UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549

FORM 10-K

(Mark One)


|   |                                                                                                 
|-- | ------------------------------------------------------------------------------------------------
|x  | Annual Report Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934           
|   | For the
 fiscal year ended June 30, 2009                                                        
|Or |                                                                                                 
|o  | Transition Report Pursuant to Section 13 or 15(d) of
 the Securities Exchange Act of 1934       
|   | For the
 transition period from ______________________________ to ______________________________
|   |                                                                                                 

Commission file number 0-12944

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

|                                |  |                                      | 
|------------------------------- |  | ------------------------------------ | 
|Delaware                        |  | 06-0864500                           | 
|                                |  |                                      | 
|(State or other jurisdiction of |  | (IRS Employer Identification Number) | 
|incorporation or organization)  |  |                                      | 

| |                                                             | 
| | ----------------------------------------------------------- | 
| | Laurel Brook Road, Middlefield, Connecticut 06455-1291      | 
| |                                                             | 
| | (Address of principal executive offices) (Zip Code)         | 
| |                                                             | 
| | (860) 347-8506                                              | 
| |                                                             | 
| | (Registrants telephone number, including area code:)       | 
| |                                                             | 
| | Securities registered pursuant to Section 12(b) of the Act: | 
| |                                                             | 
| | None                                                        | 
| |                                                             | 
| | Securities registered pursuant to Section 12(g) of the Act: | 
| |                                                             | 
| | Common Stock, $.10 Par Value                                | 

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


YES o
   NO x


Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


YES o
   NO x


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.


YES o
   NO x


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 (§ 229.405 of this
chapter) during the preceeding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


YES o
   NO o


Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K(229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.


x


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. (Check one):

|                         |   |                                                |                               | 
|------------------------ | - | ---------------------------------------------- | ----------------------------- | 
|Large
 accelerated filer | o |                                                | Accelerated filer   x        
|Non-accelerated
 filer   | o | (Do not check if a smaller reporting
 company) | Smaller
 reporting company  o

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


YES o
   NO x


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The aggregate
market value of the registrants Common Stock held by non-affiliates, based
upon the closing price of the Common Stock on December 31, 2008, as reported by
the NASDAQ National Market, was $64,026,111. Shares of Common Stock held by
each executive officer and director and by each person who owns 5% or more of
the outstanding Common Stock, based on filings with the Securities and Exchange
Commission, have been excluded since such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive determination
for other purposes.

Indicate the
number of shares outstanding of each of the registrants classes of Common
Stock, as of the latest practicable date.

16,988,156 Shares of Common Stock, $.10 Par
Value, at September 1, 2009

Documents
incorporated by reference: Specified portions of the registrants Proxy
Statement related to the registrants 2009 Annual Meeting of Stockholders, to
be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, are incorporated by reference into Part
II (Item 5) and Part III (Items 10-14) of this Annual Report on Form 10-K to
the extent stated herein.

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TABLE
OF CONTENTS

|         |                                                                                                                   |  |      | 
|-------- | ----------------------------------------------------------------------------------------------------------------- |  | ---- | 
|         |                                                                                                                   |  | Page
|         |                                                                                                                   |  |     
|         |                                                                                                                   |  |      | 
|------   | Forward-Looking Statements                                                                                        |  | 1    | 
|         |                                                                                                                   |  |      | 
|PART I   |                                                                                                                   |  |      | 
|         |                                                                                                                   |  |      | 
|Item 1.  | Business                                                                                                          |  | 2    | 
|         |                                                                                                                   |  |      | 
|------   | Executive Officers of the Registrant                                                                              |  | 9    | 
|         |                                                                                                                   |  |      | 
|Item 1A. | Risk Factors                                                                                                      |  | 10   | 
|         |                                                                                                                   |  |      | 
|Item 1B. | Unresolved Staff Comments                                                                                         |  | 14   | 
|         |                                                                                                                   |  |      | 
|Item 2.  | Properties                                                                                                        |  | 15   | 
|         |                                                                                                                   |  |      | 
|Item 3.  | Legal Proceedings                                                                                                 |  | 16   | 
|         |                                                                                                                   |  |      | 
|Item 4.  | Submission
 of Matters to a Vote of Security Holders                                                              |  | 16   | 
|         |                                                                                                                   |  |      | 
|PART II  |                                                                                                                   |  |      | 
|         |                                                                                                                   |  |      | 
|Item 5.  | Market for the Registrants Common Equity, Related Stockholder
 Matters and Issuer Purchases of Equity Securities |  | 17   | 
|         |                                                                                                                   |  |      | 
|Item 6.  | Selected Financial Data                                                                                           |  | 20   | 
|         |                                                                                                                   |  |      | 
|Item 7.  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                            |  | 21   | 
|         |                                                                                                                   |  |      | 
|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk                                                        |  | 31   | 
|         |                                                                                                                   |  |      | 
|Item 8.  | Financial Statements and Supplementary Data                                                                       |  | 32   | 
|         |                                                                                                                   |  |      | 
|Item 9.  | Changes in and Disagreements With Accountants on Accounting and
 Financial Disclosure                             |  | 32   | 
|         |                                                                                                                   |  |      | 
|Item 9A. | Controls and Procedures                                                                                           |  | 33   | 
|         |                                                                                                                   |  |      | 
|Item 9B. | Other Information                                                                                                 |  | 34   | 
|         |                                                                                                                   |  |      | 
|PART III |                                                                                                                   |  |      | 
|         |                                                                                                                   |  |      | 
|Item 10. | Directors, Executive Officers and Corporate Governance                                                            |  | 34   | 
|         |                                                                                                                   |  |      | 
|Item 11. | Executive Compensation                                                                                            |  | 34   | 
|         |                                                                                                                   |  |      | 
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters                   |  | 34   | 
|         |                                                                                                                   |  |      | 
|Item 13. | Certain Relationships and Related Transactions, and Director
 Independence                                        |  | 34   | 
|         |                                                                                                                   |  |      | 
|Item 14. | Principal Accountant Fees and Services                                                                            |  | 34   | 
|         |                                                                                                                   |  |      | 
|PART IV  |                                                                                                                   |  |      | 
|         |                                                                                                                   |  |      | 
|Item 15. | Exhibits, Financial Statement Schedules                                                                           |  | 35   | 
|         |                                                                                                                   |  |      | 
|------   | Signatures                                                                                                        |  | 38   | 

As used in
this Annual Report on Form 10-K, unless the context otherwise requires, the
terms we, us, our, Company, and ZYGO refer to Zygo Corporation, a
Delaware corporation.

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FORWARD-LOOKING STATEMENTS

All statements
other than statements of historical fact included in this Annual Report
regarding our financial position, business strategy, plans, anticipated sales,
orders, market acceptance, growth rates, market opportunities, and objectives
of management for future operations are forward-looking statements. These
forward-looking statements include without limitation statements under
Business, Managements Discussion and Analysis of Financial Condition and
Results of Operations, and Risk Factors. Forward-looking statements are
intended to provide managements current expectations or plans for the future
operating and financial performance based upon information currently available
and assumptions currently believed to be valid. Forward-looking statements can
be identified by the use of words such as anticipate, believe, estimate,
expect, intend, plans, strategy, project, and other words of similar
meaning in connection with a discussion of future operating or financial
performance. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors such as those
disclosed under Risk Factors. Such statements reflect our current views with
respect to future events and are subject to these and other risks, uncertainties,
and assumptions relating to the operations, results of operations, and our
growth strategy.

Any
forward-looking statements included in this Annual Report speak only as of the
date of this document. ZYGO undertakes no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances occurring after
the date of this Annual Report on Form 10-K.

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PART I

Item 1. Business

OVERVIEW

Zygo
Corporation (ZYGO, we, us, our, or Company) designs, develops,
and manufactures ultra-high precision measurement solutions to improve our
customers manufacturing yields, and top-tier optical sub-systems and
components for original equipment manufacturers (OEM) and end-user
applications. We operate within two divisions. Our Metrology Solutions Division
(also referred to herein as the Metrology segment) manufactures products to
improve quality, increase productivity, and decrease the overall cost of
product development and manufacturing for high-technology companies. Our Optical
Systems Division (also referred to herein as the Optics segment) provides
leading-edge product development and manufacturing services that leverage a
variety of core technologies across medical, defense, semiconductor, laser
fusion research, biomedical, and other industrial markets.

Our Metrology
Solutions Division serves the industrial and semiconductor markets by providing
process control for surface shape, roughness and film thickness, which are
critical to all of our markets, and through product offerings that measure
surface and material characteristics such as roughness, figure, film thickness
and transmitted wavefront of flat, spherical, and aspheric components. Our
industrial market products serve the defense/aerospace, automotive, consumer electronics,
and commercial optics markets, as well as various other miscellaneous markets
other than semiconductor. Industrial market products include measurement-based
process control systems for defense and aerospace customers, and
measurement-based process control and yield-enhancement systems for automotive,
consumer electronics, and commercial optical customers.

Our
semiconductor product offerings include semiconductor metrology tools, OEM
solutions, in-line automated yield improvement systems for both flat panel
displays and advanced integrated circuit packaging manufacturing and technology
development projects for the semiconductor capital equipment industry. Our
displacement measurement systems are used extensively in ultra-precise wafer
positioning systems for the semiconductor capital equipment industry. One of
our continuing strategic initiatives is to expand our product offerings by
applying our patented technology to integrated in-line technology.

In June 2009,
we agreed to a supply agreement with Nanometrics Incorporated (Nanometrics),
whereby we will supply interferometer sensors to Nanometrics for incorporation
into the UniFire line of products as well as Nanometrics family of automated
metrology systems. This agreement enables us to accomplish our goal of
accelerating the commercial deployment and market penetration of our core
interferometer technology into the worldwide semiconductor industry without the
investment associated with system integration, distribution, applications and
support. In addition to the applications currently addressed by Nanometrics and
ZYGO products, the business partnership allows for the joint development of
additional technology solutions targeted at the semiconductor and related
industries.

In February
2008, we acquired the assets of Solvision, Inc., a Canadian-based company,
including its Singapore subsidiary, and entered the market for in-line
inspection of flip chip substrates and integrated circuits (IC) packaging.

The worldwide
economic recession has had a severe impact on our orders, sales, and net
results. As a result of the economic downturn, among other things, we have
reevaluated our strategic initiatives and our overall business strategy and
operations. We are focusing sales, marketing, and research and development
efforts on our core metrology and optics technologies, including the potential
for strategic alternatives, which could include partnerships, joint ventures,
divestitures, or alliances.

Our solutions
are primarily based on optical interferometric technology. We continue to be a
world leader in optical interferometry with a patent portfolio of over 300
active patents, most of which are related to the broad field of interferometry
and its practical application.

Our Metrology
Solutions Division is headquartered in Middlefield, Connecticut with operations
in various domestic and international locations.

Our Optical
Systems Division specializes in producing high precision integrated optical
systems and unique system-critical optical components for a variety of
applications that include medical laser delivery systems, U.S. Department of
Defense (Defense Department) applications, 3D medical imaging, and
semiconductor lithography. The division creates long-term customer value
through, among other things, proprietary manufacturing technology, design for manufacturing
and assembly services and specialized manufacturing know-how required to
produce Food and Drug Administration (FDA) regulated medical devices.

Our integrated
system assembly operation for our Optical Systems Division located in Tucson,
Arizona is a tier-one optical system assembly facility for high-precision,
volume production. We assemble and integrate devices ranging from medical laser

2

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delivery
systems to 3D dental imaging to opto-electronic surveillance devices. Our
integrated system design and prototyping operation, located in Costa Mesa,
California, designs and manufactures prototypes utilizing multi-axis alignment,
optical contact assembly, custom tooling, single point diamond turning, and our
proprietary metrology equipment such as those used to produce lithographic
optical systems. We also operate a large format optical fabrication and coating
center located in our Middlefield, Connecticut facility. Our vertically
integrated approach encompasses CNC glass machining and lightweighting,
rotational and double-sided polishing, magneto rheological finishing polishing,
and thin film coating, supported by our proprietary metrology equipment. We are
one of the worlds largest manufacturers of laser fusion optics and meter-class
plano optics, including advanced materials such as sapphire.

We were
incorporated in 1970 under the laws of the State of Delaware. The address of
our principal executive offices is Laurel Brook Road, Middlefield, Connecticut,
06455-1291. Our telephone number at this address is (860) 347-8506. Our website
address is www.zygo.com. The information on our website is not part of this
Annual Report on Form 10-K.

MARKETS, PRODUCTS, AND CUSTOMERS

Our business
is organized into two operating divisions  Metrology Solutions and Optical
Systems. The Metrology segment consists of OEM, in-line, and research
instrument products primarily for the semiconductor and industrial markets. The
Optics segment consists of components and opto-mechanical assemblies primarily
for the medical, defense, and aerospace industries, which are part of the
industrial market.

Manufacturers
in the semiconductor and industrial markets strive to improve their
manufacturing processes and product performance. These improvements allow them
to compete more effectively in a marketplace characterized by decreasing
product dimensions, increasingly complex manufacturing processes, decreasing
product life cycles, declining product prices, and intensifying global
competition, among other factors. As such, our precision metrology and optical
components and systems are designed to help these manufacturers continually
achieve process and design improvements.

Metrology Solutions Division

Semiconductor Market

We serve
several areas of the semiconductor market, notably semiconductor manufacturers
and capital equipment suppliers, as well as the flat panel display and advanced
semiconductor and integrated circuit packaging manufacturers. We have a broad
and growing range of products that serve these market areas.

Semiconductor
manufacturing processes require demanding metrology and inspection
technologies. From bare silicon wafers through the packaged die, metrology and
inspection are critical to meeting technology development and process control
demands. Recent products introduced by us are enabling high volume
semiconductor manufacturing customers to address the challenges of today as
well as advanced processing down to and lower than the 45 nanometer (nm)
node. The majority of our automated semiconductor systems are built on a
common, high-throughput platform with a common, configurable sensor head. This
approach allows us to leverage engineering and manufacturing investments to
produce reliable and cost effective solutions for our customers.

Semiconductor Products

The transistor
and associated integrated circuit have transformed the way people work, live
and play, creating several multi-billion dollar industries that thrive through
innovation, technology, and ultra-large scale integration of micro/nano
circuitry. These industries provide components used in everyday appliances,
including the more modern mobile phones and wireless internet devices. Due to
the ubiquity of the integrated circuit, it is sometimes difficult to fathom the
complexities involved in development and manufacturing. State-of-the-art
microprocessors have in excess of a billion transistors comprised of components
which have physical dimensions as small as 32 nm.

3

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In June 2009,
we agreed to a supply agreement with Nanometrics, whereby we will supply
interferometer sensors to Nanometrics for incorporation into the UniFire line
of products as well as Nanometrics family of automated metrology systems. The
in-line semiconductor systems we developed over the last five years,
encompassing the UniFire product line, will now be manufactured, sold, and
serviced through Nanometrics. These systems are designed to help semiconductor
and data storage customers control their high volume manufacturing process. The
semiconductor products target wafer based applications (prior to die
singulation) and can be utilized for all parts of the process flow, from the
production of silicon substrates, through the transistor formation in the front
end of the line to the interconnects and bump redistribution layers in the back
end of the line. Our single, configurable sensor sits on a common platform,
each system having a unique sensor configuration and associated applications.
Each system incorporates multiple sensors. The multifunction capability of the
overall system enables the consolidation of different metrology measurements
into a single system, thereby lowering the overall metrology cost of ownership
for the customer.

Photolithography
scanners and stepper systems form the core of the semiconductor manufacturing
process. These systems image the patterns of stacked layers of circuitry that
make up transistors. The photolithographic systems image the circuitry onto
silicon wafers for both microprocessors and memory chips, as well as flat panel
displays for computers, televisions, and other display products. Several of our
products enable these systems to image these circuit patterns reliably and with
nanometer precision.

Precision Positioning Systems

The layers of
circuit patterns must overlay on top of each other to nanometer precision. To
achieve nanometer precision overlay, the silicon wafer must be repeatably
positioned to one-tenth the overlay tolerance. Photolithography systems, mask
and reticle writers, and yield improvement metrology tools rely on displacement
measuring interferometers to provide precise feedback to control the position
of the silicon wafer. Our Metrology Solutions Divisions ZMI 2400 and ZMI
4000 precision positioning feedback systems are designed primarily for
photolithography systems. They are also used in a broad range of semiconductor
metrology and back-end process tools.

Technology Development Projects

Photolithography
scanners image the electronic circuit pattern through a precision projection
lens. The optical performance of the lenses required for next-generation
photolithography scanners often exceeds the capabilities of commercially
available measurement systems. Our expertise in optical interferometer
technology, and the practical skills needed to apply this technology, make us
well suited to deliver custom solutions to leading photolithography equipment
suppliers.

Display Solutions

Flat panel
displays (FPD) were first used in cell phones and laptop computers, and have
grown in popularity for most personal electronics. Many large screen
televisions are based on flat panel display technology. Our systems, with ultra
high precision measurement solutions, enable our customers to improve flat
panel display manufacturing yields. Our OneShot and SureShot systems are
in-line process control yield enhancement tools. The FPD OneShot tool measures
the topography and critical dimensions of key color filter features prior to
being combined with the thin-film-transistor panel in the one drop fill
assembly process. This fully automated system incorporates the latest ZYGO
Intellisensor, optical profiler technology, integrated conveyors or robotics
with motion stages, mini-clean room environmental enclosures, and factory floor
command and control software. The system measures the height and width of key
optical components and predicts the fill volume to increase upstream
manufacturing yields.

The SureShot
FPD product provides overlay and critical dimensions metrology of the
individual mask layers post-lithography and helps identify process control
problems such as those found in the half tone process. These defects, left
unchecked, can lead to product performance issues including variances in
luminescence (called MURA) in the finished display. The SureShot tool can be
used as an off-line process analysis device or in-line in conjunction with
closed loop lithography process control.

In addition to
process control, ZYGO manufactures inspection tools used to protect color
filter manufacturing processes from the yield-robbing effects caused by the
introduction of foreign particles. The ZYGO ClearShot tool works in
conjunction with automated optical inspection systems to review particles and
sort those that will cause optical defects due to their height and lateral
dimensions, from those that will not. The use of ZYGO technology in the
inspection area results in increased manufacturing yields and increased
utilization of the panel makers deployed capital.

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Advanced Chip Packaging and Assembly

During the
manufacture of a semiconductor chip, after the chip making process is complete,
the silicon wafer on which the chips are fabricated must be diced into
individual chips and packaged for customer use. In advanced chip packaging
fabrication facilities, the new CP 6300i system measures patterned features
and films on the surfaces of diced and un-diced chips for process control and
yield improvement. The system incorporates a specialized ZYGO NewView optical
profiler and wafer positioning system with pattern recognition software. It can
be configured for clean room or laboratory use.

Advanced IC Packaging and Assembly

Before an
individual semiconductor chip can be placed on a printed circuit board it must
be packaged or encased for protection, identification, and wiring/electrical
connection. ZYGO AV9000 systems inspect these final packages for defects using
standard 2D image defect and metrology analysis, as well as rapid 3D metrology.
The AV9000 systems are based on ZYGOs FMI technology acquired with the
Solvision, Inc. assets. This product is designed to meet todays requirements,
as well as future requirements of the rapidly growing IC Packaging market.

Printed Circuit Board Substrates

Printed
circuit substrates interface IC flip chip packages to printed circuit boards.
These substrates make the circuit connection via arrays of miniature solder
bumps and balls and ZYGO manufactures several tools to measure these bump and
ball arrays for process control and yield improvement. Tool applications range
from quality control (NANO 3D) to high volume manufacturing (HS1000), on
singulated substrates (HS2000). The newly released Flip Chip CSP2000H tool enables
process control on strip and panel formats. These systems are based on
technology acquired with the assets of Solvision, Inc.

Industrial Market

Our industrial
market covers all areas other than semiconductor. Metrology products for
defense and aerospace companies include measurement-based process control
systems. Products for automotive, consumer electronics and other customers are
measurement-based process control and yield enhancement systems.

Consumer Electronics

Consumer
electronics, including cell phones, digital cameras, DVD and CD players, and
optical computer drives, have significant optical content. Consumer electronic
optics, which provides imaging and data storage, are manufactured in quantities
in the hundreds of thousands to millions of components per year. These complex
miniature optical systems require precise optical testingfrom development to
in-line process controlwhich our measurement-based process control and yield
enhancement systems are designed to perform.

VeriFire Asphere System

The VeriFire
Asphere provides high resolution 3-Dimensional surface metrology for aspheric
shaped surfaces using patented non-contact interferometric techniques for
production and process control. Aspheres are important in consumer electronics
products, cameras, military/defense optics, and commercial optics and represent
a growing segment in the optics markets.

GPI and VeriFire Systems

The
development of new optical systems for any application requires flexible and
easy to use test equipment. The ZYGO GPI and VeriFire systems are our latest
products in our established product family that has improved optical testing
and continues to evolve to meet changing requirements. Consumer electronics
production applications for larger optics, greater than a 25 mm diameter, and
research and development for any size application rely on these products for
critical developmental data and process control feedback in production. These
products are widely used due to their configuration flexibility in both hardware
set ups and ZYGOs MetroPro data analysis software.

PTI 250

Consumer
electronics typically contain small optics, less than 30 mm diameter. The PTI
250 is a small bench top optical test system in the tradition of our industry
standard GPI. The system meets the consumer market demand by combining
high-quality optics with ZYGOs MetroPro data analysis software.

5

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DVD 400, BluRay, and HD DVD

The next
generation of DVD players and computer memories use blue light at 405 nm
wavelength to increase the amount of data on a DVD disk. ZYGOs DVD 400
interferometer is used by developers of these next generation systems. ZYGOs
DVD 400P is our system for the production floor.

Automotive Industry

The automotive
industry is striving to improve fuel economy and decrease environmental
pollution to meet customer demand and adhere to government regulation.
Improving both requires more efficient engines, including the fuel injection
system. Since high-pressure valves and sealing surfaces found in the fuel
injection system must be manufactured to high precision, our measurement-based
process control and yield-enhancement systems are used in the development and
manufacture of these components.

NewView 7200/7300 and Delta Systems

Our high
precision metrology equipment is well suited for fuel injector components,
which are ground or lapped to tolerances of one-hundred billionths of a meter.
Our patented FDA data acquisition system for the NewView optical profiler
meets this high-precision measurement requirement. The NewView Delta is a
production floor packaged system, also targeted to this growing market.

Defense/Aerospace

GPI and VeriFire Systems

Developing
state-of-the-art optical designs and manufacturing technology for the
defense/aerospace market also requires leading edge metrology systems for
manufacturing process control and development. Our industry standard GPI and
VeriFire optical interferometers test both the optical components and systems
for design compliance. Our VeriFire Asphere rapidly measures asphere shaped
optics in a production environment. Our GPI PE continues our move to the
production floor, providing laboratory level results in a production
environment. Using patented algorithms, the GPI PE removes the degrading
effects of vibration from the measurement without the need for new expensive
hardware. This system is primarily used in the production of military and
commercial optics.

The GPI
FlashPhase system operates on the production floor where standard
interferometers cannot measure or do not meet the demanding requirements of the
defense/aerospace market. With our proprietary data acquisition, GPI FlashPhase
can measure in the turbulent and vibrating environments that are often found in
defense/aerospace applications. We are also active in designing and
manufacturing custom systems for defense/aerospace applications, especially
interferometers that operate at infrared wavelengths, which are unique to this
market.

Our major
metrology customers include: AU Optronics, Bosch, Canon, Lockheed Martin,
Raytheon, and Nikon.

Optical Systems Division

Industrial Market

Supporting
both the projection lens and stage positioning systems, we supply high
precision stage mirrors and lithographic lenses to leading photolithographic
OEMs and end users. In addition, we design and manufacture deep UV objectives,
inspection systems and components to a wide range of industrial customers as
well as supporting the optical needs of our Metrology Solutions division.

Defense/Aerospace

Defense and
aerospace companies use optical technology in a broad range of applications.
One application is the enhancement of human sight through imaging systems, such
as telescopes, that are used in satellite and airborne reconnaissance,
fire-control systems, and hand-held viewers. Defense Department areas of focus
include fire control, remote sensing, flight simulation, avionics, tracking,
stealth systems and high energy weapon systems. Our Optical Systems Division
participates in a variety of defense applications ranging from high performance
sapphire electro magnetic interference (EMI) windows used in stealth aircraft
and ships to satellite optical sensing packages and state of the art flight
simulation helmet mounted displays. In addition to mainstream Defense
Department and foreign government applications, we are a leading manufacturer
of several critical path components to the largest nuclear research laser
system ever deployed by the National Ignition Facility (NIF), which is used
for both weapons maintenance programs and the development of nuclear fusion
energy sources. In addition, our Optical Systems Division has expanded into
long range surveillance systems valuable to homeland security applications,
such as nuclear power plant perimeter control, border surveillance, and seaport
monitoring.

6

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Nuclear
research for both weapons maintenance programs and the development of nuclear
fusion energy sources also use large optical lasers at a number of worldwide
facilities, including NIF. In addition, projection systems in computer-based
flight and battlefield simulation use sophisticated optical systems. Several of
our products support these and other defense/aerospace programs.

Medical/Biomedical

The medical
and biomedical markets are growing rapidly. The increased demand for high precision
medical devices continues to be driven by an aging population and consumers
desire to improve their quality of life. Our Optical Systems Division addresses
this demand with specialized design for manufacturing and assembly services
tailored to producing high-end diagnostic, processing and surgical devices. In
addition, the group offers a variety of process control advantages including
medical device quality management systems, such as ISO 13485:2003. Key
application areas are diagnostic and surgical ophthalmic devices, inter-oral 3D
imaging, and biomedical cell sorting. Supporting these applications are our
facilities in Tucson, Arizona (manufacturing) and Costa Mesa, California
(development and prototype manufacturing). Strategically located, these
facilities are capable of providing highly focused engineering support to fast
growing medical and biomedical regions for both manufacturing and research.

Our major
optics customers include Commissariat à lénergie atomique, Abbott Medical
Optics, Lawrence Livermore National Laboratory, 3M, Brontes, and others.

For further
information on the Metrology Solutions Division and the Optical Systems
Division, see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements.

Competition

The
semiconductor and industrial markets in which we participate are intensely
competitive and are characterized by price pressure and rapid technological
change. Furthermore, these markets are dominated by a few market leaders. We
are one of a limited number of companies that develop and market
yield-enhancement solutions. Our primary yield enhancement competitors include
Agilents Laser Interferometer Positioning Systems Division, Veecos Metrology
Division, SNU Precision, KLA-Tencor, and Rank Taylor Hobson. The principal
factors upon which we compete are performance, flexibility, value, on-time
delivery, responsive customer service and support, and breadth of product line.

High precision
optics manufacturing is dominated by relatively few companies who have both
strong engineering depth and metrology capability. The competition is further
segmented by the two groups within the division, Optical Components and
Electro-Optics. The Optical components primary competitors include L-3 Tinsley,
Exotic Electro-Optics and Sagem, which are able to provide similar performance
levels for both meter class plano optics and airborne reconnaissance windows.
The Electro-Optics group which provides significant value added engineering
coupled with metrology based manufacturing and FDA regulatory control has
various levels of competition from Elcan Optical Technologies, Jenoptik and
ASML. The principal factors upon which we compete are high precision metrology
based manufacturing, value-added engineering, regulatory and quality controls
and customer service.

Research, Development and Engineering
Operations

We operate in
industries that are subject to rapid technological change and engineering
innovation. As such, we dedicate substantial resources to research and
development. At June 30, 2009, we employed 126 individuals, or approximately
25% of our workforce, within our research and development and engineering
operations. Our strategy is to form close technical working relationships with
customers and OEM suppliers in our markets to ensure that our products are
commercially relevant. We also maintain a close working relationship with
various research groups and academic institutions in the United States and
abroad. We have been recognized as an innovator in commercializing technology,
as evidenced by our numerous achievement awards, including R&D 100 Awards,
Photonics Spectra Circle of Excellence Awards, and others. We believe that
continued enhancement, development, and commercialization of new and existing
products and systems are essential to maintaining and improving our leadership
position.

Patents and Other Intellectual Property

Our success
and ability to compete depend substantially on our technology. We have been
developing a portfolio of intellectual property for over 30 years, and we rely
on a combination of patent, copyright, trademark, trade secret laws, and
license agreements to establish and protect our proprietary rights for our
products.

Since we
introduced the first optical interferometer in 1972, we have had 297 United
States patents issued, of which approximately 230 are currently active, and
approximately 130 foreign patents issued, of which approximately 100 are
active. We have approximately 40 United States and approximately 140 foreign
patent applications pending. In addition, we have a number of registered and
unregistered trademarks.

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While we rely
on patent, copyright, trademark, and trade secret laws to protect our
technology, we also believe that the technological and creative skills of our
personnel, new product developments, frequent product enhancements, and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. We do not expect expirations in the near future
related to our active patents to have a material effect on our business.

BACKLOG AND ORDERS

Backlog at
June 30, 2009 was $38.3 million, a decrease of $34.0 million as compared with
$72.3 million at June 30, 2008. The fiscal 2009 year-end backlog consisted of
$18.6 million, or 49%, in the Metrology segment and $19.7 million, or 51%, in
the Optics segment. Orders for the fiscal year ended June 30, 2009 totaled
$82.0 million and consisted of $57.8 million, or 70%, in the Metrology segment
and $24.2 million, or 30%, in the Optics segment.

MARKETING AND SALES

Our sales and
marketing strategy is to establish and/or solidify strategic relationships with
leading OEMs and end-users in targeted sectors within our markets. The selling
process for our products is performed through our worldwide sales organization
operating out of regional sales offices in California, China, Connecticut,
Germany, Japan, Singapore, and Taiwan. Supporting this core sales team are
business development, marketing, service, and engineering specialists
representing our various optics and metrology units in Connecticut, Arizona,
California, Florida, Canada, and Singapore. Product promotion is done through
trade shows, printed and e-business advertising, and industry technical
organizations.

The following
table sets forth the percentage of our total sales by region (based on shipping
destination, including sales delivered through distributors) during the past
three years:



|               |  |                            |     |      |  |      |   |  |     |  
|-------------- |  | -------------------------- | --- | ---- |  | ---- | - |  | --- | -
|               |  | Fiscal Year Ended June 30, |    
|               |  |                            |    
|               |  | 2009                       |     | 2008 |  | 2007 |  
|               |  |                            |     |      |  |      |  
|Americas       |  |                            | 47  | %    |  | 48   | % |  | 39  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Far East:      |  |                            |     |      |  |      |   |  |     |  
|Japan          |  |                            | 23  | %    |  | 28   | % |  | 37  | %
|Pacific Rim    |  |                            | 18  | %    |  | 10   | % |  | 13  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Total Far East |  |                            | 41  | %    |  | 38   | % |  | 50  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Europe         |  |                            | 12  | %    |  | 14   | % |  | 11  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Total          |  |                            | 100 | %    |  | 100  | % |  | 100 | %
|               |  |                            |     |      |  |      |   |  |     |  

Customer
service is an essential part of our business since product up time is critical
given its effect on our customers production efficiency. As of June 30, 2009,
our global sales customer support and service organization consisted of 93
people skilled in sales, marketing, optical and electro component repair,
software, application and system integration, diagnostics, and problem-solving
capabilities.

MANUFACTURING, RAW MATERIALS, AND SOURCES OF
SUPPLY

Our principal
manufacturing activities are conducted at our facilities in Middlefield,
Connecticut and Tucson, Arizona. We also perform manufacturing activities in
our Canada, Singapore, and China facilities and utilize a third-party assembly
operation in Taiwan for our flat panel display systems.

We maintain an
advanced optical components manufacturing facility in Middlefield, Connecticut,
specializing in the fabrication, polishing, and coating of plano, or flat,
optics for sales to third parties, as well as the manufacturing of a wide
variety of optics that are used in our metrology products. Our manufacturing
activities for our metrology products consist primarily of assembling and
testing components and sub-assemblies supplied by us and third-party vendors,
and then integrating these components and sub-assemblies into our finished
products.

Our optical
assembly manufacturing activities are conducted in our Tucson, Arizona
facility. We integrate our optics, optics from third party vendors, and
mechanical sub-systems utilizing our metrology in this facility.

Certain
components and sub-assemblies incorporated into our systems are obtained from a
limited group of suppliers. We routinely monitor limited source supply parts,
and we endeavor to ensure that adequate inventory is available to maintain
manufacturing schedules should the supply of any part be interrupted. Although
we seek to reduce our dependence on limited source suppliers, we have not
qualified a second source for some of these products and the partial or
complete loss of certain of these sources could have a negative impact on our
results of operations and damage customer relationships.

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AVAILABLE INFORMATION

We make
available free of charge through our website, www.zygo.com, our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
proxy statements, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with the Securities and
Exchange Commission (SEC). These reports may also be obtained without charge
by contacting Investor Relations, Zygo Corporation, Corporate Headquarters,
Laurel Brook Road, Middlefield, Connecticut 06455-1291, phone: (860) 347-8506.
Our Internet website and the information contained therein or incorporated
therein are not intended to be incorporated into this Annual Report on Form
10-K. In addition, the public may read and copy any materials we file with the
SECs Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC
20549 or may obtain information by calling the SEC at 800-SEC-0330. Moreover,
the SEC maintains an Internet website that contains reports, proxy, and
information statements, or other information regarding reports that we file
electronically with them at http://www.sec.gov.

EMPLOYEES

At June 30,
2009, we employed 484 people and 11 temporary agency and independent
contractors worldwide. We employed 194 in manufacturing, 126 in research and
development, 93 in sales and marketing, and 82 in management and
administration. Our employees are not represented by a labor union or a
collective bargaining agreement. We regard our employee relations as
satisfactory.

EXECUTIVE OFFICERS OF THE REGISTRANTJ. Bruce
Robinson  age 67  Chief Executive Officer

Mr. Robinson
has served as our Chief Executive Officer since June 2009, as Chairman and
Chief Executive Officer from December 2006 to May 2009, as Chairman, President,
and Chief Executive Officer from November 2000 to November 2006, as President
and Chief Executive Officer from November 1999 to November 2000, and as
President from February 1999 to November 1999. Previously, he spent 25 years
with The Foxboro Company, where his most recent positions were President
Worldwide Operations from 1996 to 1998 and President of European Operations
from 1990 to 1996. Mr. Robinson is also a director of our company.

John M. Stack  age 44 - President, Optical
Systems Division

Mr. Stack
joined our company in November 2006 and has served as President of the Optical
Systems Division since December 2006. Previously he spent 18 years with Edmund
Optics Inc., a supplier of optics and optical components, where his most recent
position was President and Chief Operating Officer from 2001 to 2006. Prior to
that Mr. Stack held several management positions at Edmund Optics Inc.
including Executive Vice President, Director of Engineering and Application
Engineering Manager.

Walter A. Shephard  age 55  Vice President,
Finance, Chief Financial Officer, and Treasurer

Mr. Shephard
has served as Vice President, Finance, Chief Financial Officer, and Treasurer
since February 2004. Previously, he was a Principal with the Loftus Group, LLC,
a management consulting firm, from November 2002 to January 2004. From 1983 to
2001, Mr. Shephard served in various capacities with GenRad, Inc., including
Vice President Finance and Chief Financial Officer, Vice President of Investor
Relations, and Treasurer.

Douglas J. Eccleston  age 60  Senior Vice
President, Precision Positioning Systems

Mr. Eccelston
has served as Senior Vice President, Precision Positioning Systems since
February 2007 and as Vice President, Precision Positioning Systems from March
2003 to January 2007. From 1977 to 2002, he held various management positions
with Corning Incorporated, including most recently as a Business General
Manager for the Photonic Technologies division.

William H. Bacon  age 59  Vice President,
Corporate Quality and Support Services

Mr. Bacon has
served as Vice President, Corporate Quality and Support Services since March
2003. Previously, he served as our Vice President, Manufacturing from April
2002 to March 2003, Vice President, Metrology Manufacturing from April 2000 to
April 2002, and Vice President, Corporate Quality from January 1996 to April
2000. From November 1993 to January 1996, Mr. Bacon was Director of Total
Quality and also served as Manager of Instrument Manufacturing from June 1987
to November 1993.

David J. Person - age 61 - Vice President,
Human Resources

Mr. Person has
served as Vice President, Human Resources since September 1998. Previously, he
served in a number of senior human resource management positions with Digital
Equipment Corporation from 1972 to September 1998.

Under the
By-laws, executive officers serve for a term of one year and until their
successors are chosen and qualified unless earlier removed.

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Item 1A. Risk Factors

We are subject
to numerous known and unknown risks, many of which are described below and
elsewhere in this Annual Report. Any of the events described below could have a
material adverse effect on our business, financial condition and results of
operations. Additional risks and uncertainties that we are not aware of, or
that we currently deem to be immaterial, could also impact our business and
results of operations.

General economic conditions and the related
deterioration in the global business environment could have a material adverse
effect on our business, operating results and financial condition.

Global
consumer confidence has eroded amidst concerns over, among other things,
declining asset values, inflation, volatility in energy costs, geopolitical
issues, the availability and cost of credit, rising unemployment, and the
stability and solvency of financial institutions, financial markets, businesses
and sovereign nations. These concerns have slowed global economic growth and
have resulted in recessions in numerous countries, including many of those in
North America, Europe and Asia, where the Company does substantially all of its
business. Recent economic conditions had a negative impact on our results of
operations during fiscal 2009 due to reduced customer demand and we expect this
trend to continue for at least the next several fiscal quarters. As these
economic conditions continue to persist, or if they worsen, a number of
negative effects on our business could result, including customers or potential
customers reducing or delaying orders, the insolvency of key suppliers which
could result in production delays, the inability of customers to obtain credit,
and the insolvency of one or more customers. Any of these effects could impact
our ability to effectively manage inventory levels and collect receivables,
create unabsorbed costs due to lower net sales, and ultimately decrease our net
sales and profitability including write-downs of assets.

We are subject to environmental laws and
regulations and may have liabilities arising from environmental matters.

We are subject
to a variety of environmental regulations relating to the use, storage, discharge,
and disposal of hazardous chemicals used during our manufacturing processes.
Any failure by us to comply with applicable regulations could subject us to
future liabilities or the suspension of production. We are aware of certain
levels of contamination on our property which are below reportable levels. In
addition, we are aware of certain contamination on an adjacent property that we
formerly owned. We are unable to determine or reasonably estimate the amount of
cost, if any, that we might incur or for which we may potentially be
responsible to remediate the situation or for damages which may have resulted
or result from the situation. In addition, environmental regulations could
restrict our ability to expand our facilities or could require us to acquire
costly equipment or to incur other significant expenses to comply with such
regulations.

We are dependent on the semiconductor
industry which, as a whole, is volatile.

Our business
is significantly dependent on capital expenditures and component requirements
for manufacturers in the semiconductor industry. This industry is cyclical and
has historically experienced periods of oversupply, resulting in significantly
reduced demand for capital equipment, including the products manufactured and
marketed by us. For the foreseeable future, our operations will continue to be
dependent on the capital expenditures in this industry, which in turn is
largely dependent on the market demand in the semiconductor markets. There is
currently a severe downturn in the capital expenditures of these manufacturers
and this downturn may continue for an extended period of time.

We have been dependent on sales to one large
customer; the loss of this customer or expected near-term reduction in orders
from this customer has and would materially affect our sales and profitability.

During fiscal
2009, 2008, and 2007, sales to Canon, our largest customer in those periods,
accounted for 14%, 19%, and 27% of our net sales, respectively. We expect that
sales to Canon will continue to represent a significant, yet declining,
percentage of our net sales for the near future. Canon is an original investor
in our company, the owner at June 30, 2009 of approximately 7% of our
outstanding shares of common stock, and is a distributor of certain of our
products in the Japanese market. A reduction or delay in orders from this
customer, including reductions or delays due to market, economic, or
competitive conditions in the industries in which we or our customer serves,
could have a material adverse effect upon our results of operations. Our
customers, including Canon, generally do not enter into long-term agreements
obligating them to purchase our products.

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Our substantial international sales are
subject to risk.

We sell our
products internationally, primarily to customers in Japan and throughout the
Pacific Rim. Net sales to customers outside the United States accounted for
approximately 53%, 52%, and 61% of our net sales in each of the fiscal years
ended June 30, 2009, 2008, and 2007, respectively, and are expected to continue
to account for a substantial percentage of our net sales.

International
sales and foreign operations are subject to inherent risks. These risks include
the economic conditions in these various foreign countries and their trading
partners, political instability, longer payment cycles, greater difficulty in
accounts receivable collection, compliance with foreign laws, changes in
regulatory requirements, tariffs or other barriers, difficulties in obtaining
export licenses, staffing and managing foreign operations, exposure to currency
exchange fluctuations, transportation delays, and potentially adverse tax
consequences.

Our sales and
costs are negotiated and paid primarily in U.S. dollars. However, changes in
the values of foreign currencies relative to the value of the U.S. dollar can
render our products comparatively more expensive to the extent locally produced
alternative products are available. Such conditions could negatively affect
international sales of our products and foreign operations, as would changes in
the general economic conditions in those markets. For our sales that are based
in local currency, we are exposed to foreign exchange fluctuations from the
time customers are invoiced in local currency until collection occurs. For
fiscal 2009, approximately 24% of our sales were denominated in foreign
currencies. We hedge certain intercompany transactions by entering into forward
contracts to reduce the impact of adverse fluctuations on earnings associated
with foreign currency exchange rate changes. We do not enter into any
derivative transactions for speculative purposes. These contracts are entered
into for periods consistent with the currency transaction exposures, generally
three to nine months. Generally, any gains and losses on the fair value of
these contracts are expected to be largely offset by gains and losses on the
underlying transactions. There can be no assurance that risks inherent in
international sales and foreign operations will not have a material adverse
effect on our results of operations in the future.

Acquisitions may entail certain operational
and financial risks.

Our growth
strategy includes expanding our products and services, and we may seek
acquisitions or make internal investments to strategically expand our business.
We regularly review potential acquisitions of businesses, technologies, or
products complementary to our business and periodically engage in discussions
regarding such possible acquisitions. Acquisitions involve numerous risks,
including some or all of the following: substantial cash expenditures and
capital investments; potentially dilutive issuance of equity securities;
incurrence of debt and contingent liabilities; amortization of certain
intangible assets; difficulties in assimilating the operations and products of
the acquired companies; diverting our managements attention away from other
business concerns; risks of entering markets in which we have limited or no
direct experience; the inability to manage the growth expected for various
acquisitions; potential loss of key employees of the acquired companies in the
process of integrating personnel with disparate business backgrounds; and
combining different corporate cultures.

We cannot
assure you that any acquisition, including the acquisition of the Solvision,
Inc. assets which generated losses in fiscal 2009 and 2008, will result in
long-term benefits to us or that our management will be able to effectively
manage the acquired businesses. We may also incorrectly judge the value or
worth of an acquired company or business or of a line of business to which we
devote internal resources and funding. We have in the past disposed or divested
ourselves of several companies or lines of business that previously were
acquired by us or in which we internally invested, at a significant net loss to
us.

Our quarterly operating results fluctuate and
may continue to fluctuate in the future.

Our quarterly
and annual operating results have varied in the past and may vary significantly
in the future depending on factors such as: budgeting cycles of our customers;
the size, timing, and recognition of revenue from significant orders; increased
competition; our ability to develop innovative products; the timing of new
product releases by us or our competitors; market acceptance of our products;
changes in our and our competitors pricing policies; changes in operating
expenses and personnel changes; the effect of our acquisitions and consequent
integration; changes in our business strategy; and general economic factors.

Due to these
and other factors, we believe that quarter-to-quarter comparisons of our
operating results may not be meaningful. You should not rely on our results for
one quarter as any indication of our future performance. In future periods, our
operating results may be below the expectations of public market analysts or
investors. If this occurs, the price of our common stock would likely decrease.

Current
conditions in the domestic and global economies are extremely uncertain. As a
result, it is difficult to estimate the level of growth for the economy as a
whole or of capital expenditures in the semiconductor and industrial markets.
Because all of the components of our budgeting and forecasting are dependent on
estimates of spending within these markets, the prevailing economic uncertainty
renders estimates of future revenue and expenses even more difficult than usual
to make.

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Our scheduled backlog may not result in
future sales.

We schedule
the production of our systems based in part upon order backlog. Due to possible
customer changes in delivery schedules and cancellations of orders, our backlog
at any particular date is not necessarily indicative of actual sales for any
succeeding period. There can be no assurance that amounts included in our
backlog will ultimately result in future sales. We have experienced push-outs
and cancellations in the semiconductor capital equipment and electro-optics
sectors. A reduction in backlog during any particular period, or the failure of
our backlog to result in future sales could adversely affect our results of
operations.

Our lengthy sales cycle could affect our
manufacturing schedule and cause us to incur expenses without realizing sales.

Our lengthy
and variable qualification and sales cycle makes it difficult to predict the
timing of a sale or whether a sale will be made, which may cause us to have
excess manufacturing capacity or inventory and negatively affect our operating
results. As is typical in the industry, our customers generally expend
significant efforts in evaluating and qualifying our products and manufacturing
process. This evaluation and qualification process frequently results in a
lengthy sales cycle, typically ranging from three to six months and sometimes longer.
While our customers are evaluating our products and before they place an order
with us, we may incur substantial sales, marketing, and research and
development expenses, expend significant management efforts, increase
manufacturing capacity and order long-lead-time supplies prior to receiving an
order. Even after this evaluation process, it is possible that a potential
customer will not purchase our products. In addition, product purchases are
frequently subject to unplanned processing and other delays, particularly with
respect to larger customers for which our products represent a very small
percentage of their overall purchasing activity.

If we increase
capacity and order supplies in anticipation of an order that does not
materialize, our gross margins may be negatively impacted, and we may have to
carry or write off excess inventory. Even if we receive an order, the
additional manufacturing capacity that we add to service the customers
requirements may be underutilized in a subsequent quarter. Either situation
could cause our results of operations to be adversely affected. Our long sales
cycles also may cause our revenues and operating results to vary significantly
and unexpectedly from quarter to quarter and make us more susceptible to the
effects of general economic downturns.

We face risks associated with manufacturing
forecasts.

If we fail to
predict our manufacturing requirements accurately, we could incur additional
costs or experience manufacturing delays, which could cause us to lose orders
or customers and result in lower net sales. We currently use a rolling 12-month
forecast based primarily on our anticipated product orders and our product
order history to help determine our requirements for components and materials.
It is very important that we accurately predict both the demand for our
products and the lead-time required to obtain the necessary components and raw
materials. Lead times for materials and components that we order vary
significantly and depend on factors such as the specific supplier, the size of
the order, contract terms, and demand for each component at a given time. If we
underestimate our requirements, we may have inadequate manufacturing capacity
or inventory, which could interrupt manufacturing of our products and result in
delays in shipments and net sales. If we overestimate our requirements, we
could have excess inventory of parts. In addition, delays in the manufacturing
of our products could cause us to lose orders or customers.

Our stock price may fluctuate significantly
due to a variety of risks.

We believe
that factors such as the announcement of new products or technologies by us or
our competitors, market conditions in the semiconductor and industrial markets,
and quarterly fluctuations in financial results can be expected to cause the
market price of our common stock to vary substantially. Further, our net sales
or results of operations in future quarters may be below the expectations of
public market securities analysts and investors. In such event, the price of
the common stock would likely decline. In addition, historically the stock
market has experienced price and volume fluctuations that have particularly
affected the market prices for many high technology companies and which often
have been unrelated to the operating performance of such companies. The market
volatility may adversely affect the market price of shares of our common stock.
Furthermore, our common stock trading price may be more susceptible to market
fluctuations due to the relatively small public float and trading volume of our
stock and our dependence on a limited number of industries.

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We operate in a highly competitive industry.

We face
competition from a number of companies in all our markets, many of which have
greater manufacturing and marketing capabilities, and greater financial,
technological, and personnel resources. In addition, we compete with the
internal development efforts of our current and prospective customers, some of
which may attempt to become vertically integrated. Our competitors can be
expected to continue to improve the design and performance of their products
and to introduce new products with competitive price/performance
characteristics. Competitive pressures may necessitate price reductions, which
can adversely affect results of operations. Although we believe that we have
certain technical and other advantages over some of our competitors,
maintaining such advantages will require a continued high level of investment
by our company in research and development and sales, marketing, and service.
There can be no assurance that we will have sufficient resources to continue to
make such investments or that we will be able to make the technological
advances necessary to maintain such competitive advantages. In addition, due to
historical relationships and possible prior investments by potential customers
in competitive product lines, it may be more difficult for us to realize
certain of our growth strategies and initiatives. There can be no assurance
that the basis of competition in the industries in which we compete will not
shift.

Our inability to anticipate and keep pace
with rapidly changing technological developments in the markets in which we
operate could have a material adverse effect on our business.

The market for
our products is characterized by rapidly changing technology. Our future
success will continue to depend upon our ability to enhance our current
products and to develop and introduce new products that keep pace with
technological developments and evolving industry standards, respond to changes
in customer requirements, and achieve market acceptance. The development of new
technologically advanced products is a complex and uncertain process requiring
high levels of innovation, as well as the accurate anticipation of
technological and market trends. With continuing advances in technology,
potential product advancements require an increasing allocation of resources,
including potentially more resources than we then would have available.

We commit significant
financial and personnel resources on a continuous basis to redesign and enhance
our instruments, systems, and components and upgrade our proprietary software
technology incorporated in our products. Any failure by us to anticipate or
respond adequately to technological developments and customer requirements, or
any significant delays in product development or introduction, could have a
material adverse effect on our business and impact our relationships with
customers. This could have an impact on customers willingness to share
proprietary information about their requirements and participate in
collaborative efforts with us. There can be no assurance that our customers
will continue to provide us with timely access to such information, that we will
be successful in developing and marketing new products and services or product
and service enhancements on a timely basis, or respond effectively to
technological changes or new product announcements by others. In addition,
there can be no assurance the new products and services or product
enhancements, if any, which we developed will achieve market acceptance.

We may be unable to enforce or defend our
ownership and use of proprietary technology.

Our success is
heavily dependent upon our proprietary technology. There can be no assurance
that the steps taken by us to protect our proprietary technology will be
adequate to prevent misappropriation of our technology by third parties or will
be adequate under the laws of some foreign countries, which may not protect our
proprietary rights to the same extent as do laws of the United States. We have
been experiencing an increased level of sales in China and other foreign
countries which historically have created concerns for various companies. In
addition, there remains the possibility that others will reverse engineer our
products in order to determine their method of operation and introduce
competing products or that others will develop competing technology
independently. Any such adverse circumstances could have a material adverse
effect on our results of operations.

Our business depends on management and
technical personnel who are in great demand.

Our success
depends in large part upon the continued services of many of our highly skilled
personnel involved in management, research, development and engineering, sales
and marketing, manufacturing, and support and upon our ability to attract and
retain additional highly qualified employees. Our employees may voluntarily
terminate their employment with us at any time. Competition for these
individuals from a variety of employers, including our competitors and
companies in computer or technology-related industries, at times is intense. In
response to the difficult economic environment, we instituted certain reductions
in workforce and furlough programs this past year, which may further make it
difficult to attract and retain highly
qualified personnel. We cannot assure you that we will be able to retain our
existing personnel or attract and retain additional personnel.

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We are exposed to significant delays and
additional costs if we do not receive adequate or timely supplies of raw
materials and other supplies upon which we depend.

We are
dependent on suppliers for raw materials and various electrical, mechanical,
and optical supplies. Although we enter, either directly or through our
contract manufacturers, into purchase orders with our suppliers based on our
forecasts, we do not have any guaranteed supply arrangements with these
suppliers. Moreover, as our demand for supplies increases, we may not be able
to obtain these supplies in a timely manner. If any relationship with a key
supplier is terminated or if a supplier fails or is unable to provide reliable
services or equipment and we are unable to reach suitable alternative solutions
quickly, we may experience significant delays and additional costs in the
manufacturing of our products. If our key suppliers cease manufacturing the
supplies we require, if their manufacturing operations are interrupted for any significant
amount of time, or if they are unable or unwilling to supply us for any other
reason, including capacity constraints, then we may be at least temporarily
unable to obtain these supplies, thus exposing us to significant delays and
additional costs. Currently there are only a limited number of companies that
are capable of supplying optical materials in the quantity and of the quality
we require.

We assemble
our flat panel display systems in Taiwan through a third party. We are
dependent on the third party to assemble the systems accurately and on a timely
basis. To the extent the quality of work, including any individual unit, causes
delays or cancellations in shipments to our customers, our results could be
adversely affected.

Our products may contain defects that are
undetected until after our products are installed which may lead to a loss of
reputation and customers.

Our products
are deployed in large and complex systems and may contain defects that are not
detected until after our products have been installed, which could damage our
reputation and cause us to lose customers. We design some of our products for
deployment in large and complex optical networks. Because of the nature of
these products, they can only be fully tested for reliability when deployed in
networks for long periods of time. Our customers may discover defects in our
products only after they have been fully deployed and operated under peak
stress conditions. In addition, our products are combined with products from
other vendors. As a result, should problems occur, it might be difficult to
identify the source of the problem. These conditions increase the risk that we
could experience, among other things: loss of customers; damage to our brand
reputation; failure to attract new customers or achieve market acceptance;
diversion of development and engineering resources; and legal actions by our
customers. The occurrence of any one or more of the foregoing factors could
cause us to experience losses, incur liabilities, and cause our net sales to
decline.

Our investments in marketable securities may
lose their value if economic conditions were to deteriorate.

Our marketable
securities represent approximately 3.6% of our total assets at June 30, 2009.
To the extent credit markets tighten, interest rates increase, or other
economic conditions influence the liquidity of our marketable securities, the
value and liquidity of our marketable securities may be adversely affected. In
addition, we may have to record an impairment charge for marketable securities
if we determine that an other-than-temporary decline in the fair value of a
marketable security has taken place. For fiscal 2009, we have recorded an
impairment charge for a marketable security of $0.3 million.

Item 1B. Unresolved Staff
Comments

We have
received no written comments regarding our periodic or current reports from the
staff of the SEC that were issued 180 days or more preceding the end of our
fiscal year 2009 that remain unresolved.

14

---



Item 2. Properties

We own our
principal manufacturing facility and corporate headquarters, which is located
on Laurel Brook Road in Middlefield, Connecticut. This facility consists of one
153,500-square-foot building on approximately 13 acres. The following table
sets forth information with respect to our facilities which are used by both of
our operating segments, except as identified otherwise below:

|                                                                                               |  |                |  |                                 |  |                   
|---------------------------------------------------------------------------------------------- |  | -------------- |  | ------------------------------- |  | ------------------
|                                                                                               |  | Square Footage |  | Owned / Leased
 Expiration Date
|                                                                                               |  |                | 
|Operation/Location                                                                             |  | Manufacturing  |  | Total                           | 
|                                                                                               |  |                |  |                                 |  |                   
|Corporate Headquarters, Eastern Regional Sales
 Office, and Metrology and Optics Manufacturing |  |                |  |                                 |  |                   
|Middlefield, Connecticut                                                                       |  | 89,000         |  | 153,500                         |  | Owned             
|                                                                                               |  |                |  |                                 |  |                   
|Zygo - Optical Systems                                                                         |  |                |  |                                 |  |                   
|Tucson, Arizona                                                                                |  | 14,560         |  | 22,560                          |  | Leased
 - 08/31/11
|                                                                                               |  |                |  |                                 |  |                   
|Flat Panel Display Metrology Engineering &
 Support                                            |  |                |  |                                 |  |                   
|Boca Raton, Florida                                                                            |  | 1,500          |  | 3,000                           |  | Leased
 - 06/30/10
|                                                                                               |  |                |  |                                 |  |                   
|Zygo - Optical Systems                                                                         |  |                |  |                                 |  |                   
|Costa Mesa, California                                                                         |  | 0              |  | 13,714                          |  | Leased
 - 10/18/10
|                                                                                               |  |                |  |                                 |  |                   
|Western Regional Sales Office and R&D Center                                                   |  |                |  |                                 |  |                   
|Freemont, California                                                                           |  | 0              |  | 5,975                           |  | Leased
 - 02/1/11 
|                                                                                               |  |                |  |                                 |  |                   
|Semiconductor Process Metrology Office                                                         |  |                |  |                                 |  |                   
|Hillsboro, Oregon                                                                              |  | 0              |  | 6,410                           |  | Leased
 - 12/31/12
|                                                                                               |  |                |  |                                 |  |                   
|Zygo - Laser Technology Metrology (R& D)                                                       |  |                |  |                                 |  |                   
|Watsonville, California                                                                        |  | 0              |  | 1,452                           |  | Leased
 - 04/14/11
|                                                                                               |  |                |  |                                 |  |                   
|Office                                                                                         |  |                |  |                                 |  |                   
|Franklin, Massachusetts                                                                        |  | 0              |  | 400                             |  | Leased
 - 06/30/10
|                                                                                               |  |                |  |                                 |  |                   
|Zygo PTE Ltd                                                                                   |  |                |  |                                 |  |                   
|Singapore                                                                                      |  | 0              |  | 803                             |  | Leased
 - 01/14/10
|                                                                                               |  |                |  |                                 |  |                   
|Zygo Taiwan                                                                                    |  |                |  |                                 |  |                   
|Sales Office                                                                                   |  | 0              |  | 3,961                           |  | Leased
 - 09/30/09
|Service Office                                                                                 |  | 0              |  | 2,772                           |  | Leased
 - 09/30/09
|                                                                                               |  |                |  |                                 |  |                   
|ZygoLOT                                                                                        |  |                |  |                                 |  |                   
|Germany                                                                                        |  | 0              |  | 3,702                           |  | Leased
 - 10/01/09
|                                                                                               |  |                |  |                                 |  |                   
|Zygo KK                                                                                        |  |                |  |                                 |  |                   
|Japan                                                                                          |  | 0              |  | 1,705                           |  | Leased
 - 07/31/11
|                                                                                               |  |                |  |                                 |  |                   
|Zygo Lamda                                                                                     |  |                |  |                                 |  |                   
|China                                                                                          |  | 3,552          |  | 12,206                          |  | Leased
 - 09/16/12
|                                                                                               |  |                |  |                                 |  |                   
|Zygo Canada, Inc.                                                                              |  |                |  |                                 |  |                   
|Canada                                                                                         |  | 2,447          |  | 6,851                           |  | Leased
 - 07/31/13
|                                                                                               |  |                |  |                                 |  |                   
|Machine Vision International, PTE                                                              |  |                |  |                                 |  |                   
|Singapore                                                                                      |  | 2,500          |  | 10,828                          |  | Leased
 - 04/22/10
|                                                                                               |  |                |  |                                 |  |                   
|Total                                                                                          |  | 113,559        |  | 249,839                         |  |                   
|                                                                                               |  |                |  |                                 |  |                   

15

---



Item 3. Legal Proceedings

From time to
time, we are subject to certain legal proceedings and claims that arise in the
normal course of our business. In the opinion of management, we are not party to
any litigation that we believe could have a material adverse effect on our
financial condition, results of operation or liquidity.

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

The 2008
Annual Meeting of Stockholders was held on June 16, 2009. 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 |            |  |  |  | Withheld | 
|                                                                                                                                                               |  |     |            |  |  |  |          | 
|Eugene G.
 Banucci                                                                                                                                             |  |     | 11,152,469 |  |  |  |          |  | 2,630,708 | 
|Stephen D.
 Fantone                                                                                                                                            |  |     | 12,881,256 |  |  |  |          |  | 901,921   | 
|Samuel H.
 Fuller                                                                                                                                              |  |     | 13,220,115 |  |  |  |          |  | 563,062   | 
|Seymour E.
 Liebman                                                                                                                                            |  |     | 13,103,169 |  |  |  |          |  | 680,008   | 
|J. Bruce
 Robinson                                                                                                                                             |  |     | 11,158,641 |  |  |  |          |  | 2,624,536 | 
|Robert B.
 Taylor                                                                                                                                              |  |     | 13,116,712 |  |  |  |          |  | 666,465   | 
|Carol P.
 Wallace                                                                                                                                              |  |     | 13,400,929 |  |  |  |          |  | 382,248   | 
|Gary K.
 Willis                                                                                                                                                |  |     | 13,167,191 |  |  |  |          |  | 615,986   | 
|Bruce W.
 Worster                                                                                                                                              |  |     | 11,126,834 |  |  |  |          |  | 2,656,343 | 
|                                                                                                                                                               |  |     |            |  |  |  |          |  |           | 
|Proposal No.
 2  Ratification of appointment of Deloitte & Touche LLP as our
 independent registered public accounting firm for fiscal 2009 were as
 follows:

| |  |     |            |         |  |         |  |  |         | 
| |  | --- | ---------- | ------- |  | ------- |  |  | ------- | 
| |  | For |            | Against |  | Abstain | 
| |  |     |            |         |  |         | 
| |  |     | 13,495,791 |         |  | 81,325  |  |  | 206,060 | 

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

16

---



PART II

Item 5. Market for the Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our shares of
common stock are traded over-the-counter and are quoted on the NASDAQ/National
Market under the symbol ZIGO. The following table provides information about
the high and low sales prices of the Companys common stock by quarter for
fiscal 2009 and 2008.

|                |  |                                 |       |                                 |   |      |  |     |       |  |   |       | 
|--------------- |  | ------------------------------- | ----- | ------------------------------- | - | ---- |  | --- | ----- |  | - | ----- | 
|                |  | Fiscal Year Ended June 30, 2009 |       | Fiscal Year Ended June 30, 2008 |  
|                |  |                                 |       |                                 |  
|                |  | High                            |       | Low                             |   | High |  | Low |      
|                |  |                                 |       |                                 |   |      |  |     |      
|First
 quarter  |  | $                               | 13.79 |                                 | $ | 8.80 |  | $   | 14.55 |  | $ | 11.33 | 
|Second
 quarter |  | $                               | 12.47 |                                 | $ | 4.66 |  | $   | 13.50 |  | $ | 10.79 | 
|Third
 quarter  |  | $                               | 7.93  |                                 | $ | 3.06 |  | $   | 12.94 |  | $ | 10.72 | 
|Fourth
 quarter |  | $                               | 6.42  |                                 | $ | 4.11 |  | $   | 13.50 |  | $ | 9.76  | 

These
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.

The number of
record holders of our common stock at September 1, 2009 was 436. Our closing
stock price as of June 30, 2009 was $4.66.

We have never
declared or paid a cash dividend on our capital stock and do not anticipate
paying any cash dividends in the foreseeable future.

As previously
announced, in August 2007, our Board of Directors authorized the repurchase of
up to $25.0 million of our outstanding common stock. As of June 30, 2009, we
have repurchased outstanding common shares having an aggregate market value of
$20.0 million (determined at the time of their respective repurchases).
Repurchases occur from time to time as market conditions warrant through
transactions in the open market. The share repurchases are effected pursuant to
a plan in conformity with Rule 10b5-1 under the Securities Exchange Act of
1934. This rule allows public companies to adopt written, pre-arranged stock
trading plans when they do not have material, non-public information in their
possession. The adoption of this stock trading plan allows us to repurchase our
shares during periods when we otherwise might be prevented from doing so under
insider trading laws or because of self-imposed trading blackout periods. There
were no repurchases under this stock trading plan in fiscal 2009.

We also at
times grant restricted stock awards. These awards generally allow recipients to
sell a portion of the stock award back to us, in order to cover tax liabilities
resulting from the vesting of the award.

17

---



Common stock
repurchases under our authorized purchase plan and restricted stock repurchases
in connection with the surrender of shares to cover taxes upon vesting in each
quarter of fiscal 2009 were as follows:

|                                    |  |                                    |        |                               |   |                                                                                      |  |                                                                                                           |   |  |   |     | 
|----------------------------------- |  | ---------------------------------- | ------ | ----------------------------- | - | ------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------- | - |  | - | --- | 
|Period                              |  | Total number of
 shares
 purchased |        | Average price
 paid per share |   | Total number of
 shares purchased as
 part of publicly
 announced
 plans or programs |  | Aproximate dollar
 value of shares that
 may yet be purchased
 under the plans or
 programs (in millions) |  
|                                    |  |                                    |        |                               |   |                                                                                      |  |                                                                                                           |  
|                                    |  |                                    |        |                               |   |                                                                                      |  |                                                                                                           |   |  |   |     | 
|July 1, 2008 - September 30, 2008   |  |                                    | 12,835 |                               | $ | 9.70                                                                                 |  |                                                                                                           |  |  | $ | 5.0 | 
|October 1, 2008 - December 31, 2008 |  |                                    | 111    |                               | $ | 10.49                                                                                |  |                                                                                                           |  |  | $ | 5.0 | 
|January 1, 2009 - March 31, 2009    |  |                                    | 5,853  |                               | $ | 4.58                                                                                 |  |                                                                                                           |  |  | $ | 5.0 | 
|April 1, 2009 - June 30, 2009       |  |                                    | 17,270 |                               | $ | 4.94                                                                                 |  |                                                                                                           |  |  | $ | 5.0 | 

Common stock
repurchases under our authorized purchase plan and restricted stock repurchases
in connection with the surrender of shares to cover taxes upon vesting in the
fourth quarter of fiscal year 2009 were as follows:

|                               |  |                                   |       |                               |   |                                                                                      |  |                                                                                                            |   |  |   |     | 
|------------------------------ |  | --------------------------------- | ----- | ----------------------------- | - | ------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------- | - |  | - | --- | 
|Period                         |  | Total number of
 shares purchased |       | Average price
 paid per share |   | Total number of
 shares purchased as
 part of publicly
 announced
 plans or programs |  | Approximate dollar
 value of shares that
 may yet be purchased
 under the plans or
 programs (in millions) |  
|                               |  |                                   |       |                               |   |                                                                                      |  |                                                                                                            |  
|                               |  |                                   |       |                               |   |                                                                                      |  |                                                                                                            |   |  |   |     | 
|April 1, 2009 - April 30, 2009 |  |                                   | 7,543 |                               | $ | 4.74                                                                                 |  |                                                                                                            |  |  | $ | 5.0 | 
|May 1, 2009 - May 31, 2009     |  |                                   |      |                               |   |                                                                                     |  |                                                                                                            |  |  | $ | 5.0 | 
|June 1, 2009 - June 30, 2009   |  |                                   | 9,727 |                               | $ | 5.09                                                                                 |  |                                                                                                            |  |  | $ | 5.0 | 

18

---



PERFORMANCE GRAPH

The Stock Price Performance graph below and
related information shall not be deemed solicitating material or to befiled
with the Securities and Exchange Commision, nor shall such information be
incorporated by reference into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to
the extent ZYGO specifically incorporates this information by reference.

The graph
below compares cumulative total return of our common stock with the cumulative
total return of (i) the NASDAQ Composite, and (ii) a group of peer companies
weighted to reflect differing market capitalizations. Companies in the peer
group are Nanometrics, Inc., Rudolph Technologies, Inc., Veeco Instruments,
Inc, II-VI, Incorporated, Mattson Technology, Inc., Semitool, Inc., Photon
Dynamics, Inc., Electro Scientific Industries, Inc., GSI Group Inc., and
Ultratech, Inc. The peer group consists of issuers selected primarily based on
market capitalization and the markets they serve.

|                 |  |          |        |          |  |          |  |          |        |          |  |          |  |  |        |  |  |       | 
|---------------- |  | -------- | ------ | -------- |  | -------- |  | -------- | ------ | -------- |  | -------- |  |  | ------ |  |  | ----- | 
|                 |  |          |        |          |  |          |  |          |        |          |  |          |  |  |        |  |  |       | 
|                 |  | 06/30/04 |        | 06/30/05 |  | 06/30/06 |  | 06/30/07 |        | 06/30/08 |  | 06/30/09 | 
|                 |  |          |        |          |  |          |  |          |        |          |  |          | 
|ZYGO CORPORATION |  |          | 100.00 |          |  | 87.58    |  |          | 146.47 |          |  | 127.70   |  |  | 87.85  |  |  | 41.64 | 
|NASDAQ COMPOSITE |  |          | 100.00 |          |  | 101.09   |  |          | 109.49 |          |  | 132.47   |  |  | 117.33 |  |  | 92.91 | 
|PEER GROUP       |  |          | 100.00 |          |  | 75.35    |  |          | 80.28  |          |  | 86.02    |  |  | 70.67  |  |  | 42.82 | 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*Among Zygo Corporation, The NASDAQ
Composite Index
And A Peer Group

(LINE GRAPH)

* $100
invested on 6/30/04 in stock or index, including reinvestment of dividends.Fiscal year
ending June 30.

19

---



Item 6. Selected Financial Data

The financial
data set forth below should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations and with our
Consolidated Financial Statements and notes thereto included elsewhere in this
Form 10-K.

(Thousands,
except for per share, number of employees, percentages, and ratio amounts)

|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|----------------------------------------------------- |  | -------------------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                      |  | Fiscal Year Ended June 30, |        
|                                                      |  |                            |        
|                                                      |  | 2009                       |         | 2008 |   | 2007    |   | 2006 |         | 2005 |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |  
|Net sales                                             |  | $                          | 116,040 |      | $ | 159,036 |   | $    | 180,988 |      | $ | 168,137 |   | $ | 141,349 |  
|Gross profit                                          |  | $                          | 31,468  |      | $ | 64,823  |   | $    | 77,183  |      | $ | 65,771  |   | $ | 53,290  |  
|% of sales                                            |  |                            | 27      | %    |   | 41      | % |      | 43      | %    |   | 39      | % |   | 38      | %
|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Earnings (loss) from continuing operations            |  | ($                         | 66,064  | )    | $ | 1,239   |   | $    | 15,142  |      | $ | 14,485  |   | $ | 9,350   |  
|% of sales                                            |  |                            | -57     | %    |   | 1       | % |      | 8       | %    |   | 9       | % |   | 7       | %
|Earnings (loss) per share from continuing operations: |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Basic                                                 |  | ($                         | 3.92    | )    | $ | 0.07    |   | $    | 0.83    |      | $ | 0.80    |   | $ | 0.52    |  
|Diluted                                               |  | ($                         | 3.92    | )    | $ | 0.07    |   | $    | 0.81    |      | $ | 0.79    |   | $ | 0.52    |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss)                                   |  | ($                         | 66,064  | )    | $ | 1,239   |   | $    | 15,142  |      | $ | 14,485  |   | $ | 8,984   |  
|Net earnings (loss) per share:                        |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Basic                                                 |  | ($                         | 3.92    | )    | $ | 0.07    |   | $    | 0.83    |      | $ | 0.80    |   | $ | 0.50    |  
|Diluted                                               |  | ($                         | 3.92    | )    | $ | 0.07    |   | $    | 0.81    |      | $ | 0.79    |   | $ | 0.50    |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Weighted average number of shares:                    |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Basic                                                 |  |                            | 16,843  |      |   | 17,295  |   |      | 18,156  |      |   | 18,054  |   |   | 17,950  |  
|Diluted                                               |  |                            | 16,843  |      |   | 17,648  |   |      | 18,601  |      |   | 18,367  |   |   | 18,140  |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Research, development, and engineering                |  | $                          | 24,715  |      | $ | 24,275  |   | $    | 22,038  |      | $ | 15,901  |   | $ | 13,377  |  
|Capital expenditures                                  |  | $                          | 4,255   |      | $ | 6,580   |   | $    | 10,149  |      | $ | 7,441   |   | $ | 9,987   |  
|Depreciation and amortization                         |  | $                          | 8,167   |      | $ | 7,478   |   | $    | 6,519   |      | $ | 6,214   |   | $ | 5,880   |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                                      |  | June 30,                   |        
|                                                      |  |                            |        
|                                                      |  | 2009                       |         | 2008 |   | 2007    |   | 2006 |         | 2005 |  
|                                                      |  |                            |         |      |   |         |   |      |         |      |  
|Working capital                                       |  | $                          | 69,742  |      | $ | 104,851 |   | $    | 107,834 |      | $ | 81,914  |   | $ | 63,379  |  
|Current ratio                                         |  |                            | 4.3     |      |   | 5.7     |   |      | 4.3     |      |   | 2.8     |   |   | 2.3     |  
|Total assets                                          |  | $                          | 124,099 |      | $ | 190,008 |   | $    | 211,594 |      | $ | 206,183 |   | $ | 190,182 |  
|Stockholders equity                                  |  | $                          | 98,689  |      | $ | 162,946 |   | $    | 177,777 |      | $ | 158,938 |   | $ | 141,153 |  
|Price-earnings ratio                                  |  |                            |        |      |   | 140     |   |      | 18      |      |   | 21      |   |   | 20      |  
|Number of employees at year-end                       |  |                            | 484     |      |   | 595     |   |      | 575     |      |   | 570     |   |   | 526     |  
|Sales per employee  average                          |  | $                          | 240     |      | $ | 267     |   | $    | 315     |      | $ | 295     |   | $ | 269     |  
|Book value per share                                  |  | $                          | 5.83    |      | $ | 9.74    |   | $    | 9.75    |      | $ | 8.78    |   | $ | 7.85    |  
|Market price per share at year-end                    |  | $                          | 4.66    |      | $ | 9.83    |   | $    | 14.29   |      | $ | 16.39   |   | $ | 9.80    |  

20

---



Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT
JUDGMENTS, AND ESTIMATES

The discussion
and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosures at the date of our
consolidated financial statements. On an on-going basis, management evaluates
its estimates and judgments, including those related to bad debts, inventories,
marketable securities, share-based compensation, warranty obligations,
self-insured healthcare claims, income taxes, and long-lived assets. Management
bases its estimates and judgments on historical experience and current market
conditions and on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We consider certain
accounting policies related to revenue recognition and allowance for doubtful
accounts, inventory valuation, valuation of marketable securities, share-based
compensation, warranty costs, self-insured health insurance costs, accounting
for income taxes, and valuation of long-lived assets to be critical policies
due to the estimates and judgments involved in each.

Revenue Recognition and Allowance for
Doubtful Accounts

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

Certain
customer transactions include payment terms whereby we receive a partial
payment of the total order amount prior to the related sale being recognized in
our financial statements. These advance payments are included in accrued
progress payments and deferred revenue in the consolidated balance sheet.
Generally, these progress payments relate to orders for custom equipment that
require a lengthy build cycle and, in some cases, acceptance by the customer.
We may negotiate payment terms with these customers on these particular orders
and secure certain payments prior to or on shipment of the equipment. These
payments remain in accrued progress payments and deferred revenue until our
applicable revenue recognition criteria have been met.

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

21

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Inventory Valuation

Inventories
are valued at the lower of cost or market, cost being determined on a first-in,
first-out basis. Management evaluates the need to record adjustments for
impairment of inventory on a monthly basis. Our policy is to assess the
valuation of all inventories, including raw materials, work-in-process, and
finished goods. Obsolete inventory or inventory in excess of managements
estimated future usage is written down to its estimated market value, if less
than its cost. Contracts with fixed prices are evaluated to determine if estimated
total costs will exceed revenues. A loss provision is recorded when the
judgment is made that actual costs incurred plus estimated costs remaining to
be incurred based on managements estimates will exceed total revenues from the
contract. Inherent in the estimates of market value are managements estimates
related to current economic trends, future demand for our products, and
technological obsolescence. Management estimates future product sales and
service requirements, and evaluates technological changes and other possible
uses to determine if inventory is excess or obsolete. If actual market
conditions are different than those projected by management, additional
inventory adjustments negatively or positively affecting earnings may be
required.

Other Than Temporary Impairment of Marketable
Securities

Marketable
securities have been primarily classified as held-to-maturity, which requires
them to be carried at amortized cost. We also have certain securities that are
classified as available-for-sale and trading. Management evaluates the need to
record adjustments for impairment of marketable securities on a quarterly
basis. Marketable securities with unrealized depreciation in fair value for
twelve or more consecutive months and other securities with unrealized losses
are reviewed to determine whether the decline in fair value is other than
temporary. Investment ratings, company-specific events, general economic
conditions, and other reasons are evaluated in determining if the decline in
fair value is other than temporary. If it is judged that a decline in fair
value is other than temporary, the marketable security is valued at the current
fair value and an impairment charge is reflected in earnings.

Share-Based Compensation

We calculate
share-based compensation expense in accordance with SFAS 123(R), Share-Based
Payment (as amended) using the Black-Scholes option-pricing model to calculate
the fair value of share-based awards. The key assumptions for this valuation
method include the expected term of an option grant, stock price volatility,
risk-free interest rate, dividend yield, and forfeiture rate. The determination
of these assumptions is based on past history and future expectations, and is
subject to a high level of judgment. To the extent any of the assumptions were
to change from year to year, the fair value of new option grants may vary
significantly.

Warranty Costs

We provide for
the estimated cost of product warranties at the time revenue is recognized. We
consider historical warranty costs actually incurred and specifically
identified circumstances to establish the warranty liability. The warranty
liability is reviewed on a quarterly basis. Should actual costs differ from
managements estimates, revisions to the estimated warranty liability would be
required. A one percent change in actual costs would have an immaterial impact
on our financial condition and results of operations.

Accounting for Income Taxes

Deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective income tax bases, and
operating loss and tax credit carryforwards. SFAS No. 109, Accounting for
Income Taxes, requires the establishment of a valuation allowance to reflect
the likelihood of the realization of deferred tax assets. We record a valuation
allowance to reduce our deferred tax assets to an estimated realizable amount
based on historical and forecasted results. Management has considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance. In fiscal 2009, management
determined that it is more likely than not that we would not be able to realize
our deferred tax assets in the future and an adjustment to record a full
valuation allowance was charged to income tax expense. Should management
determine that it would be able to realize all or part of its net deferred tax
assets in the future, an adjustment to the valuation allowance would increase
income in the period such determination was made. Our effective tax rate may
vary from period to period based on changes to the valuation allowance, changes
in pre-tax income between jurisdictions that have higher or lower tax rates,
changes to federal, state, or foreign tax laws, and deductibility of certain
costs and expenses by jurisdiction.

22

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We adopted the
provisions of FASB Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, on July 1, 2007. Among other tax guidance, FIN 48
requires applying a more likely than not threshold to the recognition and
de-recognition of tax positions. As a result of this adoption, we recognized a
liability for unrecognized income tax benefits of $1.5 million, an increase in
income tax receivables of $0.6 million, and a charge of approximately $0.9
million to the July 1, 2007 retained earnings balance. As of the adoption date,
we had gross tax-affected unrecognized tax benefits of $1.8 million, of which
$1.2 million, if recognized, would affect the effective tax rate. Due to our
net operating loss carryforwards, we have accrued no interest and penalties for
the unrecognized tax benefits; however, our accounting policy is to recognize
interest related to unrecognized tax benefits in interest expense. Penalties,
if incurred, would be recognized as a component of income tax expense. In the
normal course of business, we provide for uncertain tax positions and adjust
our unrecognized tax benefits accordingly. For the year ended June 30, 2008, we
recognized an additional liability of $0.1 million for uncertain tax positions.
The total liability for uncertain tax liabilities was $1.9 million at June 30,
2008. We are not aware of any tax positions that would create a significant
adjustment to the unrecognized tax benefits for the fiscal year ended June 30,
2009.

Valuation of Long-Lived Assets

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

If one or more
of such facts or circumstances exist, we evaluate the carrying value of
long-lived assets to determine if an impairment exists based upon estimated
undiscounted future cash flows over the remaining useful life of the assets and
comparing that value to the carrying value of the assets. If the carrying value
of the assets is greater than the estimated future cash flows, the assets are
written down to the estimated fair value. We determine the estimated fair value
of the assets based on a current market value of the assets. If a current
market value is not readily available, a projected discounted cash flow method
is applied using a discount rate determined by management to be commensurate
with the risk inherent in the current business model. Our cash flow estimates
contain managements best estimates, using appropriate and customary
assumptions and projections at the time. During fiscal 2009, we recorded
impairment charges on property, plant, and equipment, intangible assets, and
marketable securities.

Health Insurance

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

23

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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.
Optical instruments products encompass non-contact optical measurement
instruments. Optics products consist of high performance macro-optics
components, optical coatings, and optical system assemblies. We conduct the
majority of our manufacturing in our 153,500 square foot facility in
Middlefield, Connecticut and a 22,560 square foot leased facility in Tucson,
Arizona.

The worldwide
economic recession has had a severe impact on our orders, sales, and net
results. As a result of the economic downturn, among other things, we have
reevaluated our strategic initiatives and our overall business strategy and
operations. We are focusing sales, marketing, and research and development
efforts on our core metrology and optics technologies, including the potential
for strategic alternatives, which could include partnerships, joint ventures,
divestitures, or alliances similar to the agreement described below.

On June 17,
2009, ZYGO and Nanometrics Incorporated (Nanometrics) announced that
Nanometrics has purchased inventory and certain other assets relating to ZYGOs
Semiconductor Solutions business for approximately $3.4 million and that the
two companies have entered into a supply agreement. Under an exclusive OEM
supply agreement, ZYGO will provide interferometer sensors to Nanometrics for
incorporation into the Unifire line of products as well as Nanometrics family
of automated metrology systems. Nanometrics will assume all inventory, backlog
and customer sales and support responsibilities and ZYGO will provide
measurement sensors for integration by Nanometrics. In addition to the
applications currently addressed by Nanometrics and ZYGO products, the business
partnership allows for the joint development of additional technology solutions
targeted at the semiconductor and related industries. This sale and supply
agreement enables us to accomplish our goal of accelerating the commercial
deployment and market penetration of our core interferometer technology into
the worldwide semiconductor industry without the investment associated with
system integration, distribution, applications and support.

In response to
the decline in sales and orders, we have taken and continue to take various
permanent and temporary actions to mitigate the effects on our company of the
downturn in the global economy, including reductions in work force, salary
adjustments, unpaid furloughs, suspension of our matching 401(k) program, and a
reduction in director fees. These actions are expected to save us in excess of
over $17 million on an annualized basis. We continue to be mindful of our cash
position and to investigate strategic alternatives which may be beneficial to
our company.

Our backlog at
June 30, 2009 was $38.3 million, a decrease of $34.0 million from June 30,
2008. Orders were $15.3 million in the fourth quarter of fiscal 2009. Orders
for the fourth quarter from the Companys Metrology segment accounted for 71%
of the orders received, with the Optics segment accounting for the remaining 29%.
For fiscal 2009, orders were $82.0 million, a decrease of 48% over fiscal 2008.
As a result of a decline in orders related to our PPS product line, which
supplies our lithography customers, we evaluated our assets supporting this
product for potential impairment. We recorded an impairment charge during the
fourth quarter of fiscal 2009 against intangible assets of $2.9 million and
property, plant, and equipment of $4.0 million. Based on our backlog and order
levels, we also evaluated our inventory levels in our various product lines. We
recorded inventory reserves of $5.7 million against various product lines.
Indications received from our customers lead us to believe that our order
levels have stabilized. While this does not mean a rapid upturn in orders is
imminent, it does allow us to focus our attention on growth and concentrate our
efforts on our core metrology and optics technologies. We are experiencing a
greater than expected order demand in China through our joint venture for our
metrology products. We still expect a continued depression in lithography
sales, especially to our largest customer.

On February
28, 2008, we acquired certain assets of Solvision, Inc. (Solvision), a
Canadian-based company, including the shares of its Singapore subsidiary. In
fiscal 2009, the final valuation was completed resulting in a final purchase
price of $4.2 million in cash (net of cash received of $0.1 million). In
addition, the Company had also loaned to Solvision $1.5 million of which
substantially none of the loan was recouped as part of the purchase price
allocation based on asset values. The Solvision acquisition is currently
included in our Metrology Solutions Division as the vision systems business
unit. During the third quarter of fiscal 2009 we recorded impairment charges
against vision systemss intangible assets of $2.1 million.

24

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On October 16,
2008, we and Electro Scientific Industries, Inc. (ESI) jointly announced the
execution of a definitive agreement, providing for the two companies to merge in
an all stock transaction, subject to the prior satisfaction of certain
enumerated conditions precedent. On January 20, 2009, ZYGO announced that it
notified ESI of ZYGOs Board of Directors withdrawal of its recommendation in
favor of the previously announced merger agreement with ESI. A reevaluation of
the proposed merger with ESI by ZYGOs Board of Directors was necessitated by
changes in conditions since the merger agreement was executed on October 15,
2008, and the ZYGO Boards view of the impact of these changes on the current
and expected performance and operations of ZYGO and ESI. On April 2, 2009, ESI
and ZYGO agreed to terminate their previously executed merger agreement.
Pursuant to the terms of the settlement agreement, ZYGO paid ESI a break up fee
of $5.4 million, and is liable for an additional $1.2 million in the event that
on or before November 2, 2009, ZYGOs Board of Directors approves an alternate
transaction proposal for the merger or sale of the company. During fiscal 2009,
we paid an additional $2.9 million related to the merger in professional fees
and various other expenses.

25

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RESULTS OF OPERATIONS

Fiscal 2009 Compared with Fiscal 2008

Net Sales

|                       |  |                |       |            |  |              |   |            |       |  |  |     |  
|---------------------- |  | -------------- | ----- | ---------- |  | ------------ | - | ---------- | ----- |  |  | --- | -
|                       |  | Year Ended     |      
|                       |  |                |      
|(Dollars in
 millions) |  | June 30,
 2009 |       | Net Sales% |  | June 30,2008 |   | Net Sales% |      
|                       |  |                |       |            |  |              |   |            |      
|Segment                |  |                |       |            |  |              |   |            |       |  |  |     |  
|Metrology              |  | $              | 84.1  |            |  | 73           | % | $          | 105.7 |  |  | 66  | %
|Optics                 |  |                | 31.9  |            |  | 27           | % |            | 53.3  |  |  | 34  | %
|                       |  |                |       |            |  |              |   |            |       |  |  |     |  
|Total                  |  | $              | 116.0 |            |  | 100          | % | $          | 159.0 |  |  | 100 | %
|                       |  |                |       |            |  |              |   |            |       |  |  |     |  

Net sales in
the Metrology segment decreased 20% in fiscal 2009 as compared with the prior
year. The decrease in net sales of $21.6 million within the Metrology segment
was primarily due to sales volume decreases in lithography of $14.8 million,
instrument sales of $13.4 million, and semiconductor sales of $0.7 million,
partially offset by an increase in display sales of $6.8 million and in vision
systems sales of $0.6 million. The general economic recession has led to low
sales volume. We believe our products are still well accepted in the markets we
serve. The lithography market is expected to continue to be depressed for at least
the next six months.

Net sales in
the Optics segment decreased 40% in fiscal 2009 as compared with the prior
year. The decrease in net sales of $21.4 million within the Optics segment was
due to a decrease in volume of contract manufacturing of $11.1 million and
laser and precision optics of $10.3 million. The decrease in all optics areas
generally is related to a decline in the orders from existing customers due
primarily to the economic recession.

Approximately
76% of all fiscal 2009 net sales were denominated in U.S. dollars, the same
percentage of sales we experienced in fiscal 2008. Significant changes in the
values of foreign currencies relative to the value of the U.S. dollar can
influence the sales of our products in export markets, as would changes in the
general economic conditions in those markets.

Gross Profit

|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  
|--------------------- |  | --------------- | ---- | ------------- |  | -------------- | - | ---------- | ---- |  |  | -- | -
|                      |  | Year
 Ended     |     
|                      |  |                 |     
|(Dollars in millions) |  | June
 30,
 2009 |      | Net
 Sales
 % |  | June 30,
 2008 |   | Net Sales% |     
|                      |  |                 |      |               |  |                |   |            |     
|Segment               |  |                 |      |               |  |                |   |            |      |  |  |    |  
|Metrology             |  | $               | 27.5 |               |  | 33             | % | $          | 50.5 |  |  | 48 | %
|Optics                |  |                 | 4.0  |               |  | 13             | % |            | 14.3 |  |  | 27 | %
|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  
|Total                 |  | $               | 31.5 |               |  | 27             | % | $          | 64.8 |  |  | 41 | %
|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  

In fiscal
2009, gross profit as a percentage of net sales in the Metrology segment
decreased fifteen percentage points as compared with the prior year. This
decrease was due primarily to intangible and fixed asset impairments of $5.6
million and inventory reserves of $4.9 million. Excluding these charges, our
gross profit as a percentage of sales for the Metrology segment would have been
45%. The decrease from 48% in fiscal 2008 to 45% in fiscal 2009 (excluding
$10.5 million of referenced charges) is due to lower sales volume. Gross profit
as a percentage of sales in the Optics segment decreased by fourteen percentage
points for fiscal 2009 as compared with the prior year. This decrease included
charges of $1.6 million for fixed asset impairments, restructuring, and
severance, which account for 5 percentage points of the change year over year.
The remainder of the change is primarily related to underutilization of the
factory based on low sales volume. Optics components rely upon a capital
intensive production facility and certain expenditures, such as depreciation,
cannot be reduced as readily as a labor intensive environment.

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

|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  
|---------------------- |  | -------------- | ---- | ------------ |  | --------------- | - | ----------- | ---- |  |  | -- | -
|                       |  | Year Ended     |     
|                       |  |                |     
|(Dollars in
 millions) |  | June 30,
 2009 |      | Net Sales
 % |  | June
 30,
 2008 |   | Net
 Sales% |     
|                       |  |                |      |              |  |                 |   |             |     
|                       |  | $              | 51.0 |              |  | 44              | % | $           | 38.5 |  |  | 24 | %
|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  

SG&A in
fiscal 2009 as compared with fiscal 2008 increased $12.5 million primarily due
to increases in general and administration costs of $12.1 million, partially
offset by a decrease in selling and marketing activities of $0.4 million. The
increase in general and administrative costs included $8.3 million in
merger-related expenses, $2.9 million in bad debt reserves, $1.4 in legal
accruals, and $0.4 million in severance. Sales and marketing expenses for
fiscal 2009 also included

26

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charges of
$0.9 million in intangible asset impairment charges related to the vision
systems business and $0.6 million in severance. Excluding these charges,
SG&A costs would have been $36.5 million for fiscal 2009, a 5% decrease
over fiscal 2008. The inclusion of vision systems for the entire fiscal year
2009 increased SG&A by $2.5 million. This increase was partially offset by
cost cutting measures implemented during fiscal 2009, which decreased salaries
and wages by $1.3 million.

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

|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  
|---------------------- |  | -------------- | ---- | ------------ |  | --------------- | - | ----------- | ---- |  |  | -- | -
|                       |  | Year Ended     |     
|                       |  |                |     
|(Dollars in
 millions) |  | June 30,
 2009 |      | Net Sales
 % |  | June
 30,
 2008 |   | Net
 Sales% |     
|                       |  |                |      |              |  |                 |   |             |     
|                       |  | $              | 24.7 |              |  | 21              | % | $           | 24.3 |  |  | 15 | %
|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  

The increase
in RD&E costs in fiscal 2009 was primarily related to intangible asset and
fixed asset impairment charges of $2.8 million and $0.2 million in severance
costs during the year. Excluding these charges, RD&E for fiscal 2009 would
have decreased to $21.7 million. The decrease in RD&E from $24.3 million in
fiscal 2008 to $21.7 million (excluding $3.0 million in referenced charges) in
fiscal 2009 is primarily due to decreases in our stage metrology ($1.2 million)
and semiconductor ($1.2 million) RD&E spending. Stage metrology spending
was reduced in response to the lack of customer demand related to the slowdown
in the semiconductor market and the general economic recession. Semiconductor
RD&E spending decreased as several large RD&E projects related to new
product development were completed or are nearing completion. Fiscal 2009
spending on these projects was less than in fiscal 2008. We expect future
RD&E spending in the semiconductor unit to be limited to sensor development
to support the supply agreement with Nanometrics in June 2009.

Income Tax Benefit (Expense)

|                       |  |                |       |             |  |                 |   |            |     |  |  |    |  
|---------------------- |  | -------------- | ----- | ----------- |  | --------------- | - | ---------- | --- |  |  | -- | -
|                       |  | Year Ended     |      
|                       |  |                |      
|(Dollars in
 millions) |  | June 30,
 2009 |       | Tax Rate
 % |  | June
 30,
 2008 |   | Tax
 Rate% |    
|                       |  |                |       |             |  |                 |   |            |    
|                       |  | $              | (22.3 | )           |  | -52             | % | $          | 1.5 |  |  | 37 | %
|                       |  |                |       |             |  |                 |   |            |     |  |  |    |  

Income tax
expense in fiscal 2009 included a valuation allowance of $37.4 million against
all net deferred tax assets. Fiscal 2009 also does not include any tax benefit
associated with the net operating loss for the fiscal year or tax credits
earned in the fiscal year. Management believes, based upon the uncertain and
volatile market conditions and the fact that the Company is now in a cumulative
pre-tax accounting loss position over a three year period, it is no longer more
likely than not that the current net deferred tax assets will be realized. In
future periods, the valuation allowance could be reduced based on sufficient
evidence indicating that it is more likely than not that a portion of the
deferred tax assets will be realized.

Net Earnings (Loss)

|                       |  |                |       |          |  |                 |   |        |     |  |  |   |  
|---------------------- |  | -------------- | ----- | -------- |  | --------------- | - | ------ | --- |  |  | - | -
|                       |  | Year Ended     |      
|                       |  |                |      
|(Dollars in
 millions) |  | June 30,
 2009 |       | Sales
 % |  | June
 30,
 2008 |   | Sales% |    
|                       |  |                |       |          |  |                 |   |        |    
|                       |  | $              | (66.1 | )        |  | -57             | % | $      | 1.2 |  |  | 1 | %
|                       |  |                |       |          |  |                 |   |        |     |  |  |   |  

Net loss in fiscal 2009 was $66.1 million compared
with net earnings of $1.2 million in the prior year. Net loss per
diluted share was $3.92 for fiscal 2009, as compared with net earnings of $0.07
per diluted share for fiscal 2008. The net loss in fiscal 2009 included $41.8
million in significant charges, net of taxes, which included asset impairment charges,
write-downs and reserves on various other balance sheet items, and a valuation
allowance on our deferred tax assets. These charges were incurred primarily as
a result of the economic downturn, recent changes in our business strategy and
operations, and the resulting in re-evaluation of certain of our assets.

Backlog

Backlog at
June 30, 2009 totaled $38.3 million, a decrease of $34.0 million from June 30,
2008. The year-end fiscal 2009 backlog consisted of $18.6 million, or 49%, in
the Metrology segment and $19.7 million, or 51%, in the Optics segment. Orders
for fiscal 2009 totaled $82.0 million. Orders by segment for fiscal 2009
consisted of $57.8 million, or 70%, in the Metrology segment and $24.2 million,
or 30%, in the Optics segment.

27

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Fiscal 2008 Compared with Fiscal 2007

Net Sales

|                       |  |                |       |              |  |                 |   |             |       |  |  |     |  
|---------------------- |  | -------------- | ----- | ------------ |  | --------------- | - | ----------- | ----- |  |  | --- | -
|                       |  | Year Ended     |      
|                       |  |                |      
|(Dollars in
 millions) |  | June 30,
 2008 |       | Net Sales
 % |  | June
 30,
 2007 |   | Net
 Sales% |      
|                       |  |                |       |              |  |                 |   |             |      
|Segment                |  |                |       |              |  |                 |   |             |       |  |  |     |  
|Metrology              |  | $              | 105.7 |              |  | 66              | % | $           | 132.3 |  |  | 73  | %
|Optics                 |  |                | 53.3  |              |  | 34              | % |             | 48.7  |  |  | 27  | %
|                       |  |                |       |              |  |                 |   |             |       |  |  |     |  
|Total                  |  | $              | 159.0 |              |  | 100             | % | $           | 181.0 |  |  | 100 | %
|                       |  |                |       |              |  |                 |   |             |       |  |  |     |  

Net sales in
the Metrology segment decreased 20% in fiscal 2008 as compared with the prior
year. The decrease in net sales of $26.6 million within the Metrology segment
was primarily due to volume decreases in lithography sales of $24.6 million,
display sales of $10.5 million, and semiconductor sales of $2.5 million,
partially offset by an increase in instrument sales of $9.0 million and vision
systems sales from the Solvision acquisition of $2.1million. The increase in
instrument sales was primarily due to a $5.1 million increase in sales in our
Europe region based on volume.

Net sales in
the Optics segment increased 9% in fiscal 2008 as compared with the prior year.
The increase in net sales of $4.6 million within the Optics segment was
primarily due to an increased volume of laser and precision optics of $4.8
million, offset by a decrease in contract manufacturing sales, which includes
medical components, of $0.2 million.

Approximately
76% of all fiscal 2008 net sales were denominated in U.S. dollars. Significant
changes in the values of foreign currencies relative to the value of the U.S.
dollar can influence the sales of our products in export markets, as would
changes in the general economic conditions in those markets.

Gross Profit

|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  
|--------------------- |  | --------------- | ---- | ------------- |  | -------------- | - | ---------- | ---- |  |  | -- | -
|                      |  | Year
 Ended     |     
|                      |  |                 |     
|(Dollars in millions) |  | June
 30,
 2008 |      | Net
 Sales
 % |  | June 30,
 2007 |   | Net Sales% |     
|                      |  |                 |      |               |  |                |   |            |     
|Segment               |  |                 |      |               |  |                |   |            |      |  |  |    |  
|Metrology             |  | $               | 50.5 |               |  | 48             | % | $          | 62.2 |  |  | 47 | %
|Optics                |  |                 | 14.3 |               |  | 27             | % |            | 15.0 |  |  | 31 | %
|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  
|Total                 |  | $               | 64.8 |               |  | 41             | % | $          | 77.2 |  |  | 43 | %
|                      |  |                 |      |               |  |                |   |            |      |  |  |    |  

In fiscal 2008, gross profit as a percentage of net
sales in the Metrology segment increased one percentage point as
compared with the prior year. Gross profit as a percentage of sales in the
Optics segment decreased by four percentage points for fiscal 2008 as compared
with the prior year. This decrease was primarily due to shipments in the first
half of fiscal 2008 for the initial production run of the helmet mounted
display units that resulted in zero margin due to cost over-runs on the initial
units.

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

|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  
|---------------------- |  | -------------- | ---- | ------------ |  | --------------- | - | ----------- | ---- |  |  | -- | -
|                       |  | Year Ended     |     
|                       |  |                |     
|(Dollars in
 millions) |  | June 30,
 2008 |      | Net Sales
 % |  | June
 30,
 2007 |   | Net
 Sales% |     
|                       |  |                |      |              |  |                 |   |             |     
|                       |  | $              | 38.5 |              |  | 24              | % | $           | 32.9 |  |  | 18 | %
|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  

SG&A in
fiscal 2008 as compared with fiscal 2007 increased $5.6 million primarily due
to increases in selling and marketing activities of $7.0 million, partially
offset by a reduction in general and administrative expenses of $1.4 million.
The increase 29 in selling and marketing expenses included an additional $2.4
million in commission expense, primarily related to instrument sales in Europe,
an increase of $1.5 million related to the planned increased presence in Asia,
a $0.9 million increase in semiconductor sales and marketing efforts, an $0.8
million increase in optics division sales and marketing efforts, and the
incurrence of $0.6 million in expenses for vision systems for the four month
period. The decrease in general and administrative costs was primarily related
to a reduction in employee costs of $3.1 million, including management bonus
and employee profit sharing expense, offset by an increase for vision systems
of $1.0 million for the first four months of operation, and of $0.8 million
related to share-based compensation expense.

28

---



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

|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  
|---------------------- |  | -------------- | ---- | ------------ |  | --------------- | - | ----------- | ---- |  |  | -- | -
|                       |  | Year Ended     |     
|                       |  |                |     
|(Dollars in
 millions) |  | June 30,
 2008 |      | Net Sales
 % |  | June
 30,
 2007 |   | Net
 Sales% |     
|                       |  |                |      |              |  |                 |   |             |     
|                       |  | $              | 24.3 |              |  | 15              | % | $           | 22.0 |  |  | 12 | %
|                       |  |                |      |              |  |                 |   |             |      |  |  |    |  

The increase
in RD&E costs in fiscal 2008 was primarily related to increased spending on
semiconductor initiatives of $1.7 million, display solutions of $1.0 million,
and vision systems of $0.9 million, and within the optics division of $0.5
million. These RD&E cost increases were partially offset by a decrease of
$1.7 million in our precision positioning systems and instruments business. We
continue to focus and build on our semiconductor initiatives as one of our core
areas of expected future growth.

Income Tax Expense

|                       |  |                |     |             |  |                 |   |            |     |  |  |    |  
|---------------------- |  | -------------- | --- | ----------- |  | --------------- | - | ---------- | --- |  |  | -- | -
|                       |  | Year Ended     |    
|                       |  |                |    
|(Dollars in
 millions) |  | June 30,
 2008 |     | Tax Rate
 % |  | June
 30,
 2007 |   | Tax
 Rate% |    
|                       |  |                |     |             |  |                 |   |            |    
|                       |  | $              | 1.5 |             |  | 37              | % | $          | 9.1 |  |  | 36 | %
|                       |  |                |     |             |  |                 |   |            |     |  |  |    |  

The overall
tax rate increased by one percentage point when compared with the prior year
primarily due to the repeal of the deduction attributable to the
Extraterritorial Income Exclusion on December 31, 2006.

Net Earnings

|                       |  |                |     |          |  |                 |   |        |      |  |  |   |  
|---------------------- |  | -------------- | --- | -------- |  | --------------- | - | ------ | ---- |  |  | - | -
|                       |  | Year Ended     |    
|                       |  |                |    
|(Dollars in
 millions) |  | June 30,
 2008 |     | Sales
 % |  | June
 30,
 2007 |   | Sales% |     
|                       |  |                |     |          |  |                 |   |        |     
|                       |  | $              | 1.2 |          |  | 1               | % | $      | 15.1 |  |  | 8 | %
|                       |  |                |     |          |  |                 |   |        |      |  |  |   |  

Net earnings
in fiscal 2008 decreased by 92% as compared with the prior year. Net earnings
per diluted share were $0.07 for fiscal 2008, as compared with $0.81 per
diluted share for fiscal 2007. The decreased earnings were primarily the result
of decreased net sales in precision positioning systems, display solutions, and
semiconductor solutions and increased SG&A and R&D expenses due to
additional spending within instruments, the semiconductor initiatives and the
inclusion of Solvision operating expenses, which are reflected in our results
for the last four months of the fiscal year.

TRANSACTIONS WITH STOCKHOLDER

Sales to
Canon, a stockholder, customer, and distributor of certain of our products in
Japan amounted to $16.2 million (14% of net sales), $30.7 million (19% of net
sales), and $48.1 million (27% of net sales), for the years ended June 30,
2009, 2008, and 2007, respectively. Selling prices of products sold to Canon
are based, generally, on the normal terms customarily given to distributors.
Revenues generated (in fiscal 2007 and prior) from a development contract with
Canon were recorded on a cost-plus basis. At June 30, 2009 and 2008, there was
in the aggregate, $0.6 million and $3.0 million, respectively, of trade
accounts receivable from Canon.

In September
2002, we entered into a contract with Canon related to the development of
certain interferometers. In March 2004, we signed a preliminary agreement to
begin further add-on work; the definitive agreement for this additional work
was signed in December 2004. In February 2005, we entered into two additional
agreements with Canon related to the development of prototype production tools
and accessories. During the twelve months ended June 30, 2007, we recognized 30
revenue of $4.1 million under the Canon development services contract. Our
development services contract with Canon was completed during the third quarter
of fiscal 2007.

29

---



LIQUIDITY AND CAPITAL RESOURCES

At June 30,
2009, cash and marketable securities was $36.7 million, a decrease of $14.3
million from $51.0 million at June 30, 2008. The decrease in cash was primarily
attributable to merger related costs of $8.3 million (which includes a merger
termination fee of $5.4 million) and, among other factors, $1.7 million of
severance costs.

Cash flows
used for operating activities were $6.4 million for fiscal 2009 as compared
with cash flows provided by operating activities of $14.6 million in fiscal
2008. Operating cash flows in fiscal 2009 were impacted primarily by the net
loss offset by a decrease in receivables and inventory.

Cash flows
provided by investing activities for fiscal 2009 were $14.4 million as compared
with $14.7 million in fiscal 2008. Purchases and proceeds of marketable securities
activities were $8.2 million and $27.8 million, respectively, in fiscal 2009
and $20.9 million and $48.4 million, respectively, in fiscal 2008. In fiscal
2009, we decreased our capital spending by $2.3 million. In fiscal 2008, we
acquired certain assets of Solvision, including the shares of its Singapore
subsidiary, for $5.1 million in cash (net of cash received).

Cash flows
used for financing activities for fiscal 2009 were $1.2 million as compared
with $19.9 million in fiscal 2008. In August 2007, our Board of Directors
approved a stock repurchase program of up to $25.0 million. We repurchased
$20.0 million of stock in fiscal 2008. There were no repurchases in fiscal
2009.

The
composition of our marketable securities by industry sector is as follows:
22.5% Finance; 22.1% Utilities; 22.0% Real Estate, and 33.4% other. We hold
five corporate bonds at June 30, 2009, with the largest individual bond having
a value at maturity of $1.0 million. We have the ability and intent to hold all
the securities to maturity, the last maturity of which is on December 1, 2009.
We believe there are no impairments in our investments other than an impairment
of $0.6 million on an auction rate security recorded during fiscal 2009. Such
auction rate security is valued at $0 at June 30, 2009.

Although cash requirements will
fluctuate during the fiscal year, management believes that cash generated from
operations, together with the liquidity provided by existing cash balances,
will be sufficient to satisfy our liquidity requirements for at least the next
12 months. We have no line of credit or readily available borrowing capacity.
There is no assurance that we would be able to secure financing if the need
arose.

CONTRACTUAL OBLIGATIONS

The following
table summarizes our significant contractual obligations at June 30, 2009, and
the effect such obligations are expected to have on our liquidity and cash
flows in future periods.

|                  |  |                                             |     |                     |   |            |  |            |     |                     |   |     |  |   |   | 
|----------------- |  | ------------------------------------------- | --- | ------------------- | - | ---------- |  | ---------- | --- | ------------------- | - | --- |  | - | - | 
|                  |  | Payments Due By Period(Dollars in millions) |    
|                  |  | Total                                       |     | Less
 than 
 1 year |   | 1-3
 years |  | 3-5
 years |     | More
 than
 5 years |  
|                  |  |                                             |     |                     |   |            |  |            |     |                     |  
|Operating leases* |  | $                                           | 3.4 |                     | $ | 1.6        |  | $          | 1.7 |                     | $ | 0.1 |  | $ |  | 
|                  |  |                                             |     |                     |   |            |  |            |     |                     |   |     |  |   |   | 
|Total             |  | $                                           | 3.4 |                     | $ | 1.6        |  | $          | 1.7 |                     | $ | 0.1 |  | $ |  | 
|                  |  |                                             |     |                     |   |            |  |            |     |                     |   |     |  |   |   | 

* Does not include sublease
income of aproximately $0.1 million per year through 2013

At June 30, 2009, we also have a liability for uncertain tax benefits of $1.8 million, which was recorded in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The timing of the settlement of such liability cannot presently be determined.

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.

30

---



Item 7A. Quantitative and
Qualitative Disclosures about Market Risk

The following
discussion about our market risk involves forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements. We are exposed to market risk related to changes in interest rates,
changes in the investment grade of marketable securities, and foreign currency
exchange rates. We do not use derivative financial instruments for speculative
or trading purposes.

Interest Rate Sensitivity

We maintain a
portfolio of cash equivalents and marketable securities including institutional
money market funds (which may include commercial paper, certificates of
deposit, and U.S. treasury securities), and corporate bonds. Our interest
income is sensitive to changes in the general level of U.S. interest rates,
particularly on our short-term instruments. The table below presents investment
amounts and related weighted average interest rates by year of maturity for our
investment portfolio.

Fair value of
investments as of June 30, 2009 maturing in:

|                               |  |      |     |      |   |            |   |   |     |  
|------------------------------ |  | ---- | --- | ---- | - | ---------- | - | - | --- | -
|(Dollars in millions)          |  | 2010 |     | 2011 |   | Thereafter |  
|                               |  |      |     |      |   |            |  
|Cash equivalents               |  |      |     |      |   |            |   |   |     |  
|Fixed rate investments         |  | $    |    |      | $ |           |   | $ |    |  
|Weighted average interest rate |  |      | 2.2 | %    |   |           |   |   |    |  
|                               |  |      |     |      |   |            |   |   |     |  
|Marketable securities          |  |      |     |      |   |            |   |   |     |  
|Fixed rate investments         |  | $    | 4.0 |      | $ |           |   | $ |    |  
|Weighted average interest rate |  |      | 5.4 | %    |   | 0.0        | % |   | 0.0 | %

On June 30, 2009,
the Company had variable interest rate money market accounts valued at $19.0
million.

Marketable Securities Fair Market Value
Sensitivity

At June 30,
2009, our investment portfolio included an auction rate security of $0.6
million, which is believed to have risk exposure in sub-prime markets. We have
reviewed, along with our investment advisor, current investment ratings,
company specific events, and general economic conditions in determining whether
there is a significant decline in fair value that is other than temporary. We
have concluded that there is an other than temporary decline in fair value and
have recorded an impairment charge on the full value of the security.

Exchange Rate Sensitivity

Approximately
76% of our fiscal 2009 net sales were denominated in U.S. dollars. At June 30,
2009, our backlog included orders in U.S. dollars of $34.1 million, or 89% of
the total backlog. Substantially all of our costs are negotiated and paid in
U.S. dollars. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can impact sales of our products in export
markets as would changes in the general economic conditions in those markets.
For our sales that are based in local currency, we are exposed to foreign
exchange fluctuations from the time customers are invoiced in local currency
until collection occurs.

We enter into
forward contracts to reduce the impact of adverse fluctuations on earnings
associated with foreign currency exchange rate changes. We do not enter into
any derivative transactions for speculative purposes. These forward contracts
are entered into for periods consistent with the currency transaction
exposures, generally three to nine months. Any gains and losses on the fair
value of these contracts would largely offset corresponding losses and gains on
the underlying transactions. The majority of our foreign currency transactions
and foreign operations are denominated in the euro and japanese yen. In the
absence of a substantial increase in sales orders in currencies other than U.S.
dollars, we believe a 5% 32 appreciation or depreciation of the U.S. dollar
against the euro and yen would have an immaterial impact on our consolidated
financial position and results of operations.

31

---



Item 8. Financial Statements
and Supplementary Data

Financial
statements and supplementary data required pursuant to this item begin on Page
F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and
Disagreements With Accountants on Accounting and Financial Disclosure

None.

32

---



Item 9A. Controls and
Procedures

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

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

Report of Management on Zygo Corporations
Internal Control Over Financial Reporting

We, as members
of management of Zygo Corporation (the Company), are responsible for
establishing and maintaining adequate internal control over financial
reporting, as such term is identified in Exchange Act Rule 13a-15(f). The
Companys internal control over financial reporting is a process designed to
provide reasonable assurance to the Companys management and Board of Directors
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles in the United States of America. Internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles in the United States of America, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a
material effect on the consolidated financial statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been
detected. In addition, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.

Under the
supervision and with the participation of management, including our principal
executive and financial officers, we assessed the Companys internal control
over financial reporting as of June 30, 2009, based on criteria for effective
internal control over financial reporting established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, we concluded that the Company
maintained effective internal control over financial reporting as of June 30,
2009 based on the specified criteria.

Deloitte &
Touche LLP, the independent registered public accounting firm that also audited
the Companys consolidated financial statements included in this Form 10-K,
audited the operating effectiveness of internal control over financial
reporting and issued their attestation report which is included on page F-2.

|                    |     |                                                    | 
|------------------- | --- | -------------------------------------------------- | 
|                    |     | Zygo Corporation                                  
|                    |     |                                                   
|September
 14, 2009 | By: | /s/ J. Bruce
 Robinson                            
|                    |     |                                                    | 
|                    |     | J. Bruce
 Robinson                                
|                    |     | Chief
 Executive Officer                          
|                    |     |                                                   
|September
 14, 2009 | By: | /s/ Walter
 A. Shephard                           
|                    |     |                                                    | 
|                    |     | Walter A.
 Shephard                               
|                    |     | Vice
 President, Finance, Chief Financial Officer,
|                    |     | and
 Treasurer                                    

33

---



Item 9B. Other Information

None.

PART III

Item 10. Directors,
Executive Officers and Corporate Governance

Except for the
information concerning executive officers which is set forth in Part I of this
Annual Report on Form 10-K, information required by this item will be included
under the captions Election of Board of Directors and Corporate Governance in
our Proxy Statement to be filed pursuant to Regulation 14A for use in
connection with our companys 2009 Annual Meeting of Stockholders (referred to
below as our 2009 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

Information
required by this item will be included in our 2009 Proxy Statement under the
captions Compensation of Executive Officers and Corporate Governance and is
incorporated herein by reference.

Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters

Information
required by this item will be included in our 2009 Proxy Statement under the
captions Equity Compensation Plan Information, and Security Ownership of
Certain Beneficial Owners and is incorporated herein by reference.

Item 13. Certain
Relationships and Related Transactions, and Director Independence

Information
required by this item will be included in our 2009 Proxy Statement under the
captions Certain Relationships and Related Transactions, Election of Board
of Directors, and Corporate Governance and is incorporated herein by
reference.

Item 14. Principal
Accountant Fees and Services

Information
required by this item will be included in our 2009 Proxy Statement under the caption
Relationship with Independent Public Accountants and is incorporated herein
by reference.

34

---



PART IV

Item 15. Exhibits, Financial Statement
Schedules

|    |                                                                                |                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The
 following documents are filed as part of this report:                    
|    |                                                                               
|    | 1. and 2.
 Consolidated Financial Statements and Financial Statement Schedule:
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    |                                                                                | An index to
 the consolidated financial statements and financial statement schedule filed
 is located on page F-1.                                                                                                                                                  
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 3.                                                                             | EXHIBITS                                                                                                                                                                                                                                                            
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 3.(i)                                                                          | Restated
 Certificate of Incorporation of the Company and amendments thereto (Exhibit
 3.(i) to the Companys Annual Report on Form 10-K for its year ended June 30,
 1993)*                                                                                        
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 3.(ii)                                                                         | Certificate
 of Amendment of Certificate of Incorporation, filed June 3, 1996 (Exhibit
 3.(ii) to the Companys Annual Report on Form 10-K 405 for its year ended
 June 30, 1996)*                                                                                  
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 3.(iii)                                                                        | By-laws of
 the Company (Exhibit (3)(b) to Registration No. 2-87253 on Form S-1
 hereinafter Registration No. 2-87253)*                                                                                                                                           
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 4.1                                                                            | Zygo
 Corporation Code of Ethics (Exhibit 14.1 to the Companys Quarterly Report on
 Form 10-Q for its quarterly period ended March 26, 2004)*                                                                                                                      
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.1                                                                           | Confidentiality
 and Non-Competition Agreement dated October 25, 1983, between the
 Company and Carl A. Zanoni (Exhibit (10)(b) to Registration No. 2-87253)*                                                                                                       
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.2                                                                           | Agreement
 dated November 20, 1980, between the Company and Canon Inc. regarding
 exchange of information (Exhibit (10)(y) to Registration No. 2-87253)*                                                                                                            
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.3                                                                           | Amended and
 Restated Zygo Corporation Profit Sharing Plan (Exhibit 10.15 to the Companys
 Annual Report on Form 10-K 405 for its year ended June 30, 1995)*                                                                                                       
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.4                                                                           | Canon/ZYGO
 Confidentiality Agreement dated March 7, 1990, between the Company and
 Canon Inc. regarding confidential technical information received from each
 other (Exhibit 10.42 to the Companys Annual Report on Form 10-K for its year
 ended June 30, 1991)*
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.5                                                                           | Zygo
 Corporation Amended and Restated Non-Qualified Stock Option Plan ratified and
 approved by the Companys Stockholders on November 19, 1992 (Exhibit
 10.30 to the Companys Annual Report on Form 10-K for its year ended
 June 30, 1993)*                    
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.6                                                                           | Zygo
 Corporation Non-Employee Director Stock Option Plan ratified and approved by
 the Companys Stockholders on November 17, 1994 (Exhibit 10.30 to the
 Companys Annual Report on Form 10-K 405 for its year ended June 30, 1996)*                              
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.7                                                                           | Employment
 Agreement dated January 15, 1999, between Zygo Corporation and J. Bruce
 Robinson (Exhibit 10.34 to the Companys Annual Report on Form 10-K 405 for
 its year ended June 30, 1999)*                                                                    
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.8                                                                           | Zygo
 Corporation Amended and Restated Non-Employee Director Stock Option Plan
 ratified and approved by the Companys Stockholders on November 17, 1999
 (Exhibit to the Companys Definitive Proxy Statement for its year ended June
 30, 1999)*                  
|    |                                                                                |                                                                                                                                                                                                                                                                     
|    | 10.9                                                                           | Employment
 agreement dated July 1, 1999, between Zygo Corporation and Brian J. Monti
 (Exhibit 10.22 to the Companys Annual Report on Form 10-K 405 for its year
 ended June 30, 2000)*                                                                           

35

---



| |       |                                                                                                                                                                                                                                                                   
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.10 | Subcontract
 B519044 between The Regents of The University of California Lawrence
 Livermore National Laboratory and Zygo Corporation dated January 14, 2002 (Exhibit
 10.25 to the Companys Annual Report on Form 10-K for its year ended June 30,
 2002)*      
| |       |                                                                                                                                                                                                                                                                   
| | 10.11 | Development
 Agreement dated September 11, 2002, between Zygo Corporation and Canon, Inc.
 (Exhibit 99.2 to the Companys Current Reports on Form 8-K dated September
 17, 2002)*                                                                                 
| |       |                                                                                                                                                                                                                                                                   
| | 10.12 | Development
 and Manufacturing Support Services Agreement effective December 1, 2001,
 between Zygo Corporation and Philips Electronics North America Corporation.
 (Exhibit 99.1 to the Companys Current Report on Form 8-K dated October 22,
 2002)*           
| |       |                                                                                                                                                                                                                                                                   
| | 10.13 | Development
 Agreement Amendment dated December 20, 2004, between Zygo Corporation and
 Canon Inc. (Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for
 its quarterly period ended December 31, 2004)*                                               
| |       |                                                                                                                                                                                                                                                                   
| | 10.14 | Development
 Agreement Amendment dated February 26, 2005, between Zygo Corporation and
 Canon Inc. (Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for
 its quarterly period ended March 31, 2005)*                                                  
| |       |                                                                                                                                                                                                                                                                   
| | 10.15 | Development
 Agreement dated February 23, 2005, between Zygo Corporation and Canon Inc.
 (Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for its
 quarterly period ended March 31, 2005)*                                                            
| |       |                                                                                                                                                                                                                                                                   
| | 10.16 | Zygo
 Corporation 2002 Equity Incentive Plan Restricted Stock Agreement. (Exhibit
 10.1 to the Companys Quarterly Report on Form 10-Q for its quarterly period
 ended September 30, 2005)*                                                                       
| |       |                                                                                                                                                                                                                                                                   
| | 10.17 | Zygo
 Corporation 2002 Equity Incentive Plan Stock Option Agreement. (Exhibit 10.2
 to the Companys Quarterly Report on Form 10-Q for its quarterly period ended
 September 30, 2005)*                                                                           
| |       |                                                                                                                                                                                                                                                                   
| | 10.18 | Employment
 contract dated October 23, 2006 between Zygo Corporation and James Northup.
 (Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for its
 quarterly period ended December 31, 2006)*                                                         
| |       |                                                                                                                                                                                                                                                                   
| | 10.19 | Employment
 contract dated November 20, 2006 between Zygo Corporation and John Stack.
 (Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for its
 quarterly period ended December 31, 2006)*                                                           
| |       |                                                                                                                                                                                                                                                                   
| | 10.20 | Agreement
 dated February 8, 2007 between Zygo Corporation and Carl A. Zanoni. (Exhibit
 10.1 to the Companys Quarterly Report on Form 10-Q for its quarterly period
 ended March 31, 2007)*                                                                     
| |       |                                                                                                                                                                                                                                                                   
| | 10.21 | Employment
 contract dated June 15, 2007 between Zygo Corporation and Walter A. Shephard.
 (Exhibit 10.23 to the Companys Annual Report on Form 10-K for its annual
 period ended June 31, 2007)*                                                                
| |       |                                                                                                                                                                                                                                                                   
| | 10.22 | Employment
 Agreement dated November 19, 2007 between Zygo Corporation and Mr. Douglas J.
 Eccleston (Exhibit 99.1 to the Companys Current report on Form 8-K dated
 November 20, 2007)*                                                                         
| |       |                                                                                                                                                                                                                                                                   
| | 10.23 | Press
 Release, dated February 28, 2008, issued by Zygo Corporation which announces
 that it acquired the assets of Solvision, Inc. (Exhibit 99.1 to the Companys
 Current Reports on Form 8-K dated February 29, 2008)*                                         
| |       |                                                                                                                                                                                                                                                                   
| | 10.24 | Restricted
 Stock Unit Agreement dated January 31, 2008 between ZYGO Corporation and J.
 Bruce Robinson (Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
 for its quarterly period ended March 31, 2008)*                                             
| |       |                                                                                                                                                                                                                                                                   
| | 10.25 | Entry into
 an agreement and plan of merger and reorganization (Exhibit 2.1 to the
 Companys Current Reports on Form 8-K dated October 21, 2008)                                                                                                                 
| |       |                                                                                                                                                                                                                                                                   
| | 10.26 | Employment
 agreement amendments between Zygo Corporation and J. Bruce Robinson, James R.
 Northup, and John M. Stack, dated October 21, 2008 (Exhibit 10.1, 10.2, and
 10.3, respectively, to the Companys Current Reports on Form 8-K dated
 October 21, 2008)*

36

---



| |       |                                                                                                                                                                                                                                                    
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.27 | Audited
 consolidated financial statements of Solvision Inc. (Exhibit 99.1 to the
 Companys Current Report on Form 8-K/A dated February 28, 2008)                                                                                                 
| |       |                                                                                                                                                                                                                                                    
| | 10.28 | Employment
 Agreement amendment, dated January 15, 2009, between Zygo Corporation and
 Brian M. Monti (Exhibit 99.1 to the Companys Current Report on Form 8-K
 dated January 22, 2009)*                                                          
| |       |                                                                                                                                                                                                                                                    
| | 10.29 | Settlement
 Agreement and Mutual Release, dated as of April 2, 2009, by and among Electro
 Scientific Industries, Inc., Zirkon Merger Sub, LLC, and Zygo Corporation
 (Exhibit 2.1 to the Companys Current Report on Form 8-K dated April 3, 2009)
| |       |                                                                                                                                                                                                                                                    
| | 10.30 | Asset
 Transfer Agreement, dated as of June 17, 2009, by and between Zygo
 Corporation and Nanometrics Corporation. **                                                                                                                             
| |       |                                                                                                                                                                                                                                                    
| | 10.31 | Supply
 Agreement, dated as of June 17, 2009, by and between Zygo Corporation and
 Nanometrics Corporation. **                                                                                                                                     
| |       |                                                                                                                                                                                                                                                    
| | 10.32 | Employment contract dated November 16, 2007
         between Zygo Corporation and David Person.                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                    
| | 21.   | Subsidiaries
 of Registrant                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                    
| | 23.1  | Consent of
 Independent Registered Public Accounting Firm                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                    
| | 24.   | Power of
 Attorney (included in the signature page)                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                    
| | 31.1  | Certification
 Pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of
 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
 2002                                                                              
| |       |                                                                                                                                                                                                                                                    
| | 31.2  | Certification
 Pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of
 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
 2002                                                                              
| |       |                                                                                                                                                                                                                                                    
| | 32.1  | Certification
 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
 of the Sarbanes-Oxley Act of 2002                                                                                                                           
| |       |                                                                                                                                                                                                                                                    
| | 32.2  | Certification
 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
 of the Sarbanes-Oxley Act of 2002                                                                                                                           

| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibit
 numbers 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.16, 10.17, 10.18, 10.19,
 10.20, 10.21, 10.22, 10.24, 10.26, 10.28, and 10.32 are management contracts,
 compensatory plans or compensatory arrangements.

* Incorporated
herein by reference.

**
Confidential treatment has been requested for portions of this exhibit. Omitted
portions have been filed separately with the Securities Exchange Commission
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

37

---



SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                  |  |                                                                  |  |      |                    
|----------------- |  | ---------------------------------------------------------------- |  | ---- | -------------------
|ZYGO
 CORPORATION |  |                                                                  | 
|                  |  |                                                                  | 
|Registrant        |  |                                                                  | 
|                  |  |                                                                  |  |      |                    
|By                |  | /s/ Walter
 A. Shephard                                          |  | Date | September
 14, 2009
|                  |  |                                                                  |  |      |                    
|                  |  | Walter A.
 Shephard                                              |  |      |                    
|                  |  | Vice
 President, Finance, Chief Financial Officer, and Treasurer |  |      |                    

Know all
persons by these presents, that each person whose signature appears below
constitutes and appoints J. Bruce Robinson and Walter A. Shephard, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
each of them in any and all capacities, to sign any amendments to this report
on Form 10-K, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                        |  |                                               |  |                   
|----------------------- |  | --------------------------------------------- |  | ------------------
|/s/ J. Bruce
 Robinson  |  | Chief
 Executive Officer (principal           |  | September 14, 2009
|                        |  | executive
 officer) and Director              |  |                   
|J. Bruce
 Robinson      |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Walter
 A. Shephard |  | Vice
 President, Finance, Chief               |  | September 14, 2009
|                        |  | Financial
 Officer, and Treasurer             |  |                   
|Walter A.
 Shephard     |  | (principal
 financial and accounting officer) |  |                   
|                        |  |                                               |  |                   
|/s/ Eugene
 G. Banucci  |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Eugene G. Banucci       |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Stephen
 D. Fantone |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Stephen D. Fantone      |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Samuel
 H. Fuller   |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Samuel H. Fuller        |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Seymour
 E. Liebman |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Seymour E. Liebman      |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Robert
 B. Taylor   |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Robert B. Taylor        |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Carol P.
 Wallace   |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Carol P. Wallace        |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Gary K.
 Willis     |  | Director                                      |  | September 14, 2009
|                        |  |                                               |  |                   
|Gary K. Willis          |  |                                               |  |                   
|                        |  |                                               |  |                   
|/s/ Bruce W.
 Worster   |  | Director -
 Chairman                          |  | September 14, 2009
|                        |  |                                               |  |                   
|Bruce W. Worster        |  |                                               |  |                   

38

---



ZYGO CORPORATION AND CONSOLIDATED
SUBSIDIARIES

Index to Consolidated Financial Statements
and Schedule

|            |  |                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------
|Page        |  |                                                                                                   
|            |  |                                                                                                   
|            |  |                                                                                                   
|F-2         |  | Report of Independent Registered Public Accounting Firm                                           
|            |  |                                                                                                   
|F-4         |  | Consolidated balance sheets at June 30, 2009 and 2008                                             
|            |  |                                                                                                   
|F-5         |  | Consolidated statements of operations for the years ended
 June 30, 2009, 2008, and 2007          
|            |  |                                                                                                   
|F-6         |  | Consolidated statements of stockholders equity for the years
 ended June 30, 2009, 2008, and 2007
|            |  |                                                                                                   
|F-7         |  | Consolidated statements of cash flows for the years ended
 June 30, 2009, 2008, and 2007          
|            |  |                                                                                                   
|F-8 to F-29 |  | Notes to consolidated financial statements                                                        
|            |  |                                                                                                   
|            |  | Supplemental
 Schedules                                                                           
|            |  |                                                                                                   
|S-1         |  | Report of Independent Registered Public Accounting Firm                                           
|            |  |                                                                                                   
|S-2         |  | Schedule II -Valuation and qualifying accounts                                                    

| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other
 schedules have been omitted since the required information is not present or
 not present in amounts sufficient to require submission of the schedules or
 the information required is included in the consolidated financial statements
 or notes thereto.

F - 1

---



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Zygo Corporation
Middlefield, Connecticut

We have audited the
accompanying consolidated balance sheets of Zygo Corporation and subsidiaries
(the Company) as of June 30, 2009 and 2008 and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the
three years in the period ended June 30, 2009. We also have audited the Companys internal control over financial
reporting as of June 30, 2009, based on the criteria established in Internal Control  Integrated
Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management
is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying
Report of Management on Zygo Corporations Internal Control Over Financial
Reporting (Item 9A). Our responsibility is to express an opinion on these
financial statements and an opinion on the Companys internal control over
financial reporting based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A
companys internal control over financial reporting is a process designed by,
or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by
the companys board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.

Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of
the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.

F - 2

---



In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zygo
Corporation and subsidiaries as of June 30, 2009 and 2008 and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2009, based on the criteria established in Internal Control  Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

As discussed in Notes 1and 16 to the
consolidated financial statements, the Company adopted Financial Accounting
Standards Board Implementation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, on July 1, 2007.

|                          
|--------------------------
|/s/ Deloitte
 & Touche LLP
|                          
|Hartford,
 Connecticut    
|September 14, 2009        

F - 3

---



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

|                                                                                                                                 |  |               |         |                |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | -------------- | - | ------- | -
|                                                                                                                                 |  | June 30, 2009 |         | June
 30, 2008 |  
|                                                                                                                                 |  |               |         |                |  
|Assets                                                                                                                           |  |               |         |                |   |         |  
|Current assets:                                                                                                                  |  |               |         |                |   |         |  
|Cash and cash equivalents                                                                                                        |  | $             | 32,723  |                | $ | 26,421  |  
|Marketable securities (note 4)                                                                                                   |  |               | 4,015   |                |   | 17,639  |  
|Receivables, net of allowance for doubtful accounts of $2,550 and
 $349, respectively (notes 2, 6 and 18)                        |  |               | 21,143  |                |   | 31,036  |  
|Inventories (notes 2 and 7)                                                                                                      |  |               | 30,452  |                |   | 37,542  |  
|Prepaid expenses                                                                                                                 |  |               | 1,552   |                |   | 2,230   |  
|Income tax receivable (note 16)                                                                                                  |  |               | 1,022   |                |   | 241     |  
|Deferred income taxes (note 16)                                                                                                  |  |               |        |                |   | 12,143  |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Total current assets                                                                                                             |  |               | 90,907  |                |   | 127,252 |  
|Marketable securities (note 4)                                                                                                   |  |               | 499     |                |   | 6,963   |  
|Property, plant, and equipment, net (notes 2 and 8)                                                                              |  |               | 27,469  |                |   | 36,371  |  
|Deferred income taxes (note 16)                                                                                                  |  |               |        |                |   | 8,904   |  
|Intangible assets, net (notes 2 and 9)                                                                                           |  |               | 4,211   |                |   | 9,522   |  
|Other assets                                                                                                                     |  |               | 1,013   |                |   | 996     |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Total assets                                                                                                                     |  | $             | 124,099 |                | $ | 190,008 |  
|                                                                                                                                 |  |               |         |                |   |         |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Liabilities and Stockholders Equity                                                                                             |  |               |         |                |   |         |  
|Current liabilities:                                                                                                             |  |               |         |                |   |         |  
|Accounts payable                                                                                                                 |  | $             | 5,191   |                | $ | 7,955   |  
|Accrued progress payments and deferred revenue                                                                                   |  |               | 5,924   |                |   | 5,226   |  
|Accrued salaries and wages                                                                                                       |  |               | 3,648   |                |   | 4,156   |  
|Other accrued expenses (note 11)                                                                                                 |  |               | 6,402   |                |   | 5,032   |  
|Deferred income taxes                                                                                                            |  |               |        |                |   | 32      |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Total current liabilities                                                                                                        |  |               | 21,165  |                |   | 22,401  |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Long-term income tax payable                                                                                                     |  |               | 1,826   |                |   | 1,973   |  
|Other long-term liabilities                                                                                                      |  |               | 1,081   |                |   | 844     |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Minority interest                                                                                                                |  |               | 1,338   |                |   | 1,844   |  
|                                                                                                                                 |  |               |         |                |   |         |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Commitments and contingencies (note 12)                                                                                          |  |               |         |                |   |         |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Stockholders equity (notes 13, 14, and
 15):                                                                                    |  |               |         |                |   |         |  
|Common stock, $.10 par value per share:                                                                                          |  |               |         |                |   |         |  
|40,000,000 shares authorized; 19,044,331 shares issued (18,824,670 in
 2008); 16,914,978 shares outstanding (16,732,399 in 2008) |  |               | 1,904   |                |   | 1,882   |  
|Additional paid-in capital                                                                                                       |  |               | 156,176 |                |   | 152,663 |  
|Retained earnings (Accumulated deficit)                                                                                          |  |               | (33,550 | )              |   | 32,514  |  
|Accumulated other comprehensive income (loss):                                                                                   |  |               |         |                |   |         |  
|Currency translation effects                                                                                                     |  |               | (200    | )              |   | 1,316   |  
|Net unrealized loss on marketable securities (note 4)                                                                            |  |               |        |                |   | (39     | )
|                                                                                                                                 |  |               |         |                |   |         |  
|                                                                                                                                 |  |               | 124,330 |                |   | 188,336 |  
|Less treasury stock, at cost; 2,129,353 common shares (2,092,271 in
 2008)                                                       |  |               | 25,641  |                |   | 25,390  |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Total stockholders equity                                                                                                       |  |               | 98,689  |                |   | 162,946 |  
|                                                                                                                                 |  |               |         |                |   |         |  
|Total liabilities and stockholders equity                                                                                       |  | $             | 124,099 |                | $ | 190,008 |  
|                                                                                                                                 |  |               |         |                |   |         |  

See accompanying notes to
consolidated financial statements.

F - 4

---



CONSOLIDATED STATEMENTS OF OPERATIONS(Thousands except per
share amounts)

|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                 |  | Fiscal
 Year Ended June 30, |        
|                                                                                 |  |                             |        
|                                                                                 |  | 2009                        |         | 2008 |   | 2007    |  
|                                                                                 |  |                             |         |      |   |         |  
|Net sales:                                                                       |  |                             |         |      |   |         |   |   |         |  
|Products                                                                         |  | $                           | 116,040 |      | $ | 159,036 |   | $ | 176,937 |  
|Development services (note 18)                                                   |  |                             |        |      |   |        |   |   | 4,051   |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|                                                                                 |  |                             | 116,040 |      |   | 159,036 |   |   | 180,988 |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Cost of goods sold:                                                              |  |                             |         |      |   |         |   |   |         |  
|Products                                                                         |  |                             | 84,572  |      |   | 94,213  |   |   | 100,835 |  
|Development services                                                             |  |                             |        |      |   |        |   |   | 2,970   |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|                                                                                 |  |                             | 84,572  |      |   | 94,213  |   |   | 103,805 |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Gross profit                                                                     |  |                             | 31,468  |      |   | 64,823  |   |   | 77,183  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Selling, general, and administrative expenses                                    |  |                             | 51,006  |      |   | 38,501  |   |   | 32,876  |  
|Research, development, and engineering expenses                                  |  |                             | 24,715  |      |   | 24,275  |   |   | 22,038  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Operating profit (loss)                                                          |  |                             | (44,253 | )    |   | 2,047   |   |   | 22,269  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Other income:                                                                    |  |                             |         |      |   |         |   |   |         |  
|Interest income                                                                  |  |                             | 885     |      |   | 2,367   |   |   | 2,990   |  
|Miscellaneous income (expense), net                                              |  |                             | 444     |      |   | (235    | ) |   | (9      | )
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Total other income                                                               |  |                             | 1,329   |      |   | 2,132   |   |   | 2,981   |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Earnings (loss) from operations before income tax expense and
 minority interest |  |                             | (42,924 | )    |   | 4,179   |   |   | 25,250  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Income tax expense (note 16)                                                     |  |                             | (22,345 | )    |   | (1,542  | ) |   | (9,132  | )
|Minority interest                                                                |  |                             | (795    | )    |   | (1,398  | ) |   | (976    | )
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Net earnings (loss)                                                              |  | $                           | (66,064 | )    | $ | 1,239   |   | $ | 15,142  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Basic - Earnings (loss) per share:                                               |  | $                           | (3.92   | )    | $ | 0.07    |   | $ | 0.83    |  
|Diluted - Earnings (loss) per share:                                             |  | $                           | (3.92   | )    | $ | 0.07    |   | $ | 0.81    |  
|                                                                                
|Weighted average number of shares:                                               |  |                             |         |      |   |         |   |   |         |  
|Basic                                                                            |  |                             | 16,843  |      |   | 17,295  |   |   | 18,156  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  
|Diluted                                                                          |  |                             | 16,843  |      |   | 17,648  |   |   | 18,601  |  
|                                                                                 |  |                             |         |      |   |         |   |   |         |  

See accompanying notes to consolidated
financial statements.

F - 5

---



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY(Thousands of
dollars)

|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|---------------------------------------------------------- |  | ----- | ------- | -------------------------------- | - | ----------------------------- | - | ---------------------------------------------------- | ------- | ------------- | - | --------------- | - | ---------------- | ----- |  | - | ------- | - | - | ------- | -
|                                                           |  | Total |         | Compre-
 hensive
 Income
 (Loss) |   | Retained
 Earnings
 (Deficit) |   | Accumulated
 Other
 Compre-
 hensive
 Income
 (Loss) |         | Common
 Stock |   | Treasury
 Stock |   | Paid-In
 Capital |      
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |      
|Balance at July 1, 2006                                    |  |       | 158,938 |                                  |   |                               |   |                                                      | 17,052  |               |   | 93              |   |                  | 1,855 |  |   | (5,287  | ) |   | 145,225 |  
|Comprehensive income:                                      |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Net earnings                                               |  |       | 15,142  |                                  | $ | 15,142                        |   |                                                      | 15,142  |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive income (loss), net of tax:             |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Unrealized loss on marketable securities                   |  |       | (19     | )                                |   | (19                           | ) |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Foreign currency translation effect                        |  |       | 131     |                                  |   | 131                           |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive income                                 |  |       |         |                                  |   | 112                           |   |                                                      |         |               |   | 112             |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Comprehensive income                                       |  |       |         |                                  | $ | 15,254                        |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Non-cash compensation charges related to stock options     |  |       | 2,189   |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   | 2,189   |  
|Employee stock purchase                                    |  |       | 323     |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 2     |  |   |         |   |   | 321     |  
|Repurchase of company stock                                |  |       | (48     | )                                |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   | (48     | ) |   |         |  
|Exercise of employee stock options and related tax effect  |  |       | 1,121   |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 12    |  |   |         |   |   | 1,109   |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Balance at June 30, 2007                                   |  |       | 177,777 |                                  |   |                               |   |                                                      | 32,194  |               |   | 205             |   |                  | 1,869 |  |   | (5,335  | ) |   | 148,844 |  
|Comprehensive income:                                      |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Net earnings                                               |  |       | 1,239   |                                  | $ | 1,239                         |   |                                                      | 1,239   |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive income, net of tax:                    |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Unrealized loss on marketable securities                   |  |       | (39     | )                                |   | (39                           | ) |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Foreign currency translation effect                        |  |       | 1,111   |                                  |   | 1,111                         |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive income                                 |  |       |         |                                  |   | 1,072                         |   |                                                      |         |               |   | 1,072           |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Comprehensive income                                       |  |       |         |                                  | $ | 2,311                         |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Non-cash compensation charges related to stock options     |  |       | 2,921   |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   | 2,921   |  
|Employee stock purchase                                    |  |       | 267     |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 2     |  |   |         |   |   | 265     |  
|Restricted stock vesting and related tax effect            |  |       | (88     | )                                |   |                               |   |                                                      |         |               |   |                 |   |                  | 4     |  |   | (6      | ) |   | (86     | )
|Exercise of employee stock options and related tax effect  |  |       | 726     |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 7     |  |   |         |   |   | 719     |  
|Adjustment recorded upon adoption of FIN 48 (note 16)      |  |       | (919    | )                                |   |                               |   |                                                      | (919    | )             |   |                 |   |                  |       |  |   |         |   |   |         |  
|Repurchase of company stock                                |  |       | (20,049 | )                                |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   | (20,049 | ) |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Balance at June 30, 2008                                   |  |       | 162,946 |                                  |   |                               |   |                                                      | 32,514  |               |   | 1,277           |   |                  | 1,882 |  |   | (25,390 | ) |   | 152,663 |  
|Comprehensive income (loss):                               |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Net loss                                                   |  |       | (66,064 | )                                | $ | (66,064                       | ) |                                                      | (66,064 | )             |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive income (loss), net of tax:             |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Unrealized gain on marketable securities                   |  |       | 39      |                                  |   | 39                            |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Foreign currency translation effect                        |  |       | (1,516  | )                                |   | (1,516                        | ) |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Other comprehensive loss                                   |  |       |         |                                  |   | (1,477                        | ) |                                                      |         |               |   | (1,477          | ) |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Comprehensive loss                                         |  |       |         |                                  | $ | (67,541                       | ) |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Non-cash compensation charges related to stock awards      |  |       | 2,924   |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   | 2,924   |  
|Employee stock purchase                                    |  |       | 207     |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 3     |  |   |         |   |   | 204     |  
|Restricted stock vesting and related tax effect            |  |       | (251    | )                                |   |                               |   |                                                      |         |               |   |                 |   |                  | 17    |  |   | (251    | ) |   | (17     | )
|Exercise of employee stock options and related tax
 effect |  |       | 404     |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  | 2     |  |   |         |   |   | 402     |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  
|Balance at June 30, 2009                                   |  | $     | 98,689  |                                  |   |                               |   | $                                                    | (33,550 | )             | $ | (200            | ) | $                | 1,904 |  | $ | (25,641 | ) | $ | 156,176 |  
|                                                           |  |       |         |                                  |   |                               |   |                                                      |         |               |   |                 |   |                  |       |  |   |         |   |   |         |  

See accompanying notes to
consolidated financial statements.

F - 6

---



CONSOLIDATED STATEMENTS OF CASH FLOWS(Thousands of
dollars)

|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                   |  | Fiscal
 Year Ended June 30, |        
|                                                                                                   |  |                             |        
|                                                                                                   |  | 2009                        |         | 2008 |   | 2007    |  
|                                                                                                   |  |                             |         |      |   |         |  
|Cash provided by (used for) operating activities:                                                  |  |                             |         |      |   |         |   |   |         |  
|Net earnings (loss)                                                                                |  | $                           | (66,064 | )    | $ | 1,239   |   | $ | 15,142  |  
|Adjustments to reconcile net earnings (loss) to cash provided by
 (used for) operating activities: |  |                             |         |      |   |         |   |   |         |  
|Depreciation and amortization                                                                      |  |                             | 8,167   |      |   | 7,478   |   |   | 6,519   |  
|Loss on disposal of assets                                                                         |  |                             | 196     |      |   | 70      |   |   | 190     |  
|Deferred income taxes                                                                              |  |                             | 21,211  |      |   | (379    | ) |   | 6,606   |  
|Impairment of marketable securities                                                                |  |                             | 309     |      |   | 291     |   |   |        |  
|Impairment of property, plant, and equipment                                                       |  |                             | 4,460   |      |   |        |   |   |        |  
|Impairment of intangible assets                                                                    |  |                             | 5,084   |      |   |        |   |   |        |  
|Restructuring charges                                                                              |  |                             | 452     |      |   |        |   |   |        |  
|Inventory valuation reserves                                                                       |  |                             | 4,949   |      |   | 239     |   |   | 341     |  
|Provision for doubtful accounts                                                                    |  |                             | 3,142   |      |   | 566     |   |   | (245    | )
|Compensation cost related to share-based payment arrangements                                      |  |                             | 2,924   |      |   | 2,921   |   |   | 2,189   |  
|Excess tax benefits from share-based payment arrangements                                          |  |                             | (9      | )    |   | (43     | ) |   | (190    | )
|Minority interest                                                                                  |  |                             | 795     |      |   | 1,398   |   |   | 976     |  
|Other                                                                                              |  |                             | (463    | )    |   | 198     |   |   | 356     |  
|Changes in operating accounts, excluding the effect of acquisition:                                |  |                             |         |      |   |         |   |   |         |  
|Receivables                                                                                        |  |                             | 11,047  |      |   | 3,505   |   |   | 1,833   |  
|Inventories                                                                                        |  |                             | (792    | )    |   | 8,692   |   |   | (5,305  | )
|Prepaid expenses                                                                                   |  |                             | (100    | )    |   | (136    | ) |   | (138    | )
|Accounts payable, accrued expenses, and taxes payable                                              |  |                             | (1,738  | )    |   | (11,462 | ) |   | (13,193 | )
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Net cash provided by (used for) operating activities                                               |  |                             | (6,430  | )    |   | 14,577  |   |   | 15,081  |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Cash provided by (used for) investing activities:                                                  |  |                             |         |      |   |         |   |   |         |  
|Additions to property, plant, and equipment                                                        |  |                             | (4,255  | )    |   | (6,580  | ) |   | (10,149 | )
|Purchase of marketable securities                                                                  |  |                             | (8,174  | )    |   | (20,934 | ) |   | (38,546 | )
|Additions to intangibles and other assets                                                          |  |                             | (950    | )    |   | (716    | ) |   | (490    | )
|Issuance of note receivable                                                                        |  |                             |        |      |   | (559    | ) |   |        |  
|Investments and acquisitions, excluding cash acquired                                              |  |                             |        |      |   | (5,079  | ) |   |        |  
|Proceeds from the sale and maturity of marketable securities                                       |  |                             | 27,812  |      |   | 48,388  |   |   | 31,402  |  
|Proceeds from the formation of the joint venture and sale of other
 assets                         |  |                             | 11      |      |   | 222     |   |   | 24      |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Net cash provided by (used for) investing activities                                               |  |                             | 14,444  |      |   | 14,742  |   |   | (17,759 | )
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Cash provided by (used for) financing activities:                                                  |  |                             |         |      |   |         |   |   |         |  
|Dividend payments to minority interest                                                             |  |                             | (1,301  | )    |   | (751    | ) |   | (1,287  | )
|Employee stock purchase                                                                            |  |                             | 207     |      |   | 267     |   |   | 323     |  
|Excess tax benefits from share-based payment arrangements                                          |  |                             | 9       |      |   | 43      |   |   | 190     |  
|Repurchase of company stock                                                                        |  |                             |        |      |   | (20,049 | ) |   | (48     | )
|Restricted stock vesting and related tax benefits                                                  |  |                             | (251    | )    |   | (88     | ) |   |        |  
|Exercise of employee stock options                                                                 |  |                             | 185     |      |   | 726     |   |   | 1,121   |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Net cash provided by (used for) financing activities                                               |  |                             | (1,151  | )    |   | (19,852 | ) |   | 299     |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                                       |  |                             | (561    | )    |   | (872    | ) |   | (113    | )
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                             | 6,302   |      |   | 8,595   |   |   | (2,492  | )
|Cash and cash equivalents, beginning of year                                                       |  |                             | 26,421  |      |   | 17,826  |   |   | 20,318  |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  
|Cash and cash equivalents, end of year                                                             |  | $                           | 32,723  |      | $ | 26,421  |   | $ | 17,826  |  
|                                                                                                   |  |                             |         |      |   |         |   |   |         |  

Supplemental Cash flow
information:

Cash paid (refunded) for
income taxes were ($2,340), $1,375, and $3,272 in fiscal 2009, 2008, and 2007,
respectively. See accompanying notes to consolidated financial statements.

F - 7

---



|                                                     
|-----------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS           
|Years Ended
 June 30, 2009, 2008, and 2007           
|(Dollars in
 thousands, except for per share amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Description of Operations and Principles of
Consolidation

Zygo
Corporation is a worldwide supplier in optical metrology instruments, precision
optics, and elecro-optical design and manufacturing services, serving customers
in the semiconductor capital equipment and industrial markets. The accompanying
consolidated financial statements are prepared in conformity with accounting
priciples generally accepted in the United States of America (U.S. GAAP) and
include the accounts of Zygo Corporation and its subsidiaries (ZYGO, we,
us, our or Company). All transactions and accounts with the subsidiaries
have been eliminated from the consolidated financial statements. Minority
interest related to our ownership interests of less than 100% is reported as
minority interest in subsidiaries in the consolidated balance sheets. The
minority ownership interest of our earnings, net of tax, is reported as
minority interest in the consolidated statements of operations. We have adopted
Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent
Events (SFAS 165) effective beginning the quarter ended June 30, 2009 and
have evaluated for disclosure subsequent events that have occurred up to
September 14, 2009, the date of issuance of our financial statements.

Translation of Foreign Currency Financial
Statements

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).

Foreign Currency Transactions

Monetary
assets and liabilities denominated in currencies other than the functional
currency are remeasured into their respective functional currencies at exchange
rates in effect at the balance sheet date. The resulting exchange gain or loss
is included in our consolidated statements of operations as miscellaneous
income (expense), net.

Cash and Cash Equivalents

We consider
cash and investments in securities with maturities at the date of purchase of
three months or less to be cash and cash equivalents.

Marketable Securities

We consider
investments in securities with maturities at the date of purchase in excess of
three months as marketable securities. Marketable securities consist of
corporate securities. Securities held by us at June 30, 2009 and 2008 were
classified as held-to-maturity, available-for-sale, and trading. The
held-to-maturity investments are recorded at amortized cost. The
available-for-sale investment is recorded at fair value and adjusted through
stockholders equity. Trading investments are recorded at fair value and
adjusted through the statement of operations.

Inventories

Inventories
are stated at the lower of cost (determined on a first-in, first-out basis) or
market. Obsolete inventory or inventory in excess of managements estimated
future usage is written down to its estimated market value, if less than its
cost.

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.

Intangible Assets

Intangible
assets include patents, trademarks, license agreements and customer lists. The
cost of intangible assets is amortized on a straight-line basis, over estimated
useful lives ranging from 5-17 years.

F - 8

---



Valuation of Long-Lived Assets

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

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

Income Taxes

Income taxes
are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax
assets are reduced by valuation allowances if it is determined that it is more
likely than not that the deferred tax asset will not be realized. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

On July 1,
2008, ZYGO adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
(FIN 48). We apply a more likely than not threshold to the recognition and
de-recognition of tax benefits. The calculation of the tax liabilities involves
dealing with uncertainties in the application of complex tax regulations in a
multitude of jurisdictions across our global operations. We also recognize
potential liabilities for anticipated tax audit issues in the U.S. and other
tax jurisdictions based on an estimate of whether it is more likely than not
additional taxes will be due.

Revenue Recognition

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

F - 9

---



Certain
customer transactions include payment terms whereby we receive a partial
payment of the total order amount prior to the related sale being recognized in
its financial statements. These advance payments are included in accrued
progress payments and deferred revenue in the consolidated balance sheet.
Generally, these progress payments relate to orders for custom equipment that
require a lengthy build cycle and, in some cases, acceptance by the customer.
We may negotiate payment terms with these customers on these particular orders
and secure certain payments prior to or on shipment of the equipment. These payments
remain in accrued progress payments and deferred revenue until our applicable
revenue recognition criteria have been met.

Research and Development

Research and
development costs are expensed as incurred. For fiscal 2009, 2008, and 2007, we
expensed $14,385, $20,350, and $16,791 of research and development expense.
Reimbursements from customers for research and development costs are recorded
as offsets to the expenses. In fiscal 2007, reimbursements totaled $170. There
were no reimbursed research and development costs in fiscal 2009 and 2008.

Earnings Per Share

Basic and
diluted earnings per share are calculated in accordance with SFAS No. 128,Earnings Per Share. The following
table sets forth the reconciliation of weighted average shares outstanding and
diluted weighted average shares outstanding:

|                                                      |  |               |  |                |  |                | 
|----------------------------------------------------- |  | ------------- |  | -------------- |  | -------------- | 
|                                                      |  | June 30, 2009 |  | June
 30, 2008 |  | June
 30, 2007 | 
|                                                      |  |               |  |                |  |                | 
|                                                      |  |               |  |                |  |                | 
|Weighted average shares outstanding                   |  | 16,843,186    |  | 17,294,973     |  | 18,155,627     | 
|Dilutive effect of stock options and restricted stock |  |              |  | 353,090        |  | 445,675        | 
|                                                      |  |               |  |                |  |                | 
|Diluted weighted average shares outstanding           |  | 16,843,186    |  | 17,648,063     |  | 18,601,302     | 
|                                                      |  |               |  |                |  |                | 

For fiscal
2009, 2008, and 2007, 2,170,002, 1,165,069, and 808,665, respectively, of the
Companys outstanding stock options and restricted stock awards were excluded
from the calculation of diluted earnings per share because they were
antidilutive.

Share-Based Compensation

We have two
share-based compensation plans, which are described in Note 14. We account for
share-based compensation in accordance with SFAS 123(R), Share-Based Payment
(as amended). SFAS No. 123(R) eliminates the alternative to use the intrinsic
value method of accounting that was provided in SFAS No. 123, which generally
resulted in no compensation expense recorded in the financial statements
related to the issuance of equity awards to employees and directors to the
extent issued at fair market value. SFAS No. 123(R) requires that the cost
resulting from all share-based payment transactions be recognized in the
financial statements. SFAS No. 123(R) establishes fair value as the measurement
objective in accounting for share-based payment arrangements and requires all
companies to apply a fair-value-based measurement method in accounting
generally for all share-based payment transactions with employees. SFAS 123(R)
does not require the recording of compensation expense in periods prior to the
date of adoption.

Share-based
compensation expense for the fiscal year ended June 30, 2009 was $2,924, with a
related tax benefit of $1,053. This increased cost of sales by $349, selling,
general, and administration by $2,177, and research, development, and
engineering by $398. Share-based compensation expense for the fiscal year ended
June 30, 2008 was $2,921, with a related tax benefit of $1,052. This increased
cost of sales by $239, selling, general, and administration by $2,340, and
research, development, and engineering by $342. Share-based compensation
expense for the fiscal year ended June 30, 2007 was $2,189, with a related tax
benefit of $788. This increased cost of sales by $244, selling, general, and
administration by $1,497, and research, development, and engineering by $448.

Fair Value of Financial Instruments

SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, requires that
reporting entities provide, to the extent practicable, the fair value of
financial instruments, both assets and liabilities. The carrying amounts of
cash, accounts receivable, accounts payable, and accrued expenses approximate
fair value because they are short-term in nature.

Use of Estimates

Management has
made a number of estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements in conformity
with U.S. GAAP. On an ongoing basis, management evaluates its estimates and
judgments, including those related to allowances for bad debts, reserves for
excess and obsolete inventories, impairments and recoverability of long-lived
assets, share-based compensation, income taxes, and warranty obligations.
Actual results could differ from those estimates.

F - 10

---



Adoption of New Accounting Pronouncements

In April 2009,
the FASB issued Staff Position (FSP) FSP FAS 157-4, Determining Fair Value
When Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4). FSP
157-4 provides guidance on how to determine the fair value of assets and
liabilities when the volume and level of activity for the asset/liability has
significantly decreased. FSP 157-4 also provides guidance on identifying
circumstances that indicate a transaction is not orderly. In addition, FSP
157-4 requires disclosure in interim and annual periods of the inputs and
valuation techniques used to measure fair value and a discussion of changes in
valuation techniques. FSP 157-4 is effective for us beginning in the fourth
quarter of fiscal year 2009. The adoption of FSP 157-4 did not have a
significant impact on our consolidated financial statements.

In April 2009,
the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairment (FSP 115-2/124-2). FSP 115-2/124-2 amends
the requirements for the recognition and measurement of other-than-temporary
impairments for debt securities by modifying the pre-existing intent and
ability indicator. Under FSP 115-2/124-2, an other-than-temporary impairment
is triggered when there is an intent to sell the security, it is more likely
than not that the security will be required to be sold before recovery, or the
security is not expected to recover the entire amortized cost basis of the
security. Additionally, FSP 115-2/124-2 changes the presentation of an
other-than-temporary impairment in the income statement for those impairments
involving credit losses. The credit loss component will be recognized in
earnings and the remainder of the impairment will be recorded in other
comprehensive income. FSP 115-2/124-2 is effective for us beginning in the
fourth quarter of fiscal year 2009. The adoption of FSP 115-2/124-2 did not
have a significant impact on our consolidated financial statements.

In April 2009,
the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosure about Fair
Value of Financial Instruments (FSP 107-1/APB 28-1). FSP 107-1/APB 28-1
requires interim disclosures regarding the fair values of financial instruments
that are within the scope of FAS 107, Disclosures about the Fair Value of
Financial Instruments. Additionally, FSP 107-1/APB 28-1 requires disclosure of
the methods and significant assumptions used to estimate the fair value of
financial instruments on an interim basis as well as changes of the methods and
significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change
the accounting treatment for these financial instruments and is effective for
us beginning in the fourth quarter of fiscal year 2009. The adoption of FSP 107-1/APB
28-1 did not have a significant impact on our consolidated financial
statements.

On July 1,
2008, we adopted the provisions of Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes
a framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurements.
The adoption of the provisions of SFAS 157 is not expected to have a material
effect on us. In February 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position FAS 157-1, Application of SFAS No. 157 to
SFAS No. 13 and Its Related Interpretative Accounting Pronouncements that
Address Leasing Transactions (FSP No. 157-1) and FASB Staff Position FAS
157-2, Effective Date of SFAS No. 157 (FSP No. 157-2). FSP No. 157-1 excludes
SFAS No. 13, Accounting for Leases, and its related interpretive accounting
pronouncements that address leasing transactions, with the exception of fair
value measurements of assets and liabilities recorded as a result of a lease
transaction but measured pursuant to other pronouncements within the scope of
SFAS No. 157. FSP No. 157-2 delays the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). FSP No. 157-1 and FSP No. 157-2 became
effective for us upon adoption of SFAS No. 157. In October 2008, the FASB
issued FASB Staff Position No. 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active (FSP No. 157-3). FSP No.
157-3 clarifies the application of SFAS No. 157 in cases where a market is not
active. The Company has considered FSP No. 157-3 in its determination of
estimated fair values as of June 30, 2009, and the impact was not material.

On July 1,
2008, we adopted the provisions of SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value, with unrealized gains
and losses related to these financial instruments reported in earnings at each
subsequent reporting date. We have chosen not to measure any other financial
instrument or other items at fair value that are not currently required to be
measured at fair value.

In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS
161 requires disclosures of how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for and how
derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS 161 was effective for us
in the third quarter of fiscal 2009. The adoption of SFAS 161 did not have a
material effect on our consolidated financial statements.

F - 11

---



New Accounting Pronouncements

In June 2009,
the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of
FASB Statement No. 162 (SFAS No. 168). The FASB Accounting Standards
Codification (Codification) will become the source of authoritative U.S.
generally accepted accounting principles (U.S. GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities law are also sources of authoritative
U.S. GAAP for SEC registrants. On the effective date of SFAS No. 168, the
Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification will become nonauthoritative. Following SFAS No.
168, FASB will not issue new standards in the form of Statements (SFASs) FASB
Staff Positions (FSPs) or Emerging Issues Task Force Abstracts (EITFs), but
rather it will issue Accounting Standards Updates (ASUs). FASB will not
consider ASUs as authoritative in their own right as they will only serve to
update the Codification, provide background information about guidance and
provide the bases for conclusions on the changes in the Codification. SFAS No.
168 is effective for the financial statements issued for interim and annual
periods ending after September 15, 2009. We expect to revise the disclosure of
the U.S. GAAP source references in our financial reporting upon the adoption of
SFAS No. 168.

In June 2009,
the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 amends the
consolidation guidance that applies to all variable interest entities (VIEs)
within the scope of FASB Interpretation No. 46(R), Consolidation of Variable
Interest Entities (FIN 46(R)) with focus on structured finance entities, as
well as qualifying special-purpose entities currently outside the scope of FIN
46(R). SFAS No. 167 requires an enterprise to 1) determine whether an entity is
a VIE, 2) whether the enterprise has controlling financial interest/is a
primary beneficiary in a VIE, and 3) provide enhanced disclosures about an
enterprises involvement in VIEs. SFAS No. 167 is effective as of the beginning
of the first fiscal year that begins after November 15, 2009. We are in the
process of evaluating the impact SFAS No. 167 will have on our consolidated
financial statements.

In April 2008,
the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets.The FSP
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142, Goodwill and Other Intangible Assets. The FSP is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We are in the process of
evaluating the impact FSP 142-3 may have on our consolidated financial
statements.

In December
2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS 141R offers specific guidance on how
the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquirer, and goodwill acquired or any bargain purchase gains.
The provisions of SFAS 141R are effective for our fiscal year beginning July 1,
2009. We are in the process of evaluating the impact SFAS 141R may have on our
consolidated financial statements.

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that the 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 attributable to the parent and to the non-controlling
interest must be clearly identified and presented on the face of the
consolidated statement of operations. The provisions of SFAS 160 are effective
for our fiscal year beginning July 1, 2009. The adoption of SFAS 160 will not
have a material effect on our consolidated financial statements.

F - 12

---



NOTE 2: ACQUISITIONS

On February
28, 2008, we acquired certain assets of Solvision, Inc. (Solvision), a
Canadian-based company, including the shares of its Singapore subsidiary for
$4,155, net of cash received, under the purchase method of accounting with the
purchase price allocation being finalized in fiscal 2009. This final amount
represents $4,240 of cash and $17 representing the value of assets received for
the forgiveness of a $1,500 note extended to Solvision. In fiscal 2009 (as part
of the final purchase price allocation) and 2008, $924 and $559, respectively,
of the note was charged to bad debt expense. This acquisition allowed us to
enter the market for in-line inspection of flip chip substrates and packaged
integrated circuits. Included in the acquisition is the patented Fast Moiré
Interferometer (FMI) technology for rapid 3D inspection. This acquisition was
integrated into the Metrology segment. The results of operations of this
acquisition have been included in the consolidated statement of operations
commencing on February 28, 2008.

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:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|Cash                      |  | $ | 102   | 
|Deposits                  |  |   | 12    | 
|Accounts receivable       |  |   | 589   | 
|Inventory                 |  |   | 1,376 | 
|Property and equipment    |  |   | 671   | 
|Customer relationships    |  |   | 1,165 | 
|Technology                |  |   | 1,847 | 
|                          |  |   |       | 
|Total assets              |  |   | 5,762 | 
|Less: Liabilities assumed |  |   | 1,239 | 
|Deferred tax liability    |  |   | 266   | 
|                          |  |   |       | 
|Total                     |  | $ | 4,257 | 
|                          |  |   |       | 

The following
disclosure presents certain information regarding the Companys acquired
intangible assets as of June 30, 2009 and 2008. All acquired intangible assets
were being amortized over their initial estimated useful lives of seven years
with no estimated residual values. Annually we review our intangible assets for
impairment. During our fiscal 2009 annual review of intangible assets, we
determined, based on the downturn in the business climate for this product line
and the level of current period operating losses, that all of the acquired
intangible assets resulting from the acquisition in the prior year were
impaired.

|                                |  |                         |       |            |   |        |   |   |        |  
|------------------------------- |  | ----------------------- | ----- | ---------- | - | ------ | - | - | ------ | -
|                                |  | Customer
 Relationships |       | Technology |   | Total  |  
|                                |  |                         |       |            |   |        |  
|                                |  |                         |       |            |   |        |  
|Balance at February 28, 2008    |  | $                       | 1,290 |            | $ | 2,046  |   | $ | 3,336  |  
|                                |  |                         |       |            |   |        |   |   |        |  
|Effect of foreign exchange      |  |                         | (9    | )          |   | (16    | ) |   | (25    | )
|Amortization expense            |  |                         | (60   | )          |   | (96    | ) |   | (156   | )
|                                |  |                         |       |            |   |        |   |   |        |  
|                                |  |                         |       |            |   |        |   |   |        |  
|Balance at June 30, 2008        |  |                         | 1,221 |            |   | 1,934  |   |   | 3,155  |  
|                                |  |                         |       |            |   |        |   |   |        |  
|Purchase accounting adjustments |  |                         | (56   | )          |   | (87    | ) |   | (143   | )
|Effect of foreign exchange      |  |                         | (171  | )          |   | (277   | ) |   | (448   | )
|Amortization expense            |  |                         | (162  | )          |   | (253   | ) |   | (415   | )
|Impairment charges              |  |                         | (832  | )          |   | (1,317 | ) |   | (2,149 | )
|                                |  |                         |       |            |   |        |   |   |        |  
|Balance at June 30, 2009        |  | $                       |      |            | $ |       |   | $ |       |  
|                                |  |                         |       |            |   |        |   |   |        |  

The following
unaudited pro forma condensed financial information shows the results of
operations for the years ended June 30, 2008 and 2007 as though the acquisition
of the Solvision, Inc. assets 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:

F - 13

---



|                                                                                                                      |  |                      |         |      |   |         | 
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ------- | ---- | - | ------- | 
|                                                                                                                      |  | Year
 Ended June 30, |        
|                                                                                                                      |  |                      |        
|                                                                                                                      |  | 2008                 |         | 2007 |  
|                                                                                                                      |  |                      |         |      |  
|Net sales                                                                                                             |  | $                    | 161,585 |      | $ | 186,561 | 
|Income (loss) before extraordinary items, discontinued operations, and
 the cumulative effect of an accounting change |  | $                    | (1,422  | )    | $ | 8,562   | 
|Net income (loss)                                                                                                     |  | $                    | (1,422  | )    | $ | 8,562   | 
|                                                                                                                      |  |                      |         |      |   |         | 
|Earnings (loss) per share amounts:                                                                                    |  |                      |         |      |   |         | 
|Basic- Earnings (loss) per share                                                                                      |  | $                    | (0.08   | )    | $ | 0.47    | 
|Diluted - Earnings (loss) per share                                                                                   |  | $                    | (0.08   | )    | $ | 0.46    | 

On October 16,
2008, we and Electro Scientific Industries, Inc. (ESI) jointly announced the
execution of a definitive agreement, providing for the two companies to merge
in an all stock transaction, subject to the prior satisfaction of certain
enumerated conditions precedent. On January 20, 2009, ZYGO announced that it
notified ESI of ZYGOs Board of Directors withdrawal of its recommendation in
favor of the previously announced merger agreement with ESI. On April 2, 2009,
ESI and ZYGO agreed to terminate their previously executed merger agreement.
Pursuant to the terms of the settlement agreement, ZYGO paid ESI a break-up fee
of $5.4 million, and is liable for an additional $1.2 million in the event that
on or before November 2, 2009, ZYGOs Board of directors approves an alternate
transaction proposal for the merger or sale of the company. During fiscal 2009,
we paid an additional $2.9 million related to the merger in legal and various
other related expenses. The break-up fee, legal and other expenses are included
in selling, general, and administrative expenses.

NOTE 3: RESTRUCTURING AND RELATED COSTS

During fiscal
2009, we initiated restructuring actions related to ongoing cost reduction
efforts comprised of workforce reductions and the consolidation of
manufacturing operations in Tuscon, Arizona. During this period, we recorded
restructuring and related charges totaling $2,158, including $955 in cost of
sales, $1,013 in selling, general, and administration, and $190 in research,
development, and engineering.

The following
table summarizes the accrual balances and utilization by cost type for the
fiscal 2009 and fiscal 2008 restructuring actions:

|                         |  |           |        |                                |   |       |  |   |        |  
|------------------------ |  | --------- | ------ | ------------------------------ | - | ----- |  | - | ------ | -
|                         |  | Severance |        | Facility
 Consolidation
 Costs |   | Total | 
|                         |  |           |        |                                |   |       | 
|Balance at June 30, 2008 |  | $         | 226    |                                | $ |      |  | $ | 226    |  
|Restructuring charges    |  |           | 1,706  |                                |   | 452   |  |   | 2,158  |  
|Payments                 |  |           | (1,670 | )                              |   |      |  |   | (1,670 | )
|                         |  |           |        |                                |   |       |  |   |        |  
|Balance at June 30, 2009 |  | $         | 262    |                                | $ | 452   |  | $ | 714    |  
|                         |  |           |        |                                |   |       |  |   |        |  

|                         |  |           |      |                                |   |       |  |   |      |  
|------------------------ |  | --------- | ---- | ------------------------------ | - | ----- |  | - | ---- | -
|                         |  | Severance |      | Facility
 Consolidation
 Costs |   | Total | 
|                         |  |           |      |                                |   |       | 
|Balance at June 30, 2007 |  | $         | 94   |                                | $ |      |  | $ | 94   |  
|Restructuring charges    |  |           | 537  |                                |   |      |  |   | 537  |  
|Payments                 |  |           | (405 | )                              |   |      |  |   | (405 | )
|                         |  |           |      |                                |   |       |  |   |      |  
|Balance at June 30, 2008 |  | $         | 226  |                                | $ |      |  | $ | 226  |  
|                         |  |           |      |                                |   |       |  |   |      |  

F - 14

---



NOTE 4: MARKETABLE SECURITIES

Marketable
securities consisted primarily of corporate and government agency securities
for fiscal 2009 and 2008. The Company classifies these securities as held-to-maturity,
trading, or available-for-sale.

Dividend and
interest income is recognized when earned. Straight-line amortization related
to discounts and premiums on the purchase of marketable securities is recorded
in interest income. Realized gains and losses are included in earnings and are
derived using the specific identification method for determining the cost of
securities sold.

The amortized
cost, gross unrealized gains and losses, and fair value of held-to-maturity
securities at June 30, 2009 and 2008 were as follows:

|                                |  |                 |        |                          |   |                           |  |             |     |   |   |        | 
|------------------------------- |  | --------------- | ------ | ------------------------ | - | ------------------------- |  | ----------- | --- | - | - | ------ | 
|                                |  | Amortized
 Cost |        | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |    
|                                |  |                 |        |                          |   |                           |  |             |    
|At June 30, 2009Corporate bonds |  | $               | 4,015  |                          | $ | 35                        |  | $           |    |   | $ | 4,050  | 
|                                |  |                 |        |                          |   |                           |  |             |     |   |   |        | 
|                                |  |                 |        |                          |   |                           |  |             |     |   |   |        | 
|At June 30, 2008Corporate bonds |  | $               | 22,695 |                          | $ | 103                       |  | $           | (51 | ) | $ | 22,747 | 
|                                |  |                 |        |                          |   |                           |  |             |     |   |   |        | 

At June 30,
2009 and 2008, all held-to-maturity securities consisted of corporate bonds. At
June 30, 2009 these corporate bonds were in the following sectors: 22.5% in
finance, 22.1% in utilities, 22.0% in real estate, and 33.4% in other. We have
both the intent and the ability to hold such securities to maturity.

The cost,
gross unrealized gains and losses, and fair value of available-for-sale
securities, consisting of auction rate securities, at June 30, 2009 and 2008
were as follows:

|                                                     |  |      |       |                          |   |                           |  |             |      |   |   |       | 
|---------------------------------------------------- |  | ---- | ----- | ------------------------ | - | ------------------------- |  | ----------- | ---- | - | - | ----- | 
|                                                     |  | Cost |       | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |     
|                                                     |  |      |       |                          |   |                           |  |             |     
|At June 30, 2009Corporate bonds                      |  | $    | 600   |                          | $ |                          |  | $           | (600 | ) | $ |      | 
|                                                     |  |      |       |                          |   |                           |  |             |      |   |   |       | 
|                                                     |  |      |       |                          |   |                           |  |             |      |   |   |       | 
|At June 30, 2008Corporate and local
 municipal bonds |  | $    | 1,600 |                          | $ |                          |  | $           | (330 | ) | $ | 1,270 | 
|                                                     |  |      |       |                          |   |                           |  |             |      |   |   |       | 

Trading
securities consist of a mutual fund investment corresponding to elections made
in our deferred compensation program. The cost, gross unrealized gains and
losses, and fair value of trading securities at June 30, 2009 and 2008 were as
follows:

|                            |  |      |     |                          |   |                           |  |             |     |   |   |     | 
|--------------------------- |  | ---- | --- | ------------------------ | - | ------------------------- |  | ----------- | --- | - | - | --- | 
|                            |  | Cost |     | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |    
|                            |  |      |     |                          |   |                           |  |             |    
|At June 30, 2009Mutual fund |  | $    | 499 |                          | $ |                          |  | $           |    |   | $ | 499 | 
|                            |  |      |     |                          |   |                           |  |             |     |   |   |     | 
|                            |  |      |     |                          |   |                           |  |             |     |   |   |     | 
|At June 30, 2008Mutual Fund |  | $    | 682 |                          | $ |                          |  | $           | (45 | ) | $ | 637 | 
|                            |  |      |     |                          |   |                           |  |             |     |   |   |     | 

F - 15

---



Maturities of
investment securities classified as held-to-maturity at June 30, 2009 and 2008
were as follows:

|                                      |  |                 |       |                |   |                 |  |             |        |  |   |        | 
|------------------------------------- |  | --------------- | ----- | -------------- | - | --------------- |  | ----------- | ------ |  | - | ------ | 
|                                      |  | June 30, 2009   |       | June
 30, 2008 |  
|                                      |  |                 |       |                |  
|                                      |  | Amortized
 Cost |       | Fair
 Value    |   | Amortized
 Cost |  | Fair
 Value |       
|                                      |  |                 |       |                |   |                 |  |             |       
|Due within one year                   |  | $               | 4,015 |                | $ | 4,050           |  | $           | 17,639 |  | $ | 17,668 | 
|Due after one year through five years |  |                 |      |                |   |                |  |             | 5,056  |  |   | 5,079  | 
|                                      |  |                 |       |                |   |                 |  |             |        |  |   |        | 
|                                      |  | $               | 4,015 |                | $ | 4,050           |  | $           | 22,695 |  | $ | 22,747 | 
|                                      |  |                 |       |                |   |                 |  |             |        |  |   |        | 

Maturities of
investment securities classified as available-for-sale at June 30, 2009 and
2008 were as follows:

|                     |  |               |     |                |   |      |  |             |       |  |   |       | 
|-------------------- |  | ------------- | --- | -------------- | - | ---- |  | ----------- | ----- |  | - | ----- | 
|                     |  | June 30, 2009 |     | June
 30, 2008 |  
|                     |  |               |     |                |  
|                     |  | Cost          |     | Fair
 Value    |   | Cost |  | Fair
 Value |      
|                     |  |               |     |                |   |      |  |             |      
|Due within
 one year |  | $             |    |                | $ |     |  | $           |      |  | $ |      | 
|Due after
 one year  |  |               | 600 |                |   |     |  |             | 1,600 |  |   | 1,270 | 
|                     |  |               |     |                |   |      |  |             |       |  |   |       | 
|                     |  | $             | 600 |                | $ |     |  | $           | 1,600 |  | $ | 1,270 | 
|                     |  |               |     |                |   |      |  |             |       |  |   |       | 

The following
table shows our investment gross unrealized losses and fair value, aggregated
by investment category and length of time that individual securities have been
in a continuous unrealized loss position at June 30, 2008. There were no
securities in a continuous unrealized loss position at June 30, 2009

|                    |  |                      |       |                                        |   |               |   |                           |       |               |   |                           |   |   |       |  |   |     |  
|------------------- |  | -------------------- | ----- | -------------------------------------- | - | ------------- | - | ------------------------- | ----- | ------------- | - | ------------------------- | - | - | ----- |  | - | --- | -
|                    |  | Less
 than 12 months |       | Fiscal
 Year 2008
 More than 12 months |   | Total         |  
|                    |  | Market
 Value        |       | Gross
 Unrealized
 Losses              |   | Market
 Value |   | Gross
 Unrealized
 Losses |       | Market
 Value |   | Gross
 Unrealized
 Losses |  
|                    |  |                      |       |                                        |   |               |   |                           |       |               |   |                           |  
|Corporate and other |  | $                    | 6,154 |                                        | $ | (25           | ) | $                         | 1,245 |               | $ | (65                       | ) | $ | 7,399 |  | $ | (90 | )
|                    |  |                      |       |                                        |   |               |   |                           |       |               |   |                           |   |   |       |  |   |     |  

In determining
whether investment holdings are other than temporarily impaired, we consider
the nature, cause, severity, and duration of the impairment. We and our investment
advisors use analyst reports, credit ratings and other items as part of our
review. We recognized an other-than-temporary impairment on one
available-for-sale auction rate security during fiscal 2009 resulting in a loss
of $309, which was recorded in the statements of operations as part of
miscellaneous income (expense).

F - 16

---



NOTE 5: FAIR VALUE MEASUREMENTS

The Company
adopted SFAS No. 157 and SFAS No. 159 effective July 1, 2008 and did not elect
the fair value option for its financial instruments with the exception of the
application of the statement to non-recurring non-financial assets and
non-financial liabilities. Non-recurring non-financial assets and non-financial
liabilities for which the Company has not applied the provisions of SFAS No.
157 include those initially measured at fair value in a business combination.
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value and expands the related disclosure requirements. The statement indicates,
among other things, that a fair value measurement assumes that the transaction
to sell an asset or transfer a liability occurs in the principal market for the
asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability. SFAS No. 157 defines fair value
based upon an exit price model.

SFAS No. 157
establishes a valuation hierarchy for disclosure of the inputs to valuation
used to measure fair value. This hierarchy prioritizes the inputs into three
broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2 inputs are quoted
prices for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on the managements
assumptions used to measure assets and liabilities at fair value. A financial
asset or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.

The following
table provides the assets and liabilities carried at fair value measured on a
recurring basis as of June 30, 2009:

Assets Measured at Fair Value:
(Dollars in thousands)

|                        |  |                                         |     |                                              |                                          |                                                   |  |                                              |     |   |   |   | 
|----------------------- |  | --------------------------------------- | --- | -------------------------------------------- | ---------------------------------------- | ------------------------------------------------- |  | -------------------------------------------- | --- | - | - | - | 
|                        |  |                                         |     |                                              | Fair value measurements at June 30, 2009 |                                                  
|                        |  |                                         |     |                                              |                                          |                                                  
|                        |  | Total carrying
 value at
 June 30, 2009 |     | Quoted prices
 in active
 markets
 (Level 1) |                                          | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |    
|                        |  |                                         |     |                                              |                                          |                                                   |  |                                              |    
|Trading
 securities     |  | $                                       | 499 |                                              | $                                        | 499                                               |  | $                                            |    |   | $ |  | 
|Foreign
 currency hedge |  |                                         | (14 | )                                            |                                          |                                                  |  |                                              | (14 | ) |   |  | 
|                        |  |                                         |     |                                              |                                          |                                                   |  |                                              |     |   |   |   | 
|Total                   |  | $                                       | 485 |                                              | $                                        | 499                                               |  | $                                            | (14 | ) | $ |  | 
|                        |  |                                         |     |                                              |                                          |                                                   |  |                                              |     |   |   |   | 

Assets Measured at Fair Value on a
Nonrecurring Basis:
(Dollars in thousands)

|                                    |  |                                         |       |                                              |                                          |                                                   |  |                                              |   |                       |   |       |  |   |        |  
|----------------------------------- |  | --------------------------------------- | ----- | -------------------------------------------- | ---------------------------------------- | ------------------------------------------------- |  | -------------------------------------------- | - | --------------------- | - | ----- |  | - | ------ | -
|                                    |  |                                         |       |                                              | Fair value measurements at June 30, 2009 |                                                   |  |                                              |  
|                                    |  |                                         |       |                                              |                                          |                                                   |  |                                              |  
|                                    |  | Total carrying
 value at
 June 30, 2009 |       | Quoted prices
 in active
 markets
 (Level 1) |                                          | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |   | Total Gains
 (Losses) |  
|                                    |  |                                         |       |                                              |                                          |                                                   |  |                                              |   |                       |  
|Property,
 plant, and equipment (1) |  | $                                       | 1,237 |                                              | $                                        |                                                  |  | $                                            |  |                       | $ | 1,237 |  | $ | (4,460 | )
|Intangible
 assets (2)              |  |                                         | 649   |                                              |                                          |                                                  |  |                                              |  |                       |   | 649   |  |   | (5,084 | )
|                                    |  |                                         |       |                                              |                                          |                                                   |  |                                              |   |                       |   |       |  |   |        |  
|Total                               |  | $                                       | 1,886 |                                              | $                                        |                                                  |  | $                                            |  |                       | $ | 1,886 |  | $ | (9,544 | )
|                                    |  |                                         |       |                                              |                                          |                                                   |  |                                              |   |                       |   |       |  |   |        |  

(1) See Note 8

(2) See Note 9

When
available, the Company uses quoted market prices to determine the fair value of
its marketable securities included in Level 1. When quoted market prices are
unobservable, the Company uses quotes from independent pricing vendors based on
recent trading activity and other relevant information. The investment in Level
3 is an auction-rate security. For the period from July 1, 2008 to June 30,
2009, Level 3 assets were reduced from $270 to $0 as the result of an other
than temporary impairment. There were no other activities in Level 3 fair value
measurements during the period.

F - 17

---



The carrying
value of other financial instruments, including cash, accounts receivable,
accounts payable, and accrued liabilities approximate fair value due to their
short maturities. The remainder of our marketable securities at June 30, 2009
are accounted for as held-to-maturity investments and are recorded at amortized
cost of $4,015.

NOTE 6: RECEIVABLES

At June 30,
2009 and 2008, receivables were as follows:

|                                                        |  |               |        |                |   |        |  
|------------------------------------------------------- |  | ------------- | ------ | -------------- | - | ------ | -
|                                                        |  | June 30, 2009 |        | June
 30, 2008 |  
|                                                        |  |               |        |                |  
|Trade                                                   |  | $             | 19,870 |                | $ | 30,816 |  
|Receivable from Nanometrics
 for sale of certain assets |  |               | 3,392  |                |   |       |  
|Other                                                   |  |               | 431    |                |   | 569    |  
|                                                        |  |               |        |                |   |        |  
|                                                        |  |               | 23,693 |                |   | 31,385 |  
|Allowance for doubtful
 accounts                        |  |               | (2,550 | )              |   | (349   | )
|                                                        |  |               |        |                |   |        |  
|                                                        |  | $             | 21,143 |                | $ | 31,036 |  
|                                                        |  |               |        |                |   |        |  

On June 17,
2009, we and Nanometrics Incorporated (Nanometrics) announced that
Nanometrics has purchased inventory and certain other assets relating to ZYGOs
Semiconductor Solutions business for approximately $3,392 and that the two
companies have entered into a supply agreement. Under an exclusive OEM supply
agreement, ZYGO will provide interferometer sensors to Nanometrics for
incorporation into the Unifire line of products as well as Nanometrics family
of automated metrology systems. The arrangement is structured as an asset
purchase and exclusive OEM supply agreement aimed at wafer-based markets.
Nanometrics will assume all inventory, backlog and customer sales and support
responsibilities and ZYGO will provide measurement sensors for integration by
Nanometrics.

The allowance
for bad debt increased in fiscal 2009 by $2,201 primarily due to additional
allowances of $1,961 due to delays in receiving final payments in sales to
certain customers in the Asia-Pacific region.

NOTE 7: INVENTORIES

At June 30,
2009 and 2008, inventories were as follows:

|                                      |  |               |        |                |   |        | 
|------------------------------------- |  | ------------- | ------ | -------------- | - | ------ | 
|                                      |  | June 30, 2009 |        | June
 30, 2008 |  
|                                      |  |               |        |                |  
|Raw materials and
 manufactured parts |  | $             | 15,214 |                | $ | 17,049 | 
|Work in process                       |  |               | 11,313 |                |   | 14,763 | 
|Finished goods                        |  |               | 3,925  |                |   | 5,730  | 
|                                      |  |               |        |                |   |        | 
|                                      |  | $             | 30,452 |                | $ | 37,542 | 
|                                      |  |               |        |                |   |        | 

Inventories
were reduced by reserves for excess and obsolete items of $9,551 and $4,602 as
of June 30, 2009 and 2008, respectively.

F - 18

---



NOTE 8: PROPERTY, PLANT, AND EQUIPMENT

At June 30,
2009 and 2008, property, plant, and equipment, at cost, were as follows:

|                                            |  |               |         |                |   |                                 |   |  |       | 
|------------------------------------------- |  | ------------- | ------- | -------------- | - | ------------------------------- | - |  | ----- | 
|                                            |  | June 30, 2009 |         | June
 30, 2008 |   | Estimated
 Useful Life
 (Years) |  
|                                            |  |               |         |                |   |                                 |  
|                                            |  |               |         |                |   |                                 |   |  |       | 
|Land                                        |  | $             | 615     |                | $ | 615                             |   |  |      | 
|Building and
 improvements                  |  |               | 17,390  |                |   | 17,270                          |   |  | 15-40 | 
|Machinery,
 equipment, and office furniture |  |               | 56,214  |                |   | 62,940                          |   |  | 3-8   | 
|Leasehold
 improvements                     |  |               | 908     |                |   | 903                             |   |  | 1-5   | 
|Construction
 in progress                   |  |               | 570     |                |   | 2,050                           |   |  |      | 
|                                            |  |               |         |                |   |                                 |   |  |       | 
|                                            |  |               | 75,697  |                |   | 83,778                          |   |  |       | 
|Less
 accumulated depreciation              |  |               | (48,228 | )              |   | (47,407                         | ) |  |       | 
|                                            |  |               |         |                |   |                                 |   |  |       | 
|                                            |  | $             | 27,469  |                | $ | 36,371                          |   |  |       | 
|                                            |  |               |         |                |   |                                 |   |  |       | 

Depreciation
expense for the fiscal years ended June 30, 2009, 2008, and 2007 was $7,337,
$7,008, and $6,246, respectively. We recorded impairment charges on our plant,
property, and equipment of $4,460 including $4,004 related to our precision
positioning systems product lines in our metrology segment, as result of our
review of our business operations in the current economic downturn. We utilized
a future discounted cash flow model over five years to assess the net
realizable value of our property, plant, and equipment in our positioning
systems product line. These charges were included in cost of sales ($2,911),
SG&A ($82) and RD&E ($1,467) on the consolidated statement of
operations.

NOTE 9: INTANGIBLE ASSETS

Intangible
assets, at cost, at June 30, 2009 and 2008 were as follows:

|                                       |  |               |        |                |   |                                 |   |  |      | 
|-------------------------------------- |  | ------------- | ------ | -------------- | - | ------------------------------- | - |  | ---- | 
|                                       |  | June 30, 2009 |        | June
 30, 2008 |   | Estimated
 Useful Life
 (Years) |  
|                                       |  |               |        |                |   |                                 |  
|                                       |  |               |        |                |   |                                 |   |  |      | 
|Patents and Trademarks                 |  | $             | 5,586  |                | $ | 8,106                           |   |  | 5-17 | 
|Covenant not-to-compete                |  |               | 851    |                |   |                                |   |  | 4    | 
|Customer relationships and
 technology |  |               |       |                |   | 3,311                           |   |  | 7    | 
|                                       |  |               |        |                |   |                                 |   |  |      | 
|                                       |  |               | 6,437  |                |   | 11,417                          |   |  |      | 
|Accumulated Amortization               |  |               | (2,226 | )              |   | (1,895                          | ) |  |      | 
|                                       |  |               |        |                |   |                                 |   |  |      | 
|Total                                  |  | $             | 4,211  |                | $ | 9,522                           |   |  |      | 
|                                       |  |               |        |                |   |                                 |   |  |      | 
|                                       |  |               |        |                |   |                                 |   |  |      | 

A non-compete
agreement went into effect with the retirement of an officer of the company in
February 2009. This agreement requires payments totaling $878 over four years,
including imputed interest of $27.

Intangible
amortization expense for the fiscal years ended June 30, 2009, 2008 and 2007
was $803, $570, and $322, respectively. Intangible amortization expense is
estimated to be approximately $515 in fiscal 2010 and approximately $461, $407,
$366, and $332 annually in fiscal 2011-2014, respectively. Amortization expense
related to patents and trademarks is included in cost of goods sold in the
consolidated statements of operations. Amortization expense related to customer
relationships and technology is included in selling, general and administrative
expense in the consolidated statements of operations.

We recorded an
impairment charge of $2,935 on our patents related to our precision positioning
systems product line in our metrology segment that was included in cost of
sales on the consolidated statement of operations as result of our review of
our business operations in the current economic downturn. We utilized a future
discounted cash flow model over five years to assess the net realizable value
of our patents in our precision positioning systems product line. In addition,
we recorded an impairment charge of $2,149 on our customer relationships and
technology that was included in total in selling, general and administrative
expenses and research, development and engineering expenses on the consolidated
statement of operations, as noted in Note 2.

F - 19

---



NOTE 10: BANK LINE OF CREDIT

We had a
$3,000 unsecured bank line of credit agreement bearing interest at our choice
of either the prime rate (5.00% at June 30, 2008) or the one month LIBOR rate
plus a variable interest rate of 1.0% to 2.5%, based on a pricing grid related
to a certain debt ratio, adjusted quarterly. The agreement contained certain
financial covenants which, among others, related to debt service and
consolidated debt ratios. The line of credit expired in February 2009 and was
not renewed. At June 30 2008, no amounts were outstanding under the bank line
of credit.

NOTE 11: WARRANTY LIABILITY

A limited
warranty is provided on our products for periods typically ranging from 3 to 24
months and allowances for estimated warranty costs are recorded during the
period of sale. The determination of such allowances requires management to
make estimates of product return rates and expected costs to repair or replace
products under warranty. If actual return rates or repair and replacement
costs, or both, differ significantly from managements estimates, adjustments
to recognize additional expense may be required.

As part of the
asset purchase by Nanometrics, all related semiconductor systems will be
warranted by us through June 2011. Nanometrics will provide warranty service
and invoice us incurred expenses including a thirty percent mark-up. As of June
30, 2009, $162 of our warranty liability relates to these semiconductor systems.

The following
is a reconciliation of the beginning and ending balances of our accrued
warranty liability, which is included in the other accrued expenses line item
in the consolidated balance sheets:

|                                                                       |  |               |        |                |   |        |  
|---------------------------------------------------------------------- |  | ------------- | ------ | -------------- | - | ------ | -
|                                                                       |  | June 30, 2009 |        | June
 30, 2008 |  
|                                                                       |  |               |        |                |  
|Beginning balance                                                      |  | $             | 1,263  |                | $ | 1,552  |  
|Reductions for payments made                                           |  |               | (1,067 | )              |   | (1,012 | )
|Changes in accruals related to warranties issued in the current period |  |               | 2,273  |                |   | 1,810  |  
|Changes in accrual related to pre-existing warranties                  |  |               | (855   | )              |   | (1,087 | )
|                                                                       |  |               |        |                |   |        |  
|Ending balance                                                         |  | $             | 1,614  |                | $ | 1,263  |  
|                                                                       |  |               |        |                |   |        |  

F - 20

---



NOTE 12: 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. During the twelve months ended June 30, 2009, we
recorded a reserve of $1,360 for potential royalty claims. In the opinion of
management, any excess settlement of the royalty claims above the amount
recorded is not expected to have an adverse effect on our financial condition,
results of operation, or liquidity.

We are aware
of certain levels of contamination on our property which are below reportable
levels. In addition, we are aware of certain contamination on an adjacent
property that we formerly owned. The future effect of environmental matters,
including potential liabilities, is often difficult to estimate. Presently, we
are unable to determine or reasonably estimate the amount of costs, if any,
that we might incur or for which we may potentially be responsible. We will
record an environmental reserve when it is both probable that a liability has
been incurred and the amount of any liability can be reasonably estimated,
whether a claim has been asserted or unasserted.

We lease
certain manufacturing equipment and facilities under operating leases, some of
which include cost escalation clauses, expiring on various dates through fiscal
2014. Total lease expense, net, charged to operations was $2,420 (including
$452 attributable to restructuring expense related to the Tucson manufacturing
facility as described in Note 3), $1,844, and $1,363, in fiscal 2009, 2008,
2007, respectively. At June 30, 2009, the minimum future lease commitments
under noncancellable leases payable over the remaining lives of the leases are
as follows:

|                              |  |                                           |       | 
|----------------------------- |  | ----------------------------------------- | ----- | 
|Year ending June 30,          |  | Minimum
 Future Gross
 Lease
 Commitments |      
|                              |  |                                           |      
|2010                          |  | $                                         | 1,563 | 
|2011                          |  |                                           | 1,156 | 
|2012                          |  |                                           | 380   | 
|2013                          |  |                                           | 225   | 
|2014                          |  |                                           | 68    | 
|                              |  |                                           |       | 
|Total
 minimum lease payments |  | $                                         | 3,392 | 
|                              |  |                                           |       | 

Nanometrics,
as part of the asset sale, has agreed to sublease our Oregon facility for
approximately $90 per year through March 2013.

NOTE 13: PROFIT-SHARING PLAN

We maintain a
deferred profit-sharing plan under which substantially all full-time employees
are eligible to participate. The profit-sharing plan consists of a cash
distribution and a 401(k) program. Profit-sharing cash distributions are
determined annually at the discretion of the Board of Directors. There have
been no profit sharing cash distributions for fiscal 2009. We also maintain a
401(k) tax deferred payroll deduction program and an Employee Stock Ownership
Program. Under the 401(k) program, employees may contribute a tax-deferred
amount of up to 60% of their compensation, as defined. We contribute to the
401(k) program based on matching up to 4% of an employees contributions. The
401(k) match has been suspended as of April, 1, 2009 as part of our
cost-savings measures. Under the Employee Stock Ownership Program, we may, at
the discretion of the Board of Directors, contribute our own stock or contribute
cash to purchase our own stock. The purchased stocks fair market value cannot
exceed the maximum amount of employee stock ownership credit as determined
under Section 416 of the Internal Revenue Code. Our contribution expenses
related to the plans for the years ended June 30, 2009, 2008, and 2007,
amounted to $967, $1,035, and $3,630, respectively.

F - 21

---



NOTE 14: SHARE-BASED COMPENSATION PLANS

Share-Based
Compensation Plans

ZYGO has two
share-based compensation plans. The Zygo Corporation 2002 Equity Incentive Plan
(2002 Plan) permits the granting of stock options to purchase shares of
common stock and the granting of restricted stock up to a total of 3,300,000
shares. The exercise price per share of common stock covered by an option may
not be less than the par value per share on the date of grant, and in the case
of an incentive stock option, the exercise price may not be less than the
market value per share on the date of grant. These options generally vest over
a four year period at a rate of 25% each year. Generally, restricted stock
awards have 50% of their restrictions lapse after three years and the remaining
50% lapse after four years. The 2002 Plan will expire on August 27, 2012.
Pursuant to the terms of the 2002 Plan, the Board of Directors may also amend
the 2002 Plan to authorize the grant of other types of equity-based awards,
without further action by our stockholders. Options issued to non-employee
directors are now issued under this plan. As part of directors compensation
for services to our company, non-employee directors are granted 5,000
restricted shares, and the chairman of the board is granted 7,500 restricted
shares, which vest after one year, on an annual basis and each new non-employee
director will be granted options to purchase 16,000 shares of common stock on
his or her first day of service, at the market value per share on the date of
grant. These options will vest over a four year period at a rate of 25% each
year.

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

On June 26, 2001, the Board of Directors granted
a warrant to purchase 25,000 shares of our common stock to the Zetetic
Institute, a non-profit organization that provides assistance to us in
connection with certain research and development activities. The warrant has an
exercise price of $18.64 per share, the closing price of the common stock on
the date of the grant, and vested in equal annual increments over the four-year
period following the date of grant. The warrant will expire in fiscal 2011.

We use the
Black-Scholes option-pricing model to calculate the fair value of stock option
awards. The key assumptions for this valuation method include the expected term
of the option, stock price volatility, risk-free interest rate, dividend yield,
exercise price, and forfeiture rate. Under the assumptions indicated below, the
weighted-average fair value of stock option grants for fiscal 2009, 2008, and
2007 were $3.77, $4.99, and $6.23, respectively. The table below indicates the
key assumptions used in the option valuation calculations for options granted
in fiscal 2009, 2008, and 2007, and a discussion of our methodology for
developing each of the assumptions used in the valuation model:

|                         |  |                              |             |      |  |           |   |  |           |  
|------------------------ |  | ---------------------------- | ----------- | ---- |  | --------- | - |  | --------- | -
|                         |  | Fiscal
 Years Ended June 30, |            
|                         |  |                              |            
|                         |  | 2009                         |             | 2008 |  | 2007      |  
|                         |  |                              |             |      |  |           |  
|Term                     |  |                              | 4-4.6 Years |      |  | 4.0 Years |   |  | 4.1 Years |  
|Volatility               |  |                              | 45.5        | %    |  | 45.7      | % |  | 52.1      | %
|Dividend
 yield          |  |                              | 0.0         | %    |  | 0.0       | % |  | 0.0       | %
|Risk-free
 interest rate |  |                              | 0.5-2.9     | %    |  | 2.5-4.2   | % |  | 4.7-4.8   | %
|Forfeiture
 rate         |  |                              | 9.5         | %    |  | 11.0      | % |  | 10.7      | %

Term  This is the
period of time over which the options granted are expected to remain
outstanding. Options granted generally 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.

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.

F - 22

---



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

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

Stock Options

Included in
the information below are outstanding options from the Zygo Corporation Amended
and Restated Non-Qualified Stock Option Plan which expired in fiscal 2003, to
the extent the options remain available for exercise.

The following
table summarizes information about our stock options granted under our
share-based compensation plans for fiscal 2009, 2008, and 2007:

|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    |  |  |           |   |   |       | 
|---------------------------------- |  | ------------- | --------- | ------------------------------- | - | -------------- |  | ---------------------------------- | --------- | ------ | - | ---------------------------------- |  |  | --------- | - | - | ----- | 
|                                   |  | June 30, 2009 |           | June
 30, 2008                  |   | June
 30, 2007 | 
|                                   |  |               |           |                                 |   |                | 
|                                   |  | Shares        |           | Weighted
Average
Exercise
Price |   | Shares         |  | Weighted
 Average
 Exercise
 Price |           | Shares |   | Weighted
 Average
 Exercise
 Price | 
|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    | 
|Outstanding at beginning of year   |  |               | 2,058,639 |                                 | $ | 25.33          |  |                                    | 2,057,766 |        | $ | 25.80                              |  |  | 2,082,636 |   | $ | 26.03 | 
|Granted                            |  |               | 169,000   |                                 | $ | 9.61           |  |                                    | 125,900   |        | $ | 12.30                              |  |  | 175,000   |   | $ | 13.47 | 
|Exercised                          |  |               | (21,125   | )                               | $ | 8.65           |  |                                    | (69,848   | )      | $ | 8.44                               |  |  | (108,740  | ) | $ | 8.85  | 
|Expired or cancelled               |  |               | (297,942  | )                               | $ | 37.01          |  |                                    | (55,179   | )      | $ | 34.05                              |  |  | (91,130   | ) | $ | 27.75 | 
|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    |  |  |           |   |   |       | 
|Options - Outstanding-end of year  |  |               | 1,908,572 |                                 | $ | 22.72          |  |                                    | 2,058,639 |        | $ | 25.33                              |  |  | 2,057,766 |   | $ | 25.80 | 
|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    |  |  |           |   |   |       | 
|Options vested or expected to vest |  |               | 1,846,583 |                                 | $ | 23.10          |  |                                    | 2,004,989 |        | $ | 25.68                              |  |  | 2,018,558 |   | $ | 26.05 | 
|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    |  |  |           |   |   |       | 
|Options - Exercisable-end of year  |  |               | 1,573,272 |                                 | $ | 25.19          |  |                                    | 1,718,789 |        | $ | 27.95                              |  |  | 1,668,766 |   | $ | 29.13 | 
|                                   |  |               |           |                                 |   |                |  |                                    |           |        |   |                                    |  |  |           |   |   |       | 

At June 30,
2009, outstanding options at the end of the year had no intrinsic value with a
weighted average remaining contractual life of 4.4 years. At June 30, 2009,
options vested or expected to vest at the end of the year had no intrinsic
value. In addition, exercisable options at the end of the year had no intrinsic
value with a weighted average remaining contractual life of 3.5 years.

F - 23

---



The following
table summarizes information about our stock options granted under our
share-based compensation plans as of June 30, 2009.

|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   |  |           |  |   |       | 
|-------------------------- |  | ----------------------------------------- | --------- | ----------------------------------------------- |  | --------------------------------- |  | ---------------------------------------- | ----- | --------------------------------- |  | --------- |  | - | ----- | 
|                           |  | Options Outstanding                       |           | Options Exercisable                             | 
|                           |  |                                           |           |                                                 | 
|Range of
 Exercise
 Prices |  | Number
 Outstanding
 as of
 June 30, 2009 |           | Weighted
 Average
 Remaining
 Contractual
 Life |  | Weighted
 Average
 Exercise Price |  | Number
 Exercisable as of
 June 30, 2009 |       | Weighted
 Average
 Exercise Price | 
|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   | 
|$  5.09
 - $  7.67         |  |                                           | 215,238   |                                                 |  | 4.3                               |  | $                                        | 6.28  |                                   |  | 183,238   |  | $ | 6.49  | 
|$  7.90
 - $11.99          |  |                                           | 749,250   |                                                 |  | 5.4                               |  | $                                        | 10.12 |                                   |  | 578,250   |  | $ | 9.94  | 
|$12.29 -
 $18.64           |  |                                           | 635,914   |                                                 |  | 4.8                               |  | $                                        | 14.62 |                                   |  | 503,614   |  | $ | 15.04 | 
|$18.74 -
 $32.09           |  |                                           | 9,100     |                                                 |  | 1.7                               |  | $                                        | 23.37 |                                   |  | 9,100     |  | $ | 23.37 | 
|$33.18 -
 $65.69           |  |                                           | 17,600    |                                                 |  | 1.3                               |  | $                                        | 44.39 |                                   |  | 17,600    |  | $ | 44.39 | 
|$70.00 -
 $90.81           |  |                                           | 281,470   |                                                 |  | 1.2                               |  | $                                        | 85.73 |                                   |  | 281,470   |  | $ | 85.73 | 
|                           |  |                                           |           |                                                 | 
|$  5.09
 - $90.81          |  |                                           | 1,908,572 |                                                 |  | 4.4                               |  | $                                        | 22.72 |                                   |  | 1,573,272 |  | $ | 25.19 | 
|                           |  |                                           |           |                                                 | 

As of June 30,
2009, there was $1,165 of total unrecognized compensation cost related to stock
options. These costs are expected to be recognized over a weighted average
period of 2.31 years.

The total
intrinsic value of stock options exercised was $56, $280, and $778 and the
total fair value of stock awards vested was $754, $1,005, and 1,267 during the
fiscal year ended June 30, 2009, 2008 and 2007, respectively.

Cash received
from stock option exercises and the associated tax benefit for the fiscal year
ended June 30, 2009 was $203.

Restricted Stock

The following
table summarizes information about restricted stock awards granted under
share-based compensation plans for the fiscal years ended June 30, 2009, 2008,
and 2007:

|                                        |  |               |          |                             |   |               |  |                             |         |        |   |                             |  |  |         |   |   |       | 
|--------------------------------------- |  | ------------- | -------- | --------------------------- | - | ------------- |  | --------------------------- | ------- | ------ | - | --------------------------- |  |  | ------- | - | - | ----- | 
|                                        |  | June 30, 2009 |          | June 30, 2008               |   | June 30, 2007 | 
|                                        |  |               |          |                             |   |               | 
|                                        |  | Shares        |          | WeightedAverage
 Fair Value |   | Shares        |  | Weighted
Average
Fair Value |         | Shares |   | Weighted
Average
Fair Value | 
|                                        |  |               |          |                             |   |               |  |                             |         |        |   |                             | 
|Non vested balance at beginning of year |  |               | 635,147  |                             | $ | 12.23         |  |                             | 368,176 |        | $ | 12.90                       |  |  | 148,200 |   | $ | 11.51 | 
|Granted                                 |  |               | 189,200  |                             | $ | 9.72          |  |                             | 327,050 |        | $ | 12.00                       |  |  | 261,450 |   | $ | 13.92 | 
|Vested                                  |  |               | (213,060 | )                           | $ | 11.63         |  |                             | (43,858 | )      | $ | 16.46                       |  |  | (8,457  | ) | $ | 16.33 | 
|Forfeited                               |  |               | (59,637  | )                           | $ | 11.87         |  |                             | (16,221 | )      | $ | 11.86                       |  |  | (33,017 | ) | $ | 13.86 | 
|                                        |  |               |          |                             |   |               |  |                             |         |        |   |                             |  |  |         |   |   |       | 
|Non vested balance at end of year       |  |               | 551,650  |                             | $ | 11.46         |  |                             | 635,147 |        | $ | 12.23                       |  |  | 368,176 |   | $ | 12.90 | 
|                                        |  |               |          |                             |   |               |  |                             |         |        |   |                             |  |  |         |   |   |       | 

As of June 30,
2009, there was $4,307 of total unrecognized compensation costs related to
restricted stock awards. These costs are expected to be recognized over a
weighted average period of 2.2 years.

At June 30,
2009, an aggregate of 1,210,537 shares remained available for future grants
under our share-based compensation plans, which cover stock awards and stock
options. We issue shares to satisfy stock option exercises and restricted stock
awards, as applicable.

NOTE 15: EMPLOYEE STOCK PURCHASE PLAN

ZYGO cancelled
its non-compensatory Employee Stock Purchase Plan (ESPP) during fiscal 2009.
Under the ESPP, employees who elected to participate had the ability to purchase
common stock at a 5% discount from the market value of such stock. The ESPP
permitted an enrolled employee to make contributions to purchase shares of
common stock by having withheld from his or her salary an amount between 1% and
10% of compensation. The total number of shares of common stock available under
the ESPP was 500,000. At June 30, 2008 and 2007, we had withheld from employees
$144 and $145, respectively, for the purchases of shares under this plan, and
in July 2008 and 2007, we issued approximately 13,072 and 10,325 shares of
common stock, respectively. In January 2009, we issued 12,897 shares of common
stock under the plan.

F - 24

---



NOTE 16: INCOME TAXES

Total income tax expense (benefit) for each year is as follows:

|                                         |  |                             |        |      |   |       |   |   |       |  
|---------------------------------------- |  | --------------------------- | ------ | ---- | - | ----- | - | - | ----- | -
|                                         |  | Fiscal
 Year Ended June 30, |       
|                                         |  |                             |       
|                                         |  | 2009                        |        | 2008 |   | 2007  |  
|                                         |  |                             |        |      |   |       |  
|Earnings
 from operations                |  | $                           | 22,066 |      | $ | 1,542 |   | $ | 9,132 |  
|Amounts
 charged to stockholders equity |  |                             | 279    |      |   | (56   | ) |   | (164  | )
|                                         |  |                             |        |      |   |       |   |   |       |  
|                                         |  | $                           | 22,345 |      | $ | 1,486 |   | $ | 8,968 |  
|                                         |  |                             |        |      |   |       |   |   |       |  

The income tax expense
(benefit) for operations listed above were provided on the following pre-tax
book income (loss) amounts:

|                                         |  |                             |         |      |   |       |   |   |        | 
|---------------------------------------- |  | --------------------------- | ------- | ---- | - | ----- | - | - | ------ | 
|                                         |  | Fiscal
 Year Ended June 30, |        
|                                         |  |                             |        
|                                         |  | 2009                        |         | 2008 |   | 2007  |  
|                                         |  |                             |         |      |   |       |  
|Earnings
 (loss) from operations - U.S.  |  | $                           | (39,440 | )    | $ | (959  | ) | $ | 21,612 | 
|Earnings
 (loss) from foreign operations |  |                             | (3,484  | )    |   | 5,138 |   |   | 3,638  | 
|                                         |  |                             |         |      |   |       |   |   |        | 
|                                         |  | $                           | (42,924 | )    | $ | 4,179 |   | $ | 25,250 | 
|                                         |  |                             |         |      |   |       |   |   |        | 

The provision (benefit) for income taxes consists of the following:

|          |  |                             |        |      |   |       |   |   |       |  
|--------- |  | --------------------------- | ------ | ---- | - | ----- | - | - | ----- | -
|          |  | Fiscal
 Year Ended June 30, |       
|          |  |                             |       
|          |  | 2009                        |        | 2008 |   | 2007  |  
|          |  |                             |        |      |   |       |  
|Current:  |  |                             |        |      |   |       |   |   |       |  
|Federal   |  | $                           | (20    | )    | $ | 44    |   | $ | 403   |  
|State     |  |                             | 185    |      |   | (201  | ) |   | 325   |  
|Foreign   |  |                             | 1,190  |      |   | 2,078 |   |   | 1,626 |  
|          |  |                             |        |      |   |       |   |   |       |  
|          |  |                             | 1,355  |      |   | 1,921 |   |   | 2,354 |  
|          |  |                             |        |      |   |       |   |   |       |  
|          |  |                             |        |      |   |       |   |   |       |  
|Deferred: |  |                             |        |      |   |       |   |   |       |  
|Federal   |  |                             | 18,277 |      |   | (246  | ) |   | 6,411 |  
|State     |  |                             | 2,567  |      |   | 221   |   |   | 439   |  
|Foreign   |  |                             | 146    |      |   | (354  | ) |   | (72   | )
|          |  |                             |        |      |   |       |   |   |       |  
|          |  |                             | 20,990 |      |   | (379  | ) |   | 6,778 |  
|          |  |                             |        |      |   |       |   |   |       |  
|Total     |  | $                           | 22,345 |      | $ | 1,542 |   | $ | 9,132 |  
|          |  |                             |        |      |   |       |   |   |       |  

The total income tax expense differs from the amount computed by
applying the applicable U.S. federal income tax rate of 35% in fiscal 2009,
2008, and 2007 to earnings before income taxes for the following reasons:

|                                                |  |                             |         |      |   |       |   |   |       |  
|----------------------------------------------- |  | --------------------------- | ------- | ---- | - | ----- | - | - | ----- | -
|                                                |  | Fiscal
 Year Ended June 30, |        
|                                                |  |                             |        
|                                                |  | 2009                        |         | 2008 |   | 2007  |  
|                                                |  |                             |         |      |   |       |  
|                                                |  |                             |         |      |   |       |   |   |       |  
|Computed expected tax expense (benefit)       |  | $                           | (15,023 | )    | $ | 1,463 |   | $ | 8,837 |  
|Increases (reductions) in taxes resulting from: |  |                             |         |      |   |       |   |   |       |  
|State taxes, net of federal income tax benefit  |  |                             | 1,789   |      |   | 13    |   |   | 497   |  
|Export tax incentives                           |  |                             |        |      |   |      |   |   | (372  | )
|Research credit                                 |  |                             |        |      |   |      |   |   | (62   | )
|Permanent items                                 |  |                             | 83      |      |   |      |   |   |      |  
|Foreign tax differential                        |  |                             | 584     |      |   | (29   | ) |   | 208   |  
|Deferred tax asset valuation allowance          |  |                             | 36,037  |      |   |       |   |   |       |  
|Other, net                                      |  |                             | (1,125  | )    |   | 95    |   |   | 24    |  
|                                                |  |                             |         |      |   |       |   |   |       |  
|                                                |  | $                           | 22,345  |      | $ | 1,542 |   | $ | 9,132 |  
|                                                |  |                             |         |      |   |       |   |   |       |  

F - 25

---



The Companys tax rate for fiscal 2007 was negatively impacted by the
repeal of the EIE. The Company claimed a benefit on foreign trading income from
foreign sales through December 31, 2006. The Company does not expect any
significant tax benefit from the Manufacturing Deduction as provided in IRC
Sec. 199 due to its net operating loss carryforward (NOL) position.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of June 30,
2009 and 2008 are presented below:

|                                                                          |  |               |         |                |   |        |  
|------------------------------------------------------------------------- |  | ------------- | ------- | -------------- | - | ------ | -
|                                                                          |  | June 30, 2009 |         | June
 30, 2008 |  
|                                                                          |  |               |         |                |  
|Deferred tax assets:                                                      |  |               |         |                |   |        |  
|Accounts receivable                                                       |  | $             | 321     |                | $ | 75     |  
|Accrued liabilities and other                                             |  |               | 6,297   |                |   | 1,388  |  
|Inventory valuation                                                       |  |               | 1,349   |                |   | 2,908  |  
|Stock award compensation                                                  |  |               | 2,486   |                |   | 2,039  |  
|Federal, foreign, and state net operating loss carryforwards and
 credits |  |               | 29,950  |                |   | 20,377 |  
|Contributions                                                             |  |               | 73      |                |   | 63     |  
|                                                                          |  |               |         |                |   |        |  
|Deferred tax assets                                                       |  |               | 40,476  |                |   | 26,850 |  
|                                                                          |  |               |         |                |   |        |  
|Deferred tax liabilities:                                                 |  |               |         |                |   |        |  
|Prepaid expenses                                                          |  |               | (152    | )              |   | (108   | )
|Property, plant, and equipment                                            |  |               | (791    | )              |   | (3,492 | )
|Intangible assets                                                         |  |               | 11      |                |   | (277   | )
|                                                                          |  |               |         |                |   |        |  
|Deferred tax liability                                                    |  |               | (932    | )              |   | (3,877 | )
|                                                                          |  |               |         |                |   |        |  
|Net deferred tax assets
 before valuation allowance                       |  |               | 39,544  |                |   | 22,973 |  
|Valuation allowance                                                       |  |               | (39,544 | )              |   | (2,105 | )
|                                                                          |  |               |         |                |   |        |  
|Net deferred tax asset                                                    |  | $             |        |                | $ | 20,868 |  
|                                                                          |  |               |         |                |   |        |  

The net current deferred tax assets and net non-current deferred tax
assets as recorded on the balance sheet as of June 30, 2009 and 2008 are as
follows:

|                                   |  |               |   |                |   |        | 
|---------------------------------- |  | ------------- | - | -------------- | - | ------ | 
|                                   |  | June 30, 2009 |   | June
 30, 2008 |  
|                                   |  |               |   |                |  
|                                   |  |               |   |                |   |        | 
|Net current
 deferrred tax asset   |  | $             |  |                | $ | 12,111 | 
|Net
 noncurrent deferred tax asset |  |               |   |                |   | 8,757  | 
|                                   |  |               |   |                |   |        | 
|Net deferred
 tax asset            |  | $             |  |                | $ | 20,868 | 
|                                   |  |               |   |                |   |        | 

The deferred tax provisions for 2009 and 2008 do not reflect the tax
benefit (expense) of ($279) and $56, respectively, resulting from amounts
charged to other comprehensive income and paid in capital, from the exercise of
employee stock options.

Management believes, based upon the uncertain and volatile market
conditions and the fact that the Company is now in a cumulative pre tax
accounting loss position (exclusive of permanent items) over the evaluation
period, it is no longer more likely than not that the current deferred tax
assets, net of deferred tax liabilities, of $39,544 as of June 30, 2009 will
    be realized. The evaluation period used by the Company is three years. In
    future periods, the allowance could be reduced based on future positive evidence
indicating that it is more likely than not that a portion of the deferred tax
assets will be realized.

At June 30, 2009, our share of the cumulative undistributed earnings of
foreign subsidiaries was $1,733. No provision has been made for U.S. or
additional foreign taxes on the undistributed earnings of foreign subsidiaries
because we intend to continue to reinvest these earnings. Determination of the
amount of unrecognized deferred tax liability associated with these earnings is
not practicable.

At June 30, 2009, we have federal, state, and foreign NOL carryforwards
of approximately $56,253, $3,805, and $3,674, respectively, and various state
and foreign credit carryforwards of $3,636 and $110. The federal NOL will
expire from fiscal 2023 through fiscal 2028, while the state NOL and credits
will expire from fiscal 2013 through fiscal 2028. The foreign NOL will begin to
expire in 2014. We also have federal general business credit carryforwards of
approximately $4,911, which are available to reduce federal income taxes, if
any, through 2019 and begin to expire in 2012. In addition, the Company also has

F - 26

---



alternative minimum tax credit carryforwards of approximately $789,
which are available to reduce future federal regular income taxes, if any, over
an indefinite period. All deferred assets relating to the NOLs and credits has
been fully reserved in the valuation allowance at June 30, 2009.

We adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on July 1, 2007. As a result of this
adoption, we recognized a liability for unrecognized income tax benefits of
$1,535, an increase in income tax receivables of $616, and a charge of
approximately $919 to the July 1, 2007 retained earnings balance. As of the
adoption date, we had gross tax-affected unrecognized tax benefits of $1,784,
of which $1,168, if recognized, would affect the effective tax rate. Due to our
net operating loss carryforwards, we have accrued no interest and penalties for
the unrecognized tax benefits; however, our accounting policy is to recognize
interest related to unrecognized tax benefits in interest expense. Penalties,
if incurred, would be recognized as a component of income tax expense. In the
normal course of business, we provide for uncertain tax positions and adjust
our unrecognized tax benefits accordingly. For the year ended June 30, 2008, we
recognized an additional liability of $88 for uncertain tax positions and for
the year ended June 30, 2009, we released a reserve for $46. The total
liability for unrecognized tax benefits was $1,826 at June 30, 2009. We are not
aware of any other tax positions that would create a significant adjustment to
the unrecognized tax benefits during July 1, 2008 through June 30, 2009.

The following table is a reconciliation of the beginning and ending
balances of unrecognized tax benefits:

|                                            |  |   |       |  
|------------------------------------------- |  | - | ----- | -
|Unrecognized
 tax benefit, July 1, 2007     |  | $ | 1,784 |  
|Gross
 increases - 2008 filing positions    |  |   | 88    |  
|                                            |  |   |       |  
|Unrecognized
 tax benefit, June 30, 2008    |  |   | 1,872 |  
|                                            |  |   |       |  
|Gross
 increases - current filing positions |  |   | (46   | )
|                                            |  |   |       |  
|Unrecognized
 tax benefit, June 30, 2009    |  | $ | 1,826 |  
|                                            |  |   |       |  

We are subject to U.S. federal income tax as well as income tax in
multiple state and foreign jurisdictions. We are no longer subject to U.S.
federal income tax audit or tax adjustments for years prior to June 30, 1997.
We are no longer subject to state and foreign income tax audit or tax
adjustments for years prior to June 30, 2005. We are currently under an income
tax audit by the IRS for domestic taxes for the period ended June 30, 2007.

NOTE 17: SEGMENT REPORTING

Our business
is organized into two operating divisions  Metrology Solutions (Metrology
segment) and Optical Systems (Optics segment). Consistent with our business
structure, we reported our segments as Metrology and Optics. The Metrology
segment consists of OEM and in-line products primarily for the semiconductor
and industrial markets. The Optics segment consists of components and
opto-mechanical assemblies primarily for the medical, defense, and aerospace
industries, which are included in the industrial market. The chief operating
decision-maker uses this information to allocate resources.

|                             |  |                             |         |      |   |         |   |   |         |  
|---------------------------- |  | --------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                             |  | Fiscal
 Year Ended June 30, |        
|                             |  |                             |        
|                             |  | 2009                        |         | 2008 |   | 2007    |  
|                             |  |                             |         |      |   |         |  
|Metrology                    |  |                             |         |      |   |         |   |   |         |  
|Sales                        |  | $                           | 84,072  |      | $ | 105,700 |   | $ | 132,264 |  
|Gross profit                 |  |                             | 27,462  |      |   | 50,529  |   |   | 62,189  |  
|Gross profit as a % of sales |  |                             | 33      | %    |   | 48      | % |   | 47      | %
|                             |  |                             |         |      |   |         |   |   |         |  
|Optics                       |  |                             |         |      |   |         |   |   |         |  
|Sales                        |  | $                           | 31,968  |      | $ | 53,336  |   | $ | 48,724  |  
|Gross profit                 |  |                             | 4,006   |      |   | 14,294  |   |   | 14,994  |  
|Gross profit as a % of sales |  |                             | 13      | %    |   | 27      | % |   | 31      | %
|                             |  |                             |         |      |   |         |   |   |         |  
|Total                        |  |                             |         |      |   |         |   |   |         |  
|Sales                        |  | $                           | 116,040 |      | $ | 159,036 |   | $ | 180,988 |  
|Gross profit                 |  |                             | 31,468  |      |   | 64,823  |   |   | 77,183  |  
|Gross profit as a % of sales |  |                             | 27      | %    |   | 41      | % |   | 43      | %

F - 27

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

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

|               |  |                             |         |      |   |         |  |   |         | 
|-------------- |  | --------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
|               |  | Fiscal
 Year Ended June 30, |        
|               |  |                             |        
|               |  | 2009                        |         | 2008 |   | 2007    | 
|               |  |                             |         |      |   |         | 
|Americas:      |  |                             |         |      |   |         |  |   |         | 
|America        |  | $                           | 53,999  |      | $ | 75,596  |  | $ | 71,330  | 
|Canada         |  |                             | 1,457   |      |   | 1,551   |  |   |        | 
|               |  |                             |         |      |   |         |  |   |         | 
|Total Americas |  |                             | 55,456  |      |   | 77,147  |  |   | 71,330  | 
|Far East:      |  |                             |         |      |   |         |  |   |         | 
|Japan          |  |                             | 26,352  |      |   | 44,354  |  |   | 66,613  | 
|Pacific Rim    |  |                             | 20,721  |      |   | 15,202  |  |   | 23,985  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Total Far East |  |                             | 47,073  |      |   | 59,556  |  |   | 90,598  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Europe         |  |                             | 13,511  |      |   | 22,333  |  |   | 19,060  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Total          |  | $                           | 116,040 |      | $ | 159,036 |  | $ | 180,988 | 
|               |  |                             |         |      |   |         |  |   |         | 

NOTE 18: TRANSACTIONS WITH STOCKHOLDER

Sales to
Canon, Inc., a stockholder representing approximately 7% ownership at June 30,
2009, and Canon Sales Co., Inc., a distributor of certain of our products in
Japan and a subsidiary of Canon Inc. (collectively Canon), amounted to
$16,229 (14% of net sales), $30,711 (19% of net sales), and $48,147 (27% of net
sales), for the years ended June 30, 2009, 2008, and 2007, respectively.
Substantially all of these sales occurred in the Metrology segment. Selling
prices of products sold to Canon are based, generally, on the normal terms
given to distributors. Revenues generated from development contracts were
recorded on a cost-plus basis.

In September
2002, we entered into a contract with Canon related to the development of
certain interferometers. In March 2004, we signed a preliminary agreement to
begin further add-on work; the definitive agreement for this additional work
was signed in December 2004. In February 2005, we entered into two additional
agreements with Canon related to the development of prototype production tools
and accessories. Work on these development services was completed during the
third quarter of fiscal 2007. During fiscal 2007, we recognized revenue in the
Metrology segment of $4,051, for the original contract and subsequent add-on
work. At June 30, 2009 and 2008, there were, in the aggregate, $592 and $3,032,
respectively, of trade accounts receivable from Canon.

NOTE 19: 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 SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, and therefore, are marked-to-market with changes in
fair value recorded to earnings. These contracts are entered into for periods
consistent with the currency transaction exposures, generally three to six
months. Any gains and losses on the fair value of these contracts would largely
offset corresponding losses and gains on the underlying transactions.

As of June 30,
2009, we had seven foreign currency forward contracts outstanding with notional
amount aggregating to $3,170. Net unrealized (loss) gains recognized from
foreign currency forward contracts for fiscal 2009, 2008 and 2007 was ($49),
($161), and $148, respectively, and are included in other income in the
consolidated statements of operations. These gains or losses are substantially
offset by foreign exchange losses or gains on intercompany balances recorded by
our subsidiaries.

F - 28

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NOTE 20: QUARTERLY RESULTS (UNAUDITED)

The following
table sets forth certain unaudited quarterly financial data:

|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|---------------------------------- |  | ---------------------------------------- | ------ | ------------- | - | ---------- | - | ------------ | ------- | - | - | ------- | -
|                                   |  | For the Fiscal Year Ended June 30, 2009  |       
|                                   |  |                                          |       
|                                   |  | September 30,                            |        | December 31,  |   | March 31,  |   | June 30, (a) |        
|                                   |  |                                          |        |               |   |            |   |              |        
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Net sales                          |  | $                                        | 38,392 |               | $ | 33,450     |   | $            | 20,031  |   | $ | 24,167  |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Gross profit (loss)                |  | $                                        | 16,811 |               | $ | 12,256     |   | $            | 3,156   |   | $ | (755    | )
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Net earnings (loss)                |  | $                                        | 503    |               | $ | (4,041     | ) | $            | (15,101 | ) | $ | (47,425 | )
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Basic earnings (loss) per share    |  | $                                        | 0.03   |               | $ | (0.24      | ) | $            | (0.90   | ) | $ | (2.81   | )
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Diluted earnings (loss) per share  |  | $                                        | 0.03   |               | $ | (0.24      | ) | $            | (0.90   | ) | $ | (2.81   | )
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  | For
 the Fiscal Year Ended June 30, 2008 |       
|                                   |  |                                          |       
|                                   |  | September
 30,                           |        | December
 31, |   | March
 31, |   | June
 30,    |        
|                                   |  |                                          |        |               |   |            |   |              |        
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Net sales                          |  | $                                        | 31,714 |               | $ | 40,369     |   | $            | 38,456  |   | $ | 48,497  |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Gross profit                       |  | $                                        | 11,052 |               | $ | 16,646     |   | $            | 15,549  |   | $ | 21,576  |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Net earnings
 (loss)               |  | $                                        | (944   | )             | $ | 1,179      |   | $            | (49     | ) | $ | 1,053   |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Basic
 earnings (loss) per share   |  | $                                        | (0.05  | )             | $ | 0.07       |   | $            |        |   | $ | 0.06    |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  
|Diluted
 earnings (loss) per share |  | $                                        | (0.05  | )             | $ | 0.07       |   | $            |        |   | $ | 0.06    |  
|                                   |  |                                          |        |               |   |            |   |              |         |   |   |         |  

(a) Significant fourth
quarter fiscal 2009 charges consisted of a valuation allowance on deferred tax
assets of $35,805, asset impairment charges of $7,498, provision for doubtful
accounts $1,961, and severance and restucturing charges of  $1,290.

*     *     *     *     *

F - 29

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors
and Stockholders of 
Zygo Corporation 
Middlefield, Connecticut

We have audited the
consolidated financial statements of Zygo Corporation and subsidiaries (the
Company) as of June 30, 2009 and 2008, and for each of the three years in the
period ended June 30, 2009, and the Companys internal control over financial
reporting as of June 30, 2009, and have issued our report thereon dated
September 14, 2009 (which report expresses an unqualified opinion and includes
an explanatory paragraph relating to the adoption of Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109,on July 1, 2007); such consolidated financial statements
and report is included elsewhere in this Annual Report on Form 10-K. Our audits
also included the consolidated financial statement schedule of the Company
listed on page F-1 of this Annual Report on Form 10-K. This consolidated
financial statement schedule is the responsibility of the Companys management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

/s/ Deloitte
& Touche LLP

Hartford, Connecticut 
September 14, 2009

S - 1

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ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

SCHEDULE II - VALUATION AND
QUALIFYING ACCOUNTS

Years ended
June 30, 2009, 2008, and 2007

(Thousands of
dollars)

|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|---------------------------------------------- |  | ------------------------------- | ----- | --------- | - | ------------------- | - | ----------------------- | --- |  | - | ------ | 
|Description                                    |  | Balance
 at
 Beginning of
 Year |       | Provision |   | Write-Offs andOther |   | Balance
 at
 Endof Year |    
|                                               |  |                                 |       |           |   |                     |   |                         |    
|                                              
|Year Ended
 June 30, 2009                      |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Allowance for doubtful accounts                |  | $                               | 349   |           | $ | 3,142               |   | $                       | 941 |  | $ | 2,550  | 
|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 2,105 |           | $ | 37,439              |   | $                       |    |  | $ | 39,544 | 
|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Year Ended
 June 30, 2008                      |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Allowance for doubtful accounts                |  | $                               | 333   |           | $ | 566                 |   | $                       | 550 |  | $ | 349    | 
|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 2,170 |           | $ | (65                 | ) | $                       |    |  | $ | 2,105  | 
|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Year Ended
 June 30, 2007                      |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Allowance for doubtful accounts                |  | $                               | 588   |           | $ | (245                | ) | $                       | 10  |  | $ | 333    | 
|                                               |  |                                 |       |           |   |                     |   |                         |     |  |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 1,630 |           | $ | 564                 |   | $                       | 24  |  | $ | 2,170  | 

S - 2

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EXHIBIT INDEX

|                       |       |  |                                                                                                                                                                     
|---------------------- | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
 TABLE
 NUMBER |       | 
|                       |       |  |                                                                                                                                                                     
|                       |       |  |                                                                                                                                                                     
|                       | 10.30 |  | Asset
 Transfer Agreement, dated as of June 17, 2009, by and between Zygo
 Corporation and Nanometrics Corporation.                                                 
|                       |       |  |                                                                                                                                                                     
|                       | 10.31 |  | Supply
 Agreement, dated as of June 17, 2009, by and between Zygo Corporation and
 Nanometrics Corporation.                                                         
|                       |       |  |                                                                                                                                                                     
|                       | 10.32 |  | Employment contract dated November 16, 2007
    between Zygo Corporation and David Person.                                                                          
|                       |       |  |                                                                                                                                                                     
|                       | 21    |  | Subsidiaries
 of Registrant                                                                                                                                         
|                       |       |  |                                                                                                                                                                     
|                       | 23.1  |  | Consent of
 Independent Registered Public Accounting Firm                                                                                                           
|                       |       |  |                                                                                                                                                                     
|                       | 31.1  |  | Certification
 Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                       |       |  |                                                                                                                                                                     
|                       | 31.2  |  | Certification
 Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                       |       |  |                                                                                                                                                                     
|                       | 32.1  |  | Certification
 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
 Sarbanes-Oxley Act of 2002                                            
|                       |       |  |                                                                                                                                                                     
|                       | 32.2  |  | Certification
 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
 Sarbanes-Oxley Act of 2002                                            

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