the current uncertainty in global economic conditions resulting from the recent disruption in credit markets
  has had on customer demand for our products.
At December 31, 2009, cash and marketable securities were $38.7 million, an increase of $2.0 million from $36.7 million at June 30, 2009. Our marketable security consists of $1.0 million in a United States Treasury Bill as security for bank guarantees and standby letters of credit. These are used
  primarily overseas to cover the warranty period up to one year and are valued at 10% of the
24

contract value. As of December 31, 2009, $0.1 million in standby letters of credit have been used and are expected to expire at varying dates through January 2011.
The cash equivalents balance in our money market account, which is invested primarily in U.S. government securities, is $19.9 million as of December 31, 2009. We do not believe there is any risk to liquidity in the money market account, nor are there currently any limits on redemptions.
We have $4.2 million of gross accounts receivable related to our display customers which are overdue. Of this amount, $1.7 million has been reserved for. We have agreed to payment terms with several display customers and are in negotiations with other customers. Although we believe such amounts
  are collectible, our liquidity will be affected by the timing of the receipt of such payments. We have not experienced significant delays in payments from non-display customers.
We currently have no debt or lines of credit. In the future, if the need for debt or credit lines arose there is no assurance that we would be able to secure such financing due to the lack of credit availability in the financial markets or our own financial position.
We believe we have sufficient operating flexibility and cash reserves to maintain adequate amounts of liquidity and to meet our future liquidity requirements for at least the next twelve months. The impact of continued market volatility, however, cannot be predicted.
Cash Flow from Operating Activities
Six Months EndedDecember 31,2009
    
    2008(Dollars
    in millions)Net cash flows provided by operating activities from continuing operations
    
    
    $
    
    4.1
    
    
    
    $
    
    4.3Net cash flows used for operating activities from discontinued operations
    
    
    $
    
    (1.3
    )
    
    
    
    $
    
    (1.5
    )Cash flows from operating activities from continuing operations for the first half of fiscal 2010 and 2009 was $4.1 million. The cash flow provided by operating activities from continuing operations for fiscal 2010 was primarily due to a decrease in inventories of $6.4 million as we continue to manage
  inventory levels down to our current order rate, partially offset by the increase in the loss from continuing operations. The cash flow provided by operating activities from continuing operations for fiscal 2009 was primarily due to the decrease in accounts receivable of $4.2 million.
Cash Flow from Investing Activities
Six Months EndedDecember 31,2009
    
    2008(Dollars
            in millions)Net cash flows provided by investing activities
    
    
    $
    
    2.4
    
    
    
    $
    
    7.4Cash flows provided by investing activities for the first half of fiscal 2010 decreased by $5.0 million as compared with the prior year period. This decrease was primarily related to a decrease in net purchases and proceeds from marketable securities of $7.7 million, partially offset by a decrease in fixed
  asset additions of $2.4 million.
Cash Flow from Financing Activities
Six Months EndedDecember 31,2009
    
    2008(Dollars
            in millions)Net cash flows used for financing activities
    
    
    $
    
    (0.2
    )
    
    
    
    $
    
    (1.1
    )Cash flows used for financing activities in the six months ended December 31, 2009 decreased by $0.9 million as compared with the prior year period. For the six months ended December 31, 2008, there was a dividend payment of $1.3 million to a minority interest partner. No dividend was paid in
  the six months ended December 31, 2009.
25

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 six months ended December 31, 2009 except for the ongoing economic uncertainty which is impacting us through decreased order levels and order push-outs by some of our
  customers. Our exposure to market risk is presented in Item 7a., Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K, as amended, for the year ended June 30, 2009, filed with the Securities and Exchange Commission (the 2009 Annual Report).
Current uncertainty in global economic conditions resulting from among other things, the recent disruptions in credit and financial markets, poses a risk to the overall economy that could impact customer demand for our products, impact our ability to manage relationships with our customers,
  suppliers and creditors, or cause supplier or customer disruptions resulting from tighter credit markets, among other risks.
Item 4. Controls and Procedures
As previously disclosed in a Current Report on Form 8-K which we filed on May 14, 2010 and as described in our Explanatory Note to this Form 10-Q/A and note 18 to our accompanying condensed consolidated financial statements included herein, we determined that accounting errors were made
  in our statements of cash flows. The errors relate to the allocation of cash flows from operating activities between continuing operations and discontinued operations. Based on the impact of the aforementioned accounting errors, we determined to restate our interim financial statements as of and for the
  periods ending September 30, 2009 and 2008 and December 31, 2009 and 2008.
The Companys management has evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2009. Based on that
  evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded, as a result of the material weakness described in the following paragraph, that the Companys disclosure controls and procedures were not effective as of such date.
Management has determined that the internal control deficiency that resulted in the aforementioned accounting errors is a material weakness in internal controls over financial reporting. The material weakness existed at September 30, 2009 and December 31, 2009 and was not identified until May 10,
  2010. We are in the process of developing a remediation plan to address such deficiency, which we expect to implement in the fourth quarter of fiscal 2010. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how
  well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In response to this material weakness in internal control, management performed additional analyses and other post-closing procedures to ensure our restated condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly,
  management, including our Chief Executive Officer and Chief Financial Officer, believes the restated condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Except as described in the preceding paragraph, there have been no changes in the Companys internal control over financial reporting during the second quarter of fiscal 2010 that materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
26

PART II - Other Information
Item 1A. Risk Factors
In addition to the information set forth below and elsewhere in this report, the reader should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2009 Annual Report, which could materially affect our business, financial condition, or future results. The risks described in
  our 2009 Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
Our recent senior management change may impact our ability to execute our business strategy.
On January 18, 2010, we announced the appointment of Dr. Chris L. Koliopoulos as our new President and Chief Executive Officer and member of our Board of Directors. Dr. Koliopoulos replaced J. Bruce Robinson, our former Chief Executive Officer, who in October 2009 announced his
  impending retirement. Although Dr. Koliopoulos is considered a leading expert in optical interferometry and founded and led two successful optical metrology businesses, we cannot assure you that he will be successful in integrating with other members of our senior management or in executing our
  growth strategy.
Potential changes in U.S. tax law could materially affect our future results.
In May 2009, President Obama and the U.S. Treasury Department proposed changing certain of the U.S. tax rules for U.S. corporations doing business outside the United States. The proposed changes include limiting the ability of U.S. corporations to deduct expenses attributable to offshore earnings,
  modifying the foreign tax credit rules and further restricting the ability of U.S. corporations to transfer funds between foreign subsidiaries without triggering U.S. income tax. On February 1, 2010, President Obama and the Office of Management and Budget released the federal governments budget for
  the 2011 fiscal year, which contained certain similar proposals. Although the scope of the proposed changes remains unclear and the likelihood of enactment is uncertain, it is possible that these or other changes in the U.S. tax laws could increase our effective tax rate and adversely affect our after-tax
  profitability.
II-VIs unsolicited proposal to acquire our common stock may require a significant expenditure of time and resources on our part.
On January 5, 2010, we received an unsolicited proposal from II-VI Incorporated to acquire all of the outstanding shares of common stock of the company for $10.00 per share in cash or II-VI common stock (subject to a limitation on the aggregate amount of II-VI common stock). On January 7,
  2010, our Board of Directors announced that it would engage an independent financial advisor, and subsequently hired an advisor, and evaluate this proposal carefully in the context of our current strategic plans, and pursue the best course of action to enhance value for our stockholders. A financial
  review and consideration of the II-VI proposal (and any alternate proposals that may be made by other parties) have required, and may continue to require, the expenditure of significant time and resources by us, and be a source of distraction for our employees.
Reorganization activities could adversely affect our ability to execute our business strategy.
We have been in the process of reorganizing our business structure due to worldwide market conditions and other factors that have reduced the demand for our products and services. The reorganization includes the discontinuation of our Singapore IC packaging metrology operations and other
  personnel cost reductions. As a result of these and other initiatives, our ability to execute our business strategy going forward could be adversely affected in a number of ways, including the loss of key employees; diversion of managements attention from normal daily operations of the business;
  diminished ability to respond to customer requirements, both as to products and services; loss of reputation with our customers if we exit a business line; increased difficulty in maintaining existing
27

bookings and collecting accounts receivable impacted by the reorganization; and disruption of our engineering and manufacturing processes. Depending on market conditions, we may implement additional restructuring initiatives in future periods.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases during the quarter ended December 31, 2009 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.
Period
    
    Total number ofshares purchased(1)
    
    Average pricepaid per share
    
    Total number ofshares purchased aspart of publiclyannouncedplans or programs(2)
    
    Approximate dollarvalue of shares thatmay yet be purchasedunder the plans orprograms (in millions)October 1, 2009 - October 31, 2009
    
    
    
    127
    
    
    
    $
    
    7.38
    
    
    
    
    
    
    
    
    $
    
    5.0November 1, 2009 - November 30, 2009
    
    
    
    1,708
    
    
    
    $
    
    6.88
    
    
    
    
    
    
    
    
    $
    
    5.0December 1, 2009 - December 31, 2009
    
    
    
    1,928
    
    
    
    $
    
    6.83
    
    
    
    
    
    
    
    
    $
    
    5.0

(1)
    
    
    
    Shares were repurchased from certain of our employees in satisfaction of withholding tax obligations arising from the vesting of their restricted stock.(2)
    
    
    
    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 December 31, 2009, there were no repurchases of common stock in the open market. The share repurchases have been effected pursuant to plans
      in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. This rule allows public companies to adopt written, pre-arranged stock trading plans when they do not have material, non-public information in their possession. The adoption of this stock trading plan allows us to repurchase
      our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.Item 6. Exhibits
(a)
    
    Exhibits:31.1
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200228

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ZYGOCORPORATION
    
    (Registrant)/s/ Chris L. KoliopoulosChris L. KoliopoulosPresident and Chief Executive Officer
/s/ Walter A. ShephardWalter A. ShephardVice President, Finance, Chief Financial Officer, and Treasurer
Date: May 17, 2010
29

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