UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM10-Q

(Mark One)

|                                                |  |                                                                                        
|----------------------------------------------- |  | ---------------------------------------------------------------------------------------
|S                                               |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 
|FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010OR
|£                                               |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
|FOR THE TRANSITION PERIOD FROM   TO            
|COMMISSION FILE NUMBER: 0-12944                



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



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

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

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

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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days. 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.

|                         |  |                    |  |                                                                    |  |                           
|------------------------ |  | ------------------ |  | ------------------------------------------------------------------ |  | --------------------------
|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.

17,461,179 shares of Common Stock, $.10 Par Value, at May 3, 2010





|   
|---
|(1)





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FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this Form 10-Q Quarterly Report regarding 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. Further information on
  potential factors that could affect our business is described in this Form 10-Q 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 EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Net revenues
    
    
    $
    
    25,439
    
    
    
    $
    
    20,020
    
    
    
    $
    
    72,845
    
    
    
    $
    
    90,913Cost of goods sold
    
    
    
    13,962
    
    
    
    
    15,311
    
    
    
    
    43,241
    
    
    
    
    57,461Gross margin
    
    
    
    11,477
    
    
    
    
    4,709
    
    
    
    
    29,604
    
    
    
    
    33,452Selling, general, and administrative expenses
    
    
    
    8,127
    
    
    
    
    15,120
    
    
    
    
    23,215
    
    
    
    
    36,349Research, development, and engineering expenses
    
    
    
    3,546
    
    
    
    
    6,262
    
    
    
    
    11,089
    
    
    
    
    17,129Impairment of goodwill
    
    
    
    2,003
    
    
    
    
    
    
    
    
    
    2,003
    
    
    
    
    Provision for doubtful accounts and notes
    
    
    
    (155
    )
    
    
    
    
    15
    
    
    
    
    (102
    )
    
    
    
    
    1,014Operating loss
    
    
    
    (2,044
    )
    
    
    
    
    (16,688
    )
    
    
    
    
    (6,601
    )
    
    
    
    
    (21,040
    )Other income (expense)Interest income
    
    
    
    5
    
    
    
    
    140
    
    
    
    
    79
    
    
    
    
    800Miscellaneous expense
    
    
    
    (101
    )
    
    
    
    
    (233
    )
    
    
    
    
    (17
    )
    
    
    
    
    (210
    )Total other income (expense)
    
    
    
    (96
    )
    
    
    
    
    (93
    )
    
    
    
    
    62
    
    
    
    
    590Loss from continuing operations before income taxes, including noncontrolling interest
    
    
    
    (2,140
    )
    
    
    
    
    (16,781
    )
    
    
    
    
    (6,539
    )
    
    
    
    
    (20,450
    )Income tax benefit (expense)
    
    
    
    (131
    )
    
    
    
    
    5,175
    
    
    
    
    (505
    )
    
    
    
    
    6,497Net loss from continuing operations
    
    
    
    (2,271
    )
    
    
    
    
    (11,606
    )
    
    
    
    
    (7,044
    )
    
    
    
    
    (13,953
    )Loss from discontinued operations, net of tax
    
    
    
    (193
    )
    
    
    
    
    (3,392
    )
    
    
    
    
    (2,667
    )
    
    
    
    
    (3,935
    )Net loss including noncontrolling interest
    
    
    
    (2,464
    )
    
    
    
    
    (14,998
    )
    
    
    
    
    (9,711
    )
    
    
    
    
    (17,888
    )Less: Net earnings attributable to noncontrolling interest
    
    
    
    232
    
    
    
    
    103
    
    
    
    
    677
    
    
    
    
    751Net loss attributable to Zygo Corporation
    
    
    $
    
    (2,696
    )
    
    
    
    $
    
    (15,101
    )
    
    
    
    $
    
    (10,388
    )
    
    
    
    $
    
    (18,639
    )Basic and dilutedLoss per share attributable to Zygo CorporationContinuing operations
    
    
    $
    
    (0.15
    )
    
    
    
    $
    
    (0.70
    )
    
    
    
    $
    
    (0.45
    )
    
    
    
    $
    
    (0.87
    )Discontinued operations
    
    
    
    (0.01
    )
    
    
    
    
    (0.20
    )
    
    
    
    
    (0.16
    )
    
    
    
    
    (0.24
    )Net loss per share
    
    
    $
    
    (0.16
    )
    
    
    
    $
    
    (0.90
    )
    
    
    
    $
    
    (0.61
    )
    
    
    
    $
    
    (1.11
    )Weighted average shares outstandingBasic and diluted shares
    
    
    
    17,342
    
    
    
    
    16,872
    
    
    
    
    17,091
    
    
    
    
    16,826Amounts Attributable to Zygo CorporationNet loss from continuing operations attributable to Zygo Corporation
    
    
    $
    
    (2,503
    )
    
    
    
    $
    
    (11,709
    )
    
    
    
    $
    
    (7,721
    )
    
    
    
    $
    
    (14,704
    )Discontinued operations, net of tax
    
    
    
    (193
    )
    
    
    
    
    (3,392
    )
    
    
    
    
    (2,667
    )
    
    
    
    
    (3,935
    )Net loss attributable to Zygo Corporation
    
    
    $
    
    (2,696
    )
    
    
    
    $
    
    (15,101
    )
    
    
    
    $
    
    (10,388
    )
    
    
    
    $
    
    (18,639
    )See accompanying notes to condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Thousands, except share amounts)
March 31,2010
    
    June 30,2009AssetsCurrent assets:Cash and cash equivalents
    
    
    $
    
    40,891
    
    
    
    $
    
    32,723Marketable securities
    
    
    
    1,000
    
    
    
    
    4,015Receivables, net of allowance for doubtful accounts of $2,622 and $2,550, respectively (Note 8)
    
    
    
    19,471
    
    
    
    
    20,874Inventories (Note 9)
    
    
    
    25,157
    
    
    
    
    30,452Prepaid expenses and other
    
    
    
    1,690
    
    
    
    
    1,527Income tax receivable
    
    
    
    1,041
    
    
    
    
    1,022Current assets of discontinued operations (Note 3)
    
    
    
    17
    
    
    
    
    294Total current assets
    
    
    
    89,267
    
    
    
    
    90,907Marketable securities
    
    
    
    980
    
    
    
    
    499Property, plant, and equipment, net (Note 10)
    
    
    
    23,978
    
    
    
    
    27,325Intangible assets, net (Note 11)
    
    
    
    5,541
    
    
    
    
    4,211Other assets
    
    
    
    1,030
    
    
    
    
    1,013Non-current assets of discontinued operations (Note 3)
    
    
    
    
    
    
    
    
    144Total assets
    
    
    $
    
    120,796
    
    
    
    $
    
    124,099Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    
    $
    
    5,143
    
    
    
    $
    
    5,089Accrued progress payments and deferred revenue
    
    
    
    5,839
    
    
    
    
    5,924Accrued salaries and wages
    
    
    
    3,643
    
    
    
    
    3,508Other accrued liabilities
    
    
    
    5,301
    
    
    
    
    6,313Income tax payable
    
    
    
    317
    
    
    
    
    Current liabilities of discontinued operations (Note 3)
    
    
    
    389
    
    
    
    
    331Total current liabilities
    
    
    
    20,632
    
    
    
    
    21,165Long-term income tax payable (Note 16)
    
    
    
    1,826
    
    
    
    
    1,826Other long-term liabilities
    
    
    
    1,525
    
    
    
    
    1,081Non-current liabilities of discontinued operations (Note 3)
    
    
    
    365
    
    
    
    
    Commitments and contingencies (Note 17)Stockholders equity:Common stock, $0.10 par value per share:40,000,000 shares authorized;19,637,269 shares issued (19,044,331 at June 30, 2009);17,454,466 shares outstanding (16,914,978 at June 30, 2009)
    
    
    
    1,965
    
    
    
    
    1,904Additional paid-in capital
    
    
    
    162,301
    
    
    
    
    156,176Accumulated deficit
    
    
    
    (43,938
    )
    
    
    
    
    (33,550
    )Accumulated other comprehensive income (loss):Foreign currency translation effect
    
    
    
    93
    
    
    
    
    (306
    )Treasury stock, at cost, 2,182,803 shares (2,129,353 at June 30, 2009)
    
    
    
    (26,040
    )
    
    
    
    
    (25,641
    )Total stockholders equityZygo Corporation
    
    
    
    94,381
    
    
    
    
    98,583Noncontrolling interest
    
    
    
    2,067
    
    
    
    
    1,444Total stockholders equity
    
    
    
    96,448
    
    
    
    
    100,027Total liabilities and stockholders equity
    
    
    $
    
    120,796
    
    
    
    $
    
    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 earnings (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,639
    )
    
    
    
    
    
    
    
    
    
    (18,639
    )
    
    
    
    
    752
    
    
    
    
    (17,887
    )
    
    
    
    $
    
    (18,639
    )Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    39Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,980
    )
    
    
    
    
    (1,980
    )
    
    
    
    
    (389
    )
    
    
    
    
    (2,369
    )
    
    
    
    
    (1,980
    )$
    
    (20,580
    )Non-cash compensation charges related to stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,324
    
    
    
    
    
    
    
    
    
    2,324Employee stock purchase
    
    
    
    26
    
    
    
    
    3
    
    
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    
    
    207Restricted stock vesting and related tax effect
    
    
    
    96
    
    
    
    
    12
    
    
    
    
    (12
    )
    
    
    
    
    20
    
    
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    (162
    )Exercise of employee stock options and related tax effect
    
    
    
    26
    
    
    
    
    2
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    
    
    185Dividend paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,302
    )
    
    
    
    
    (1,302
    )Balance at March 31, 2009
    
    
    
    16,880
    
    
    
    $
    
    1,899
    
    
    
    $
    
    155,362
    
    
    
    
    2,112
    
    
    
    $
    
    (25,552
    )
    
    
    
    $
    
    13,875
    
    
    
    $
    
    (1,086
    )
    
    
    
    $
    
    144,498
    
    
    
    $
    
    1,327
    
    
    
    $
    
    145,825Balance 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 earnings (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,388
    )
    
    
    
    
    
    
    
    
    
    (10,388
    )
    
    
    
    
    677
    
    
    
    
    (9,711
    )
    
    
    
    $
    
    (10,388
    )Foreign currency translation effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    
    399
    
    
    
    
    (54
    )
    
    
    
    
    345
    
    
    
    
    399$
    
    (9,989
    )Non-cash compensation charges related to stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    
    
    1,824Issuanceacquisition
    
    
    
    361
    
    
    
    
    36
    
    
    
    
    3,865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,901
    
    
    
    
    
    
    
    
    
    3,901Restricted stock vesting and related tax effect
    
    
    
    124
    
    
    
    
    21
    
    
    
    
    (21
    )
    
    
    
    
    54
    
    
    
    
    (404
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404
    )
    
    
    
    
    
    
    
    
    
    (404
    )Exercise of employee stock options and related tax effect
    
    
    
    54
    
    
    
    
    4
    
    
    
    
    457
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466
    
    
    
    
    
    
    
    
    
    466Balance at March 31, 2010
    
    
    
    17,454
    
    
    
    $
    
    1,965
    
    
    
    $
    
    162,301
    
    
    
    
    2,183
    
    
    
    $
    
    (26,040
    )
    
    
    
    $
    
    (43,938
    )
    
    
    
    $
    
    93
    
    
    
    $
    
    94,381
    
    
    
    $
    
    2,067
    
    
    
    $
    
    96,448See accompanying notes to consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(Thousands)
Nine Months Ended
      March 31,2010
    
    2009Cash provided by operating activities:Net loss including noncontrolling interest
    
    
    $
    
    (9,711
    )
    
    
    
    $
    
    (17,888
    )Adjustments to reconcile net loss to cash provided by (used for) operating activities from continuing operations:Loss from discontinued operations
    
    
    
    2,667
    
    
    
    
    3,935Depreciation and amortization
    
    
    
    4,618
    
    
    
    
    5,973Loss on disposal of assets
    
    
    
    55
    
    
    
    
    136Deferred income taxes
    
    
    
    (53
    )
    
    
    
    
    (7,959
    )Impairment of marketable securities
    
    
    
    
    
    
    
    
    309Impairment of goodwill
    
    
    
    2,003
    
    
    
    
    Impairment of intangible assets
    
    
    
    
    
    
    
    
    1,211Provision for doubtful accounts
    
    
    
    71
    
    
    
    
    1,031Compensation cost related to share-based payment arrangements
    
    
    
    1,759
    
    
    
    
    2,294Excess tax benefits from share-based payment arrangements
    
    
    
    (10
    )
    
    
    
    
    (9
    )Other
    
    
    
    (74
    )
    
    
    
    
    (528
    )Changes in operating accounts, excluding the effect of acquisition:Receivables
    
    
    
    1,348
    
    
    
    
    9,836Inventories
    
    
    
    6,046
    
    
    
    
    (2,516
    )Prepaid expenses and other current assets
    
    
    
    (134
    )
    
    
    
    
    (129
    )Accounts payable, accrued expenses, and taxes payable
    
    
    
    (752
    )
    
    
    
    
    5,834Net cash provided by operating activities from continuing operations
    
    
    
    7,833
    
    
    
    
    1,530Net cash used for operating activities from discontinued operations
    
    
    
    (1,359
    )
    
    
    
    
    (1,741
    )Cash provided by investing activities:Additions to property, plant, and equipment
    
    
    
    (1,040
    )
    
    
    
    
    (4,251
    )Purchase of marketable securities
    
    
    
    (1,998
    )
    
    
    
    
    (8,174
    )Additions to intangibles and other assets
    
    
    
    (427
    )
    
    
    
    
    (840
    )Acquistions, net of cash
    
    
    
    11
    
    
    
    
    Proceeds from the sale and maturity of marketable securities
    
    
    
    5,000
    
    
    
    
    24,862Proceeds from the sale of other assets
    
    
    
    291
    
    
    
    
    Net cash provided by investing activities
    
    
    
    1,837
    
    
    
    
    11,597Cash provided by (used for) financing activities:Employee stock purchase
    
    
    
    
    
    
    
    
    207Dividend payment to noncontrolling interest
    
    
    
    
    
    
    
    
    (1,301
    )Excess tax benefits from share-based payment arrangements
    
    
    
    10
    
    
    
    
    9Restricted stock vesting and related tax benefits
    
    
    
    (404
    )
    
    
    
    
    (162
    )Exercise of employee stock options
    
    
    
    465
    
    
    
    
    185Net cash provided by (used for) financing activities
    
    
    
    71
    
    
    
    
    (1,062
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    (214
    )
    
    
    
    
    (1,019
    )Net increase in cash and cash equivalents
    
    
    
    8,168
    
    
    
    
    9,305Cash and cash equivalents, beginning of year
    
    
    
    32,723
    
    
    
    
    26,421Cash and cash equivalents, end of period
    
    
    $
    
    40,891
    
    
    
    $
    
    35,726Supplemental Cash Flow Information
Net cash paid (received) for income tax amounted to ($469) and $1,150 for the nine months ended March 31, 2010 and 2009, 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 nine
  months ended March 31, 2010 are not necessarily indicative of the results to be expected for the full fiscal year.
The Condensed Consolidated Balance Sheet at March 31, 2010, the Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2010 and 2009, and the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and 2009 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 3, 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 to current-year presentations related to discontinued operations and non-controlling interests.
Subsequent Events
The Company has performed an evaluation of subsequent events through the date these financial statements were issued in Form 10-Q.
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 noncontrolling 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 noncontrolling 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 noncontrolling interest in the
  acquirer, and goodwill acquired or any bargain purchase gains. The adoption of the new guidance was applied to the acquisition described in Note 2.
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: Business Acquisition
On January 18, 2010, the Company entered into an agreement to purchase all of the outstanding stock and to retire the outstanding shareholder notes of Zemetrics, Inc., an Arizona corporation (Zemetrics), in exchange for 361,217 shares of the Companys common stock. The value of the common
  stock issued was $3,901 based on the fair value of the common stock on the closing date of $10.80. Per the purchase agreement, the number of shares delivered was calculated by taking the sum of $1,941 and the outstanding shareholder notes (including accrued interest) of $856 divided by the average of
  the closing prices of the Companys common stock reported by the NASDAQ Stock Market during the forty trading days ending two days prior to the closing date of January 22, 2010 of $7.74 (the Average Trading Price).
Dr. Chris L. Koliopoulos, Zygos new President and CEO, was a major shareholder of Zemetrics stock as well as being the major holder of Zemetrics outstanding shareholder notes. Dr Koliopoulos received a total of 195,790 shares of Zygo Company common stock consisting of 106,233 shares of
  Company common stock as consideration for the purchase of his shares of Zemetrics stock and 89,557 shares of Company common stock in payment of $680 principal amount of outstanding shareholder notes (plus accrued interest thereon) from Dr. Koliopoulos to Zemetrics.
8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Acquisition costs for the three and nine months ended March 31, 2010 were $377 and $457, respectively, and appear as part of Selling general & administrative (SG&A).
An escrow account with 38,743 shares (including 16,421 shares issued to Dr. Koliopoulos) of Company common stock was established to secure potential indemnification claims until the date that is fifteen days after completion of the audit of the Companys financial statements for the first fiscal year
  ending after the closing.
The following is the final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition on January 22, 2010:
Cash
    
    
    $
    
    11Inventories
    
    
    
    403Prepaid expenses
    
    
    
    18Property and equipment
    
    
    
    15Customer relationships
    
    
    
    112Technology
    
    
    
    1,428Goodwill
    
    
    
    2,003Total assets
    
    
    
    3,990Less: Liabilities assumed
    
    
    
    89Total
    
    
    $
    
    3,901In addition, net deferred tax assets of $360 were recorded in the opening balance sheet at zero value, net of a full valuation allowance. Based on the Companys expectations of future U.S. taxable income the Company believes it is more likely than not that such net deferred tax assets could not be
  realized.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based on their fair values. Analyses supporting the purchase price allocation include a valuation of assets and liabilities as of the closing date, an analysis of intangible assets and a detailed review of the opening
  balance sheet to determine other significant adjustments required to recognize assets and liabilities at fair value. Intangible assets of technology and customer relationships were valued on an income approach based on future earnings projections the technology intangible asset relates to proprietary
  technology incorporated into Zemetrics ZeMapper and related products.
The following disclosure presents certain information regarding the Companys acquired intangible assets as of March 31, 2010. All acquired intangible assets were valued by the income approach and are being amortized over their initial estimated useful lives of three years for customer relationships
  and seven years for technology with no estimated residual values. We review our intangible assets for impairment annually.
CustomerRelationships
    
    Technology
    
    TotalBalance at January 22, 2010
    
    
    $
    
    112
    
    
    
    $
    
    1,428
    
    
    
    $
    
    1,540Amortization expense
    
    
    
    (6
    )
    
    
    
    
    (34
    )
    
    
    
    
    (40
    )Balance at March 31, 2010
    
    
    $
    
    106
    
    
    
    $
    
    1,394
    
    
    
    $
    
    1,500The Company recorded an impairment charge of $2,003 relating to acquired goodwill in the period ended March 31, 2010 subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In addition, the fair value of common stock
  issued as consideration on the closing date was $10.80 per share, which was significantly in excess of the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based on the market price per share during the
  40-day period prior to closing). In consideration of these factors, management determined the carrying value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010.
9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
The results of operations of Zemetrics are included in the consolidated financial statements from the date of acquisition. The following unaudited proforma condensed financial information shows the results of operations for the three and nine months ended March 31, 2010 and 2009 as though the
  acquisition of Zemetrics had occurred at the beginning of each respective fiscal year. The proforma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of
  that time:
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Net revenues
    
    
    $
    
    25,439
    
    
    
    $
    
    20,094
    
    
    
    $
    
    72,920
    
    
    
    $
    
    91,062Net loss attributable to Zygo Corporation
    
    
    $
    
    (2,797
    )
    
    
    
    $
    
    (15,442
    )
    
    
    
    $
    
    (11,132
    )
    
    
    
    $
    
    (19,540
    )Earnings (loss) per share amounts:Basic and DilutedEarnings (loss) per share
    
    
    $
    
    (0.16
    )
    
    
    
    $
    
    (0.90
    )
    
    
    
    $
    
    (0.65
    )
    
    
    
    $
    
    (1.16
    )Note 3: 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. Operations have 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.
The following table summarizes the operating results of our discontinued operations for the three and nine months ended March 31, 2010 and 2009:
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Net revenues
    
    
    $
    
    
    
    
    
    $
    
    11
    
    
    
    $
    
    665
    
    
    
    $
    
    960Cost of goods sold
    
    
    
    
    
    
    
    
    1,564
    
    
    
    
    268
    
    
    
    
    2,189Gross margin
    
    
    
    
    
    
    
    
    (1,553
    )
    
    
    
    
    397
    
    
    
    
    (1,229
    )Operating expenses
    
    
    
    193
    
    
    
    
    1,572
    
    
    
    
    3,064
    
    
    
    
    2,554Loss before income taxes
    
    
    
    (193
    )
    
    
    
    
    (3,125
    )
    
    
    
    
    (2,667
    )
    
    
    
    
    (3,783
    )Income tax expense
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    152Loss from discontinued operations, net of tax
    
    
    $
    
    (193
    )
    
    
    
    $
    
    (3,392
    )
    
    
    
    $
    
    (2,667
    )
    
    
    
    $
    
    (3,935
    )The three and nine month periods ended March 31, 2009 included write offs of inventory of $1.5 million (including cost of goods sold) and a $1.1 million impairment of intangible assets (included in operating expenses).
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 March 31, 2010 and June 30, 2009:
March 31,2010
    
    June 30,2009Receivables
    
    
    $
    
    
    
    
    
    $
    
    269Other assets
    
    
    
    17
    
    
    
    
    25Current assets of discontinued operations
    
    
    $
    
    17
    
    
    
    $
    
    294Property, plant, and equipment, net
    
    
    $
    
    
    
    
    
    $
    
    144Non-current assets of discontinued operations
    
    
    $
    
    
    
    
    
    $
    
    14410

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

March 31,2010
    
    June 30,2009Accounts payable
    
    
    $
    
    
    
    
    
    $
    
    102Accrued expenses and other current liabilities
    
    
    
    389
    
    
    
    
    229Current liabilities of discontinued operations
    
    
    $
    
    389
    
    
    
    $
    
    331Other long-term liabilities
    
    
    $
    
    365
    
    
    
    $
    
    Non-current liabilities of discontinued operations
    
    
    $
    
    365
    
    
    
    $
    
    Note 4: 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 nine months ended March 31, 2010, we recorded restructuring and related charges,
  consisting primarily of additional severance charges, totaling $602, of which $383 was included in selling, general, and administrative, 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:
March 31, 2010Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2009
    
    
    $
    
    262
    
    
    
    $
    
    452
    
    
    
    $
    
    714Restructuring charges
    
    
    
    602
    
    
    
    
    
    
    
    
    
    602Payments
    
    
    
    (569
    )
    
    
    
    
    (168
    )
    
    
    
    
    (737
    )Balance at March 31, 2010
    
    
    $
    
    295
    
    
    
    $
    
    284
    
    
    
    $
    
    579March 31, 2009Severance
    
    FacilityConsolidationCosts
    
    TotalBalance at June 30, 2008
    
    
    $
    
    226
    
    
    
    $
    
    
    
    
    
    $
    
    226Restructuring charges
    
    
    
    868
    
    
    
    
    
    
    
    
    
    868Payments
    
    
    
    (741
    )
    
    
    
    
    
    
    
    
    
    (741
    )Balance at March 31, 2009
    
    
    $
    
    353
    
    
    
    $
    
    
    
    
    
    $
    
    353Note 5: Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with U.S. GAAP. For the three and nine months ended March 31, 2010, an aggregate of 2,018,479 and 2,080,015, respectively, (for the three and nine months ended March 31, 2009, an aggregate of 2,486,612 and 2,403,324, 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 EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Basic weighted average shares outstanding
    
    
    
    17,341,731
    
    
    
    
    16,872,396
    
    
    
    
    17,090,750
    
    
    
    
    16,826,303Dilutive effect of stock grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    
    17,341,731
    
    
    
    
    16,872,396
    
    
    
    
    17,090,750
    
    
    
    
    16,826,30311

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Basic and diluted weighted average shares are the same for all periods presented due to the net loss in each period.
Note 6. 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 managements assumptions used to measure assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2010 and June 30, 2009:
Assets and Liabilities Measured at Fair Value:
Total carryingvalue atMarch 31, 2010
    
    Fair value measurements at March 31, 2010Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Trading security
    
    
    $
    
    980
    
    
    
    $
    
    980
    
    
    
    $
    
    
    
    
    
    $
    
    Foreign currency hedge
    
    
    
    30
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    Total
    
    
    $
    
    1,010
    
    
    
    $
    
    980
    
    
    
    $
    
    30
    
    
    
    $
    
    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
    )
    
    
    
    $
    
    Assets Measured at Fair Value on a Nonrecurring Basis:
Total carryingvalue atMarch 31, 2010
    
    Fair value measurements at March 31, 2010
    
    Total Gains(Losses)Quoted pricesin activemarkets(Level 1)
    
    Significantotherobservableinputs(Level 2)
    
    Significantunobservableinputs(Level 3)Goodwill(1)
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    (2,003
    )Total
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    (2,003
    )

(1)
    
    
    
    See Note 2 to the consolidated financial StatementsTrading security consists of a mutual fund invested in international corporations. The Company uses quoted market prices to determine the fair value of its marketable securities included in Level
12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
1. 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 7: Share-Based Payments
We recorded share-based compensation expense for the three months ended March 31, 2010 and 2009 of $654 and $672, respectively, with a related tax benefit of $235 and $242, respectively. We recorded share-based compensation expense for the nine months ended March 31, 2010 and 2009 of
  $1,824 and $2,324, respectively, with a related tax benefit of $657 and $836, respectively. For the three months ended March 31, 2010 and 2009, $12 and $10, respectively, of share-based compensation expense were recorded in discontinued operations. For the nine months ended March 31, 2010 and 2009,
  $65 and $29, respectively, of share-based compensation expense 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. Under the assumptions indicated below, the weighted-average fair value of stock option grants for the three months ended March 31, 2010
  was $4.72. The weighted-average fair value of stock option grants for the nine months ended March 31, 2010 and 2009 were $4.44 and $4.43, respectively. During the nine months ended March 31, 2010 and 2009, we issued options to purchase an aggregate of 515,000 and 137,000 shares of common stock,
  respectively. During the three months ended March 31, 2010, there were 375,000 options to purchase shares of common stock issued.
The table below indicates the key assumptions used in the option valuation calculations for options granted in the periods presented and a discussion of our methodology for developing each of the assumptions used in the valuation model:
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Term
    
    
    
    4.1-5.1 Years
    
    
    
    
    
    
    
    
    
    4.1-5.1 Years
    
    
    
    
    4.6 YearsVolatility
    
    
    
    45.7%-60.9
    %
    
    
    
    
    
    
    
    45.7%-60.9%
    
    
    
    45.5
    %Dividend yield
    
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    0.0
    %Risk-free interest rate
    
    
    
    2.0%-2.4
    %
    
    
    
    
    
    
    
    
    
    2.0%-2.5
    %
    
    
    
    
    2.9
    %Forfeiture rate
    
    
    
    0-10.8
    %
    
    
    
    
    
    
    
    
    
    0-10.8
    %
    
    
    
    
    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.
13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
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 March 31, 2010, an aggregate of 40,000 restricted stock units were issued at a weighted average grant price of $10.57. During the three months ended March 31, 2009, there were no grants of
  restricted stock. During the nine months ended March 31, 2010 and 2009, an aggregate of 309,000 and 156,700 restricted stock units were issued at a weighted average grant price of $6.06 and $10.68, respectively. Generally, the restrictions on the restricted stock and restricted stock units granted to
  employees lapse at a rate of 50% after three years and the remaining 50% after the fourth year.
Note 8: Receivables
At March 31, 2010 and June 30, 2009, receivables were as follows:
March 31,2010
    
    June 30,2009Trade
    
    
    $
    
    20,517
    
    
    
    $
    
    19,601Receivable from Nanometrics for sale of certain assets
    
    
    
    1,349
    
    
    
    
    3,392Other
    
    
    
    227
    
    
    
    
    431$
    
    22,093
    
    
    
    
    23,424Allowance for doubtful accounts
    
    
    
    (2,622
    )
    
    
    
    
    (2,550
    )$
    
    19,471
    
    
    
    $
    
    20,874On June 17, 2009, we and Nanometrics Incorporated (Nanometrics) announced that Nanometrics purchased inventory and certain other assets relating to Zygos Semiconductor Solutions business for approximately $3,392 and that the two companies entered into a supply agreement. Under an
  exclusive OEM supply agreement aimed at wafer-based markets, Zygo will provide interferometer sensors to Nanometrics for incorporation into the UnifireÔline of products, as well as Nanometrics family of automated metrology systems. Under the terms of the agreement, Nanometrics assumed all
  inventory, backlog and customer orders and support responsibilities.
Note 9: Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. At March 31, 2010 and June 30, 2009, inventories were as follows:
March 31,2010
    
    June 30,2009Raw materials and manufactured parts
    
    
    $
    
    12,391
    
    
    
    $
    
    15,214Work in process
    
    
    
    9,332
    
    
    
    
    11,313Finished goods
    
    
    
    3,434
    
    
    
    
    3,925$
    
    25,157
    
    
    
    $
    
    30,45214

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Note 10: Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates, on an ongoing basis, the carrying value of our property, plant, and equipment and makes adjustments when impairments are identified. Depreciation is based on the
  estimated useful lives of the various classes of assets and is computed using the straight-line method. At March 31, 2010 and June 30, 2009, property, plant, and equipment were as follows:
March 30,2010
    
    June 30,2009
    
    EstimatedUseful Life(Years)Land
    
    
    $
    
    615
    
    
    
    $
    
    615
    
    
    
    
    Building and improvements
    
    
    
    17,390
    
    
    
    
    17,390
    
    
    
    
    15-40Machinery, equipment, and office furniture
    
    
    
    55,880
    
    
    
    
    55,938
    
    
    
    
    3-8Leasehold improvements
    
    
    
    1,008
    
    
    
    
    908
    
    
    
    
    1-5Construction in progress
    
    
    
    373
    
    
    
    
    570
    
    
    
    
    75,266
    
    
    
    
    75,421Accumulated depreciation
    
    
    
    (51,288
    )
    
    
    
    
    (48,096
    )$
    
    23,978
    
    
    
    $
    
    27,325Depreciation expense was $1,283 and $1,835 for the three months ended March 31, 2010 and 2009, respectively.
Depreciation expense was $4,040 and $5,566 for the nine months ended March 31, 2010 and 2009, respectively.
Note 11: 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 3-17 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 March 31, 2010, current liabilities include $156 and long-term liabilities include $157 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 March 31, 2010 and June 30, 2009 were as follows:
March 31,2010
    
    June 30,2009
    
    EstimatedUseful Life(Years)Patents and trademarks
    
    
    $
    
    5,805
    
    
    
    $
    
    5,586
    
    
    
    
    5-17Covenant not-to-compete
    
    
    
    851
    
    
    
    
    851
    
    
    
    
    4Customer relationships
    
    
    
    112
    
    
    
    
    
    
    
    
    
    3Technology
    
    
    
    1,428
    
    
    
    
    
    
    
    
    
    78,196
    
    
    
    
    6,437Accumulated amortization
    
    
    
    (2,655
    )
    
    
    
    
    (2,226
    )Total
    
    
    $
    
    5,541
    
    
    
    $
    
    4,211Intangible amortization expense was $213 and $199 for the three months ended March 31, 2010 and 2009, respectively. Intangible amortization expense was $563 and $574 for the nine months ended March 31, 2010 and 2009, respectively. Amortization expense related to certain intangible assets is
  included in cost of goods sold in the Condensed Consolidated Statements of Operations.
15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Note 12: 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 for defective 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:
Nine Months EndedMarch 31,2010
    
    2009Beginning balance
    
    
    $
    
    1,614
    
    
    
    $
    
    1,263Reductions for payments made
    
    
    
    (688
    )
    
    
    
    
    (749
    )Changes in accruals related to pre-existing warranties
    
    
    
    (352
    )
    
    
    
    
    (122
    )Changes in accruals related to warranties made in the current period
    
    
    
    988
    
    
    
    
    892Ending balance
    
    
    $
    
    1,562
    
    
    
    $
    
    1,284Note 13: 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 nine months ended March 31, 2010 and 2009, segment revenues and gross margin were as follows:
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Metrology SolutionsRevenues
    
    
    $
    
    15,178
    
    
    
    $
    
    13,922
    
    
    
    $
    
    48,312
    
    
    
    $
    
    65,126Gross margin
    
    
    $
    
    7,919
    
    
    
    $
    
    4,046
    
    
    
    $
    
    24,256
    
    
    
    $
    
    28,263Gross margin as a % of revenue
    
    
    
    52
    %
    
    
    
    
    29
    %
    
    
    
    
    50
    %
    
    
    
    
    43
    %Optical SystemsRevenues
    
    
    $
    
    10,261
    
    
    
    $
    
    6,098
    
    
    
    $
    
    24,533
    
    
    
    $
    
    25,787Gross margin
    
    
    $
    
    3,558
    
    
    
    $
    
    663
    
    
    
    $
    
    5,348
    
    
    
    $
    
    5,189Gross margin as a % of revenue
    
    
    
    35
    %
    
    
    
    
    11
    %
    
    
    
    
    22
    %
    
    
    
    
    20
    %TotalRevenues
    
    
    $
    
    25,439
    
    
    
    $
    
    20,020
    
    
    
    $
    
    72,845
    
    
    
    $
    
    90,913Gross margin
    
    
    $
    
    11,477
    
    
    
    $
    
    4,709
    
    
    
    $
    
    29,604
    
    
    
    $
    
    33,452Gross margin as a % of revenue
    
    
    
    45
    %
    
    
    
    
    24
    %
    
    
    
    
    41
    %
    
    
    
    
    37
    %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.
16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Revenues by geographic area were as follows:
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Americas
    
    
    $
    
    13,997
    
    
    
    $
    
    10,276
    
    
    
    $
    
    40,213
    
    
    
    $
    
    44,030Europe
    
    
    
    3,773
    
    
    
    
    2,526
    
    
    
    
    9,870
    
    
    
    
    11,209Japan
    
    
    
    5,442
    
    
    
    
    4,164
    
    
    
    
    12,692
    
    
    
    
    21,853Pacific Rim
    
    
    
    2,227
    
    
    
    
    3,054
    
    
    
    
    10,070
    
    
    
    
    13,821Total
    
    
    $
    
    25,439
    
    
    
    $
    
    20,020
    
    
    
    $
    
    72,845
    
    
    
    $
    
    90,913Note 14: 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 $3,067 and $2,991 (12% and 15% of revenues, respectively) for the three months ended March 31, 2010
  and 2009, respectively. For the nine months ended March 31, 2010 and 2009, sales to Canon amounted to $6,087 and $15,112, respectively (8% and 17% of revenues, respectively). Selling prices of products sold to Canon are based, generally, on the terms customarily given to distributors. At March 31,
  2010 and June 30, 2009, there were, in the aggregate, $988 and $592, respectively, of trade accounts receivable from Canon.
Note 15: 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 March 31, 2010, we had six currency contracts outstanding involving our Japanese and German operations with notional amounts aggregating $1,875. These foreign currency hedges are not designated as hedging instruments. For the three months ended March 31, 2010 and 2009, we recognized
  net unrealized gains of $31 and $365, respectively, from foreign currency forward contracts. For the nine months ended March 31, 2010 and 2009, we recognized net unrealized gains of $43 and $8, respectively, from foreign currency forward contracts. These unrealized gains are substantially offset by
  foreign exchange 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 March 31, 2010:
Derivatives not designated as hedging instruments
    
    
    
    Balance Sheet LocationForeign exchange contracts
    
    
    
    6
    
    
    Prepaid expenses
    
    
    $
    
    2917

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Dollars in thousands, except per share amounts)
Note 16: Income Taxes
Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2010
    
    2009
    
    2010
    
    2009Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %
    
    Amount
    
    TaxRate %Income tax (expense) benefit
    
    
    $
    
    (131
    )
    
    
    
    
    6
    %
    
    
    
    $
    
    5,175
    
    
    
    
    31
    %
    
    
    
    $
    
    (505
    )
    
    
    
    
    8
    %
    
    
    
    $
    
    6,497
    
    
    
    
    32
    %Income tax expense for the three months ended March 31, 2010 included tax expense on foreign operations and minor adjustments on domestic returns which were recently filed for the prior tax year. 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 $45,418 at March 31, 2010.
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 March 31, 2010, we did not recognize an
  additional liability or realize any benefit for uncertain tax positions. The total liability for uncertain tax liabilities was $1,826 at both March 31, 2010 and June 30, 2009 which is included in long-term income tax payables. We are not currently aware of any tax positions that would require a material
  adjustment to the amount of 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, generally, not subject to state and
  foreign income tax audit or tax adjustments for years prior to June 30, 2006. We recently settled a federal U.S. income tax audit for domestic taxes for the periods ended June 30, 2007 and 2008 with no material changes as a result of the audit.
Note 17: 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 March 31, 2010, we have a reserve of $1,360 for a potential royalty claim. 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 operations, or liquidity. We are aware of certain levels of contamination on our property. 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 testing of both properties has not shown contaminants above reportable levels. We are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may ultimately
  become 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.
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.
On January 19, 2010, Dr. Chris L. Koliopoulos was appointed President and Chief Executive Officer. With the commencement of his employment, Dr. Koliopoulos also became a member of the Board of Directors of Zygo. 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 361,217 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 for us. Zemetrics is included in the Metrology Solutions segment.
The purchase price for Zemetrics was valued at $3.9 million. The purchase price was allocated to tangible and intangible assets. Intangible assets included goodwill, technology, and customer relationships. The Company recorded an impairment charge of $2.0 million relating to acquired goodwill in the
  period ended March 31, 2010 subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In addition, the fair value of common stock issued as consideration on the closing date was $10.80 per share, which was significantly in excess of
  the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based on the market price per share during the 40 day period prior to closing). In consideration of these factors, management determined the carrying
  value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010. Technology of $1.4 million and customer relationships of $0.1 million will be amortized over seven and three years, respectively.
For the third quarter of fiscal 2010, we reported a net loss of $2.7 million ($2.5 million loss from continuing operations), or a loss of $0.16 ($0.15 loss from continuing operations) per diluted share, as compared with a net loss of $15.1 million ($11.7 million loss from continuing operations), or $0.90
  ($0.70 loss from continuing operations) per diluted share, for the third quarter of fiscal 2009. The third quarter of fiscal 2010 loss from continuing operations included $3.3 million of operating expenses primarily related to costs for the acquisition of Zemetrics, including the subsequent charge related to
  goodwill as part of the purchase price valuation noted above, the Companys evaluation of the unsolicited offer by II-VI Incorporated, and search costs for our new chief executive officer. The third quarter of fiscal 2009 loss from continuing operations included $9.8 million of charges primarily related to
  the termination of the proposed ESI merger, inventory adjustments, severance charges, and asset impairment charges.
Over the last four fiscal quarters, we have divested ourselves of our Semiconductor and Flat Panel Display (FPD) product lines and shut down our IC packaging operations in Singapore in order to concentrate on our core technologies. We continue to sell Original Equipment Manufacturer
  (OEM) sensor heads related to semiconductor and FPD systems manufactured through our Instruments product line. The IC packaging metrology operations in Singapore have been shut down. 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 nine months ended March 31, 2010 decreased $6.0 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 margin on the OEM sensor heads.
19

Bookings for third quarter of fiscal 2010 were $27.3 million, as compared with $28.6 million and $15.6 million for the second quarter of fiscal 2010 and third quarter of fiscal 2009, respectively. Bookings for our Metrology Solutions segment accounted for 59% of the bookings received for the three
  months ended March 31, 2010, with the Optical Systems segment accounting for 41% of bookings. The decrease in bookings from the second quarter of fiscal 2010 was due to slight decreases in the Metrology Solutions segment of $0.5 million and in the Optical Systems segment of $0.8 million. This
  decrease in Metrology Solutions segment bookings primarily resulted from lower bookings for our instruments products, but we do not expect this decline to portend a future trend. 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 third quarter of fiscal 2009 is due to an increase of $9.2 million in the Metrology Solutions segment and an increase in the Optical Systems segment of $2.5 million. The increase in the Metrology systems
  was primarily related to a volume increase in lithography and instruments bookings as the markets continue to rebound over the prior year. The increase in the Optical Systems segment was primarily related to an increase in contract manufacturing bookings. Our Optical Systems segment continues to
  include our optical components and electro-optics contract manufacturing products. Our Metrology Solutions segment now includes an OEM product category, which consists of lithography products, display sensor heads, and semiconductor 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 noncontrolling 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 noncontrolling 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 noncontrolling 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 Revenues
Fiscal 2010
    
    Fiscal 2009Amount
    
    Net Sales%
    
    Amount
    
    Net Sales%(Dollars in millions)Quarter ended March 31Metrology Solutions
    
    
    $
    
    15.2
    
    
    
    
    60
    %
    
    
    
    $
    
    13.9
    
    
    
    
    70
    %Optical Systems
    
    
    
    10.2
    
    
    
    
    40
    %
    
    
    
    
    6.1
    
    
    
    
    30
    %Total
    
    
    $
    
    25.4
    
    
    
    
    100
    %
    
    
    
    $
    
    20.0
    
    
    
    
    100
    %Nine months ended March 31Metrology Solutions
    
    
    $
    
    48.3
    
    
    
    
    66
    %
    
    
    
    $
    
    65.1
    
    
    
    
    72
    %Optical Systems
    
    
    
    24.5
    
    
    
    
    34
    %
    
    
    
    
    25.8
    
    
    
    
    28
    %Total
    
    
    $
    
    72.8
    
    
    
    
    100
    %
    
    
    
    $
    
    90.9
    
    
    
    
    100
    %Overall, revenues for the three months ended March 31, 2010 increased 27% as compared with the prior year period, reflecting increases in the Metrology Solutions segment revenues of 9% and in the Optical Systems segment revenues of 67%. The increase in Metrology Solutions segment revenues
  of $1.3 million was primarily due to volume increases in lithography of $1.1 million and vision systems of $0.7 million, partially offset by larger semiconductor equipment sales in the prior year of $1.0 million. The Metrology Solutions segment was positively affected by additional revenue of $0.4 million
  related to OEM heads. The decrease in semiconductor equipment revenues is due to the arrangement with Nanometrics in June 2009. 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 increase in the Optical Systems segment revenues of $4.1 million was primarily due to increases in contract manufacturing of $2.3 million and optical components of $1.8 million. The increase in
  contract manufacturing is primarily related to existing customers showing increased activity in the current year, especially related to medical devices.
Revenues for the nine months ended March 31, 2010 decreased 20% as compared with the prior year period, reflecting decreases in the Metrology Solutions segment revenues of 26% and in the Optical Systems segment revenues of 5%. The decrease in Metrology Solutions segment revenues was
  primarily due to volume decreases in display solutions of $7.2 million, lithography of $6.5 million, and instruments of $5.8 million, partially offset by increased revenues in vision systems of $1.6 million. New business in the Metrology Solutions segment related to OEM heads increased revenues by $0.8
  million. The volume decreases in lithography and instruments revenues, in large measure, were 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 was due to the arrangement entered into with Toho Technology Corporation (Toho) in October 2009. 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 are expected to be lower than the full display system revenues. The decrease in the Optical Systems segment revenues was primarily due to a decrease in contract manufacturing of $1.6 million, partially offset by increased
  revenues in optical components of $0.4 million. The decrease in contract manufacturing was 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.
Revenues in U.S. dollars for the three months ended March 31, 2010 and 2009 were approximately 71% and 80% of total revenues, respectively, with the remaining 29% and 20%, respectively, being in Euro, Yen, and Yuan. Revenues in U.S. dollars for the nine months ended March 31, 2010 and
  2009 were approximately 71% and 78% of total revenues, respectively, with the remaining 29% and 22%, respectively, being in Euro, Yen, and Yuan. For our revenues which are
21

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 Margin by Segment
Fiscal 2010
    
    Fiscal 2009Amount
    
    GrossMargin %
    
    Amount
    
    GrossMargin %(Dollars in millions)Quarter ended March 31Metrology Solutions
    
    
    $
    
    7.9
    
    
    
    
    52
    %
    
    
    
    $
    
    4.0
    
    
    
    
    29
    %Optical Systems
    
    
    
    3.6
    
    
    
    
    35
    %
    
    
    
    
    0.7
    
    
    
    
    11
    %Total
    
    
    $
    
    11.5
    
    
    
    
    45
    %
    
    
    
    $
    
    4.7
    
    
    
    
    24
    %Nine months ended March 31Metrology Solutions
    
    
    $
    
    24.3
    
    
    
    
    50
    %
    
    
    
    $
    
    28.3
    
    
    
    
    43
    %Optical Systems
    
    
    
    5.3
    
    
    
    
    22
    %
    
    
    
    
    5.2
    
    
    
    
    20
    %Total
    
    
    $
    
    29.6
    
    
    
    
    41
    %
    
    
    
    $
    
    33.5
    
    
    
    
    37
    %Gross margin as a percentage of revenues for the three months ended March 31, 2010 was 45%, which represents an increase of twenty-one percentage points from the comparable prior year period. Within the Metrology Solutions segment, the gross margin as a percentage of revenues was 52% for
  the three months ended March 31, 2010 as compared with the prior year comparable period of 29%, which included charges for severance and inventory adjustments totaling $2.2 million. Excluding these charges, the gross margin for the three months ended March 31, 2009 would have been 45%. The
  increase to 52% in the current year period was primarily due to increased factory production while we reduced factory costs. Within the Optical Systems segment, the gross margin increased as a percentage of revenues to 35% for the three months ended March 31, 2010 as compared with 11% in the
  comparable prior year period, primarily due to improving revenues and product mix, as well as improved operations in the current fiscal year. The prior year period experienced production issues related to certain optics resulting in increased manufacturing costs and delayed shipments.
Gross margin as a percentage of revenues for the nine months ended March 31, 2010 was 41%, which represents an increase of four percentage points from the comparable prior year period. Within the Metrology Solutions segment, gross margin increased as a percentage of revenues to 50% for the
  nine months ended March 31, 2010 as compared with the prior year comparable period of 43%, which included charges for severance and inventory adjustments totaling $2.2 million. Excluding these charges, the gross margin as a percentage of revenue in the prior year period would have been 47%. The
  increase to 50% in the current year period was primarily due to improved factory costs and a decrease in low margin display revenues. Within the Optical Systems segment, the gross margin increased as a percentage of revenues to 22% for the nine months ended March 31, 2010 as compared with 20%
  in the comparable prior year period. The Optical Systems segment gross margin for the nine months ended March 31, 2010 would have been higher if it were not for production issues resulting in a negative gross margin 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 March 31
    
    
    $
    
    8.1
    
    
    
    
    32
    %
    
    
    
    $
    
    15.1
    
    
    
    
    76
    %Nine months ended March 31
    
    
    $
    
    23.2
    
    
    
    
    32
    %
    
    
    
    $
    
    36.3
    
    
    
    
    40
    %22

SG&A
    expenses decreased in the three months ended March 31, 2010 by $7.0 million
    from the comparable prior year period. SG&A expenses for the three months
    ended March 31, 2010 included total charges of $3.3 million associated with
    the Zemetrics acquisition, the Companys evaluation of the
  unsolicited offer by II-VI Incorporated, and CEO search related costs. SG&A
  expenses for the three months ended March 31, 2009 included total charges of
  $6.7 million primarily related to the termination of the proposed ESI merger,
  severance charges, and asset impairment charges. Excluding these charges in
  each period, the SG&A expenses would have decreased to $6.8 million in
  the quarter ended March 31, 2010 from $8.4 million in the comparable prior
  year period. This decrease is primarily related to cost savings initiatives
  and by a reduction in sales and marketing expenses of $1.0 million related
  to the change in our focus in the flat panel and semiconductor markets with
  the OEM agreements we signed in fiscal 2009 and earlier this fiscal year.
SG&A
    expenses decreased in the nine months ended March 31, 2010 by $13.1 million
    from the comparable prior year period. The nine months ended March 31, 2010
    included $4.6 million in total charges related to the items referred to above.
    The nine months ended March 31, 2009 included $10.2 million in charges related
    to the items referred to above. Excluding these charges in each period, the
    SG&A expenses would have decreased to $20.6 million in the current year
    nine month period from $26.1 million in the comparable prior year period.
    The decrease in expenses was primarily due to expense reductions related
    to our change in focus in the flat panel display and semiconductor markets
    with the OEM agreements we signed in fiscal 2009 and earlier this year of
    $2.1 million, reductions in salaries and wages of $1.2 million, a reduction
    of $0.3 million in travel expenses, and reductions of an aggregate of $1.9
    in various other expenses as part of our cost savings initiatives.
Research, Development, and Engineering Expenses (RD&E)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended March 31
    
    
    $
    
    3.5
    
    
    
    
    14
    %
    
    
    
    $
    
    6.3
    
    
    
    
    32
    %Nine months ended March 31
    
    
    $
    
    11.1
    
    
    
    
    15
    %
    
    
    
    $
    
    17.1
    
    
    
    
    19
    %RD&E for the three and nine months ended March 31, 2010 decreased by $2.8 million and $6.0 million, respectively, as compared with the prior year periods. RD&E for the three and nine months ended March 31, 2009 included charges of $0.4 and $0.9 million, respectively, related to asset impairment
  and severance expenses. Excluding these charges, RD&E would have decreased to $3.1 million in the current year period from $5.4 million in the prior year period. The decrease in RD&E was primarily due to the elimination of costs related to the semiconductor and display product lines in June and
  October 2009.
Impairment of Goodwill
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended March 31
    
    
    $
    
    2.0
    
    
    
    
    8
    %
    
    
    
    $
    
    
    
    
    
    
    0
    %Nine months ended March 31
    
    
    $
    
    2.0
    
    
    
    
    3
    %
    
    
    
    $
    
    
    
    
    
    
    0
    %The Company recorded an impairment charge related to Zemetrics of $2.0 million during the three months ended on March 31, 2010 relating to acquired goodwill subsequent to the acquisition date. The Zemetrics reporting unit had minimal sales history and cumulative losses since inception. In
  addition, the fair value of common stock issued as consideration on the closing date was $10.80 per share, which was significantly in excess of the implied value per share in the formula used in the purchase agreement to determine the number of common shares issued as consideration (which was based
  on the market price per share during the 40-day period prior to closing). In consideration of these factors, management determined the carrying value of the reporting unit exceeded its fair value, and that the implied fair value of goodwill was zero at March 31, 2010.
23

Provision for Doubtful Accounts and Notes
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended March 31
    
    
    $
    
    (0.2
    )
    
    
    
    
    -1
    %
    
    
    
    $
    
    
    
    
    
    
    0
    %Nine months ended March 31
    
    
    $
    
    (0.1
    )
    
    
    
    
    0
    %
    
    
    
    $
    
    1.0
    
    
    
    
    1
    %Provision for doubtful accounts and notes for the three and nine months ended March 31, 2010 decreased by $0.2 million and $1.1 million as compared with the prior year period, primarily due to changes in the purchase allocation relating to the Solvision asset acquisition of which a note receivable
  was reserved in fiscal 2009. Prior to the acquisition, we had loaned $1.5 million to Solvision in October 2007.
Other Income (Expense)
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended March 31
    
    
    $
    
    (0.1
    )
    
    
    
    
    0
    %
    
    
    
    $
    
    (0.1
    )
    
    
    
    
    0
    %Nine months ended March 31
    
    
    $
    
    0.1
    
    
    
    
    0
    %
    
    
    
    $
    
    0.6
    
    
    
    
    1
    %Other income (expense) for the nine months ended March 31, 2010 decreased by $0.5 million, as compared with the prior year period, primarily due to a decrease in investment income. We changed our investment portfolio and have a low risk government security bond, which carries a significantly
  lower interest rate than corporate bonds.
Income Tax Benefit (Expense)
Fiscal 2010
    
    Fiscal 2009Amount
    
    Tax Rate%
    
    Amount
    
    Tax Rate%(Dollars in millions)Quarter ended March 31
    
    
    $
    
    (0.1
    )
    
    
    
    
    6
    %
    
    
    
    $
    
    5.2
    
    
    
    
    31
    %Nine months ended March 31
    
    
    $
    
    (0.5
    )
    
    
    
    
    8
    %
    
    
    
    $
    
    6.5
    
    
    
    
    32
    %Income tax benefit (expense) for the three and nine months ended March 31, 2010 included income taxes in state and foreign jurisdictions which could not be offset by current and prior net operating losses. We continue to maintain a valuation allowance on all of our net deferred tax assets totaling
  $45.4 million at March 31, 2010. 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
Fiscal 2010
    
    Fiscal 2009Amount
    
    %of Sales
    
    Amount
    
    %of Sales(Dollars in millions)Quarter ended March 31
    
    
    $
    
    (0.2
    )
    
    
    
    
    1
    %
    
    
    
    $
    
    (3.4
    )
    
    
    
    
    17
    %Nine months ended March 31
    
    
    $
    
    (2.7
    )
    
    
    
    
    4
    %
    
    
    
    $
    
    (3.9
    )
    
    
    
    
    4
    %The loss from discontinued operations for the three and nine months ended March 31, 2010 included charges related to closing the operation, including severance charges, write-down of assets, and the related effect of foreign currency translation losses. The loss from discontinued operations for the
  three and nine months ended March 31, 2009 included operating losses, an impairment of intangible assets of $1.1 million and an inventory write-off of $1.5 million.
24

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 $3.1 million and $3.0 million (12% and 15% of revenues, respectively) for the three months ended March
  31, 2010 and 2009, respectively. For the nine months ended March 31, 2010 and 2009, sales to Canon amounted to $6.1 million and $15.1 million, respectively (8% and 17% of revenues, respectively). Selling prices of products sold to Canon are based, generally, on the terms customarily given to
  distributors. At March 31, 2010 and June 30, 2009, there were, in the aggregate, $1.0 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 nine months of fiscal 2010, other than the indirect effect that the current uncertainty in global economic conditions resulting from the disruption in credit markets
  has had on customer demand for our products.
At March 31, 2010, cash and marketable securities were $41.9 million, an increase of $5.2 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 certain warranty periods and are valued at 10% of the associated contract value. As of March 31, 2010, $0.1 million in standby letters of credit are outstanding 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 $26.9 million as of March 31, 2010. 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 $3.6 million of gross accounts receivable related to our display customers which are overdue. Of this amount, $1.7 million has been reserved. We have agreed to payment terms with several display customers and are in negotiations with other customers. Although we are pursuing the
  collection of such amounts, 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
Nine
          Months Ended
    March 31,2010
    
    2009(Dollars
            in millions)Net cash flows provided by operating activities from continuing operations
    
    
    $
    
    7.8
    
    
    
    $
    
    1.5Net cash flows used for operating activities from discontinued operations
    
    
    $
    
    (1.4
    )
    
    
    
    $
    
    (1.7
    )25

Cash flows from operating activities from continuing operations for the first nine months of fiscal 2010 increased by $6.3 million as compared with the prior year period. This was primarily due to a decrease in net loss from continuing operations of $6.3 million compared to the prior period. Other
  significant positive increases in cash flow from operations in the current year include a decrease in inventory of $6.0 million as we continue to manage our inventory levels and a decrease in net receivables of $1.3 million. The decrease in inventory includes a decrease in semiconductor and flat panel
  display inventory of $2.6 million as we migrate to being an OEM supplier instead of an in-line system provider.
Cash Flow from Investing Activities
Nine
          Months Ended
    March 31,2010
  
  2009(Dollars
          in millions)Net cash flows provided by investing activities
    
    
    $
    
    1.8
    
    
    
    $
    
    11.6Cash flows provided by investing activities for the first nine months of fiscal 2010 decreased by $9.8 million as compared with the prior year period. This decrease was primarily related to a net decrease in proceeds and purchases of marketable securities of $13.7 million, partially offset by a decrease
  in fixed asset additions of $3.3 million.
Cash Flow from Financing Activities
Nine
          Months Ended
    March 31,2010
  
  2009(Dollars
          in millions)Net cash flows used for financing activities
    
    
    $
    
    
    
    
    
    $
    
    (1.1
    )Cash flows used for financing activities in the nine months ended March 31, 2010 decreased by $1.1 million as compared with the prior year period. For the nine months ended March 31, 2009, there was a dividend payment of $1.3 million to a minority interest partner. A dividend was not paid in the
  nine months ended March 31, 2010.
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 has been no material changes that have occurred in our quantitative and qualitative market risk disclosures during the nine months ended March 31, 2010 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, we determined that accounting errors were made in our statements of cash flows. The errors relate to
26

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, December 31, 2009, and March 31, 2010 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 third quarter of fiscal 2010 that materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
27

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 19, 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.
Unsolicited proposals 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. Our Board of Directors hired an independent advisor, evaluated this proposal carefully in the context of several things, including our current
  strategic plans, and unanimously rejected the offer. If we were to receive other unsolicited proposals, a financial review and consideration of a proposal may 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 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.
28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases during the quarter ended March 31, 2010 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)January 1, 2010January 31, 2010
    
    
    
    13,602
    
    
    
    $
    
    10.87
    
    
    
    
    
    
    
    
    $
    
    5.0February 1, 2010February 28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    5.0March 1, 2010March 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    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 pursuant to plans in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. During the three months ended March 31, 2010, there were no repurchases of
      common stock in the open market.We did not have any unregistered sales of our equity securities during the three months ended March 31, 2010, except for 361,217 shares of our common stock issued in connection with the acquisition of Zemetrics, Inc., as previously disclosed on our Current Report on Form 8-K filed on January 22,
  2010.
Item 4. Submission of Matters to a Vote of Security Holders
The 2009 Annual Meeting of Stockholders was held on February 10, 2010. The following matters were submitted to a vote of the Companys stockholders:
Proposal No. 1Election of Board of Directors
The following individuals were elected as a result of the following vote:
For
    
    WithheldEugene G. Banucci
    
    
    
    10,143,583
    
    
    
    
    1,312,984Stephen D. Fantone
    
    
    
    11,161,181
    
    
    
    
    295,386Samuel H. Fuller
    
    
    
    11,308,178
    
    
    
    
    148,389Seymour E. Liebman
    
    
    
    11,082,852
    
    
    
    
    373,715Robert B. Taylor
    
    
    
    11,185,665
    
    
    
    
    270,902Carol P. Wallace
    
    
    
    11,288,302
    
    
    
    
    168,265Gary K. Willis
    
    
    
    11,102,530
    
    
    
    
    354,037Bruce W. Worster
    
    
    
    10,333,132
    
    
    
    
    1,123,435Drs. Banucci and Worster have since resigned from our Board.
Proposal No. 2Ratification of appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2010 were as follows:
For
    
    Against
    
    Abstain14,265,122
    
    
    
    
    66,149
    
    
    
    
    20,775Proposal No. 3Ratification of election of Chris L. Koliopoulos as a director were as follows:
For
    
    Abstain10,693,980
    
    
    
    
    211,033There were no other matters submitted to a vote of our stockholders.
29

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 200230

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. KoliopoulosChairman, President, and Chief Executive Officer
/s/ Walter A. ShephardWalter A. ShephardVice President, Finance, Chief Financial Officer, and Treasurer
Date: May 17, 2010
31

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