|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|WASHINGTON,
 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, 2011                                                         
|Or         |                                                                                                  
|o          | Transition
 Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934        
|           | For the
 transition period from ______________________________ to
 ______________________________

Commission file number 0-12944

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

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

|                                                           
|-----------------------------------------------------------
|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 x NO o                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                
|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 preceding 12 months (or for such shorter period that
 the registrant was required to submit and post such files). (1)
|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

(1) The
registrant is not currently required to submit Interactive Data Files pursuant
to Rule 405 of Regulation S-T.

---



Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). YES o NO x

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, 2010, as reported by
the NASDAQ National Market, was $113,046,969. 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.

17,848,608 Shares of Common Stock, $.10 Par
Value, at August 26, 2011

Documents
incorporated by reference: Specified portions of the registrants Proxy
Statement related to the registrants 2011 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                                                                              |  | 10   | 
|Item 1A. | Risk Factors                                                                                                       |  | 11   | 
|Item 1B. | Unresolved
 Staff Comments                                                                                         |  | 15   | 
|Item 2.  | Properties                                                                                                         |  | 16   | 
|Item 3.  | Legal
 Proceedings                                                                                                 |  | 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                                                                                           |  | 19   | 
|Item 7.  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                             |  | 20   | 
|Item 7A. | Quantitative
 and Qualitative Disclosures about Market Risk                                                        |  | 33   | 
|Item 8.  | Financial
 Statements and Supplementary Data                                                                       |  | 33   | 
|Item 9.  | Changes in and
 Disagreements With Accountants on Accounting and Financial Disclosure                              |  | 33   | 
|Item 9A. | Controls and
 Procedures                                                                                           |  | 34   | 
|Item 9B. | Other
 Information                                                                                                 |  | 35   | 
|         |                                                                                                                    |  |      | 
|PART III |                                                                                                                    |  |      | 
|Item 10. | Directors,
 Executive Officers and Corporate Governance                                                            |  | 36   | 
|Item 11. | Executive
 Compensation                                                                                            |  | 36   | 
|Item 12. | Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters                   |  | 36   | 
|Item 13. | Certain
 Relationships and Related Transactions, and Director Independence                                         |  | 36   | 
|Item 14. | Principal
 Accountant Fees and Services                                                                            |  | 36   | 
|         |                                                                                                                    |  |      | 
|PART IV  |                                                                                                                    |  |      | 
|Item 15. | Exhibits,
 Financial Statement Schedules                                                                           |  | 37   | 
|         |                                                                                                                    |  |      | 
|         | Signatures                                                                                                         |  | 40   | 

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.

---



FORWARD-LOOKING
STATEMENTS

All statements
other than statements of historical fact included in this Annual Report
regarding our financial position, business strategy, plans, anticipated
revenues, bookings, 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, plan(s), 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.

1

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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 Solutions 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 Optical Systems
segment) provides leading-edge product development and manufacturing services
that leverage a variety of core technologies across semiconductor, defense,
laser fusion research, life-sciences, and other industrial markets. The
Metrology Solutions segment, has manufacturing locations in Middlefield,
Connecticut; Montreal, Canada; and Shanghai, China. The Optical Systems segment
has manufacturing locations in Middlefield, Connecticut; Tucson, Arizona; Costa
Mesa, California; and Richmond, California.

We focus on
markets around the world that are engaged in research and manufacture of high
volume precision components used to support emerging and growing high
technology applications in industries such as consumer electronics, automotive
engineering, LED lighting, life-sciences, military and defense. We have
expanded our geographic reach in recent years, particularly in the Pacific Rim
by continued investment in our joint venture in China and other selected
acquisitions.

During the
second quarter of fiscal 2011, we completed a transaction with ASML US, Inc.
(ASML) where we purchased substantially all the assets of ASMLs Richmond,
California operation, including a 55,300 square-foot manufacturing facility. In
addition, we hired key management and employees working at the former ASML
Richmond facility and formed our Extreme Precision Optics group (EPO), which
is included in our Optical Systems segment. With this acquisition, we have
considerably expanded and improved our optical manufacturing capabilities.
Combined with our existing leadership position in metrology, large flat optics
production and electro-optical design and manufacturing, EPO provides highly
synergistic capabilities that address new applications in semiconductor,
defense and the life-sciences markets.

During fiscal
2010 and 2009, we divested our Semiconductor and Flat Panel Display (FPD)
product lines and shut down our integrated circuit packaging operations in
Singapore in order to concentrate on our core technologies. We continue to
manufacture and sell sensor heads on an OEM basis related to semiconductor and
FPD systems. In October 2009, we announced a strategic business partnership
with Toho Technology Corporation (Toho) of Nagoya, Japan, pursuant to which
Toho will have the exclusive right to Zygos technology in the manufacture and
distribution of products to the large substrate FPD market.

In January
2010, Dr. Chris L. Koliopoulos was appointed President and Chief Executive
Officer and subsequently became Chairman of the Board of Directors of Zygo. On
January 22, 2010, we completed the acquisition of Zemetrics, Inc. (Zemetrics),
a small interferometric metrology company in which Dr. Koliopoulos was a major
shareholder. The acquisition of Zemetrics, which has recently introduced an
advanced product in the optical instrumentation market, further strengthened
our offering in our core markets, which is a strategic focus for us. The
Zemetrics operation is included in the Metrology Solutions segment. During the
third quarter of fiscal 2011, we announced the appointment of John P. Jordan to
the position of Vice President, Chief Financial Officer and Treasurer.

Zygo was
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.

2

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Business Segments & Products

The products
and services in our two reportable segments are based on our core technologies,
process knowledge and extensive experience in optical design, mechanical
engineering, software and algorithms and optical fabrication. Most products are
proprietary or incorporate proprietary technology in their design.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Metrology Solutions Segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Our
 Metrology Solutions segment includes 3-Dimensional surface metrology
 products, precision positioning systems and custom engineered solutions. We
 offer a comprehensive line of metrology products and solutions to address
 requirements of precision manufacturing industries and advanced research. Our
 systems are commonly used to measure surface characteristics and critical
 parameters, including topography and roughness, shape, dimension, thickness,
 optical characteristics and defects.                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Zygo
 metrology products provide precise measurements for quality control, process
 feedback and machine control. There are many applications in a variety of
 markets where precision and consistency are critical to the process or the
 enablement of advanced research and process development, including the
 automotive, consumer electronics, medical, aerospace, military, materials
 research, optics, flat panel displays and semiconductor industries. The
 inherent precision, reliability and speed of Zygos metrology measurement
 technologies help to reduce cost of ownership, which is a significant factor
 for many users. Demand for our products is driven by advancement of next
 generation devices and technology, complex processing methods and tighter
 manufacturing tolerances across many industries.                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
 Metrology Solutions segment markets products under the Zygo and Zemetrics
 major brand names. Products under the Zemetrics brand include the ZeGage and
 ZeScope family of products. These products complement the Zygo NewView
 product brand by offering industrial-capable non-contact 3D surface
 measurements. Both Zygo and Zemetrics products are often developed using
 common research and development and engineering resources. Each brand is
 targeted to a different customer segment, with the Zygo brand providing a
 high-end feature-rich product offering and the Zemetrics brand addressing
 mid-level, industrial market needs. Both brands provide customers a
 progressive choice of products addressing their full range of metrology
 needs.                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Zygo is
 considered to be a world leader in optical interferometry with a portfolio of
 over 450 patents issued worldwide, many of which are related to the broad
 field of interferometry and its practical application. We continually strive
 to strengthen our product offerings and advance our competitive position by
 developing new products and solutions to meet our customers needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Major
 product introductions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | DynaFiz-dynamic laser interferometer:Developed
 for challenging testing environments that may have turbulent air and extreme
 vibration, the DynaFiz interferometer provides reliable optical metrology for
 the measurement of optical components and complex optical systems in
 uncontrolled environments that would perturb traditional techniques. Markets
 include defense and industrial segments, as well as the R&D market.
 DynaFiz contains patented, state of the art technology which provides a
 unique value for customers seeking high accuracy metrology during fabrication
 and alignment of optical elements and systems.                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ZeGage-2D-3D optical profiler family:
 Designed for non-contact nanometer-level surface height measurements without
 the requirement of vibration isolation, ZeGage provides unique capabilities
 tailored to the industrial market segment. ZeGage uses a combination of
 scanning white light interferometry and patent pending scanning methods, to
 provide very strong performance that is competitively positioned against
 contact stylus instruments traditionally used in the industrial machine tool
 market. The instrument also utilizes ZeMaps software, and features a range
 of 2D and 3D surface parameters including form, step height, and ISO/EN 25178
 compliant surface roughness parameter standardization. This product family is
 being marketed primarily to the industrial factory market, adding a new price
 point and customer base to the Zygo NewView line of products.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | AccuFlat-precision surface interferometer:
 Designed primarily to address the unique metrology needs of critical surfaces
 such as those required for the data storage market, AccuFlat demonstrates
 Zygos ability to develop products and technology tailored to high value
 metrology applications. With an ability to measure transparent optical
 elements that are as thin as 100 micro meters in thickness, AccuFlat provides
 highly accurate measurements of form, and waviness critical in the
 manufacture of hard disk drives.                                                                                                                                                                                                                                                                                                                                                            

3

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Markets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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. Our measurement-based process control and
 yield-enhancement systems are used in the development and high-precision
 manufacture of high-pressure valves and sealing surfaces incorporated into
 fuel injection systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | NewView Series 3D Optical Profilers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ZeGage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The newly
 introduced ZeGage addresses applications with the need to measure and
 visualize a wide variety of materials, including rubber, paper, metal,
 plastic and ceramics, further addressing the needs of the automotive market.
 We believe the ZeGage price point will have broader appeal to first time
 buyers of optical metrology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Consumer Electronics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Consumer
 electronics, including tablets, smart phones, digital cameras, DVD and CD
 players, and optical computer drives, have significant optical content.
 Consumer electronics optics, which provide 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 due to improved optical
 performance in the devices in comparison to traditional spherical lenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | VeriFire Systems                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The
 development of new optical systems for any application requires flexible and
 easy to use test equipment. The Zygo VeriFire systems are the 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 millimeter 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 for their configuration flexibility in hardware set
 ups and Zygos MetroPro data analysis software.                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 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 VeriFire
 optical interferometers test the optical components as well as the systems
 for design compliance. Our VeriFire Asphere rapidly measures asphere shaped
 optics in a production environment without the need for specialized tooling.
 Our VeriFire QPZ continues our move to the production floor, providing
 laboratory-level results in a production environment. Using patented methods,
 the VeriFire QPZ removes the degrading effects of vibration from the
 measurement without the need for additional expensive isolation hardware.
 This system is primarily used in qualification of optical elements during the
 production of military and commercial optics. We are also active in designing
 and manufacturing custom test systems for defense/aerospace applications,
 especially interferometers that operate at infrared wavelengths, which are
 unique to this market.

4

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. State-of-the-art microprocessors may contain in excess of a billion
 transistors comprised of components that have physical dimensions as small as
 22 nanometers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In June
 2009, we agreed to a supply agreement with Nanometrics, under which we supply
 certain interferometer sensors to Nanometrics for incorporation into the
 UniFire line of automated metrology systems. The UniFire product line, the
 in-line semiconductor systems we developed, is now being manufactured, sold
 and serviced through Nanometrics. The system is designed to help
 semiconductor and data storage customers control their high volume
 manufacturing process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Precision Positioning Systems                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The layers
 of circuit patterns must overlay each other to nanometer precision during the
 wafer lithography process. 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 segments ZMI 7700 series 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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. Several products
 serve this market, including the Nano CSP2000 and Nano2 series,
 providing high-throughput, fully-automated 100% 2D/3D inspection of C4 bumps
 for chip scale packaging (CSPs) strips to support high-volume manufacturing
 and process yields.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In the third
 quarter of fiscal 2010, we acquired Zemetrics, Inc. (Zemetrics), an Arizona-based
 manufacturer of optical metrology systems. The acquisition of Zemetrics
 provided us with additional innovative technology and complementary product
 portfolio that we believe will provide opportunities for future growth in
 several key markets, including data storage, high brightness light-emitting diode
 and consumer electronics. We believe that the addition of the product lines
 from Zemetrics will expand the opportunities for our existing products, as
 well as the acquired products, through exposure to new markets and
 applications. We also plan to leverage the acquired technology to bring more
 innovative and differentiated product solutions to market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Optical Systems Segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Zygos
 Optical Systems segment designs, develops and manufactures high precision
 optical components and electro-optical systems used in the semiconductor,
 defense, life-sciences and research markets. Our optical components and
 systems are manufactured to high levels of precision and are intended to meet
 the demands of both internal and external customers. The primary value we
 bring to the market place is the ability to meet exacting specifications from
 our customers in a volume production environment. Examples of our products
 include aspheric lenses, mirrors, objective assemblies, machined glass
 structures and windows used in applications ranging from semiconductor
 lithography to ophthalmic surgical devices to aerial reconnaissance. We
 provide products used across a broad spectral range including ultra-violet
 (UV), visible and mid-infrared that are fabricated from materials such as
 fused silica, sapphire, silicon, calcium fluoride and precision optical
 glasses. Representative programs and products include volume manufacturing of
 meter class laser fusion optics for the National Ignition Facility,
 development and manufacturing of Advanced Helmet Mounted Displays for
 military flight simulation and precision optics used in extreme UV
 semiconductor lithography equipment.

5

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Markets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Defense/Aerospace                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Defense and
 aerospace companies use optical technology in a broad range of applications
 that are often deemed mission critical and, therefore, have become a major
 component of military spending. Examples include tactical information
 gathering through the use of fixed wing, rotary and space-based aerial
 reconnaissance, fire-control systems used for targeting or threat detection
 and navigation systems necessary for all-weather combat readiness. We
 manufacture a variety of defense-related products, including lenses, windows,
 freeform optics and assemblies. These products have been integrated on
 several prominent platforms, including the Joint Strike fighter, Predator and
 Global Hawk drones, F/A-18C Distributed Mission Training system and the F16
 Internal FLIR Targeting System. In addition to traditional defense
 applications, we are a leading manufacturer of meter class optical components
 used in high energy laser fusion development for the United States Department
 of Energy nuclear stockpile governance and a similar program for the French
 Atomic Energy Commission. Considered two of the largest optical programs ever
 created, we have become a major provider within this application space. We
 have also delivered electro-optical systems used in high resolution
 surveillance and protection of civilian targets such as nuclear power reactors,
 airports and shipping ports.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Life-sciences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The
 life-sciences market is growing rapidly. Increased demand for high precision
 medical devices continues to be driven by an aging population and consumers
 desire to improve their quality of life. We address this demand with
 specialized design and assembly services tailored to producing high-precision
 research, diagnostic and surgical devices. Key application areas include
 ophthalmic, dental, dermatology and DNA analysis. Product manufacturing strengths
 include high performance objectives used in laser delivery and fluorescent
 imaging systems, integration of full systems utilizing light sources, optics
 and detectors, and stand alone medical devices built to customer
 specification. Examples of customer products include laser eye correction,
 dental 3D imaging and genomic analysis instruments. In addition, the group
 offers a variety of process control advantages considered critical to medical
 device customers. These include ISO 13485:2003 and FDA registration as a
 medical-device manufacturer.                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Semiconductor and Electronics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Semiconductor
 lithography demands in many cases the ultimate in optical manufacturing
 technology. It is a critical driver for meeting the industry demands of
 Moores law. With over 20 years of experience in extreme ultraviolet
 lithography and proceeding nodes, we routinely participate in the advancement
 and deployment of new lithographic platforms. As a supplier to the worlds
 leading semiconductor lithography companies, we provide custom components and
 assemblies used in high precision stages, illumination optics and objectives.
 Our products are typically used in the manufacture of semiconductor chips for
 deployment in all types of computer-driven equipment. Key manufacturing
 strengths include high precision machining used in the production of reticle
 and wafer stages, advanced polishing methods such as ion beam figuring of
 off-axis mirrors and unique metrology necessary to meet specifications down
 to one nanometer in accuracy. In addition to semiconductor lithography, we
 also support customers involved in semiconductor metrology and electronics
 through the production of high precision objective assemblies and laser sub
 systems. These systems are often developed in collaboration with our
 customers who rely heavily on our optical engineering capabilities to achieve
 both performance and cost objectives.                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Manufacturing Technology and Processes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Our
 strategic advantages in the market place derive heavily from the development
 of unique manufacturing technology and processes. Key areas of focus include
 deterministic polishing, high precision machining and grinding, coating,
 assembly and metrology. Within these areas we have developed highly refined
 processes and equipment for the manufacture of meter class plano windows and
 mirrors, aspheric and free-form lenses, complex ceramic machining up to one
 meter and large aperture coating. Given the unique nature of our offerings,
 much of the equipment used in our manufacturing has been developed or
 modified internally. Our ability to provide accurate metrology in the final
 inspection to the customer, as well as for in-process control are strategic
 to our success in manufacturing. In this regard, the Optical Systems segment
 works closely with the Metrology segment to produce unique metrology tools
 that improve the quality and yield of our products.                                                                                                                                                                                                                                                                                                                                                                                                                                          

6

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Sales, Marketing and Service

We market our
full range of products throughout the United States and in most foreign
markets. Our revenues are largely generated through our direct worldwide sales
force, as well as through independent agents and distributors. We have sales
and service centers positioned closely to our major customers or concentrations
and business opportunity throughout the Americas, Europe and Asia. We believe
that our business relationships with the major customers in all of our key
markets are generally favorable, and that we are in a good position to respond
promptly to variations in customer requirements and technology trends.

We require our
sales representatives to have technical expertise and a thorough understanding
of the businesses of our customers and our prospective customers. In a typical
sale process, one of our representatives will provide a potential customer with
information about our products, including specifications and performance data,
as well as a product demonstration using samples provided by the customer. The
sales cycle for our systems typically ranges from three to twelve months, but
can be longer for complex system sales or when our customers are evaluating new
applications of our technology.

Our products
are supported by a global service organization of factory trained technicians
and engineers, and generally backed by a standard twelve month warranty. We
also offer customers optional service contracts for our products of one year or
more in duration after expiration of any warranty.

Competition

We participate
in markets that are highly dynamic and globally competitive across all our
divisions. Additionally, many of the markets for our products are subject to
constant change, due largely to evolving customer needs. As we attempt to
respond to this change, the competition landscape as well as the specific
strategies of competitors likewise may change. Moreover, one or more of our
competitors might achieve a technological advancement that could put us at a
competitive disadvantage.

Although there
are no firms that compete with us across our full range of product lines and
services, we face competition in each business segment in domestic and foreign
markets. Certain of our competitors have substantially greater resources than
we do, or may be smaller regional producers with lower overhead costs and
profit requirements, particularly in Asia. Our strategy is to offer
technologically advanced products that are price competitive in our markets,
and to link the product offerings with market knowledge and customer service.
We believe this serves to differentiate our products in many markets. Due to
the critical mass necessary to support our large installed base of systems, as
well as the highly specialized nature of our products, we have experienced
minimal competition in our service business.

Our overall
focus is typically on niche and value-added segments where we can differentiate
our products from our competitions products, through technological and product
value advantage. The following further discusses the competitive landscape in
each of our strategic business segments.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Metrology Solutions Segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Our
 principal competitors for the sale of metrology products and services include
 Bruker Corporation, Ametek, Agilent, KLA-Tencor and 4D Technology. We believe
 the key competitive factors are performance, range of features, reliability,
 price and service. We believe that we are competitive with respect to each of
 these factors, although we have faced increasing pressure on purchase price
 due to aggressive pricing practices of competitors. Our ability to remain
 competitive depends in part upon our success in developing new and enhanced
 systems, leveraging our intellectual property and introducing these systems
 at competitive prices on a timely basis. Intense price competition in the
 sale of metrology products in the past has adversely affected our profit
 margins.                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Our
 Metrology Solutions segment offers products which we believe are leaders in
 most of the segments it serves, including semiconductor, flat panel displays,
 precision machining, research and optics. A key strategy in this segment is to
 continue to develop and produce precise 3D surface metrology products that
 are technology leaders in the markets where they participate, particularly as
 the need for more advanced application use is demanded, and where adoption
 and volume is continuously growing. On a regional basis, this segment
 participates in North America, Europe and Asia. It faces competition in each
 of these locations from a wide variety of companies, from very large
 multinational manufacturers to much smaller, regional companies. As with our
 other segment, this segment must address the continual threat of
 commoditization, particularly with respect to products that have matured in
 their life cycle.

7

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Optical Systems Segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Our Optical
 Systems segment offers precision optical products and integrated
 electro-optical systems that serve the critical needs of the military,
 defense, medical and semiconductor markets. We have a strong reputation and
 presence worldwide, particularly in North America and Europe. Our business
 also includes government contract and consulting work. We have multiple
 competitors across our served markets. We typically compete on price and
 delivery, as well as quality and service. Our experience in design and
 manufacture of complex optical systems design is a core competence, and we
 are committed to protecting our intellectual property and designs,
 particularly in regions where such laws are not as strictly enforced. We also
 strive to continuously differentiate our product offerings, to help avoid
 commoditization of certain products. Competitors include, but are not limited
 to, L-3 Tinsley, Exotic Electro-Optics, Sagem, JenOptik and Ratheon Elcan
 Optical Technologies.

Research and Development

We maintain
our position as a market leader in metrology and optics through continuous and
focused investment in research and development of new technology, products and
applications. Research and development activities constitute an important and
vital part of our overall business strategy as the markets we serve are
typically characterized by rapid technological changes and advances.
Accordingly, the success of our strategy, depends in part on our ability to
develop market-leading products and solutions, which is primarily driven by
close relationships with our customers, together with efforts in research and
development.

Through
continual investment in research and development, we seek to expand our
leadership position in metrology products and optical subsystems. In order to
remain as a market leader in our core market segments, Zygo works with our
customers to address their current needs, as well as their evolving
requirements, to remain designed into their product lifecycle. In addition, as
part of our development efforts, we focus on lowering the production costs of
our products.

We hold over
450 active patents and have additional patent applications on file related to
both business segments. The patents are of varying duration and provide some
protection from competition. Although we vigorously defend our patents, we
believe that our patents are most valuable when combined with our products,
technology, competencies and customer-focused, value-added solutions. On
occasion, we also engage in joint research and development projects with some
of our customers and other parties. We also own a number of registered and
unregistered trademarks and have acquired certain technology that we believe to
be of importance to our business. We believe that continued enhancement,
development, and commercialization of new and existing products and systems are
essential to maintaining and improving our position in the markets in which we
operate.

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 over 500
United States and foreign patents issued, of which over 450 are currently
active. We have over 200 United States and foreign patent applications pending.
In addition, we have a number of registered and unregistered trademarks. 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 BOOKINGS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Backlog at
 June 30, 2011 was $62.0 million, an increase of $17.1 million compared with
 $44.9 million at June 30, 2010. The fiscal 2011 year-end backlog consisted of
 $31.4 million, or 51%, in the Metrology Solutions segment and $30.6 million,
 or 49%, in the Optical Systems segment. Bookings for the fiscal year ended
 June 30, 2011 totaled $167.2 million and consisted of $103.0 million, or 62%,
 in the Metrology Solutions segment and $64.2 million, or 38%, in the Optical
 Systems segment.

8

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 and service
 offices in California, China, Connecticut, Germany, Japan, Singapore and
 Taiwan. Supporting this core sales team are business development, marketing
 and engineering specialists representing our various optics and metrology
 units in Connecticut, Arizona, California, and Canada. Product promotion is
 through trade shows, printed and e-business advertising and industry
 technical organizations.

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

|               |  |                            |     |      |  |      |   |  |     |  
|-------------- |  | -------------------------- | --- | ---- |  | ---- | - |  | --- | -
|               |  | Fiscal Year Ended June 30, |    
|               |  |                            |    
|               |  | 2011                       |     | 2010 |  | 2009 |  
|               |  |                            |     |      |  |      |  
|Americas       |  |                            | 54  | %    |  | 54   | % |  | 48  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Far East:      |  |                            |     |      |  |      |   |  |     |  
|Japan          |  |                            | 21  | %    |  | 18   | % |  | 23  | %
|Pacific Rim    |  |                            | 13  | %    |  | 15   | % |  | 17  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Total Far East |  |                            | 34  | %    |  | 33   | % |  | 40  | %
|               |  |                            |     |      |  |      |   |  |     |  
|Europe         |  |                            | 12  | %    |  | 13   | % |  | 12  | %
|               |  |                            |     |      |  |      |   |  |     |  
|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, 2011,
our global sales customer support and service organization consisted of 77
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; Richmond, California; and Tucson, Arizona. We also
 perform manufacturing activities in our Costa Mesa, California; Canada; and
 China facilities.

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 manufacture of a wide variety
of optics that are used in our metrology products. Our manufacturing activities
for 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 Costa Mesa, California;
Richmond, California; and Tucson, Arizona facilities. We integrate our optics,
optics from third party vendors and mechanical sub-systems utilizing our
metrology in these facilities.

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.

9

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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 at its 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,
 2011, we employed 537 people and 16 temporary and independent contractors
 worldwide. We employed 266 in manufacturing, 127 in research and development,
 77 in sales and marketing and 67 in management and administration. Our
 employees are not represented by a labor union or a collective bargaining
 agreement. We regard our employee relations as good to excellent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|EXECUTIVE OFFICERS OF THE REGISTRANT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Chris L. Koliopoulos  age 58  Chairman, President and Chief
 Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Dr.
 Koliopoulos joined our Company in January 2010 and serves as our Chairman,
 President and Chief Executive Officer. Previously he has served as President
 and CEO of ADE Corporation from 2002 to 2006, and as a private investor,
 director and advisor to Zemetrics, Inc. from 2007 to 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|John P. Jordan  age 65  Vice President, Chief Financial Officer and
 Treasurer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Mr. Jordan
 joined our Company in February 2011 and serves as our Vice President, Chief
 Financial Officer and Treasurer. Prior to joining Zygo, Mr. Jordan spent four
 years with Baldwin Technology Company, Inc., as Vice President, Chief
 Financial Officer and Treasurer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|John M. Stack  age 46 - 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Douglas J. Eccleston  age 62  Senior Vice President, Worldwide
 Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Mr.
 Eccelston has served as Senior Vice President, Worldwide Operations since
 July 2009, Senior Vice President, Precision Positioning Systems from February
 2007 to July 2009 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|John A. Tomich - age 53 - Vice President, General Counsel and
 Secretary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Mr. Tomich
 joined our Company in August 2010 as Vice President and General Counsel. In
 November 2010, Mr. Tomich was also appointed the Corporate Secretary of the
 Company. Prior to joining Zygo, Mr. Tomich was Vice President, General
 Counsel and Secretary for Doctors Research Group, Inc., from 2008 to 2010,
 and Assistant Clinical Professor of Law and Supervising Patent Attorney for
 the University of Connecticut, School of Law from 2006 to 2008. Prior to
 teaching, Mr. Tomich was General Counsel and Secretary for CUNO Incorporated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|David F. Basila - age 52 - Vice President, Business Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Mr. Basila
 has served as Vice President of Business Development since February 2010.
 Previously he served as Vice President of ADE Corporation from 2002 to 2006,
 and as a private investor and director of Zemetrics, Inc. from 2007 to 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|William H. Bacon  age 61  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Under the
 by-laws, executive officers serve for a term of one year and until their
 successors are chosen and qualified unless earlier removed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

10

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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 amid concerns over, among other things,
 declining asset values, inflation, volatility in energy costs, geopolitical
 issues, the availability and cost of credit, high 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. In addition, the on-going European debt
 crisis and the recent downgrade of the United States long term sovereign
 credit rating have negatively affected the financial markets and could
 continue to weigh on the global business environment. 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, certain of which we have
 already experienced. Any of these effects could impact our ability to
 effectively manage inventory levels and collect receivables, create
 unabsorbed costs due to lower net revenues and ultimately decrease our net
 revenues and profitability, as well as cause us to write-down certain of our
 assets.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|We could suffer significant business interruptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Our  customers, suppliers and operations may be vulnerable to interruption by  natural disasters such as
 earthquakes, tsunamis, typhoons, or floods, or  other disasters such as fires, explosions, acts of terrorism or war, disease
 or failures of our management information or other systems. If a business  interruption occurs, our business could be
 materially and adversely affected.  On March 11, 2011, an earthquake occurred near the northeastern coast of  Japan creating
 a tsunami that caused extensive damage. In August 2011, a hurricane produced large scale power outages throughout major
 portions of the East Coast of the United States. While  we do  not  anticipate  that these events will have a material impact
 on the  Companys  consolidated  financial  statements or  continuing  operations, we cannot predict  the long-term
 consequences  of those  disasters on our  operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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. The future
 effect of environmental matters, including potential liabilities, is often
 difficult to estimate. 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 somewhat 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Recent changes to senior management could affect the operation of the
 Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|In January
 2010, we announced the appointment of Dr. Koliopoulos as our President and
 Chief Executive Officer. In February 2011, we announced the appointment of
 John P. Jordan as our Vice President, Chief Financial Officer and Treasurer.
 The changes in senior management could adversely impact the Company due to a
 lack of historical knowledge and familiarity with all aspects of the
 Companys business and operations by new senior management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

11

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|We have been dependent on sales to one large customer; the loss of
 this customer or expected near-term reduction in bookings from this customer
 has and would materially affect our revenues and profitability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|During
 fiscal 2011, 2010, and 2009, sales to Canon Inc., our largest customer in
 each of those periods, accounted for 13%, 9%, and 14% of our net revenues,
 respectively. We expect that sales to Canon will continue to represent a
 significant percentage of our net revenues for the near future. Canon is an
 original investor in our Company, the owner at June 30, 2011 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Our substantial international revenues are subject to risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|We sell our
 products internationally, primarily to customers in Japan and throughout the
 Pacific Rim. Net revenues to customers outside the United States accounted
 for approximately 46%, 46% and 52% of our net revenues in each of the fiscal
 years ended June 30, 2011, 2010 and 2009, respectively, and are expected to
 continue to account for a substantial percentage of our net revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|International
 revenues and foreign operations are subject to inherent risks. These risks
 include the economic conditions in various foreign countries and their
 trading partners, political instability, longer payment cycles, potential
 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 revenues
 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 revenues of our products and foreign operations, as
 would changes in the general economic conditions in those markets. For our
 revenues that are recorded in local currency, we are exposed to foreign exchange
 fluctuations from the time customers are invoiced in local currency until
 collection occurs. For fiscal 2011, approximately 23% of our revenues 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 nor do we designate such hedges for hedge accounting purposes. These
 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 are expected to be largely offset by
 gains and losses on the underlying transactions. There can be no assurance
 that risks inherent in international revenues 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 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
 provide assurance that any acquisition, including the acquisitions of
 Zemetrics, Solvision, Inc. and the assets of ASML Inc.s Richmond, California
 operation, Zemetrics and Solvision, Inc. 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 previously disposed of or divested 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

12

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. Our results for one quarter should
 not be relied upon as an 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 various 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 more difficult to make.                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Our scheduled backlog may not result in future revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|We schedule
 the production of our systems based in part upon order backlog. Due to
 possible customer changes in delivery schedules and cancellations of
 bookings, our backlog at any particular date is not necessarily indicative of
 actual revenues for any succeeding period. There can be no assurance that
 amounts included in our backlog will ultimately result in future revenues. 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 revenues
 could adversely affect our results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Our lengthy revenue 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 a booking. 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 revenues. 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
 revenues. 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.                                              

13

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 revenues 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 our common stock would likely decline. In addition, the
 stock market has historically experienced price and volume fluctuations that
 have particularly affected the market prices for many high technology
 companies; these variations have often 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.                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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 the
 proprietary software technology incorporated in our products. Any failure 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 we take 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; those laws 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 revenue in China and other
 foreign countries which historically have created concerns for various
 companies. In addition, the possibility remains that others will reverse
 engineer our products in order to determine their method of operation and
 introduce competing products, or that others will independently develop
 competing technology. Any such circumstances could have a material adverse
 effect on our results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

14

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. At
 times, competition for these individuals from a variety of employers,
 including our competitors and companies in computer or technology-related
 industries, is intense. We cannot provide assurance that we will be able to
 retain our existing personnel or attract and retain additional personnel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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 manufacture of our products. If our key suppliers
 cease manufacturing the supplies we require, if their manufacturing
 operations are interrupted for any significant period 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.
 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.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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 could 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 revenues to decline.                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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 2011 that remain unresolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

15

---



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. As part of the acquisition
of substantially all of the assets of ASMLs Richmond operation we acquired a
55,300 square-foot manufacturing facility. 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 Extreme Precision Optics Group                                                           |  |                |         |                                 |  |         |  |  |                    | 
|Richmond, California                                                                          |  |                | 44,300  |                                 |  | 55,300  |  |  | Owned              | 
|                                                                                             
|Zygo - Optical Systems                                                                        |  |                |         |                                 |  |         |  |  |                    | 
|Tucson, Arizona                                                                               |  |                | 14,560  |                                 |  | 22,560  |  |  | Leased
 - 08/31/12 | 
|                                                                                             
|Zygo Lamda                                                                                    |  |                |         |                                 |  |         |  |  |                    | 
|China                                                                                         |  |                | 3,552   |                                 |  | 12,206  |  |  | Leased
 - 09/16/12 | 
|                                                                                             
|Zygo Canada, Inc.                                                                             |  |                |         |                                 |  |         |  |  |                    | 
|Canada                                                                                        |  |                | 2,447   |                                 |  | 6,851   |  |  | Leased
 - 07/31/13 | 
|                                                                                             
|Zygo - Optical Systems                                                                        |  |                |         |                                 |  |         |  |  |                    | 
|Costa Mesa, California                                                                        |  |                | 0       |                                 |  | 13,714  |  |  | Leased
 - 4/30/12  | 
|                                                                                             
|Western Regional Sales Office and R&D Center                                                  |  |                |         |                                 |  |         |  |  |                    | 
|Fremont, California                                                                           |  |                | 0       |                                 |  | 5,975   |  |  | Leased
 - 02/01/12 | 
|                                                                                             
|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
 - 03/31/13 | 
|                                                                                             
|Zygo PTE Ltd                                                                                  |  |                |         |                                 |  |         |  |  |                    | 
|Singapore                                                                                     |  |                | 0       |                                 |  | 2,174   |  |  | Leased
 - 12/31/12 | 
|                                                                                             
|Zygo Taiwan                                                                                   |  |                |         |                                 |  |         |  |  |                    | 
|Sales and Service Offices                                                                     |  |                | 0       |                                 |  | 2,023   |  |  | Leased
 - 04/30/12 | 
|                                                                                             
|ZygoLOT                                                                                       |  |                |         |                                 |  |         |  |  |                    | 
|Germany                                                                                       |  |                | 0       |                                 |  | 3,702   |  |  | Leased
 - 10/01/11 | 
|                                                                                             
|Zygo KK                                                                                       |  |                |         |                                 |  |         |  |  |                    | 
|Japan                                                                                         |  |                | 0       |                                 |  | 1,705   |  |  | Leased
 - 07/31/11 | 
|Demo Room                                                                                     |  |                | 0       |                                 |  | 500     |  |  | Leased
 - 03/31/13 | 
|                                                                                              |  |                |         |                                 |  |         |  |  |                    | 
|                                                                                              |  |                |         |                                 |  |         |  |  |                    | 
|Total                                                                                         |  |                | 153,859 |                                 |  | 288,072 |  |  |                    | 
|                                                                                              |  |                |         |                                 |  |         |  |  |                    | 

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 effect on our financial
condition, results of operations or liquidity.

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 2011 and
2010.

|               |  |                                 |       |                                 |   |       |  |     |       |  |   |      | 
|-------------- |  | ------------------------------- | ----- | ------------------------------- | - | ----- |  | --- | ----- |  | - | ---- | 
|               |  | Fiscal Year Ended June 30, 2011 |       | Fiscal Year Ended June 30, 2010 |  
|               |  |                                 |       |                                 |  
|               |  | High                            |       | Low                             |   | High  |  | Low |      
|               |  |                                 |       |                                 |   |       |  |     |      
|First quarter  |  | $                               | 9.88  |                                 | $ | 7.10  |  | $   | 7.44  |  | $ | 4.69 | 
|Second quarter |  | $                               | 12.95 |                                 | $ | 9.47  |  | $   | 7.82  |  | $ | 6.35 | 
|Third quarter  |  | $                               | 16.20 |                                 | $ | 10.38 |  | $   | 10.88 |  | $ | 7.22 | 
|Fourth quarter |  | $                               | 14.95 |                                 | $ | 11.05 |  | $   | 10.00 |  | $ | 6.56 | 

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 August 26, 2011 was 411. Our closing stock price as of
June 30, 2011 was $13.22.

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

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, 2011, we 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 2011, 2010 or 2009.

In January 2010, the Company
entered into an agreement to purchase all of the outstanding stock and to
retire the outstanding shareholder notes of Zemetrics, Inc., an Arizona
corporation (Zemetrics), in exchange for 361,217 unregistered shares of the
Companys common stock.

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.

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 2011 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, 2010 - September
 30, 2010   |  |                                    | 32,140 |                               | $ | 7.49                                                                                 |  |                                                                                                           |  |  | $ | 5.0 | 
|October 1, 2010 - December
 31, 2010 |  |                                    | 3,713  |                               | $ | 11.12                                                                                |  |                                                                                                           |  |  | $ | 5.0 | 
|January 1, 2011 - March 31,
 2011    |  |                                    |       |                               | $ | 0.00                                                                                 |  |                                                                                                           |  |  | $ | 5.0 | 
|April 1, 2011 - June 30,
 2011       |  |                                    | 3,142  |                               | $ | 14.30                                                                                |  |                                                                                                           |  |  | $ | 5.0 | 

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 the
fourth quarter of fiscal year 2011 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, 2011 - April 30,
 2011 |  |                                   | 2,790 |                               | $ | 14.50                                                                                |  |                                                                                                            |  |  | $ | 5.0 | 
|May 1, 2011 - May 31, 2011      |  |                                   | 352   |                               | $ | 12.73                                                                                |  |                                                                                                            |  |  | $ | 5.0 | 
|June 1, 2011 - June 30,
 2011   |  |                                   |      |                               |   |                                                                                     |  |                                                                                                            |  |  | $ | 5.0 | 

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 Commission, 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 new peer group are LeCroy
Corporation, Nanometrics, Inc., Rudolph Technologies, Inc., II-VI,
Incorporated, Electro Scientific Industries, Inc., Faro Technologies, Inc.,
Cognex Corp., FEI Co. and Ultratech, Inc. Companies in the old peer group are
Nanometrics, Inc., Rudolph Technologies, Inc., II-VI, Incorporated, Electro
Scientific Industries, Inc., Faro Technologies, Inc., Cognex Corp., FEI Co. and
Ultratech, Inc. The new peer group consists of issuers selected primarily based
on market capitalization and the markets they serve.

|                 |  |          |        |          |  |          |  |          |        |          |  |          |  |  |        |  |  |        | 
|---------------- |  | -------- | ------ | -------- |  | -------- |  | -------- | ------ | -------- |  | -------- |  |  | ------ |  |  | ------ | 
|                 |  |          |        |          |  |          |  |          |        |          |  |          | 
|                 |  | 06/30/06 |        | 06/30/07 |  | 06/30/08 |  | 06/30/09 |        | 06/30/10 |  | 06/30/11 | 
|                 |  |          |        |          |  |          |  |          |        |          |  |          | 
|ZYGO CORPORATION |  |          | 100.00 |          |  | 87.19    |  |          | 59.97  |          |  | 28.43    |  |  | 49.48  |  |  | 86.94  | 
|NASDAQ COMPOSITE |  |          | 100.00 |          |  | 120.72   |  |          | 107.21 |          |  | 86.71    |  |  | 100.61 |  |  | 133.66 | 
|NEW PEER GROUP   |  |          | 100.00 |          |  | 114.77   |  |          | 101.12 |          |  | 73.19    |  |  | 88.39  |  |  | 164.24 | 
|OLD PEER GROUP   |  |          | 100.00 |          |  | 116.85   |  |          | 102.84 |          |  | 75.22    |  |  | 90.74  |  |  | 167.72 | 

(LINE GRAPH)

18

---



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 per share,
number of employees, percentages and ratio amounts)

|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------- |  | --------------------------- | ------- | ---- | -- | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                 |  | Fiscal
 Year Ended June 30, |        
|                                                                                 |  |                             |        
|                                                                                 |  | 2011                        |         | 2010 |    | 2009    |   | 2008 |         | 2007 |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |  
|Net revenues                                                                     |  | $                           | 150,126 |      | $  | 101,330 |   | $    | 114,734 |      | $ | 158,463 |   | $ | 180,988 |  
|Gross profit                                                                     |  |                             | 70,793  |      |    | 41,969  |   |      | 32,433  |      |   | 64,681  |   |   | 77,183  |  
|Gross margin                                                                     |  |                             | 47      | %    |    | 41      | % |      | 28      | %    |   | 41      | % |   | 43      | %
|Net earnings (loss) from continuing operations                                   |  |                             | 20,592  |      |    | (2,668  | ) |      | (61,210 | )    |   | 3,337   |   |   | 16,118  |  
|Net earnings (loss) from discontinued operations, net of tax                     |  |                             | 91      |      |    | (2,669  | ) |      | (4,059  | )    |   | (700    | ) |   |        |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss) including noncontrolling interest                            |  |                             | 20,683  |      |    | (5,337  | ) |      | (65,269 | )    |   | 2,637   |   |   | 16,118  |  
|Less: Net earnings attributabe to noncontrolling interest                        |  |                             | 1,604   |      |    | 957     |   |      | 795     |      |   | 1,398   |   |   | 976     |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss) attributable to Zygo Corporation                             |  | $                           | 19,079  |      | $  | (6,294  | ) | $    | (66,064 | )    | $ | 1,239   |   | $ | 15,142  |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|% of net revenues                                                                |  |                             | 13      | %    |    | -6      | % |      | -58     | %    |   | 1       | % |   | 8       | %
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss) from continuing operations attributable to Zygo
 Corporation |  | $                           | 18,988  |      | $  | (3,625  | ) | $    | (62,005 | )    | $ | 1,939   |   | $ | 15,142  |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|% of net revenues                                                                |  |                             | 13      | %    |    | -4      | % |      | -54     | %    |   | 1       | % |   | 8       | %
|Basic - Net earnings (loss) per share attributable to Zygo
 Corporation:         |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Continuing operations                                                            |  | $                           | 1.08    |      | ($ | 0.21    | ) | ($   | 3.68    | )    | $ | 0.11    |   | $ | 0.83    |  
|Discontinued operations                                                          |  |                             |        |      |    | (0.16   | ) |      | (0.24   | )    |   | (0.04   | ) |   |        |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss) per share                                                    |  | $                           | 1.08    |      | ($ | 0.37    | ) | ($   | 3.92    | )    | $ | 0.07    |   | $ | 0.83    |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Diluted - Net earnings (loss) per share attributable to Zygo Corporation:        |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Continuing operations                                                            |  | $                           | 1.05    |      | ($ | 0.21    | ) | ($   | 3.68    | )    | $ | 0.11    |   | $ | 0.81    |  
|Discontinued operations                                                          |  |                             |        |      |    | (0.16   | ) |      | (0.24   | )    |   | (0.04   | ) |   |        |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Net earnings (loss) per share                                                    |  | $                           | 1.05    |      | ($ | 0.37    | ) | ($   | 3.92    | )    | $ | 0.07    |   | $ | 0.81    |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Weighted average number of shares:                                               |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Basic                                                                            |  |                             | 17,639  |      |    | 17,183  |   |      | 16,843  |      |   | 17,295  |   |   | 18,156  |  
|Diluted                                                                          |  |                             | 18,140  |      |    | 17,183  |   |      | 16,843  |      |   | 17,648  |   |   | 18,601  |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|Research, development and engineering                                            |  | $                           | 14,990  |      | $  | 14,284  |   | $    | 23,234  |      | $ | 23,971  |   | $ | 22,038  |  
|Capital expenditures                                                             |  | $                           | 1,522   |      | $  | 1,441   |   | $    | 4,255   |      | $ | 6,580   |   | $ | 10,149  |  
|Depreciation and amortization                                                    |  | $                           | 6,431   |      | $  | 6,125   |   | $    | 7,960   |      | $ | 7,352   |   | $ | 6,519   |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |   |         |   |   |         |  
|                                                                                 |  | June
 30,                   |        
|                                                                                 |  |                             |        
|                                                                                 |  | 2011                        |         | 2010 |    | 2009    |   | 2008 |         | 2007 |  
|                                                                                 |  |                             |         |      |    |         |   |      |         |      |  
|Working capital                                                                  |  | $                           | 95,201  |      | $  | 72,485  |   | $    | 69,742  |      | $ | 104,851 |   | $ | 107,834 |  
|Current ratio                                                                    |  |                             | 4.5     |      |    | 4.2     |   |      | 4.3     |      |   | 5.7     |   |   | 4.3     |  
|Total assets                                                                     |  | $                           | 159,604 |      | $  | 125,165 |   | $    | 124,099 |      | $ | 190,008 |   | $ | 211,594 |  
|Stockholders equity                                                             |  | $                           | 124,720 |      | $  | 98,403  |   | $    | 98,583  |      | $ | 162,524 |   | $ | 177,594 |  
|Price-earnings ratio                                                             |  |                             | 13      |      |    |        |   |      |        |      |   | 140     |   |   | 18      |  
|Number of employees at year-end                                                  |  |                             | 537     |      |    | 454     |   |      | 484     |      |   | 595     |   |   | 575     |  
|Revenue per employee  average                                                   |  | $                           | 280     |      | $  | 223     |   | $    | 237     |      | $ | 266     |   | $ | 315     |  
|Book value per share                                                             |  | $                           | 7.02    |      | $  | 5.63    |   | $    | 5.83    |      | $ | 9.71    |   | $ | 9.74    |  
|Market price per share at year-end                                               |  | $                           | 13.22   |      | $  | 8.11    |   | $    | 4.66    |      | $ | 9.83    |   | $ | 14.29   |  

19

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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, discontinued operations 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, discontinued operations, 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 AccountsWe recognize revenue
based on guidance provided in SEC Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition and in accordance with authoritative guidance issued by
the Financial Accounting Standard Board (FASB) pertaining to 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 collectability 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
authoritative guidance of 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 related
authoritative guidance. Standalone software products are recognized as revenue
when they are shipped.

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 may be required.

20

---



Discontinued OperationsThe Company classifies
operations as discontinued when the operations have either ceased, or are
expected to be disposed of in a sale transaction in the near term and the operations
and cash flows of all discontinued operations have been eliminated or will be
eliminated upon consummation of the expected sale transaction and the Company
will not have any significant continuing involvement in the discontinued
operations. Authoritative guidance related to the impairment or disposal of
long-lived assets requires the calculation of estimated fair value less cost to
sell long-lived assets for assets held for sale. The calculation of estimated
fair value less cost to sell includes significant estimates and assumptions,
including, but not limited to: operating projections; discount rate; excess
working capital levels; property values; and the anticipated costs involved in
the selling process. As more fully described in Note 20, Discontinued
Operations, we have discontinued the Singapore IC packaging operations of our
vision systems product line, which was included in our Metrology Solutions
segment.

Inventory ValuationInventories 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 quarterly 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, over a reasonable period of time, 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 affecting earnings may be required.

Other Than Temporary Impairment of Marketable SecuritiesMarketable 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 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 CompensationWe calculate
share-based compensation expense in accordance with authoritative guidance
pertaining to share-based payment 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 and dividend yield. The determination of
these assumptions is based on 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 CostsWe provide for the
estimated cost of product warranties at the time revenue is recognized. We
consider historical warranty costs actually incurred together with 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 may be
required. A one percent change in warranty liability would have an immaterial
impact on our financial condition and results of operations.

21

---



Accounting for Income TaxesDeferred 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 basis and
operating loss and tax credit carryforwards. Authoritative guidance issued by
the FASB pertaining to 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. The Company maintains the valuation allowance at June 30, 2011.
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.

Valuation of Long-Lived AssetsIn accordance with
authoritative guidance issued by the FASB pertaining to 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 that 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 compare 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 2011, we recorded an impairment charge
on property, plant and equipment.During
fiscal 2010, we recorded an impairment charge on goodwill. During fiscal 2009,
we recorded impairment charges on property, plant and equipment, intangible
assets and marketable securities.

Health InsuranceWe 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 five percent change in actual claims would have an immaterial impact
on our financial condition and results of operations.

22

---



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, our 55,300 square
foot facility in Richmond, California and a 22,560 square foot leased facility
in Tucson, Arizona.

During the second quarter of
fiscal 2011, we completed a transaction with ASML US, Inc. (ASML) to purchase
substantially all the assets of ASMLs Richmond, California operation,
including a 55,300 square-foot manufacturing facility. The assets were acquired
for $7.1 million in cash and future consideration with a net present value of
$5.3 million, based on the projected level of shipments to ASML over the next
three years beginning January 1, 2011. In addition, we hired key management and
employees working at the former ASML Richmond facility and formed our Extreme
Precision Optics group (EPO), which is included in our Optical Systems
segment. With this acquisition, we have considerably expanded our optical
manufacturing capabilities. Combined with our existing leadership position in
metrology, large flat optics production and electro-optical design and
manufacturing, EPO provides highly synergistic capabilities that address new
applications in semiconductor, defense and the life-sciences markets.

The fair value of the Richmond
assets acquired was greater than the purchase price, resulting in a gain on
acquisition of $2.0 million which was recorded in other income. In addition, a
deferred tax liability of $0.7 million was recorded in the opening balance
sheet, which had the effect of reducing the gain on acquisition to $1.3
million. The fair value of the assets was determined based on managements
review of the value of the assets at the time of the acquisition.

Our revenues increased 48% in
fiscal 2011 from fiscal 2010 and our earnings per diluted share increased to
$1.05 in fiscal 2011 from a loss of $0.37 per diluted share in fiscal 2010.
Fiscal 2011 results include a gain on acquisition of $0.11 per diluted share,
net of tax. Fiscal 2010 results include the impact of (i) costs for the
acquisition of Zemetrics, including the charge relating to the impairment of
goodwill as part of the purchase price valuation, (ii) the Companys evaluation
of an unsolicited stock offer, (iii) search cost for a new chief executive
officer and (iv) inventory adjustments. The net effect of these charges was to
reduce net earnings from continuing operations in fiscal 2010 by $5.6 million,
or $0.32 per diluted share. Our fiscal 2011 results reflected strong revenue
growth in both our segments. The revenue growth in the Optical Systems segment
included revenues from EPO, which we established in fiscal 2011.

Our backlog at June 30, 2011
was $62.0 million, an increase of $17.1 million from June 30, 2010. Net
bookings were $44.2 million in the fourth quarter of fiscal 2011. Net bookings
for the fourth quarter from the Metrology Solutions segment accounted for 61%
of the bookings received; the Optical Systems segment accounted for the
remaining 39%. For fiscal 2011, bookings were $167.2 million, an increase of
55% over fiscal 2010 as a result of increased activity across all product lines
resulting from our continued product and market diversification and the
strength in our markets, as well as the addition of EPO.

We have assessed the impact
on our business resulting from the earthquake, tsunami and nuclear disaster in
Japan and do not believe that these events have had nor will have a material
impact on the Companys consolidated financial statements or continuing
operations. Our activities in Japan resumed full operation shortly after the
events. Indications at this time are that shipments both into Japan and from
our Japanese operation will not be seriously affected. In addition, to date,
our supply chain has been unaffected by the events in Japan.

23

---



RESULTS OF OPERATIONS

Fiscal 2011 Compared with Fiscal 2010

Net Revenues by Segment

|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  
|---------------------- |  | ------------- | ----- | -------------------- |  | ------ | - | --------------------- | ----- |  |  | --- | -
|                       |  | Year Ended    |      
|                       |  |               |      
|(Dollars
 in millions) |  | June 30, 2011 |       | June
 30, 2010       | 
|                       |  |               |       |                      | 
|                       |  | Amount        |       | Percentage of
 Total |  | Amount |   | Percentage
 of
 Total |      
|                       |  |               |       |                      |  |        |   |                       |      
|Metrology Solutions    |  | $             | 92.9  |                      |  | 62     | % | $                     | 65.8  |  |  | 65  | %
|Optical Systems        |  |               | 57.2  |                      |  | 38     | % |                       | 35.5  |  |  | 35  | %
|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  
|Total                  |  | $             | 150.1 |                      |  | 100    | % | $                     | 101.3 |  |  | 100 | %
|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  

Revenues for fiscal 2011
increased 48% compared with the prior year period, reflecting increases in the
Metrology Solutions segment revenues of 41% and the increase in Optical Systems
segment revenue of 61%. The increase in the Metrology Solutions segment
revenues was primarily due to volume increases in instruments of $14.2 million
and lithography stage metrology of $14.1 million. The increase in instruments
was due to volume increases in large aperture and microscope products. We
generated revenue increases across all our regions. Large aperture revenues
were especially strong in the Americas and China (included in our Pacific Rim
geographic region). The increase in lithography stage metrology is due to
strength in the semiconductor market.

The increase in the Optical
Systems segment revenues was primarily due to revenues of $14.4 million
generated by EPO since the formation of the group in the second quarter of
fiscal 2011. We also generated increases in contract manufacturing of $4.3
million and precision optics of $3.3 million. The increase in contract
manufacturing revenue was due to higher helmet mounted display unit volumes
which more than offset declines in laser vision systems and dental wands.

Approximately 77% of all
fiscal 2011 net revenues were denominated in U.S. dollars, compared with 76% in
fiscal 2010. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can influence the revenues of our products in
export markets, as would changes in the general economic conditions in those
markets.

Gross Margin by Segment

|                       |  |               |      |                |  |               |   |               |      |  |  |    |  
|---------------------- |  | ------------- | ---- | -------------- |  | ------------- | - | ------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2011 |      | June
 30, 2010 | 
|                       |  |               |      |                | 
|                       |  |               |      |                |  |               |   |               |     
|                       |  | Gross Profit  |      | Gross Margin   |  | Gross
 Profit |   | Gross
 Margin |     
|                       |  |               |      |                |  |               |   |               |     
|Metrology Solutions    |  | $             | 50.9 |                |  | 55            | % | $             | 33.7 |  |  | 51 | %
|Optical Systems        |  |               | 19.9 |                |  | 35            | % |               | 8.3  |  |  | 23 | %
|                       |  |               |      |                |  |               |   |               |      |  |  |    |  
|Total                  |  | $             | 70.8 |                |  | 47            | % | $             | 42.0 |  |  | 41 | %
|                       |  |               |      |                |  |               |   |               |      |  |  |    |  

Gross margin for fiscal 2011
was 47%, which represents an increase of six percentage points from the
comparable prior year period. Within the Metrology Solutions segment, gross
margin increased to 55% for the twelve months ended June 30, 2011 compared with
the prior year comparable period of 51%, primarily due to improved absorption
of factory costs due to increased revenues and the reduced level of inventory
reserves taken in fiscal 2011 compared with fiscal 2010. Within the Optical
Systems segment, the gross margin increased to 35% for the twelve months ended
June 30, 2011 compared with 23% in the comparable prior year period. The
Optical Systems segment gross margin increase for the twelve months ended June
30, 2011 was primarily due to improved absorption of factory costs due to
increased revenues.

24

---



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

|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  
|---------------------- |  | ------------- | ---- | --------------------------- |  | ------ | - | ---------------------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2011 |      | June
 30, 2010              | 
|                       |  |               |      |                             | 
|                       |  | Amount        |      | Percentage of
 Net Revenues |  | Amount |   | Percentage
 of
 Net Revenues |     
|                       |  |               |      |                             |  |        |   |                              |     
|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  
|                       |  | $             | 34.7 |                             |  | 23     | % | $                            | 29.5 |  |  | 29 | %
|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  

SG&A expenses increased
in fiscal 2011 by $5.2 million from the comparable prior year period. The prior
year expense includes approximately $2.6 million of expenses related to the
Companys evaluation of an unsolicited offer to purchase the outstanding stock
of the Company, Zemetrics acquisition costs, the retirement of our former chief
executive officer, the search costs for a new chief executive officer and
severance charges, which were partially offset by a reversal in provision for
bad debt reserve. The increase was primarily due to employee compensation
expenses, which included terminating pay reductions and restoring
performance-based programs. The decrease in SG&A as a percentage of revenue
was due to managements efforts to control expenses over a significant increase
in the revenue base.

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

|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  
|---------------------- |  | ------------- | ---- | --------------------------- |  | ------ | - | ---------------------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|                       |  | June 30, 2011 |      | June
 30, 2010              | 
|                       |  |               |      |                             | 
|(Dollars
 in millions) |  | Amount        |      | Percentage of
 Net Revenues |  | Amount |   | Percentage
 of
 Net Revenues |     
|                       |  |               |      |                             |  |        |   |                              |     
|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  
|                       |  | $             | 15.0 |                             |  | 10     | % | $                            | 14.3 |  |  | 14 | %
|                       |  |               |      |                             |  |        |   |                              |      |  |  |    |  

RD&E expense increased
slightly in fiscal 2011 by $0.7 million from the comparable prior year period
primarily related to new product costs in the instruments group and the
addition of EPO RD&E expenses. RD&E expenses as a percent of revenue
decreased four percentage points due to managements efforts to control
expenses over a significant increase in the revenue base.

Impairment of Goodwill

|                       |  |               |   |                             |  |        |  |                              |     |  |  |   |  
|---------------------- |  | ------------- | - | --------------------------- |  | ------ |  | ---------------------------- | --- |  |  | - | -
|                       |  | Year Ended    |  
|                       |  |               |  
|                       |  | June 30, 2011 |   | June
 30, 2010              | 
|                       |  |               |   |                             | 
|(Dollars
 in millions) |  | Amount        |   | Percentage of
 Net Revenues |  | Amount |  | Percentage
 of
 Net Revenues |    
|                       |  |               |   |                             |  |        |  |                              |    
|                       |  |               |   |                             |  |        |  |                              |     |  |  |   |  
|                       |  | $             |  |                             |  |       |  | $                            | 2.0 |  |  | 2 | %
|                       |  |               |   |                             |  |        |  |                              |     |  |  |   |  

The Company recorded an
impairment charge of $2.0 million in fiscal 2010 relating to the goodwill
acquired in connection with its acquisition of Zemetrics. The Zemetrics
reporting unit had minimal sales history and cumulative losses since inception.
In addition, the fair value of common stock issued as consideration on the
closing date was $10.80 per share, which was in excess of the implied value per
share in the formula used in the purchase agreement to determine the number of
common shares issued as consideration (which was based on the market price per
share during the 40-day period prior to closing). In consideration of these
factors, management determined that the carrying value of the reporting unit
exceeded its fair value and that the implied fair value of goodwill was zero at
March 31, 2010.

25

---



Other Income

|                       |  |               |     |                             |  |        |  |                              |     |  |  |   | 
|---------------------- |  | ------------- | --- | --------------------------- |  | ------ |  | ---------------------------- | --- |  |  | - | 
|                       |  | Year Ended    |    
|                       |  |               |    
|(Dollars
 in millions) |  | June 30, 2011 |     | June
 30, 2010              | 
|                       |  |               |     |                             | 
|                       |  | Amount        |     | Percentage of
 Net Revenues |  | Amount |  | Percentage
 of
 Net Revenues |    
|                       |  |               |     |                             |  |        |  |                              |    
|                       |  |               |     |                             |  |        |  |                              |     |  |  |   | 
|                       |  | $             | 0.8 |                             |  |       |  | $                            | 0.1 |  |  |  | 
|                       |  |               |     |                             |  |        |  |                              |     |  |  |   | 

Other income for fiscal 2011
increased by $0.7 million over the prior year balance, primarily due to the
gain on acquisition recorded on the purchase of substantially all the assets of
ASMLs Richmond, California operation, partially offset by the amortization of
the ASML discount liability associated with the acquisition.

Income Tax Benefit (Expense)

|                       |  |               |      |                      |  |        |   |                       |     |  |  |    |  
|---------------------- |  | ------------- | ---- | -------------------- |  | ------ | - | --------------------- | --- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2011 |      | June
 30, 2010       | 
|                       |  |               |      |                      | 
|                       |  | Amount        |      | Tax Rate
 Percentage |  | Amount |   | Tax
 Rate
 Percentage |    
|                       |  |               |      |                      |  |        |   |                       |    
|                       |  |               |      |                      |  |        |   |                       |     |  |  |    |  
|                       |  | $             | (1.3 | )                    |  | 6      | % | $                     | 1.0 |  |  | 28 | %
|                       |  |               |      |                      |  |        |   |                       |     |  |  |    |  

In fiscal 2011, income tax
expense is related primarily to foreign and state income tax expense. There is
no current United States federal income tax expense due to our net operating
loss (NOL) carryforwards and the valuation allowance on those NOLs. During
fiscal 2011, we also recognized $725 of tax benefit from the adjustment of
valuation allowances on our deferred tax assets associated with the Richmond
asset purchase. The deferred tax liability recorded in connection with the gain
on acquisition reduced our net deferred tax assets which, in turn, reduced our
valuation allowance. The reduction in the valuation allowance was recorded as a
current period tax benefit. We continue to maintain a valuation allowance on
our net deferred tax assets as of June 30, 2011. In future periods, the
valuation allowance could be reduced based upon sufficient evidence indicating
that it is more likely than not that a portion of the deferred tax assets will
be realized.

During fiscal 2010, we were
also able to realize an income tax benefit for refund claims associated with
NOL carryforwards and research and development credits due to changes in the
United States tax regulations. In addition, we realized a benefit from the
reversal of liabilities related to uncertain tax positions as such positions
were settled in fiscal 2010. These income tax benefits were partially offset by
income tax expense in foreign jurisdictions and state income taxes in the
United States.

Net Earnings (Loss) from Continuing Operations Attributable
To Zygo Corporation

|                       |  |               |      |                             |  |        |   |                              |      |   |  |    |  
|---------------------- |  | ------------- | ---- | --------------------------- |  | ------ | - | ---------------------------- | ---- | - |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2011 |      | June
 30, 2010              | 
|                       |  |               |      |                             | 
|                       |  | Amount        |      | Percentage of
 Net Revenues |  | Amount |   | Percentage
 of
 Net Revenues |     
|                       |  |               |      |                             |  |        |   |                              |     
|                       |  |               |      |                             |  |        |   |                              |     
|                       |  | $             | 19.0 |                             |  | 13     | % | $                            | (3.6 | ) |  | -4 | %
|                       |  |               |      |                             |  |        |   |                              |      |   |  |    |  

Net earnings from continuing
operations attributable to Zygo Corporation in fiscal 2011 was $19.0 million
compared with a net loss from continuing operations attributable to Zygo
Corporation of $3.6 million in the prior year. Net earnings from continuing
operations attributable to Zygo Corporation per diluted share was $1.05 for
fiscal 2011, compared with a net loss from continuing operations attributable to
Zygo Corporation of $0.21 per diluted share for fiscal 2010.

The net earnings in fiscal
2011 included seven months of operating activity of EPO as well as the effects
of managements efforts to control expenses over a significant increase in the
revenue base. Net earnings in fiscal 2011 also included the effects of the
restoration of employee compensation programs, including restoration of the pay
and performance-based programs.

The net loss in fiscal 2010
included $5.6 million in significant charges, net of taxes, which included
asset impairment charges and reserves on various other balance sheet items.
These charges were incurred primarily as a result of the economic downturn and
recent changes in our business strategy and operations resulting in re-evaluation
of certain of our assets.

26

---



Net Earnings
(Loss) from Discontinued Operations, net of tax

|                       |  |               |     |                             |  |        |  |                              |      |   |  |    |  
|---------------------- |  | ------------- | --- | --------------------------- |  | ------ |  | ---------------------------- | ---- | - |  | -- | -
|                       |  | Year Ended    |    
|                       |  |               |    
|(Dollars
 in millions) |  | June 30, 2011 |     | June
 30, 2010              | 
|                       |  |               |     |                             | 
|                       |  | Amount        |     | Percentage of
 Net Revenues |  | Amount |  | Percentage
 of
 Net Revenues |     
|                       |  |               |     |                             |  |        |  |                              |     
|                       |  | $             | 0.1 |                             |  |       |  | $                            | (2.7 | ) |  | -3 | %
|                       |  |               |     |                             |  |        |  |                              |      |   |  |    |  

The loss from discontinued
operations for fiscal 2010 of $2.7 million was due to severance and other
closure costs, primarily related to the closure of our Singapore IC packaging
operations of our vision systems product line in the first quarter.

Backlog

Backlog at June 30, 2011 was
$62.0 million, an increase of $17.1 million from June 30, 2010. The year-end
fiscal 2011 backlog consisted of $31.4 million, or 51%, in the Metrology
Solutions segment and $30.6 million, or 49%, in the Optical Systems segment.
Bookings for fiscal 2011 totaled $167.2 million. Bookings by segment for fiscal
2011 consisted of $103.0 million, or 62%, in the Metrology Solutions segment
and $64.2 million, or 38%, in the Optical Systems segment.

Fiscal 2010 Compared with Fiscal 2009

Net Revenues

|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  
|---------------------- |  | ------------- | ----- | -------------------- |  | ------ | - | --------------------- | ----- |  |  | --- | -
|                       |  | Year Ended    |      
|                       |  |               |      
|(Dollars
 in millions) |  | June 30, 2010 |       | June
 30, 2009       | 
|                       |  |               |       |                      | 
|                       |  | Amount        |       | Percentage of
 Total |  | Amount |   | Percentage
 of
 Total |      
|                       |  |               |       |                      |  |        |   |                       |      
|Metrology Solutions    |  | $             | 65.8  |                      |  | 65     | % | $                     | 82.8  |  |  | 72  | %
|Optical Systems        |  |               | 35.5  |                      |  | 35     | % |                       | 31.9  |  |  | 28  | %
|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  
|Total                  |  | $             | 101.3 |                      |  | 100    | % | $                     | 114.7 |  |  | 100 | %
|                       |  |               |       |                      |  |        |   |                       |       |  |  |     |  

Revenues for fiscal 2010
decreased 12% compared with the prior year period, reflecting decreases in the
Metrology Solutions segment revenues of
21%, partially offset by the Optical Systems segment revenue increase of 11%.
The decrease in Metrology Solutions segment revenues was primarily due to
volume decreases in display solutions of $10.8 million, instruments of $6.8
million and lithography of $2.9 million, partially offset by increased revenues
in vision systems of $1.9 million. New business in the Metrology Solutions
segment related to OEM heads increased revenues by $2.4 million. The decrease
in display solution revenues was due to the arrangement entered into with Toho
Technology Corporation (Toho) in October 2009. The volume decreases in
instruments and lithography revenues, in large measure, were due to a reduction
in bookings that appeared to be tied directly to the general global economic
downturn, most notably in the semiconductor industry. A decrease in bookings
from Canon accounted for the majority of the decrease in lithography revenues.
The increase in the Optical Systems segment revenues was primarily due to
increases in optical component revenues of $2.0 million.

Approximately 76% of all
fiscal 2010 net revenues were denominated in U.S. dollars, compared with 77% in
fiscal 2009. Significant changes in the values of foreign currencies relative
to the value of the U.S. dollar can influence the revenues of our products in
export markets, as would changes in the general economic conditions in those
markets.

27

---



Gross Margin by Segment

|                       |  |               |      |                |  |               |   |               |      |  |  |    |  
|---------------------- |  | ------------- | ---- | -------------- |  | ------------- | - | ------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2010 |      | June
 30, 2009 | 
|                       |  |               |      |                | 
|                       |  |               |      |                | 
|                       |  | Gross Profit  |      | Gross Margin   |  | Gross
 Profit |   | Gross
 Margin |     
|                       |  |               |      |                |  |               |   |               |     
|Metrology Solutions    |  | $             | 33.7 |                |  | 51            | % | $             | 28.4 |  |  | 34 | %
|Optical Systems        |  |               | 8.3  |                |  | 23            | % |               | 4.0  |  |  | 13 | %
|                       |  |               |      |                |  |               |   |               |      |  |  |    |  
|Total                  |  | $             | 42.0 |                |  | 41            | % | $             | 32.4 |  |  | 28 | %
|                       |  |               |      |                |  |               |   |               |      |  |  |    |  

Gross margin
for fiscal 2010 was 41%, which represents an increase of thirteen percentage
points from the comparable prior year period which included charges for
severance, inventory adjustments and impairment charges totaling $11.1 million.
Excluding these charges, the gross margin in the prior year period would have
been 38%. Within the Metrology Solutions segment, gross margin increased to 51%
for the twelve months ended June 30, 2010 compared with the prior year
comparable period of 34%. The comparable prior year period included $9.1
million of the charges referred to above. Excluding those charges the fiscal
2009 metrology gross margin would have been 45%. The increase to 51% gross
margin in the period in the Metrology segment was primarily due to improved
factory costs and a decrease in low-margin display revenues. Within the Optical
Systems segment, the gross margin increased to 23% for the twelve months ended
June 30, 2010 compared with 13% in the comparable prior year period. The
Optical Systems segment gross margin for the twelve months ended June 30, 2010
was negatively impacted by production issues experienced in the first quarter
of fiscal 2010 related to certain optics, resulting in negative gross margins.

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

|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  
|---------------------- |  | ------------- | ---- | ---------------------------- |  | ------ | - | ----------------------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2010 |      | June
 30, 2009               | 
|                       |  |               |      |                              | 
|                       |  | Amount        |      | Percentage of 
 Net Revenues |  | Amount |   | Percentage
 of 
 Net Revenues |     
|                       |  |               |      |                              |  |        |   |                               |     
|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  
|                       |  | $             | 29.5 |                              |  | 29     | % | $                             | 49.2 |  |  | 43 | %
|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  

SG&A in
fiscal 2010 compared with fiscal 2009 decreased $19.7 million. SG&A in
fiscal 2010 and 2009 included significant charges of $2.6 million and $14.0
million, respectively. The decrease to $26.9 million from $35.2 million is
primarily related to costs eliminated with the sale of our semiconductor and
display product lines, as well as employee headcount and salary reductions. The
large significant charges for fiscal 2010 included $1.4 million in costs
related to an unsolicited merger offer, $0.9 million in CEO search and
retirement costs, $0.5 million of Zemetrics acquisition expenses and $0.5
million in severance expense, partially offset by $0.7 million reversal in bad
debt reserve. The large significant charges for fiscal 2009 included $8.3
million in terminated merger-related expenses, $2.9 million in bad debt
reserves, $1.3 million in legal accruals, $0.5 million in intangible asset
impairment charges related to the vision systems business and $1.0 million in
severance.

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

|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  
|---------------------- |  | ------------- | ---- | ---------------------------- |  | ------ | - | ----------------------------- | ---- |  |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2010 |      | June
 30, 2009               | 
|                       |  |               |      |                              | 
|                       |  | Amount        |      | Percentage of 
 Net Revenues |  | Amount |   | Percentage
 of 
 Net Revenues |     
|                       |  |               |      |                              |  |        |   |                               |     
|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  
|                       |  | $             | 14.3 |                              |  | 14     | % | $                             | 23.2 |  |  | 20 | %
|                       |  |               |      |                              |  |        |   |                               |      |  |  |    |  

RD&E costs
decreased $8.9 million in fiscal 2010 compared with the prior year period.
Fiscal 2010 included charges related to severance costs of $0.4 million. Fiscal
2009 included charges related to intangible asset and fixed asset impairment
charges of $2.2 million and severance costs of $0.2 million. The decrease in
RD&E was primarily due to the elimination of costs related to the
semiconductor and display product lines in June and October 2009, respectively.

28

---



Impairment of Goodwill

|                       |  |               |     |                              |  |        |   |                               |   |  |  |   | 
|---------------------- |  | ------------- | --- | ---------------------------- |  | ------ | - | ----------------------------- | - |  |  | - | 
|                       |  | Year Ended    |    
|                       |  |               |    
|(Dollars
 in millions) |  | June 30, 2010 |     | June
 30, 2009               | 
|                       |  |               |     |                              | 
|                       |  | Amount        |     | Percentage of 
 Net Revenues |  | Amount |   | Percentage
 of 
 Net Revenues |  
|                       |  |               |     |                              |  |        |   |                               |  
|                       |  |               |     |                              |  |        |   |                               |   |  |  |   | 
|                       |  | $             | 2.0 |                              |  | 2      | % | $                             |  |  |  |  | 
|                       |  |               |     |                              |  |        |   |                               |   |  |  |   | 

The Company
recorded an impairment charge of $2.0 million during the three months ended
March 31, 2010 relating to acquired goodwill in connection with its acquisition
of Zemetrics. The Zemetrics reporting unit had minimal sales history and
cumulative losses since inception. In addition, the fair value of common stock
issued as consideration on the closing date was $10.80 per share, which was in
excess of the implied value per share in the formula used in the purchase
agreement to determine the number of common shares issued as consideration
(which was based on the market price per share during the 40-day period prior
to closing). In consideration of these factors, management determined that the
carrying value of the reporting unit exceeded its fair value and that the
implied fair value of goodwill was zero at March 31, 2010.

Other Income

|                       |  |               |     |                              |  |        |  |                               |     |  |  |   |  
|---------------------- |  | ------------- | --- | ---------------------------- |  | ------ |  | ----------------------------- | --- |  |  | - | -
|                       |  | Year Ended    |    
|                       |  |               |    
|(Dollars
 in millions) |  | June 30, 2010 |     | June
 30, 2009               | 
|                       |  |               |     |                              | 
|                       |  | Amount        |     | Percentage of 
 Net Revenues |  | Amount |  | Percentage
 of 
 Net Revenues |    
|                       |  |               |     |                              |  |        |  |                               |    
|                       |  |               |     |                              |  |        |  |                               |     |  |  |   |  
|                       |  | $             | 0.1 |                              |  |       |  | $                             | 1.0 |  |  | 1 | %
|                       |  |               |     |                              |  |        |  |                               |     |  |  |   |  

Other income
for fiscal 2010 decreased by $0.9 million, compared with the prior year period,
primarily due to a decrease in investment income. We changed our investment
portfolio and have a low-risk government security portfolio, which carries a
significantly lower interest rate than corporate bonds, and a greater
percentage of cash is invested in money market accounts.

Income Tax Benefit (Expense)

|                       |  |               |     |                       |  |        |   |                        |       |   |  |    |  
|---------------------- |  | ------------- | --- | --------------------- |  | ------ | - | ---------------------- | ----- | - |  | -- | -
|                       |  | Year Ended    |    
|                       |  |               |    
|(Dollars
 in millions) |  | June 30, 2010 |     | June
 30, 2009        | 
|                       |  |               |     |                       | 
|                       |  | Amount        |     | Tax Rate 
 Percentage |  | Amount |   | Tax
 Rate 
 Percentage |      
|                       |  |               |     |                       |  |        |   |                        |      
|                       |  |               |     |                       |  |        |   |                        |       |   |  |    |  
|                       |  | $             | 1.0 |                       |  | 28     | % | $                      | (22.2 | ) |  | 57 | %
|                       |  |               |     |                       |  |        |   |                        |       |   |  |    |  

Income tax
expense in fiscal 2009 included an increase in the valuation allowance of $36.9
million against net deferred tax assets. The valuation allowance increased in
2010 to recognize changes in deferred assets for the 2010 fiscal year. These
changes in gross deferred assets would otherwise have increased tax expense.
Fiscal 2010 does not include any tax benefit associated with the net operating
loss for the fiscal years or tax credits earned in the fiscal year.

During fiscal
2010, the Company was able to realize an income tax benefit for refund claims
associated with net operating loss carryforwards and research and development
credits due to changes in the United States tax regulations. In addition, we
realized a benefit from the reversal of liabilities related to uncertain tax
positions, as those positions were settled in fiscal 2010. These income tax
benefits were partially offset by income tax expense in foreign jurisdictions
and state income taxes in the United States.

29

---



Net Loss from Continuing Operations
Attributable To Zygo Corporation

|                       |  |               |      |                              |  |        |   |                               |       |   |  |     |  
|---------------------- |  | ------------- | ---- | ---------------------------- |  | ------ | - | ----------------------------- | ----- | - |  | --- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2010 |      | June
 30, 2009               | 
|                       |  |               |      |                              | 
|                       |  | Amount        |      | Percentage of 
 Net Revenues |  | Amount |   | Percentage
 of 
 Net Revenues |      
|                       |  |               |      |                              |  |        |   |                               |      
|                       |  |               |      |                              |  |        |   |                               |       |   |  |     |  
|                       |  | $             | (3.6 | )                            |  | -4     | % | $                             | (62.0 | ) |  | -54 | %
|                       |  |               |      |                              |  |        |   |                               |       |   |  |     |  

Net loss from
continuing operations attributable to Zygo Corporation in fiscal 2010 was $3.6
million, compared with a net loss from continuing operations attributable to
Zygo Corporation of $62.0 million in the prior year. Net loss from continuing
operations attributable to Zygo Corporation per diluted share was $0.21 for fiscal
2010, compared with a net loss from continuing operations attributable to Zygo
Corporation of $3.68 per diluted share for fiscal 2009. The net loss in fiscal
2010 included $5.6 million in significant charges, net of taxes, which included
asset impairment charges and reserves on various other balance sheet items. The
net loss in fiscal 2009 included $49.8 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 and changes in our business strategy and operations resulting in
re-evaluation of certain of our assets.

Net Earnings (Loss) from Discontinued
Operations, net of tax

|                       |  |               |      |                              |  |        |   |                               |      |   |  |    |  
|---------------------- |  | ------------- | ---- | ---------------------------- |  | ------ | - | ----------------------------- | ---- | - |  | -- | -
|                       |  | Year Ended    |     
|                       |  |               |     
|(Dollars
 in millions) |  | June 30, 2010 |      | June
 30, 2009               | 
|                       |  |               |      |                              | 
|                       |  | Amount        |      | Percentage of 
 Net Revenues |  | Amount |   | Percentage
 of 
 Net Revenues |     
|                       |  |               |      |                              |  |        |   |                               |     
|                       |  |               |      |                              |  |        |   |                               |      |   |  |    |  
|                       |  | $             | (2.7 | )                            |  | -3     | % | $                             | (4.1 | ) |  | -4 | %
|                       |  |               |      |                              |  |        |   |                               |      |   |  |    |  

The net loss
from discontinued operations resulted from the closure of our Singapore IC
packaging metrology operations in fiscal 2010. Net loss from discontinued
operations in fiscal 2010 was $2.7 million compared with a net loss from
discontinued operations of $4.1 million in the prior year. Net loss from
discontinued operations per diluted share was $0.16 per diluted share for
fiscal 2010 compared with $0.24 per diluted share in fiscal 2009. The fiscal
2010 net loss from discontinued operations of $2.7 million included $0.8
million of severance and related termination expense and $0.7 million of
inventory reserves. The fiscal 2009 net loss from discontinued operations of
$4.1 million included $1.4 million of inventory reserves and $1.1 million of
asset impairment charges.

Backlog

Backlog at
June 30, 2010 totaled $44.9 million, an increase of $6.8 million from June 30,
2009. The year-end fiscal 2010 backlog consisted of $21.4 million, or 48%, in
the Metrology Solutions segment and $23.5 million, or 52%, in the Optical
Systems segment. Bookings for fiscal 2010 totaled $108.1 million. Bookings by
segment for fiscal 2010 consisted of $68.7 million, or 64%, in the Metrology
Solutions segment and $39.4 million, or 36%, in the Optical Systems segment.

TRANSACTIONS WITH STOCKHOLDER

Sales to Canon
Inc., a stockholder, customer and distributor of certain of our products in
Japan, amounted to $19.7 million (13% of net revenues), $8.8 million (9% of net
revenues) and $16.2 million (14% of net revenues) for the years ended June 30,
2011, 2010 and 2009, respectively. Selling prices of products sold to Canon are
based, generally, on the normal terms customarily given to distributors. At
June 30, 2011 and 2010, there was in the aggregate $2.6 million and $0.7
million, respectively, of trade accounts receivable from Canon.

30

---



LIQUIDITY AND CAPITAL RESOURCES

We assess our
liquidity in terms of our ability to generate cash to fund our operating,
investing and financing activities. Our principal source of liquidity is
operating cash flows. In addition to operating cash flows, other significant
factors that affect our overall liquidity include: capital expenditures,
customer credit requirements, investments in businesses and the availability of
bank lines of credit.

Fiscal 2011 Compared with Fiscal 2010

At June 30,
2011, cash, cash equivalents and marketable securities were $61.0 million, an
increase of $13.5 million from $47.5 million at June 30, 2010, of which $16.0
million is located in foreign jurisdictions subject to repatriation
restrictions. Our marketable securities consist of $1.0 million in a United
States treasury bill. As of June 30, 2011, $0.3 million of standby letters of
credit were outstanding. These letters of credit are used primarily overseas to
cover certain warranty periods or to cover future product shipments. These
letters of credit are expected to expire at varying dates through January 2012.
The cash equivalents balance in our money market account, which is invested
primarily in U.S. government securities, was $19.9 million as of June 30, 2011.
We do not believe there is any risk to liquidity in the money market account,
nor are there currently any limits on redemptions.

Cash flow from
operating activities from continuing operations for the year ended June 30,
2011 of $20.7 million was primarily due to an increase in net earnings,
excluding non-cash items, partially offset by an increase in receivables and
inventories.

Cash flow used
by investing activities for the year ended June 30, 2011 increased by $10.4
million compared with the prior year period. This increase was primarily
related to the purchase of ASMLs Richmond, California assets for $7.1 million
and a net decrease in proceeds from sales and maturities of marketable
securities.

Cash flow
provided by financing activities in the year ended June 30, 2011 of $0.7
million was primarily due to an increase in proceeds from stock option
exercises partially offset by dividend payments of $0.8 million to noncontrolling
interests.

We currently
have no debt or lines of credit. In the future, if the need for debt or credit
lines arose, there is no assurance that we would be able to secure such
financing. We believe we have sufficient operating flexibility and cash
reserves to maintain adequate amounts of liquidity and to meet our future
liquidity requirements for at least the next twelve months.

Fiscal 2010 Compared with Fiscal 2009

At June 30,
2010, cash, cash equivalents and marketable securities were $47.5 million, an
increase of $10.8 million from $36.7 million at June 30, 2009. Our marketable
security consisted of $1.0 million in a United States Treasury Bill as security
for bank guarantees and standby letters of credit. These letters of credit were
used primarily overseas to cover certain warranty periods and were valued at
10% of the associated contract value. As of June 30, 2010, $0.1 million in
standby letters of credit are outstanding and were expected to expire at
varying dates through July 2011. The cash equivalents balance in our money
market account, which was invested primarily in U.S. government securities, was
$22.1 million as of June 30, 2010.

Cash flows
provided by operating activities from continuing operations were $15.1 million
for fiscal 2010 compared with cash flows used for operating activities from
continuing operations of $4.4 million in fiscal 2009. Operating cash flows in
fiscal 2010 were impacted primarily by decreases in our net loss and a
reduction of inventories.

Cash flows
provided by investing activities for fiscal 2010 decreased by $13.3 million
compared with the prior year period. This decrease was primarily related to a
net decrease in proceeds and purchases of marketable securities of $16.9
million, partially offset by a decrease in fixed asset and intangible additions
of $3.2 million.

Cash flows
used for financing activities in the year ended June 30, 2010 decreased by $1.3
million compared with the prior year period. In fiscal 2009, there was a
dividend payment of $1.3 million to a minority interest partner. A dividend was
not paid in fiscal 2010 but was declared after June 30, 2010. The amount of
that dividend payment is approximately $0.7 million.

31

---



CONTRACTUAL OBLIGATIONS

The following
table summarizes our significant contractual obligations at June 30, 2011 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                                  |  | $                                              | 1.3 |                     | $ | 0.8        |  | $          | 0.5 |                      | $ |    |  | $ |  | 
|                                                 
|Deferred compensation and
 non-compete agreements |  |                                                | 1.4 |                     |   | 0.6        |  |            | 0.6 |                      |   | 0.2 |  |   |  | 
|                                                 
|Consulting agreement                              |  |                                                | 0.3 |                     |   | 0.1        |  |            | 0.2 |                      |   |    |  |   |  | 
|                                                  |  |                                                |     |                     |   |            |  |            |     |                      |   |     |  |   |   | 
|Total                                             |  | $                                              | 3.0 |                     | $ | 1.5        |  | $          | 1.3 |                      | $ | 0.2 |  | $ |  | 
|                                                  |  |                                                |     |                     |   |            |  |            |     |                      |   |     |  |   |   | 

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 in our financial statements. We have not
guaranteed any obligations of a third party.

32

---



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 SensitivityWe currently maintain a portfolio of cash equivalents
consisting of an institutional money market fund and marketable securities
consisting primarily of a government agency security and mutual fund. The
institutional money market fund, with a balance of $19.9 million, consists
primarily of U.S. treasury securities. The $1.0 million government agency
security consists of a U.S. government treasury bill. The mutual fund of $1.0
million, which is related to our deferred compensation program, consists of
corporate securities. Our interest income is sensitive to changes in the
general level of U.S. interest rates, particularly on our short-term
instruments. There is little downward exposure on our interest income. To the
extent interest rates increase or we change our investment strategy, there
could be an increase in investment income. 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, 2011 maturing in: 
 (Dollars in millions) | 
|                                                                                    |  |      |     |      |   |            |   |   |     |  
|                                                                                    |  | 2012 |     | 2013 |   | Thereafter |  
|                                                                                    |  |      |     |      |   |            |  
|Marketable securities                                                               |  |      |     |      |   |            |   |   |     |  
|Fixed rate investments                                                              |  | $    | 1   |      | $ | 0          |   | $ | 0   |  
|Weighted average interest rate                                                      |  |      | 0.0 | %    |   | 0.0        | % |   | 0.0 | %
|                                                                                    |  |      |     |      |   |            |   |   |     |  

Marketable Securities Fair Market Value
SensitivityWe have reviewed 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.

Exchange Rate SensitivityApproximately 77% of our fiscal 2011 net revenues were
denominated in U.S. dollars. At June 30, 2011, our backlog included bookings in
U.S. dollars of $57.0 million, or 92%, 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 net revenues 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 Japanese yen and euro. In the
absence of a substantial increase in sales orders in currencies other than U.S.
dollars, we believe a 5% 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.

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.

33

---



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.

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 accounting
principles generally accepted 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
accounting principles generally accepted 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. On May 14, 2010, we reported that we had identified
a material weakness in our internal controls over financial reporting, which is
an integrated component of our disclosure controls and procedures, related to
inadequate controls regarding our accounting for unusual or complex
transactions. In light of this material weakness, we concluded that our
disclosure controls and procedures were not effective as of such date and
subsequently concluded that our internal control over financial reporting was
not effective at June 30, 2010.

We developed
and implemented additional controls and new procedures in our financial
reporting process in the fourth quarter of fiscal 2010 and first six months of
fiscal 2011, including adding control processes to aid in identifying
transactions that might include unusual or complex accounting issues as well as
a process to enhance our analysis of accounting for unusual or complex
transactions as they arise in accordance with accounting principles generally
accepted in the United States of America. During the third quarter of fiscal
2011 we were able to complete our implementation of activities of controls and
procedures that were designed to remediate the material weakness. These
activities have been incorporated into our internal control structure and were
in place as of March 31, 2011 and will be sustained going forward, such that
the control deficiency that led to the material weakness had been remediated as
of March 31, 2011 and, therefore, the material weakness no longer existed as of
March 31, 2011.

34

---



The controls
and remedial actions that were implemented include the following:

|  |                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Utilization
 of external accounting resources to review our accounting for unusual or
 complex transactions.                                                                                                                      
| | Implementation
 of clear procedures and sustainable processes for researching, reviewing
 assumptions used in estimates and calculations, and reviewing the work,
 assumptions and calculations used by outside service providers.
| | Implementation
 of controls to review potential impact of an unusual item on existing assets
 or liabilities.                                                                                                                     
| | Implementation
 of controls to review proper presentation and disclosure in the financial
 statements as it relates to unusual or complex transactions.                                                                           

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, 2011, 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, 2011 based on the
specified criteria.

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.

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
 13, 2011 | By: | /s/ Chris L.
 Koliopoulos                              | 
|                    |     |                                                        | 
|                    |     | Chris L.
 Koliopoulos                                  | 
|                    |     | Chairman,
 President and Chief Executive Officer       | 
|                    |     |                                                        | 
|September
 13, 2011 | By: | /s/ John P.
 Jordan                                    | 
|                    |     |                                                        | 
|                    |     | John P.
 Jordan                                        | 
|                    |     | Vice
 President, Chief Financial Officer and Treasurer | 
|                    |     |                                                        | 

Item 9B. Other
Information

None.

35

---



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 2011 Annual Meeting of Stockholders (referred to
below as our 2011 Proxy Statement) and is incorporated herein by reference.

Item 11.
Executive Compensation

Information
required by this item will be included in our 2011 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 2011 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 2011 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 2011 Proxy Statement under the
caption Relationship with Independent Public Accountants and is incorporated
herein by reference.

36

---



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)*                                                                                                                                   
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 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                                                       | 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)*             
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.5                                                       | 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, 1995)*                      
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.6                                                       | 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)*                                                            
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.7                                                       | 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)*          
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.8                                                       | 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)*
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.9                                                       | 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)*                                                                 
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.10                                                      | 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)*                                                                     
|    |                                                            |                                                                                                                                                                                                                                                             
|    | 10.11                                                      | 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)*                                                     

37

---



| |       |                                                                                                                                                                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.12 | 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)*                                                                     
| |       |                                                                                                                                                                                                                                                                  
| | 10.13 | 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 year ended
 June 31, 2007)*                                                                         
| |       |                                                                                                                                                                                                                                                                  
| | 10.14 | Employment
 Agreement dated November 19, 2007 between Zygo Corporation and Douglas J.
 Eccleston (Exhibit 99.1 to the Companys Current report on Form 8-K dated
 November 20, 2007)*                                                                            
| |       |                                                                                                                                                                                                                                                                  
| | 10.15 | 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)*                                            
| |       |                                                                                                                                                                                                                                                                  
| | 10.16 | Agreement
 and Plan of Merger and Reorganization between by and among Electro Scientific
 Industries, Inc., Zirkon Merger Sub, LLC, and Zygo Corporation (Exhibit 2.1
 to the Companys Current Reports on Form 8-K dated October 21, 2008)*                     
| |       |                                                                                                                                                                                                                                                                  
| | 10.17 | Employment
 agreement amendments between Zygo Corporation and J. Bruce Robinson, and John
 M. Stack, dated October 21, 2008 (Exhibit 10.1 and 10.3, respectively, to the
 Companys Current Reports on Form 8-K dated October 21, 2008)*                         
| |       |                                                                                                                                                                                                                                                                  
| | 10.18 | 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)*            
| |       |                                                                                                                                                                                                                                                                  
| | 10.19 | Asset
 Transfer Agreement, dated as of June 17, 2009, by and between Zygo
 Corporation and Nanometrics Corporation (Exhibit 10.30 to the Companys
 Annual Report on Form 10-K/A, Amendment No. 2, dated December 23, 2009 for
 its year ended June 30, 2009)* **
| |       |                                                                                                                                                                                                                                                                  
| | 10.20 | Supply
 Agreement, dated as of June 17, 2009, by and between Zygo Corporation and
 Nanometrics Corporation (Exhibit 10.31 to the Companys Annual Report on Form
 10-K/A, Amendment No. 2, dated December 23, 2009 for its year ended June 30,
 2009)* **        
| |       |                                                                                                                                                                                                                                                                  
| | 10.21 | Employment
 contract dated November 16, 2007 between Zygo Corporation and David Person
 (Exhibit 10.32 to the Companys Annual Report on Form 10-K for its year ended
 June 30, 2009)*                                                                           
| |       |                                                                                                                                                                                                                                                                  
| | 10.22 | Employment
 agreement amendment between Zygo Corporation and John M. Stack, dated
 September 1, 2009 (Exhibit 99.1 to the Companys Current Report on Form 8-K
 dated September 4, 2009)*                                                                        
| |       |                                                                                                                                                                                                                                                                  
| | 10.23 | Employment
 agreement amendment between Zygo Corporation and John M. Stack, dated
 September 8, 2009 (Exhibit 99.1 to the Companys Current Report on Form 8-K
 dated September 11, 2009)*                                                                       
| |       |                                                                                                                                                                                                                                                                  
| | 10.24 | Employment
 agreement amendment (transition plan) between Zygo Corporation and J. Bruce
 Robinson, dated October 21, 2009 (Exhibit 99.1 to the Companys Current
 Report on Form 8-K dated October 27, 2009)* **                                                 
| |       |                                                                                                                                                                                                                                                                  
| | 10.25 | Employment
 and Stock Option Agreement between Zygo Corporation and Dr. Chris L. Koliopoulos,
 dated January 18, 2010 (Exhibit 10.1 and 10.3 to the Companys Current Report
 on Form 8-K dated January 22, 2010)*                                               
| |       |                                                                                                                                                                                                                                                                  
| | 10.26 | Zemetrics,
 Inc. acquisition agreement between ZMI Acquisition Corporation, a
 wholly-owned subsidiary of Zygo Corporation, and Zemetrics, Inc, dated
 January 18, 2010 (Exhibit 10.2 to the Companys Current Report on Form 8-K
 dated January 22, 2010)*      
| |       |                                                                                                                                                                                                                                                                  
| | 10.27 | Asset
 Purchase Agreement, dated as of October 27, 2010, by and among Zygo
 Corporation, Zygo Richmond, and ASML, US, Inc. (Exhibit 10.1 to the Companys
 Current Report on Form 10-Q for its quarter ending December 31, 2010)* **                             

38

---



|   |                                                                                                                                                                                                                                               |                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | 10.28                                                                                                                                                                                                                                         | Employment
 Agreement between Zygo Corporation and John P. Jordan, dated February 17,
 2011 (Exhibit 10.1 to the Companys Current Report on Form 8-K dated February
 22, 2011)*
|   |                                                                                                                                                                                                                                               |                                                                                                                                                                                 
|   | 14.                                                                                                                                                                                                                                           | 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)*                                  
|   |                                                                                                                                                                                                                                               |                                                                                                                                                                                 
|   | 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, 10.4, 10.5, 10.6, 10.7, 10.9, 10.10, 10.11, 10.13, 10.14,
 10.15, 10.17, 10.21, 10.22, 10.23, 10.24, 10.25 and 10.28 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 and Exchange
 Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
 amended.

39

---



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/ John P. Jordan        |  | Date | September
 13, 2011 | 
|                  |                           |  |      |                     | 
|                  | John P.
 Jordan           |  |      |                     | 
|                  | Vice
 President and Chief |  |      |                     | 
|                  | Financial
 Officer        |  |      |                     | 

Know all
persons by these presents, that each person whose signature appears below
constitutes and appoints Chris L. Koliopoulos and John P. Jordan, 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/ Chris L.
 Koliopoulos |  | Chairman,
 President, Chief Executive Officer (principal executive officer) and Director |  | September 13, 2011
|                          |  |                                                                                          | 
|Chris L. Koliopoulos      |  |                                                                                          | 
|                          |  |                                                                                          |  |                   
|/s/ John P.
 Jordan       |  | Vice
 President and Chief Financial Officer (principal financial officer)                |  | September 13, 2011
|                          |  |                                                                                          | 
|John P. Jordan            |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Stephen
 D. Fantone   |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Stephen D. Fantone        |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Samuel
 H. Fuller     |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Samuel H. Fuller          |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Seymour
 E. Liebman   |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Seymour E. Liebman        |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Robert
 B. Taylor     |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Robert B. Taylor          |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Carol P.
 Wallace     |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Carol P. Wallace          |  |                                                                                          |  |                   
|                          |  |                                                                                          |  |                   
|/s/ Gary K.
 Willis       |  | Director                                                                                 |  | September 13, 2011
|                          |  |                                                                                          |  |                   
|Gary K. Willis            |  |                                                                                          |  |                   

40

---



ZYGO CORPORATION AND CONSOLIDATED
SUBSIDIARIES

Index to Consolidated Financial Statements
and Schedule

|            |  |                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------
|Page        |  |                                                                                                                     
|            |  |                                                                                                                     
|            |  |                                                                                                                     
|F-2         |  | Report of Independent Registered Public Accounting Firm                                                             
|            |  |                                                                                                                     
|F-3         |  | Consolidated balance sheets at June 30, 2011 and 2010                                                               
|            |  |                                                                                                                     
|F-4         |  | Consolidated statements of operations for the years ended June 30,
 2011, 2010, and 2009                            
|            |  |                                                                                                                     
|F-5         |  | Consolidated statements of equity and comprehensive income (loss) for
 the years ended June 30, 2011, 2010, and 2009
|            |  |                                                                                                                     
|F-6         |  | Consolidated statements of cash flows for the years ended June 30,
 2011, 2010, and 2009                            
|            |  |                                                                                                                     
|F-7 to F-30 |  | Notes to consolidated financial statements                                                                          
|            |  |                                                                                                                     
|            |  | Supplemental
 Schedules                                                                                             
|            |  |                                                                                                                     
|S-1         |  | 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

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

We have
audited the accompanying consolidated balance sheets of Zygo Corporation and
subsidiaries (the Company) as of June 30, 2011 and 2010, and the related
consolidated statements of operations, equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended June 30, 2011.
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. We also have audited the
Companys internal control over financial reporting as of June 30, 2011, based
on criteria established in Internal Control
 Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is
responsible for these financial statements and financial statement schedule,
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
financial statement schedule 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.

In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Zygo
Corporation and subsidiaries as of June 30, 2011 and 2010, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2011, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of June 30, 2011, based on the criteria established in Internal Control  Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte
& Touche LLP

Hartford,
Connecticut

September 13,
2011

F - 2

---



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

|                                                                                                         |  |               |         |                |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | -------------- | - | ------- | -
|                                                                                                         |  | June 30, 2011 |         | June
 30, 2010 |  
|                                                                                                         |  |               |         |                |  
|Assets                                                                                                   |  |               |         |                |   |         |  
|Current assets:                                                                                          |  |               |         |                |   |         |  
|Cash and cash equivalents                                                                                |  | $             | 60,039  |                | $ | 46,536  |  
|Marketable securities (note 4)                                                                           |  |               | 1,000   |                |   | 1,000   |  
|Receivables, net of allowance for doubtful accounts of $1,399 and
 $1,975, respectively (notes 6 and 17) |  |               | 31,424  |                |   | 19,948  |  
|Inventories (note 7)                                                                                     |  |               | 28,379  |                |   | 25,220  |  
|Prepaid expenses and other current assets                                                                |  |               | 1,745   |                |   | 1,643   |  
|Income tax receivable (note 15)                                                                          |  |               |        |                |   | 1,050   |  
|Current assets of discontinued operations (note 20)                                                      |  |               |        |                |   | 17      |  
|                                                                                                         |  |               |         |                |   |         |  
|Total current assets                                                                                     |  |               | 122,587 |                |   | 95,414  |  
|Marketable
 securities (note 4)                                                                          |  |               | 980     |                |   | 922     |  
|Property,
 plant and equipment, net (note 8)                                                             |  |               | 30,195  |                |   | 23,029  |  
|Intangible
 assets, net (note 9)                                                                         |  |               | 5,842   |                |   | 5,387   |  
|Other
 assets                                                                                            |  |               |        |                |   | 413     |  
|                                                                                                         |  |               |         |                |   |         |  
|Total assets                                                                                             |  | $             | 159,604 |                | $ | 125,165 |  
|                                                                                                         |  |               |         |                |   |         |  
|Liabilities and Equity                                                                                   |  |               |         |                |   |         |  
|Current liabilities:                                                                                     |  |               |         |                |   |         |  
|Accounts payable                                                                                         |  | $             | 7,120   |                | $ | 8,426   |  
|Accrued progress payments and deferred revenue                                                           |  |               | 4,706   |                |   | 5,700   |  
|Accrued salaries and wages                                                                               |  |               | 8,636   |                |   | 3,173   |  
|Other accrued expenses (note 10)                                                                         |  |               | 6,093   |                |   | 5,191   |  
|Income taxes payable                                                                                     |  |               | 550     |                |   | 152     |  
|Current liabilities of discontinued operations (note 20)                                                 |  |               | 281     |                |   | 287     |  
|                                                                                                         |  |               |         |                |   |         |  
|Total current liabilities                                                                                |  |               | 27,386  |                |   | 22,929  |  
|                                                                                                         |  |               |         |                |   |         |  
|Other long-term liabilities                                                                              |  |               | 4,131   |                |   | 1,359   |  
|Long-term liabilities of discontinued operations (note 20)                                               |  |               |        |                |   | 281     |  
|                                                                                                         |  |               |         |                |   |         |  
|Commitments and contingencies (note 11)                                                                  |  |               |         |                |   |         |  
|                                                                                                         |  |               |         |                |   |         |  
|Equity (notes 13 and 14):                                                                                |  |               |         |                |   |         |  
|Common stock, $.10 par value per share:                                                                  |  |               |         |                |   |         |  
|40,000,000 shares authorized;                                                                            |  |               |         |                |   |         |  
|19,985,631 shares issued (19,663,414 in 2010);                                                           |  |               |         |                |   |         |  
|17,763,346 shares outstanding (17,480,219 in 2010)                                                       |  |               | 1,999   |                |   | 1,966   |  
|Additional paid-in capital                                                                               |  |               | 168,662 |                |   | 163,052 |  
|Accumulated deficit                                                                                      |  |               | (20,765 | )              |   | (39,844 | )
|Accumulated other comprehensive income (loss):                                                           |  |               |         |                |   |         |  
|Currency translation effects                                                                             |  |               | 1,197   |                |   | (728    | )
|Less treasury stock, at cost; 2,222,285 common shares (2,183,195 in
 2010)                               |  |               | 26,373  |                |   | 26,043  |  
|                                                                                                         |  |               |         |                |   |         |  
|Total stockholders equity - Zygo Corporation                                                            |  |               | 124,720 |                |   | 98,403  |  
|Noncontrolling interests                                                                                 |  |               | 3,367   |                |   | 2,193   |  
|                                                                                                         |  |               |         |                |   |         |  
|Total equity                                                                                             |  |               | 128,087 |                |   | 100,596 |  
|                                                                                                         |  |               |         |                |   |         |  
|Total liabilities and equity                                                                             |  | $             | 159,604 |                | $ | 125,165 |  
|                                                                                                         |  |               |         |                |   |         |  

See
accompanying notes to consolidated financial statements.

F - 3

---



CONSOLIDATED
STATEMENTS OF OPERATIONS(Thousands except per share amounts)

|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                         |  | Fiscal Year Ended June 30, |        
|                                                                                                         |  |                            |        
|                                                                                                         |  | 2011                       |         | 2010 |   | 2009    |  
|                                                                                                         |  |                            |         |      |   |         |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net revenues                                                                                             |  | $                          | 150,126 |      | $ | 101,330 |   | $ | 114,734 |  
|Cost of goods sold                                                                                       |  |                            | 79,333  |      |   | 59,361  |   |   | 82,301  |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Gross profit                                                                                             |  |                            | 70,793  |      |   | 41,969  |   |   | 32,433  |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Selling, general and administrative
 expenses                                                            |  |                            | 34,705  |      |   | 29,520  |   |   | 49,243  |  
|Research, development and engineering
 expenses                                                          |  |                            | 14,990  |      |   | 14,284  |   |   | 23,234  |  
|Impairment of goodwill                                                                                   |  |                            |        |      |   | 2,003   |   |   |        |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Operating profit (loss)                                                                                  |  |                            | 21,098  |      |   | (3,838  | ) |   | (40,044 | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Other income:                                                                                            |  |                            |         |      |   |         |   |   |         |  
|Interest income                                                                                          |  |                            | 26      |      |   | 87      |   |   | 885     |  
|Miscellaneous income, net                                                                                |  |                            | 784     |      |   | 51      |   |   | 142     |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Total other income                                                                                       |  |                            | 810     |      |   | 138     |   |   | 1,027   |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Earnings (loss) from continuing operations
 before income tax expense, including noncontrolling interest |  |                            | 21,908  |      |   | (3,700  | ) |   | (39,017 | )
|Income tax (expense) benefit (note 15)                                                                   |  |                            | (1,316  | )    |   | 1,032   |   |   | (22,193 | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) from continuing operations                                                           |  |                            | 20,592  |      |   | (2,668  | ) |   | (61,210 | )
|Net earnings (loss) from discontinued
 operations, net of tax (note 20)                                  |  |                            | 91      |      |   | (2,669  | ) |   | (4,059  | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) including
 noncontrolling interests                                                  |  |                            | 20,683  |      |   | (5,337  | ) |   | (65,269 | )
|Less: Net earnings attributable to
 noncontrolling interests                                             |  |                            | 1,604   |      |   | 957     |   |   | 795     |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) attributable to Zygo
 Corporation                                                    |  | $                          | 19,079  |      | $ | (6,294  | ) | $ | (66,064 | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Basic - Earnings (loss) per share
 attributable to Zygo Corporation:                                     |  |                            |         |      |   |         |   |   |         |  
|Continuing operations                                                                                    |  | $                          | 1.08    |      | $ | (0.21   | ) | $ | (3.68   | )
|Discontinued operations                                                                                  |  |                            |        |      |   | (0.16   | ) |   | (0.24   | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) per share                                                                            |  | $                          | 1.08    |      | $ | (0.37   | ) | $ | (3.92   | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Diluted - Earnings (loss) per share
 attributable to Zygo Corporation:                                   |  |                            |         |      |   |         |   |   |         |  
|Continuing operations                                                                                    |  | $                          | 1.05    |      | $ | (0.21   | ) | $ | (3.68   | )
|Discontinued operations                                                                                  |  |                            |        |      |   | (0.16   | ) |   | (0.24   | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) per share                                                                            |  | $                          | 1.05    |      | $ | (0.37   | ) | $ | (3.92   | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Weighted average number of shares:                                                                       |  |                            |         |      |   |         |   |   |         |  
|Basic                                                                                                    |  |                            | 17,639  |      |   | 17,183  |   |   | 16,843  |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Diluted                                                                                                  |  |                            | 18,140  |      |   | 17,183  |   |   | 16,843  |  
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Amounts Attributable to Zygo Corporation                                                                 |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) from continuing operations
 attributable to Zygo Corporation                         |  | $                          | 18,988  |      | $ | (3,625  | ) | $ | (62,005 | )
|Discontinued operations, net of tax (note
 20)                                                           |  |                            | 91      |      |   | (2,669  | ) |   | (4,059  | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  
|Net earnings (loss) attributable to Zygo
 Corporation                                                    |  | $                          | 19,079  |      | $ | (6,294  | ) | $ | (66,064 | )
|                                                                                                         |  |                            |         |      |   |         |   |   |         |  

See
accompanying notes to consolidated financial statements.

F - 4

---



CONSOLIDATED
STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)(Dollars and shares in thousands)

|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|--------------------------------------------------------- |  | ------------- | ------ | ---------------------------- | - | --------------- | ------ | ------------------------------------------ | ------- | ------------------------------------------------ |  | --------------------------- |  | ------------- | ------- | - | - | --------------------------------------------------------- | - | - | ------ | - | - | ------- | - | - | ------ | - | - | ------- | - | - | ------- | -
|                                                          |  |               |        |                              |   |                 |        | Retained
 Earnings
 (Accumulated
 Deficit) |         | Accumulated
 Other
 Comprehensive
 Income (Loss) |  |                             |  |               |         |   |   | Comprehensive
 Income (Loss)
 Attributable
 to Zygo Corp. |  
|                                                          |  | Common
 Stock |        | Additional
 Paid-In
 Capital |   | Treasury
 Stock |        |                                            |         | Total
 Zygo Corp.                                |  | Non-
 Controlling
 Interest |  | Total
 Equity |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                            
|                                                          |  | Shares        |        | Amount                       |   |                 | Shares |                                            | Amount  |                                                  |  |                             |  |               |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |  
|Balance at July 1, 2008                                   |  |               | 16,732 |                              | $ | 1,882           |        | $                                          | 152,663 |                                                  |  | 2,092                       |  | $             | (25,390 | ) | $ | 32,514                                                    |   | $ | 855    |   | $ | 162,524 |   | $ | 2,266  |   | $ | 164,790 |   |   |         |  
|                                                         
|Comprehensive income (loss):                              |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Net earnings (loss)                                       |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   | (66,064                                                   | ) |   |       |   |   | (66,064 | ) |   | 795    |   |   | (65,269 | ) | $ | (66,064 | )
|Unrealized gain (loss) on marketable securities           |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   | 39     |   |   | 39      |   |   |       |   |   | 39      |   |   | 39      |  
|Foreign currency translation                              |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   | (1,200 | ) |   | (1,200  | ) |   | (315   | ) |   | (1,515  | ) |   | (1,200  | )
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   | $ | (67,225 | )
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Share based compensation                                  |  |               |       |                              |   |                |        |                                            | 2,924   |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 2,924   |   |   |       |   |   | 2,924   |   |   |         |  
|Employee stock purchase                                   |  |               | 26     |                              |   | 3               |        |                                            | 204     |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 207     |   |   |       |   |   | 207     |   |   |         |  
|Tax effect of redeemed restricted stock                   |  |               | 136    |                              |   | 17              |        |                                            | (17     | )                                                |  | 37                          |  |               | (251    | ) |   |                                                          |   |   |       |   |   | (251    | ) |   |       |   |   | (251    | ) |   |         |  
|Exercise of employee stock options and related tax effect |  |               | 21     |                              |   | 2               |        |                                            | 402     |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 404     |   |   |       |   |   | 404     |   |   |         |  
|Dividend Paid                                             |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   |        |   |   | (1,302 | ) |   | (1,302  | ) |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Balance at June 30, 2009                                  |  |               | 16,915 |                              | $ | 1,904           |        | $                                          | 156,176 |                                                  |  | 2,129                       |  | $             | (25,641 | ) | $ | (33,550                                                   | ) | $ | (306   | ) | $ | 98,583  |   | $ | 1,444  |   | $ | 100,027 |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Comprehensive income (loss):                              |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Net earnings (loss)                                       |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   | (6,294                                                    | ) |   |       |   |   | (6,294  | ) |   | 957    |   |   | (5,337  | ) | $ | (6,294  | )
|Foreign currency translation                              |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   | (422   | ) |   | (422    | ) |   | (208   | ) |   | (630    | ) |   | (422    | )
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   | $ | (6,716  | )
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Share based compensation                                  |  |               |       |                              |   |                |        |                                            | 2,556   |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 2,556   |   |   |       |   |   | 2,556   |   |   |         |  
|Issuance - acquisition                                    |  |               | 361    |                              |   | 36              |        |                                            | 3,865   |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 3,901   |   |   |       |   |   | 3,901   |   |   |         |  
|Tax effect of redeemed restricted stock                   |  |               | 147    |                              |   | 22              |        |                                            | (22     | )                                                |  | 54                          |  |               | (407    | ) |   |                                                          |   |   |       |   |   | (407    | ) |   |       |   |   | (407    | ) |   |         |  
|Exercise of employee stock options and related tax effect |  |               | 57     |                              |   | 4               |        |                                            | 477     |                                                  |  |                            |  |               | 5       |   |   |                                                          |   |   |       |   |   | 486     |   |   |       |   |   | 486     |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Balance at June 30, 2010                                  |  |               | 17,480 |                              | $ | 1,966           |        | $                                          | 163,052 |                                                  |  | 2,183                       |  | $             | (26,043 | ) | $ | (39,844                                                   | ) | $ | (728   | ) | $ | 98,403  |   | $ | 2,193  |   | $ | 100,596 |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Comprehensive income (loss):                              |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Net earnings (loss)                                       |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   | 19,079                                                    |   |   |       |   |   | 19,079  |   |   | 1,604  |   |   | 20,683  |   | $ | 19,079  |  
|Foreign currency translation                              |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   | 1,925  |   |   | 1,925   |   |   | 393    |   |   | 2,318   |   |   | 1,925   |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   | $ | 21,004  |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Share based compensation                                  |  |               |       |                              |   |                |        |                                            | 3,965   |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 3,965   |   |   |       |   |   | 3,965   |   |   |         |  
|Tax effect of redeemed restricted stock                   |  |               | 116    |                              |   | 15              |        |                                            | (15     | )                                                |  | 39                          |  |               | (330    | ) |   |                                                          |   |   |       |   |   | (330    | ) |   |       |   |   | (330    | ) |   |         |  
|Exercise of employee stock options and related tax effect |  |               | 167    |                              |   | 18              |        |                                            | 1,660   |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   | 1,678   |   |   |       |   |   | 1,678   |   |   |         |  
|Dividends paid                                            |  |               |       |                              |   |                |        |                                            |        |                                                  |  |                            |  |               |        |   |   |                                                          |   |   |       |   |   |        |   |   | (823   | ) |   | (823    | ) |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  
|Balance at June 30, 2011                                  |  |               | 17,763 |                              | $ | 1,999           |        | $                                          | 168,662 |                                                  |  | 2,222                       |  | $             | (26,373 | ) | $ | (20,765                                                   | ) | $ | 1,197  |   | $ | 124,720 |   | $ | 3,367  |   | $ | 128,087 |   |   |         |  
|                                                          |  |               |        |                              |   |                 |        |                                            |         |                                                  |  |                             |  |               |         |   |   |                                                           |   |   |        |   |   |         |   |   |        |   |   |         |   |   |         |  

See
accompanying notes to consolidated financial statements.

F - 5

---



CONSOLIDATED
STATEMENTS OF CASH FLOWS(Thousands of dollars)

|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | ---- | - | ------ | - | - | ------- | -
|                                                                                                   |  | Fiscal Year Ended June 30, |        
|                                                                                                   |  |                            |        
|                                                                                                   |  | 2011                       |         | 2010 |   | 2009   |  
|                                                                                                   |  |                            |         |      |   |        |  
|Cash provided by (used for) operating
 activities:                                                 |  |                            |         |      |   |        |   |   |         |  
|Net earnings (loss) including
 noncontrolling interests                                            |  | $                          | 20,683  |      | $ | (5,337 | ) | $ | (65,269 | )
|Adjustments to reconcile net earnings
 (loss) to cash provided by (used for) operating activities: |  |                            |         |      |   |        |   |   |         |  
|(Earnings) loss from discontinued
 operations                                                      |  |                            | (91     | )    |   | 2,669  |   |   | 4,059   |  
|Depreciation and amortization                                                                      |  |                            | 6,431   |      |   | 6,125  |   |   | 7,960   |  
|Gain on acquisition                                                                                |  |                            | (1,296  | )    |   |       |   |   |        |  
|Deferred income taxes                                                                              |  |                            | (780    | )    |   | (789   | ) |   | 20,990  |  
|Impairment of marketable securities                                                                |  |                            |        |      |   |       |   |   | 309     |  
|Impairment and disposal of property, plant
 and equipment                                          |  |                            | 549     |      |   | 67     |   |   | 4,656   |  
|Impairment and disposal of intangible
 assets                                                      |  |                            | 4       |      |   | 2,003  |   |   | 3,983   |  
|Restructuring charges                                                                              |  |                            |        |      |   |       |   |   | 452     |  
|Inventory valuation adjustment                                                                     |  |                            |        |      |   | 543    |   |   | 3,567   |  
|Provision for doubtful accounts                                                                    |  |                            | (298    | )    |   | (586   | ) |   | 3,157   |  
|Compensation cost related to share-based
 payment arrangements                                     |  |                            | 3,965   |      |   | 2,492  |   |   | 2,885   |  
|Excess tax benefits from share-based
 payment arrangements                                         |  |                            | (173    | )    |   | (33    | ) |   | (9      | )
|Other                                                                                              |  |                            | (677    | )    |   | (379   | ) |   | (392    | )
|Changes in operating accounts, excluding
 the effect of acquisition:                               |  |                            |         |      |   |        |   |   |         |  
|Receivables                                                                                        |  |                            | (10,381 | )    |   | 1,446  |   |   | 10,661  |  
|Inventories                                                                                        |  |                            | (125    | )    |   | 5,314  |   |   | (208    | )
|Prepaid expenses and other current assets                                                          |  |                            | 1,494   |      |   | 1,247  |   |   | (86     | )
|Accounts payable, accrued expenses and
 taxes payable                                              |  |                            | 1,340   |      |   | 270    |   |   | (1,111  | )
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Net cash provided by (used for) operating
 activities from continuing operations                   |  |                            | 20,645  |      |   | 15,052 |   |   | (4,396  | )
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Net cash used for operating activities from
 discontinued operations                               |  |                            | (263    | )    |   | (1,542 | ) |   | (2,034  | )
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Cash provided by (used for) investing
 activities:                                                 |  |                            |         |      |   |        |   |   |         |  
|Additions to property, plant and equipment                                                         |  |                            | (1,522  | )    |   | (1,441 | ) |   | (4,255  | )
|Purchase of marketable securities                                                                  |  |                            | (1,998  | )    |   | (2,288 | ) |   | (8,174  | )
|Additions to intangibles and other assets                                                          |  |                            | (906    | )    |   | (505   | ) |   | (950    | )
|Investments and acquisitions, excluding
 cash acquired                                             |  |                            | (7,142  | )    |   | 11     |   |   |        |  
|Proceeds from the sale and maturity of
 marketable securities                                      |  |                            | 2,136   |      |   | 5,000  |   |   | 27,812  |  
|Proceeds from the sale of other assets and
 the formation of the joint venture                     |  |                            | 63      |      |   | 291    |   |   | 11      |  
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Net cash provided by (used for) investing
 activities                                              |  |                            | (9,369  | )    |   | 1,068  |   |   | 14,444  |  
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Cash provided by (used for) financing
 activities:                                                 |  |                            |         |      |   |        |   |   |         |  
|Dividend payments to noncontrolling
 interests                                                     |  |                            | (823    | )    |   |       |   |   | (1,301  | )
|Employee stock purchase                                                                            |  |                            |        |      |   |       |   |   | 207     |  
|Excess tax benefits from share-based
 payment arrangements                                         |  |                            | 173     |      |   | 33     |   |   | 9       |  
|Restricted stock vesting and related tax
 benefits                                                 |  |                            | (330    | )    |   | (407   | ) |   | (251    | )
|Exercise of employee stock options                                                                 |  |                            | 1,678   |      |   | 486    |   |   | 185     |  
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Net cash provided by (used for) financing
 activities                                              |  |                            | 698     |      |   | 112    |   |   | (1,151  | )
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Effect of exchange rate changes on cash and
 cash equivalents                                      |  |                            | 1,792   |      |   | (877   | ) |   | (561    | )
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Net increase in cash and cash equivalents                                                          |  |                            | 13,503  |      |   | 13,813 |   |   | 6,302   |  
|Cash and cash equivalents, beginning of
 year                                                      |  |                            | 46,536  |      |   | 32,723 |   |   | 26,421  |  
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  
|Cash and cash equivalents, end of year                                                             |  | $                          | 60,039  |      | $ | 46,536 |   | $ | 32,723  |  
|                                                                                                   |  |                            |         |      |   |        |   |   |         |  

Supplemental
Cash flow information:


Cash paid
(refunded) for income taxes was $524, $281, and ($2,340), in fiscal 2011, 2010,
and 2009, respectively.See accompanying notes to consolidated financial statements.


F - 6

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYears Ended June 30, 2011, 2010, and 2009
(Dollars in thousands, except for per share amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Principles of
ConsolidationZygo Corporation is a worldwide supplier of optical
metrology instruments, precision optics, and electro-optical design and
manufacturing services, serving customers in the semiconductor capital
equipment and industrial markets. The accompanying consolidated financial
statements are prepared in conformity with accounting principles 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. Noncontrolling interest
related to our ownership interests of less than 100% is reported as
noncontrolling interest in subsidiaries in the consolidated balance sheets. Net
earnings attributable to the noncontrolling interest, net of
tax, is reported as Net earnings attributable to noncontrolling interest in the
consolidated statements of operations.

Discontinued OperationsThe Company classifies operations as discontinued when
the operations have either ceased, or are expected to be disposed of in a sale
transaction in the near term, the operations and cash flows of all discontinued
operations have been eliminated or will be eliminated upon the ceasing of
operations or the consummation of an expected sale transaction, and the Company
will not have any significant continuing involvement in the discontinued
operations. Impairment or disposal of long-lived assets requires the
calculation of estimated fair value less cost to sell of long-lived assets for
assets held for sale. The calculation of estimated fair value less cost to sell
includes significant estimates and assumptions, including, but not limited to:
operating projections; excess working capital levels; property values; and the
anticipated costs involved in the selling process.

As more fully
described in Note 20, Discontinued Operations, we have discontinued the
Singapore Integrated Circuit (IC) packaging metrology operations of our
Vision Systems product line, which was included in our Metrology Solutions
segment.

ReclassificationsCertain amounts have been reclassified to conform to
current-year presentations related to assets measured at fair value.

Translation of Foreign Currency Financial
StatementsZygos reporting currency is the U.S. dollar. The
functional currency of our foreign subsidiaries is their local currency and
amounts included in the consolidated statements of operations are translated at
the weighted-average exchange rates prevailing during the period. Assets and
liabilities are translated at the rates of exchange in effect at the balance
sheet date, and resulting foreign exchange translation adjustments are recorded
in the consolidated balance sheets as a component of accumulated other
comprehensive income (loss).

Foreign Currency TransactionsMonetary 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, net.

Cash and Cash EquivalentsWe 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 SecuritiesWe consider investments in securities with maturities
at the date of purchase in excess of three months as marketable securities.
Marketable securities consist of government agency and corporate securities.
Securities held by us at June 30, 2011 and 2010 were classified as
held-to-maturity and trading. The held-to-maturity investments are recorded at
amortized cost. Trading investments are recorded at fair value and adjusted
through the statements of operations.

F - 7

---



InventoriesInventories include the costs of material, labor and
overhead and 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 EquipmentProperty, plant and equipment are stated at cost.
Maintenance and repairs are charged to expense as incurred. Management
evaluates the carrying value of our property, plant and equipment, on an
ongoing basis, 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 AssetsIntangible assets include patents, trademarks, license
agreements, acquired technology and customer lists. The cost of intangible
assets is amortized on a straight-line basis, over estimated useful lives
ranging from 5-17 years.

Valuation of Long-Lived AssetsThe carrying values of intangible assets and other
long-lived assets are 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 values 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. During fiscal 2011, we recorded an impairment charge
on property, plant and equipment. During fiscal 2010, we recorded an impairment
charge on goodwill. During fiscal 2009, we recorded impairment charges on
property, plant, and equipment, intangible assets and marketable securities.

Income TaxesIncome 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 to an amount that is more likely than not to be realized
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.

Uncertainty in
income taxes is accounted for by applying 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 RecognitionWe 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. We do not have any price protection
agreements or other post shipment

F - 8

---



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.

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.

Research and DevelopmentResearch and development costs are expensed as
incurred. For fiscal 2011, 2010, and 2009, we expensed $7,899, $8,566 and
$14,385 of research and development costs. Reimbursements from customers for
research and development costs are recorded as offsets to the expenses.
Reimbursed research and development costs of $33 were recorded in fiscal 2010
and none were recorded in fiscal 2011 and 2009.

Earnings Per ShareBasic Earnings per share (EPS) is computed based on
the weighted average number of common stock outstanding during the period.
Diluted EPS is computed based on the weighted average number of shares of
common stock plus the effect of dilutive potential common shares outstanding
during the period using the treasury stock method. Dilutive potential common
shares include outstanding stock options and restricted stock units. The
following table sets forth the reconciliation of weighted average shares
outstanding and diluted weighted average shares outstanding:

|                                                            |  |               |            |                |  |                |  |  |            | 
|----------------------------------------------------------- |  | ------------- | ---------- | -------------- |  | -------------- |  |  | ---------- | 
|                                                            |  | June 30, 2011 |            | June
 30, 2010 |  | June
 30, 2009 | 
|                                                            |  |               |            |                |  |                | 
|                                                            |  |               |            |                |  |                |  |  |            | 
|Weighted average shares outstanding                         |  |               | 17,638,635 |                |  | 17,183,224     |  |  | 16,843,186 | 
|Dilutive effect of stock options and restricted stock units |  |               | 501,739    |                |  |               |  |  |           | 
|                                                            |  |               |            |                |  |                |  |  |            | 
|Diluted weighted average shares outstanding                 |  |               | 18,140,374 |                |  | 17,183,224     |  |  | 16,843,186 | 
|                                                            |  |               |            |                |  |                |  |  |            | 

For fiscal
2011, 2010 and 2009, 814,741, 2,036,759 and 2,170,002, 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 CompensationWe have two share-based compensation plans which are
described in Note 13. Share-based compensation expense for the fiscal year
ended June 30, 2011 was $3,965, with a related tax benefit of $1,427. This
increased cost of goods sold by $650, selling, general and administrative
expenses by $2,416 and research, development and engineering expenses by $899.
Share-based compensation expense for the fiscal year ended June 30, 2010 was
$2,492, with a related tax benefit of $897. This increased cost of goods sold
by $316, selling, general and administrative expenses by $1,770 and research,
development and engineering expenses by $406. Share-based compensation expense
for the fiscal year ended June 30, 2009 was $2,885, with a related tax benefit
of $1,039. This increased cost of goods sold by $346, selling, general and
administrative expenses by $2,161, and research, development and engineering
expenses by $378. Restricted stock 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.

Fair Value of Financial InstrumentsWe account for marketable securities and foreign
currency hedges at fair value. The carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses approximate fair value
because they are short-term in nature.

F - 9

---



Use of EstimatesManagement 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.

Adoption of New Accounting PronouncementsIn October 2009, the FASB issued authoritative
guidance on revenue recognition that became effective for us on July 1, 2010.
Under the new guidance on arrangements that include software elements, tangible
products that have software components that are essential to the functionality
of the tangible product will no longer be within the scope of the software
revenue recognition guidance and software-enabled products will now be subject
to other relevant revenue recognition guidance. Additionally, the FASB issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition guidance. Under the
new guidance, when vendor specific objective evidence or third party evidence
for deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The new guidance
includes new disclosure requirements on how the application of the relative
selling price method affects the timing and amount of revenue recognition. The
adoption of this new guidance did not have a material impact on our
consolidated financial statements.

In June 2009,
the FASB issued authoritative guidance on the consolidation of variable
interest entities which became effective for us on July 1, 2010. The new
guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of power over such entities, and
additional disclosures for variable interests. The adoption of this new
guidance did not have a material impact on our consolidated financial statements.

Recent Accounting Guidance Not Yet AdoptedIn January 2010, the FASB issued amended standards
that require additional fair value disclosures. These disclosure requirements
are effective in two phases. On January 1, 2010, we adopted the requirements
for disclosures about inputs and valuation techniques used to measure fair
value as well as disclosures about significant transfers. The adoption of this
portion of the guidance did not have a material impact on our consolidated
financial statements. Beginning in fiscal 2012, the balance of these amended
standards will require presentation of disaggregated activity within the
reconciliation for fair value measurements using significant unobservable
inputs (Level 3). We believe the adoption of the balance of these amended
standards will not have a material impact on our consolidated financial
statements.

In December
2010, the FASB also issued guidance to clarify the reporting of pro forma
financial information related to business combinations of public entities and
to expand certain supplemental pro forma disclosures. This guidance is
effective prospectively for business combinations that occur on or after the
beginning of the fiscal year beginning on or after December 15, 2010, with
early adoption permitted. It is applicable to our fiscal year beginning July 1,
2011. We are currently evaluating this guidance, but do not expect its adoption
to have a material effect on our consolidated financial statements.

In May 2011,
the FASB issued guidance to amend certain measurement and disclosure
requirements related to fair value measurements to improve consistency with
international reporting standards. This guidance is effective prospectively for
public entities for interim and annual reporting periods beginning after
December 15, 2011, with early adoption by public entities prohibited, and is
applicable to our fiscal quarter beginning January 1, 2012. We are currently
evaluating this guidance, but do not expect its adoption to have a material
effect on our consolidated financial statements.

In June 2011,
the FASB issued new guidance on the presentation of comprehensive income that
will require presentation of components of net income and other comprehensive
income in one continuous statement or in two separate, but consecutive
statements. There are no changes to the components that are recognized in net
income or other comprehensive income under current GAAP. This guidance is
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2011, with early adoption permitted. It is
applicable to our fiscal year beginning July 1, 2012. We are currently
evaluating this guidance, but do not expect its adoption will have a material
effect on our consolidated financial statements.

F - 10

---



NOTE 2: ACQUISITIONS

Richmond, CaliforniaOn November 12, 2010, we completed a transaction
with ASML US, Inc. (ASML) to purchase substantially all the assets of their
Richmond, California operations, including a 55,300 square-foot manufacturing
facility. This acquisition expanded our optical manufacturing capabilities. The
assets were acquired for $12,475, of which $7,142 was in cash, and the balance
was future consideration, with a net present value of $5,333 using a discount
factor of 14%, based on the level of shipments to ASML over the subsequent
three years beginning January 1, 2011. On the acquisition date, the future
consideration was recorded as a liability, with $1,127 recorded as a current
liability and $4,206 recorded as a long-term liability. The future
consideration represented a supply agreement that was entered into with ASML
that provided for a volume discount. In addition, we hired key management and
employees working at the Richmond facility. These activities resulted in a newly
formed operation known as the Extreme Precision Optics group (EPO) which is
included in our Optical Systems segment. On June 30, 2011, we recorded a final
valuation adjustment that increased property and equipment and gain on
acquisition by $7, respectively.

This
transaction met the conditions of a business combination as defined by
Accounting Standards Codification (ASC) 805 and, as such, is accounted for
under ASC 805 using the purchase method of accounting. ASC 805 defines the
three elements of a business as Input, Process and Output. As a result of the
acquisition of substantially all the Richmond facility assets, Zygo acquired
the machinery and equipment utilized in the processes to manufacture product,
the building that houses the entire operation and intellectual property needed
in the process to manufacture the product. The ASML employees hired by Zygo in
connection with the acquisition brought with them the skills, experience and
know-how necessary to provide the operational processes that, when applied to
the acquired assets, represent processes being applied to inputs to create
outputs. Having met all three elements of a business as defined in ASC 805, we
determined that the acquisition of substantially all the assets of ASMLs
Richmond, California operation should be accounted for as a business
acquisition.

The results of
EPO are included in our consolidated statements of operations from the
acquisition date. Zygo performed a preliminary fair value exercise to allocate
the purchase price to the acquired assets and liabilities at November 12, 2010.
The fair value exercise was completed on June 30, 2011. The following table
summarizes the consideration paid for the business and the final fair values of
the assets acquired at the date of acquisition:

|                                      |  |                                      |        | 
|------------------------------------- |  | ------------------------------------ | ------ | 
|                                      |  | Final Fair
Value as of
June 30,
2011 |       
|                                      |  |                                      |       
|Consideration:                        |  |                                      |        | 
|Cash                                  |  | $                                    | 7,142  | 
|Future consideration                  |  |                                      | 5,333  | 
|                                      |  |                                      |        | 
|Purchase price                        |  | $                                    | 12,475 | 
|                                      |  |                                      |        | 
|                                      |  |                                      |        | 
|Assets Acquired:                      |  |                                      |        | 
|Inventories                           |  | $                                    | 2,399  | 
|Property and equipment                |  |                                      | 11,474 | 
|Technology and customer relationships |  |                                      | 623    | 
|                                      |  |                                      |        | 
|Total assets                          |  |                                      | 14,496 | 
|                                      |  |                                      |        | 
|Less: gain on acquisition             |  |                                      | 2,021  | 
|                                      |  |                                      |        | 
|Purchase price                        |  | $                                    | 12,475 | 
|                                      |  |                                      |        | 

In addition to
recording the fair values of the assets acquired and the future consideration
liability, we also recorded a gain on acquisition of $2,021 in the consolidated
statement of operations within miscellaneous income in accordance with ASC 805
using the purchase method of accounting. The gain on acquisition was primarily
due to the difference between market value of the acquired real estate and its
book value and the desire of ASML to sell the assets. In addition, a deferred
tax liability of $725 was recorded in the opening balance sheet, which had the
effect of reducing the gain on acquisition to $1,296. We maintain a

F - 11

---



full valuation
allowance on our net deferred tax assets. Therefore, we recorded a tax benefit
to reduce the valuation allowance to the net deferred tax asset balance. Prior
to recording the gain, we reassessed whether we had correctly identified all of
the assets acquired and all of the liabilities assumed. Additionally, we also
reviewed the procedures used to measure the amounts of the identifiable assets
acquired, liabilities assumed and consideration transferred.

The purchased
inventory was comprised of raw materials and work in process. The fair value
for work in process was $1,833 and was determined by considering the sales
price of finished units to represent fair value. The fair value for the
building and land was $6,080 and was determined by using the sales comparison
approach to value the land and a combination of the sales and cost approach for
the building and improvements. The fair value of the equipment was determined
by the market approach to be $5,394. Fair value of customer relationships was
determined to be $23 by using the multi-period excess earnings method. The fair
value of technology was $600 and was determined using the relief from royalty
method.

From the date
of the acquisition through June 30, 2011, EPO contributed revenue and net
earnings of $14,444 and $4,069, respectively. Acquisition-related expenses of
$406 were recognized in administration expense in the twelve months ended June
30, 2011.

Proforma
financial information of revenues and net earnings for the operation is
impractical to provide. Prior to the acquisition, the Richmond operations were
accounted for as a cost center within ASML. Therefore, revenues were not
recorded at the Richmond level within ASML and separate financial statements
for the Richmond operations were not prepared. While ASML provided financial
information sufficient for Zygo to conclude that the acquisition was not
significant under Regulation S-X rule 3-05, ASML did not provide and Zygo does
not have access to financial information for the appropriate periods to present
pro forma financial information.

The following
disclosure presents certain information regarding the intangible assets
acquired from ASML as of June 30, 2011. All acquired intangible assets were valued
by the income approach and are being amortized over their initial estimated
useful lives of five years for both customer relationships and technology, in
both instances with no estimated residual values. We review our intangible
assets for impairment annually.

|                              |  |                         |    |            |   |       |   |   |     |  
|----------------------------- |  | ----------------------- | -- | ---------- | - | ----- | - | - | --- | -
|                              |  | Customer
 Relationships |    | Technology |   | Total |  
|                              |  |                         |    |            |   |       |  
|                              |  |                         |    |            |   |       |   |   |     |  
|Balance at November 12,
 2010 |  | $                       | 23 |            | $ | 600   |   | $ | 623 |  
|                              |  |                         |    |            |   |       |   |   |     |  
|Accumulated amortization      |  |                         | (3 | )          |   | (76   | ) |   | (79 | )
|                              |  |                         |    |            |   |       |   |   |     |  
|                              |  |                         |    |            |   |       |   |   |     |  
|Balance at June 30, 2011      |  | $                       | 20 |            | $ | 524   |   | $ | 544 |  
|                              |  |                         |    |            |   |       |   |   |     |  

ZemetricsIn January 2010, the Company entered into an agreement
to purchase all of the outstanding stock and to retire the outstanding
shareholder notes of Zemetrics, Inc., an Arizona corporation (Zemetrics), in
exchange for 361,217 shares of the Companys common stock. The value of the
common stock issued was $3,901, based on the fair value of the common stock on
the closing date of $10.80. In accordance with the purchase agreement, the
number of shares delivered was calculated by taking the sum of $1,941 and the
outstanding shareholder notes (including accrued interest) of $856 divided by
the average of the closing prices of the Companys common stock reported by the
NASDAQ Stock Market during the forty trading days ended two days prior to the
closing date of January 22, 2010 of $7.74 (the Average Trading Price).

Dr. Chris L.
Koliopoulos, Zygos President and CEO, was a major shareholder of Zemetrics
stock as well as being the major holder of Zemetrics outstanding shareholder
notes. Dr. Koliopoulos received a total of 195,790 shares of Company common
stock consisting of 106,233 shares of Company common stock as consideration for
the purchase of his shares of Zemetrics stock and 89,557 shares of Company common
stock in payment of $680 principal amount of outstanding shareholder notes
(plus accrued interest thereon) issued by Zemetrics to Dr. Koliopoulos.

F - 12

---



Acquisition
costs for the twelve months ended June 30, 2010 were $457, and are included in
selling, general & administrative expenses.

The following
is the final purchase price allocation based on the estimated fair values of
the assets acquired and liabilities assumed as of the date of acquisition on
January 22, 2010:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|Cash                      |  | $ | 11    | 
|Inventories               |  |   | 403   | 
|Prepaid expenses          |  |   | 18    | 
|Property and equipment    |  |   | 15    | 
|Customer relationships    |  |   | 112   | 
|Technology                |  |   | 1,428 | 
|Goodwill                  |  |   | 2,003 | 
|                          |  |   |       | 
|Total assets              |  |   | 3,990 | 
|                          |  |   |       | 
|Less: Liabilities assumed |  |   | 89    | 
|                          |  |   |       | 
|Total                     |  | $ | 3,901 | 
|                          |  |   |       | 

In addition,
net deferred tax assets of $360 were recorded in the opening balance sheet at
zero value, net of a full valuation allowance. Based on the Companys
expectations of future U.S. taxable income, the Company believes it is more
likely than not that such net deferred tax assets could not be realized.

The purchase
price was allocated to the underlying assets acquired and liabilities assumed
based on their fair values. Analyses supporting the purchase price allocation
include a valuation of assets and liabilities as of the closing date, an
analysis of intangible assets and a detailed review of the opening balance
sheet to determine other significant adjustments required to recognize assets
and liabilities at fair value. Intangible assets of technology and customer
relationships were valued on an income approach based on future earnings
projections.

The following
disclosure presents certain information regarding the Companys acquired
intangible assets as of June 30, 2010. All acquired intangible assets were
valued by the income approach and are being amortized over their initial
estimated useful lives of three years for customer relationships and seven
years for technology with no estimated residual values. We review our
intangible assets for impairment annually.

|                            |  |                         |     |            |   |       |   |   |       |  
|--------------------------- |  | ----------------------- | --- | ---------- | - | ----- | - | - | ----- | -
|                            |  | Customer
 Relationships |     | Technology |   | Total |  
|                            |  |                         |     |            |   |       |  
|                            |  |                         |     |            |   |       |   |   |       |  
|Balance at January 22, 2010 |  | $                       | 112 |            | $ | 1,428 |   | $ | 1,540 |  
|                            |  |                         |     |            |   |       |   |   |       |  
|Amortization expense        |  |                         | (16 | )          |   | (85   | ) |   | (101  | )
|                            |  |                         |     |            |   |       |   |   |       |  
|Balance at June 30, 2010    |  | $                       | 96  |            | $ | 1,343 |   | $ | 1,439 |  
|                            |  |                         |     |            |   |       |   |   |       |  

The Company
recorded an impairment charge of $2,003 relating to acquired goodwill in the
quarter ended March 31, 2010 subsequent to the acquisition date. The Zemetrics
reporting unit had minimal sales history and cumulative losses since inception.
In addition, the fair value of common stock issued as consideration on the
closing date was $10.80 per share, which was significantly in excess of the
implied value per share in the formula used in the purchase agreement to determine
the number of common shares issued as consideration (which was based on the
market price per share during the 40-day period prior to closing). In
consideration of these factors, management determined the carrying value of the
reporting unit exceeded its fair value, and that the implied fair value of
goodwill was zero at March 31, 2010.

F - 13

---



From the date
of acquisition, the Zemetrics reporting unit had revenues of $103 and an
operating loss of $2,658 (including the aforementioned $2,003 goodwill
impairment charge), which are included in the consolidated financial statements
in fiscal 2010. The following unaudited proforma condensed financial
information presents the results of operations for the years ended June 30,
2010 and 2009 as though the acquisition of Zemetrics had occurred at the
beginning of each respective fiscal year. The proforma information is presented
for informational purposes only and is not necessarily indicative of the
results of operations that actually would have been achieved had the
acquisition been consummated as of that time:

|                                          |  |                      |         |      |   |         |  
|----------------------------------------- |  | -------------------- | ------- | ---- | - | ------- | -
|                                          |  | Year
 ended June 30, |        
|                                          |  |                      |        
|                                          |  | 2010                 |         | 2009 |  
|                                          |  |                      |         |      |  
|                                          |  |                      |         |      |  
|Net revenues                              |  | $                    | 101,330 |      | $ | 114,734 |  
|Net loss attributable to Zygo Corporation |  | $                    | (3,565  | )    | $ | (63,169 | )
|                                          |  |                      |         |      |   |         |  
|Loss per share amounts:                   |  |                      |         |      |   |         |  
|Basic and Diluted - Loss per share        |  | $                    | (0.21   | )    | $ | (3.75   | )
|Diluted - Loss per share                  |  | $                    | (0.21   | )    | $ | (3.75   | )

Solvision, Inc.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 consideration consisted of $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 was integrated into the
Metrology segment. The results of operations of this acquisition have been
included in the consolidated statement of operations since on February 28,
2008.

During the
quarter ended September 30, 2009, we determined to sell or otherwise close down
the Singapore IC packaging metrology operations of our Vision Systems product
line, included in our Metrology Solutions segment. As of September 30, 2009,
operations had ceased at this location. The results of operations for the
aforementioned operations are presented in the Companys Consolidated Financial
Statements as discontinued operations. We have restated the financial
presentation and related footnotes for fiscal 2009 to show the effects of the
discontinued operations.

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 its
then operating losses, that all of the acquired intangible assets resulting
from the acquisition of Solvision in the prior year were impaired. Of the
$2,149 of impairment charges in fiscal 2009, $1,048 was related to continuing
operations and $1,101 related to discontinued operations.

Fiscal 2009 Merger TerminationOn 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 $5,400. During fiscal
2009, we paid an additional $2,900 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 in fiscal 2009.

F - 14

---



NOTE 3: RESTRUCTURING AND RELATED COSTS

During fiscal
2009, we initiated restructuring actions related to cost reduction efforts
comprised of workforce reductions and the consolidation of manufacturing
operations in Tucson, Arizona. In fiscal 2010, we recorded restructuring and
related charges totaling $661 ($383 in selling, general and administrative
expenses, and $278 in research, development and engineering expenses). There were
no additional charges during fiscal 2011. The severance-related costs are part
of the Metrology Solutions segment, and the facility consolidation costs are
related to the Optical Systems segment

The following
table summarizes the accrual balances and utilization by cost type for the
fiscal 2011 and 2010 restructuring actions:

|                         |  |           |      |                                                |   |       |   |   |      |  
|------------------------ |  | --------- | ---- | ---------------------------------------------- | - | ----- | - | - | ---- | -
|                         |  | Severance |      | June 30, 2011
 Facility
 Consolidation
 Costs  |   | Total |  
|                         |  |           |      |                                                |   |       |  
|Balance at June 30, 2010 |  | $         | 290  |                                                | $ | 227   |   | $ | 517  |  
|Payments                 |  |           | (290 | )                                              |   | (194  | ) |   | (484 | )
|                         |  |           |      |                                                |   |       |   |   |      |  
|Balance at June 30, 2011 |  | $         |     |                                                | $ | 33    |   | $ | 33   |  
|                         |  |           |      |                                                |   |       |   |   |      |  
|                         |  |           |      |                                                |   |       |   |   |      |  
|                         |  | Severance |      | June
 30, 2010
 Facility
 Consolidation
 Costs |   | Total |  
|                         |  |           |      |                                                |   |       |  
|Balance at June 30, 2009 |  | $         | 262  |                                                | $ | 452   |   | $ | 714  |  
|Restructuring charges    |  |           | 661  |                                                |   |      |   |   | 661  |  
|Payments                 |  |           | (633 | )                                              |   | (225  | ) |   | (858 | )
|                         |  |           |      |                                                |   |       |   |   |      |  
|Balance at June 30, 2010 |  | $         | 290  |                                                | $ | 227   |   | $ | 517  |  
|                         |  |           |      |                                                |   |       |   |   |      |  

We expect the
remaining restructuring liabilities at June 30, 2011 to be paid within the next
three months.

NOTE 4: MARKETABLE SECURITIES

Marketable
securities consisted primarily of government agency securities and a mutual
fund, consisting of corporate securities, for fiscal 2011 and 2010. The Company
classifies these securities as held-to-maturity and trading. 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.

At June 30,
2011 and 2010, the held-to-maturity securities consisted of a government
treasury bill. We have both the intent and the ability to hold the government
treasury bill to maturity. The amortized cost, gross unrealized gains and
losses and fair value of held-to-maturity securities at June 30, 2011 and 2010
were as follows:

|                         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 
|------------------------ |  | --------------- | ----- | ------------------------ | - | ------------------------- |  | ----------- | - |  | - | ----- | 
|                         |  | Amortized
 Cost |       | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |  
|                         |  |                 |       |                          |   |                           |  |             |  
|At June 30, 2011         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 
|Government treasury bill |  | $               | 1,000 |                          | $ |                          |  | $           |  |  | $ | 1,000 | 
|                         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 
|                         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 
|At June 30, 2010         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 
|Government treasury bill |  | $               | 1,000 |                          | $ |                          |  | $           |  |  | $ | 1,000 | 
|                         |  |                 |       |                          |   |                           |  |             |   |  |   |       | 

F - 15

---



Trading securities consist of a mutual fund investment corresponding to elections made
in our deferred compensation program. In December 2010, we began quarterly
distributions in accordance with the deferred compensation program agreement.
The cost, gross unrealized gains and losses, contributions, redemptions and
fair value of trading securities at June 30, 2011 and 2010 were as follows:

|              |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 
|------------- |  | ------------------ | --- | ------------------------ | - | ------------------------- |  | ---------------- | --- | -------------- | - | --------------- |  | - | ---- | - | - | --- | 
|              |  | Beginning
 Balance |     | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Contri-
 butions |     | Redemp-
 tions |   | Ending
 Balance | 
|              |  |                    |     |                          |   |                           |  |                  |     |                |   |                 | 
|June 30, 2011 |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 
|Mutual Fund   |  | $                  | 922 |                          | $ | 210                       |  | $                | (16 | )              | $ |                |  | $ | (136 | ) | $ | 980 | 
|              |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 
|              |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 
|June 30, 2010 |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 
|Mutual Fund   |  | $                  | 499 |                          | $ | 191                       |  | $                | (58 | )              | $ | 290             |  | $ |     |   | $ | 922 | 
|              |  |                    |     |                          |   |                           |  |                  |     |                |   |                 |  |   |      |   |   |     | 

Maturities of
investment securities classified as held-to-maturity at June 30, 2011 and 2010
were as follows:

|                     |  |                 |       |               |   |                 |  |             |       |  |   |       | 
|-------------------- |  | --------------- | ----- | ------------- | - | --------------- |  | ----------- | ----- |  | - | ----- | 
|                     |  | June 30, 2011   |       | June 30, 2010 |  
|                     |  |                 |       |               |  
|                     |  | Amortized
 Cost |       | Fair
 Value   |   | Amortized
 Cost |  | Fair
 Value |      
|                     |  |                 |       |               |   |                 |  |             |      
|Due within
 one year |  | $               | 1,000 |               | $ | 1,000           |  | $           | 1,000 |  | $ | 1,000 | 
|                     |  |                 |       |               |   |                 |  |             |       |  |   |       | 

There were no
securities in a continuous unrealized loss position at June 30, 2011 and 2010.

In determining
whether investment holdings are other than temporarily impaired, we consider
the nature, cause, size and duration of the impairment. We and our investment
advisors use analyst reports, credit ratings and other items as part of our
review.

F - 16

---



NOTE 5: FAIR VALUE MEASUREMENTS

Fair value
measurements uses a valuation hierarchy for disclosure of the inputs to
valuation used to measure fair value. This hierarchy prioritizes the inputs
into three broad levels. Level 1 inputs
are quoted prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs are quoted prices for similar assets and
liabilities in active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument. Level 3 inputs are
unobservable inputs based on the managements assumptions used to measure
assets and liabilities at fair value. A financial asset or liabilitys
classification within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement.

The following
table provides the assets and liabilities carried at fair value measured on a
recurring and nonrecurring basis as of June 30, 2011:

|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  
|------------------------------------------------------- |  | --------------------------------------- | ------ | -------------------------------------------- | ---------------------------------------- | ------------------------------------------------- |  | -------------------------------------------- | --- | --------------------- | - | - |  | - | ---- | -
|Assets
 Measured at Fair Value:                         |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  
|(Dollars in thousands)                                  |  |                                         |        |                                              | Fair value measurements at June 30, 2011 |                                                   |  |                                              |    
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |    
|                                                        |  | Total carrying
 value at
 June 30, 2011 |        | Quoted prices
 in active
 markets
 (Level 1) |                                          | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |     |                       |   |  
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |  
|Money market funds                                      |  | $                                       | 19,930 |                                              | $                                        | 19,930                                            |  | $                                            |    |                       | $ |  |  |   |      |  
|Trading securities                                      |  |                                         | 980    |                                              |                                          | 980                                               |  |                                              |    |                       |   |  |  |   |      |  
|Foreign currency hedge                                  |  |                                         | (82    | )                                            |                                          |                                                  |  |                                              | (82 | )                     |   |  |  |   |      |  
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  
|Total                                                   |  | $                                       | 20,828 |                                              | $                                        | 20,910                                            |  | $                                            | (82 | )                     | $ |  |  |   |      |  
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |  
|Assets
 Measured at Fair Value on a Nonrecurring Basis: |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                      
|(Dollars in thousands)                                  |  |                                         |        |                                              | Fair value measurements at June 30, 2011 |                                                   |  |                                              |    
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |    
|                                                        |  | Total carrying
 value at
 June 30, 2011 |        | 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)                      |  | $                                       |       |                                              | $                                        |                                                  |  | $                                            |    |                       | $ |  |  | $ | (563 | )
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  
|Total                                                   |  | $                                       |       |                                              | $                                        |                                                  |  | $                                            |    |                       | $ |  |  | $ | (563 | )
|                                                        |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |      |  

(1) See Note 8: Property,
Plant and Equipment

F - 17

---



The following
table provides the assets and liabilities carried at fair value measured on a
recurring and nonrecurring basis as of June 30, 2010:

|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------------------- | ------ | -------------------------------------------- | ---------------------------------------- | ------------------------------------------------- |  | -------------------------------------------- | --- | --------------------- | - | - |  | - | ------ | -
|Assets Measured at Fair Value:                         |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |       
|                                                       |  |                                         |        |                                              | Fair value measurements at June 30, 2010 |                                                   |  |                                              |    
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |    
|                                                       |  | Total carrying
 value at
 June 30, 2010 |        | Quoted prices
 in active
 markets
 (Level 1) |                                          | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |     |                       |   |  
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |  
|Money market
 funds                                    |  | $                                       | 22,141 |                                              | $                                        | 22,141                                            |  | $                                            |    |                       | $ |  |  |   |        |  
|Trading
 securities                                    |  |                                         | 922    |                                              |                                          | 922                                               |  |                                              |    |                       |   |  |  |   |        |  
|Foreign
 currency hedge                                |  |                                         | (70    | )                                            |                                          |                                                  |  |                                              | (70 | )                     |   |  |  |   |        |  
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|Total                                                  |  | $                                       | 22,993 |                                              | $                                        | 23,063                                            |  | $                                            | (70 | )                     | $ |  |  |   |        |  
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|Assets Measured at Fair Value on a Nonrecurring Basis:
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|                                                       |  | Total carrying
 value at
 June 30, 2010 |        | Quoted prices
 in active
 markets
 (Level 1) |                                          | Significant
 other
 observable
 inputs
 (Level 2) |  | Significant
 unobservable
 inputs
 (Level 3) |     | Total Gains
 (Losses) |  
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |  
|Goodwill (1)                                           |  |                                         |       |                                              |                                          |                                                  |  |                                              |    |                       |   |  |  |   | (2,003 | )
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  
|Total                                                  |  | $                                       |       |                                              | $                                        |                                                  |  | $                                            |    |                       | $ |  |  | $ | (2,003 | )
|                                                       |  |                                         |        |                                              |                                          |                                                   |  |                                              |     |                       |   |   |  |   |        |  

(1) See Note
2: Acquisitions

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 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, 2011 are accounted for as held-to-maturity
investments and are recorded at amortized cost of $1,000.

F - 18

---



NOTE 6: RECEIVABLES

At June 30,
2011 and 2010, receivables were as follows:

|                                 |  |               |        |                |   |        |  
|-------------------------------- |  | ------------- | ------ | -------------- | - | ------ | -
|                                 |  | June 30, 2011 |        | June
 30, 2010 |  
|                                 |  |               |        |                |  
|Trade                            |  | $             | 32,515 |                | $ | 21,314 |  
|Other                            |  |               | 308    |                |   | 609    |  
|                                 |  |               |        |                |   |        |  
|                                 |  |               | 32,823 |                |   | 21,923 |  
|Allowance for doubtful
 accounts |  |               | (1,399 | )              |   | (1,975 | )
|                                 |  |               |        |                |   |        |  
|                                 |  | $             | 31,424 |                | $ | 19,948 |  
|                                 |  |               |        |                |   |        |  

NOTE 7: INVENTORIES

At June 30,
2011 and 2010, inventories were as follows:

|                                      |  |               |        |                |   |        | 
|------------------------------------- |  | ------------- | ------ | -------------- | - | ------ | 
|                                      |  | June 30, 2011 |        | June
 30, 2010 |  
|                                      |  |               |        |                |  
|Raw materials and
 manufactured parts |  | $             | 13,265 |                | $ | 12,682 | 
|Work in process                       |  |               | 10,742 |                |   | 9,322  | 
|Finished goods                        |  |               | 4,372  |                |   | 3,216  | 
|                                      |  |               |        |                |   |        | 
|                                      |  | $             | 28,379 |                | $ | 25,220 | 
|                                      |  |               |        |                |   |        | 

NOTE 8: PROPERTY, PLANT AND EQUIPMENT

At June 30,
2011 and 2010, property, plant and equipment, at cost, were as follows:

|                                           |  |               |         |               |   |                                 |   |  |       | 
|------------------------------------------ |  | ------------- | ------- | ------------- | - | ------------------------------- | - |  | ----- | 
|                                           |  | June 30, 2011 |         | June 30, 2010 |   | Estimated
 Useful Life
 (Years) |  
|                                           |  |               |         |               |   |                                 |  
|                                           |  |               |         |               |   |                                 |  
|Land and
 improvements                     |  | $             | 2,930   |               | $ | 615                             |   |  |      | 
|Building and
 improvements                 |  |               | 21,265  |               |   | 17,390                          |   |  | 15-40 | 
|Machinery,
 equipment and office furniture |  |               | 58,157  |               |   | 56,136                          |   |  | 3-8   | 
|Leasehold
 improvements                    |  |               | 989     |               |   | 1,002                           |   |  | 1-5   | 
|Construction
 in progress                  |  |               | 357     |               |   | 332                             |   |  |      | 
|                                           |  |               |         |               |   |                                 |   |  |       | 
|                                           |  |               | 83,698  |               |   | 75,475                          |   |  |       | 
|Less
 accumulated depreciation             |  |               | (53,503 | )             |   | (52,446                         | ) |  |       | 
|                                           |  |               |         |               |   |                                 |   |  |       | 
|                                           |  | $             | 30,195  |               | $ | 23,029                          |   |  |       | 
|                                           |  |               |         |               |   |                                 |   |  |       | 

Depreciation
expense for the fiscal years ended June 30, 2011, 2010, and 2009 was $5,363,
$5,318 and $7,245, respectively. In
fiscal 2011, we utilized a future discounted cash flow model over five years to
assess the net realizable value of our property, plant and equipment and concluded
that an impairment charge of $563 should be recorded in selling, general and
administrative expenses related to the Vision systems product line in our
Metrology Solutions segment. In fiscal
2009, we recorded impairment charges on our plant, property and equipment of
$4,460 including $4,004 related to the precision positioning systems product
line in our Metrology Solutions segment.
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
precision positioning systems product line.
These charges were included in cost of sales ($2,911), selling, general
and administrative expenses ($82), and research, development and engineering
expenses ($1,467) on the statement of operations for fiscal 2009.

F - 19

---



NOTE 9: INTANGIBLE ASSETS

Intangible
assets, at cost, at June 30, 2011 and 2010 were as follows:

|                                       |  |               |        |                |   |                              |   |  |      | 
|-------------------------------------- |  | ------------- | ------ | -------------- | - | ---------------------------- | - |  | ---- | 
|                                       |  | June 30, 2011 |        | June
 30, 2010 |   | Estimated UsefulLife (Years) |  
|                                       |  |               |        |                |   |                              |  
|                                       |  |               |        |                |   |                              |   |  |      | 
|Patents and trademarks                 |  | $             | 6,774  |                | $ | 5,882                        |   |  | 5-17 | 
|Customer relationships and
 technology |  |               | 2,163  |                |   | 1,540                        |   |  | 3-7  | 
|Covenant not-to-compete                |  |               | 851    |                |   | 851                          |   |  | 4    | 
|                                       |  |               |        |                |   |                              |   |  |      | 
|                                       |  |               | 9,788  |                |   | 8,273                        |   |  |      | 
|Accumulated amortization               |  |               | (3,946 | )              |   | (2,886                       | ) |  |      | 
|                                       |  |               |        |                |   |                              |   |  |      | 
|Total                                  |  | $             | 5,842  |                | $ | 5,387                        |   |  |      | 
|                                       |  |               |        |                |   |                              |   |  |      | 

Amortization expense
related to intangible assets for the fiscal years ended June 30, 2011, 2010 and
2009 was $1,070, $793, and $687, respectively.
Amortization expense is estimated to be approximately $992 in fiscal
2012 and approximately $852, $746, $729 and $635 annually in fiscal 2013-2016,
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, technology and
covenant not-to-compete is included in selling, general and administrative
expense in the consolidated statements of operations.

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

In fiscal
2009, 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 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,
in fiscal 2009, we recorded an impairment charge of $1,048 on the total value
of our customer relationships and technology related to our vision systems
product line in our metrology segment that was included in selling, general and
administrative expenses and research, development and engineering expenses on
the consolidated statement of operations, as noted in Note 2.

NOTE 10: WARRANTY LIABILITY

We provide a
limited warranty 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.

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

|                                                                       |  |               |        |                |   |       |  
|---------------------------------------------------------------------- |  | ------------- | ------ | -------------- | - | ----- | -
|                                                                       |  | June 30, 2011 |        | June
 30, 2010 |  
|                                                                       |  |               |        |                |  
|Beginning balance                                                      |  | $             | 1,360  |                | $ | 1,614 |  
|Reductions for payments made                                           |  |               | (1,083 | )              |   | (881  | )
|Changes in accruals related to warranties issued in the current period |  |               | 920    |                |   | 1,236 |  
|Changes in accrual related to pre-existing warranties                  |  |               | 136    |                |   | (609  | )
|                                                                       |  |               |        |                |   |       |  
|Ending balance                                                         |  | $             | 1,333  |                | $ | 1,360 |  
|                                                                       |  |               |        |                |   |       |  

F - 20

---



NOTE 11: COMMITMENTS AND CONTINGENCIES

From time to
time, we are subject to certain legal proceedings and claims that arise in the
normal course of our business. At June 30, 2011, we did not have a reserve for
any contingencies. We are not party to
any litigation that we believe could have a material effect on our financial
condition, results of operation or liquidity.
During fiscal 2011, we settled and paid a royalty claim in the amount of
$1,400.

We are aware
of certain levels of contamination on our property in Connecticut 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.
Testing of both properties has not shown contaminants above reportable levels.
We are unable to determine or reasonably estimate the amount of costs, if any,
that we might incur or for which we may ultimately become responsible. We will
record a reserve if it is both probable that a liability has been incurred, and
the amount of any liability can be reasonably estimated, whether or not a claim
has been asserted.

We lease
certain manufacturing equipment and facilities under operating leases, some of
which include cost escalation clauses, expiring on various dates through fiscal
2016. Total lease expense, net, charged
to operations was $1,330, $1,295 and $2,340 in fiscal 2011, 2010 and 2009,
respectively. At June 30, 2011, 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 |      
|                              |  |                                          |      
|2012                          |  | $                                        | 774   | 
|2013                          |  |                                          | 358   | 
|2014                          |  |                                          | 108   | 
|2015                          |  |                                          | 43    | 
|2016                          |  |                                          | 19    | 
|                              |  |                                          |       | 
|Total
 minimum lease payments |  | $                                        | 1,302 | 
|                              |  |                                          |       | 

Our Oregon
facility is subleased for approximately $90 per year through March 2013.

NOTE 12: PROFIT-SHARING PLAN

We maintain a
profit-sharing plan in which substantially all full-time employees are eligible
to participate. The profit-sharing plan
consists of cash distributions determined annually at the discretion of the
Board of Directors. We also maintain a
401(k) tax deferred payroll deduction program, under which employees may contribute
a tax-deferred amount of up to 60% of their compensation, as defined. In fiscal 2009, we contributed to the 401(k)
program based on matching up to 4% of an employees contributions. There was no company 401(k) match in either
fiscal 2011 or 2010. Our expenses
related to the plans for the years ended June 30, 2011, 2010 and 2009 amounted
to $2,526, $0 and $967, respectively.

F - 21

---



NOTE 13: SHARE-BASED COMPENSATION PLANS

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Share-Based Compensation Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The Zygo
 Corporation 2002 Equity Incentive Plan (2002 Plan), as amended in 2006,
 permits the granting of stock options to purchase shares of common stock and
 the granting of restricted stock units.
 The number of shares authorized under the Plan was 3,300,000 shares,
 of which 545,000 remain available for grant at June 30, 2011. 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. Options and grants of restricted stock units generally vest over
 a four year period at a rate of 25% each year. Restricted stock awards granted prior to January 1, 2011 vest
 50% after three years and 50% 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. As part of a directors compensation for services to the company,
non-employee directors are granted 5,000 restricted shares, and a non-employee
chairman of the board is granted 7,500 restricted shares, which vest on an
annual basis after one year and each new non-employee director is 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 vest over a four year period
at a rate of 25% each year.

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 provided
assistance to us in connection with certain research and development activities. The warrant had 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 expired on June
26, 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, and exercise price. Under the assumptions indicated below, the
weighted-average fair value of stock option grants for fiscal 2011, 2010 and
2009 were $5.68, $4.45 and $3.77, respectively. The table below indicates the key assumptions used in the option
valuation calculations for options granted in fiscal 2011, 2010 and 2009, and a
discussion of our methodology for developing each of the assumptions used in
the valuation model:

|                         |  |                            |               |      |  |               |  |  |             | 
|------------------------ |  | -------------------------- | ------------- | ---- |  | ------------- |  |  | ----------- | 
|                         |  | Fiscal Year Ended June 30, |              
|                         |  |                            |              
|                         |  | 2011                       |               | 2010 |  | 2009          | 
|                         |  |                            |               |      |  |               | 
|Term                     |  |                            | 4.1-5.1 Years |      |  | 4.1-5.1 Years |  |  | 4-4.6 Years | 
|Volatility               |  |                            | 45.7 - 57.1%  |      |  | 45.7 - 60.9%  |  |  | 45.5%       | 
|Dividend
 yield          |  |                            | 0.0%          |      |  | 0.0%          |  |  | 0.0%        | 
|Risk-free
 interest rate |  |                            | 1.1-2.6%      |      |  | 2.0-2.5%      |  |  | 0.5-2.9%    | 

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 would 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 at the time of the grant having a term equal
to the expected term of the option. An
increase in the risk-free interest rate would increase compensation expense.

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

F - 22

---



Stock Options

The following
table summarizes information about our stock options granted under our
share-based compensation plans for fiscal 2011, 2010 and 2009. 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 exercisable.

|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    |  |  |           |   |   |       | 
|------------------------------------------ |  | --------------------------- | --------- | ---------------------------------- | - | --------------------------- |  | ---------------------------------- | --------- | --------------------------- | - | ---------------------------------- |  |  | --------- | - | - | ----- | 
|                                           |  | June 30, 2011               |           | June
 30, 2010                     |   | June
 30, 2009              | 
|                                           |  |                             |           |                                    |   |                             | 
|                                           |  | Shares
 Covered by
 Options |           | Weighted
 Average
 Exercise
 Price |   | Shares
 Covered by
 Options |  | Weighted
 Average
 Exercise
 Price |           | Shares
 Covered by
 Options |   | Weighted
 Average
 Exercise
 Price | 
|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    | 
|Options - Outstanding at beginning of year |  |                             | 1,976,892 |                                    | $ | 20.14                       |  |                                    | 1,908,572 |                             | $ | 22.72                              |  |  | 2,058,639 |   | $ | 25.33 | 
|Granted                                    |  |                             | 100,000   |                                    | $ | 12.13                       |  |                                    | 515,000   |                             | $ | 9.75                               |  |  | 169,000   |   | $ | 9.61  | 
|Exercised                                  |  |                             | (166,852  | )                                  | $ | 10.05                       |  |                                    | (57,300   | )                           | $ | 8.39                               |  |  | (21,125   | ) | $ | 8.65  | 
|Expired or cancelled                       |  |                             | (473,800  | )                                  | $ | 51.07                       |  |                                    | (389,380  | )                           | $ | 29.60                              |  |  | (297,942  | ) | $ | 37.01 | 
|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    |  |  |           |   |   |       | 
|Options - Outstanding at end of year       |  |                             | 1,436,240 |                                    | $ | 10.57                       |  |                                    | 1,976,892 |                             | $ | 20.14                              |  |  | 1,908,572 |   | $ | 22.72 | 
|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    |  |  |           |   |   |       | 
|Options vested or expected to vest         |  |                             | 1,402,221 |                                    | $ | 10.56                       |  |                                    | 1,878,816 |                             | $ | 20.68                              |  |  | 1,846,583 |   | $ | 23.10 | 
|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    |  |  |           |   |   |       | 
|Options - Exercisable at end of year       |  |                             | 925,990   |                                    | $ | 10.70                       |  |                                    | 1,297,492 |                             | $ | 25.46                              |  |  | 1,573,272 |   | $ | 25.19 | 
|                                           |  |                             |           |                                    |   |                             |  |                                    |           |                             |   |                                    |  |  |           |   |   |       | 

Outstanding
options at June 30, 2011, had an intrinsic value of $4,282 with a weighted
average remaining contractual life of 5.4 years. Exercisable options at the end
of the year had an intrinsic value of $2,659 with a weighted average remaining
contractual life of 3.7 years.

The following
table summarizes information about our stock options granted under our share-based
compensation plans as of June 30, 2011.

|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   |  |         |  |   |       | 
|-------------------------- |  | ----------------------------------------- | --------- | ----------------------------------------------- |  | --------------------------------- |  | ---------------------------------------- | ----- | --------------------------------- |  | ------- |  | - | ----- | 
|                           |  | Options Outstanding                       |           | Options Exercisable                             | 
|                           |  |                                           |           |                                                 | 
|Range of
 Exercise
 Prices |  | Number
 Outstanding
 as of
 June 30, 2011 |           | Weighted
 Average
 Remaining
 Contractual
 Life |  | Weighted
 Average
 Exercise Price |  | Number
 Exercisable as of
 June 30, 2011 |       | Weighted
 Average
 Exercise Price | 
|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   | 
|$   5.09
 - $8.80          |  |                                           | 307,305   |                                                 |  | 5.5                               |  | $                                        | 6.72  |                                   |  | 166,305 |  | $ | 6.39  | 
|$  9.01
 - $12.51          |  |                                           | 855,331   |                                                 |  | 5.6                               |  | $                                        | 10.58 |                                   |  | 536,081 |  | $ | 10.43 | 
|$12.53 -
 $14.74           |  |                                           | 151,950   |                                                 |  | 3.9                               |  | $                                        | 13.72 |                                   |  | 151,950 |  | $ | 13.72 | 
|$14.90 -
 $20.09           |  |                                           | 121,654   |                                                 |  | 5.9                               |  | $                                        | 16.25 |                                   |  | 71,654  |  | $ | 16.29 | 
|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   | 
|$  5.09
 - $20.09          |  |                                           | 1,436,240 |                                                 |  | 5.4                               |  | $                                        | 7.06  |                                   |  | 925,990 |  | $ | 10.70 | 
|                           |  |                                           |           |                                                 |  |                                   |  |                                          |       |                                   | 

As of June 30,
2011, there was $1,246 of total unrecognized compensation cost related to stock
options. These costs are expected to be recognized over a weighted average
period of 1.93 years.

The total
intrinsic value of stock options exercised was $449, $109 and $56 and the total
fair value of stock awards vested was $959, $478 and $754 during the fiscal
years ended June 30, 2011, 2010 and 2009, respectively.

Cash received
from stock option exercises and the associated tax benefit for the fiscal years
ended June 30, 2011, 2010 and 2009 was $1,834, $520 and $203, respectively.

F - 23

---



Restricted Stock
The following table summarizes information about restricted stock units
granted under share-based compensation plans for the fiscal years ended June
30, 2011, 2010, and 2009:

|                                        |  |               |          |                            |   |                |  |                               |          |        |   |                               |  |  |          |   |   |       | 
|--------------------------------------- |  | ------------- | -------- | -------------------------- | - | -------------- |  | ----------------------------- | -------- | ------ | - | ----------------------------- |  |  | -------- | - | - | ----- | 
|                                        |  | June 30, 2011 |          | June
 30, 2010             |   | June
 30, 2009 | 
|                                        |  |               |          |                            |   |                | 
|                                        |  | Shares        |          | WeightedAverage
Fair Value |   | Shares         |  | Weighted
 Average
 Fair Value |          | Shares |   | Weighted
 Average
 Fair Value | 
|                                        |  |               |          |                            |   |                |  |                               |          |        |   |                               | 
|Non vested balance at beginning of year |  |               | 588,093  |                            | $ | 9.04           |  |                               | 551,650  |        | $ | 11.46                         |  |  | 635,147  |   | $ | 12.23 | 
|Granted                                 |  |               | 362,500  |                            | $ | 8.28           |  |                               | 309,000  |        | $ | 6.06                          |  |  | 189,200  |   | $ | 9.72  | 
|Vested                                  |  |               | (172,865 | )                          | $ | 8.89           |  |                               | (205,194 | )      | $ | 11.28                         |  |  | (213,060 | ) | $ | 11.63 | 
|Forfeited                               |  |               | (63,753  | )                          | $ | 9.06           |  |                               | (67,363  | )      | $ | 8.71                          |  |  | (59,637  | ) | $ | 11.87 | 
|                                        |  |               |          |                            |   |                |  |                               |          |        |   |                               |  |  |          |   |   |       | 
|Non vested balance at end of year       |  |               | 713,975  |                            | $ | 8.00           |  |                               | 588,093  |        | $ | 9.04                          |  |  | 551,650  |   | $ | 11.46 | 
|                                        |  |               |          |                            |   |                |  |                               |          |        |   |                               |  |  |          |   |   |       | 

As of June 30,
2011, there was $2,973 of total unrecognized compensation costs related to
restricted stock awards. These costs are expected to be recognized over a
weighted average period of 2.4 years.

At June 30,
2011, an aggregate of 545,065 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 14: EMPLOYEE STOCK PURCHASE PLAN

Under the
Employee Stock Purchase Plan (ESPP), employees who elected to participate had
the ability to purchase common stock at a 5% discount from the market value of
such stock through payroll deductions of an amount between 1% and 10% of
compensation. The total number of shares of common stock available under the
ESPP was 500,000. In July 2008, we issued approximately 13,072 shares of common
stock. In January 2009, we issued 12,897 shares of common stock under the plan.
Participation in the Plan was cancelled during fiscal 2009.

F - 24

---



NOTE 15: INCOME TAXES

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

|          |  |                            |        |      |   |        |   |   |         |  
|--------- |  | -------------------------- | ------ | ---- | - | ------ | - | - | ------- | -
|          |  | Fiscal Year Ended June 30, |       
|          |  |                            |       
|          |  | 2011                       |        | 2010 |   | 2009   |  
|          |  |                            |        |      |   |        |  
|Current:  |  |                            |        |      |   |        |   |   |         |  
|Federal   |  | $                          | 725    |      | $ | 1,917  |   | $ | 20      |  
|State     |  |                            | (259   | )    |   | (130   | ) |   | (185    | )
|Foreign   |  |                            | (1,782 | )    |   | (1,544 | ) |   | (1,038  | )
|          |  |                            |        |      |   |        |   |   |         |  
|          |  |                            | (1,316 | )    |   | 243    |   |   | (1,203  | )
|          |  |                            |        |      |   |        |   |   |         |  
|Deferred: |  |                            |        |      |   |        |   |   |         |  
|Federal   |  |                            |       |      |   | 789    |   |   | (18,277 | )
|State     |  |                            |       |      |   |       |   |   | (2,567  | )
|Foreign   |  |                            |       |      |   |       |   |   | (146    | )
|          |  |                            |        |      |   |        |   |   |         |  
|          |  |                            |       |      |   | 789    |   |   | (20,990 | )
|          |  |                            |        |      |   |        |   |   |         |  
|          |  |                            |        |      |   |        |   |   |         |  
|Total     |  | $                          | (1,316 | )    | $ | 1,032  |   | $ | (22,193 | )
|          |  |                            |        |      |   |        |   |   |         |  

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

|                                        |  |                            |        |      |   |        |   |   |         |  
|--------------------------------------- |  | -------------------------- | ------ | ---- | - | ------ | - | - | ------- | -
|                                        |  | Fiscal Year Ended June 30, |       
|                                        |  |                            |       
|                                        |  | 2011                       |        | 2010 |   | 2009   |  
|                                        |  |                            |        |      |   |        |  
|Earnings
 (loss) from operations - U.S. |  | $                          | 18,543 |      | $ | (7,883 | ) | $ | (39,402 | )
|Earnings
 from foreign operations       |  |                            | 3,365  |      |   | 4,183  |   |   | 385     |  
|                                        |  |                            |        |      |   |        |   |   |         |  
|                                        |  | $                          | 21,908 |      | $ | (3,700 | ) | $ | (39,017 | )
|                                        |  |                            |        |      |   |        |   |   |         |  

F - 25

---



The total
income tax (expense) benefit differs from the amount computed by applying the applicable
U.S. federal income tax rate of 35% in fiscal 2011, 2010, and 2009 to earnings
from continuing operations before income taxes for the following reasons:

|                                                                                  |  |                             |        |      |   |        |   |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------ | - | - | ------- | -
|                                                                                  |  | Fiscal
 Year Ended June 30, |       
|                                                                                  |  |                             |       
|                                                                                  |  | 2011                        |        | 2010 |   | 2009   |  
|                                                                                  |  |                             |        |      |   |        |  
|Computed expected tax (expense) benefit                                         |  | $                           | (7,668 | )    | $ | 1,295  |   | $ | 13,656  |  
|(Increases) reductions in taxes resulting from:                                   |  |                             |        |      |   |        |   |   |         |  
|State taxes, net of federal income tax benefit                                    |  |                             | (168   | )    |   | (85    | ) |   | (1,789  | )
|Reversal of allowance for uncertain tax positions                                 |  |                             |       |      |   | 1,209  |   |   |        |  
|Refund claims relating to net operating loss (NOL) carrybacks and other credits |  |                             |       |      |   | 1,374  |   |   |        |  
|Benefit related to gain on acquisition                                            |  |                             | 725    |      |   |       |   |   |        |  
|Permanent items                                                                   |  |                             | (524   | )    |   | (727   | ) |   | (83     | )
|Foreign tax differential                                                          |  |                             | 399    |      |   | 88     |   |   | 935     |  
|Deferred tax asset valuation allowance and related adjustments to NOL             |  |                             | 5,920  |      |   | (2,217 | ) |   | (36,037 | )
|Other, net                                                                        |  |                             |       |      |   | 95     |   |   | 1,125   |  
|                                                                                  |  |                             |        |      |   |        |   |   |         |  
|                                                                                  |  | $                           | (1,316 | )    | $ | 1,032  |   | $ | (22,193 | )
|                                                                                  |  |                             |        |      |   |        |   |   |         |  

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, 2011 and 2010
are presented below:

|                                                                         |  |               |         |                |   |         |  
|------------------------------------------------------------------------ |  | ------------- | ------- | -------------- | - | ------- | -
|                                                                         |  | June
30, 2011 |         | June
 30, 2010 |  
|                                                                         |  |               |         |                |  
|Deferred tax assets:                                                     |  |               |         |                |   |         |  
|Accounts receivable                                                      |  | $             | 1,741   |                | $ | 703     |  
|Accrued liabilities and other                                            |  |               | 1,025   |                |   | 3,692   |  
|Inventory valuation                                                      |  |               | 3,979   |                |   | 4,918   |  
|Stock award compensation                                                 |  |               | 202     |                |   | 1,977   |  
|Intangible assets                                                        |  |               | 79      |                |   | 12      |  
|Federal, foreign and state net operating loss carryforwards and
 credits |  |               | 25,406  |                |   | 32,753  |  
|Contributions                                                            |  |               | 72      |                |   | 81      |  
|                                                                         |  |               |         |                |   |         |  
|Deferred tax assets                                                      |  |               | 32,504  |                |   | 44,136  |  
|                                                                         |  |               |         |                |   |         |  
|                                                                         |  |               |         |                |   |         |  
|Deferred tax liabilities:                                                |  |               |         |                |   |         |  
|Prepaid expenses                                                         |  |               |        |                |   | (276    | )
|Property, plant and equipment                                            |  |               | (3,270  | )              |   | (927    | )
|                                                                         |  |               |         |                |   |         |  
|Deferred tax liability                                                   |  |               | (3,270  | )              |   | (1,203  | )
|                                                                         |  |               |         |                |   |         |  
|                                                                         |  |               |         |                |   |         |  
|Net deferred tax assets before valuation allowance                       |  |               | 29,234  |                |   | 42,933  |  
|Valuation allowance                                                      |  |               | (29,179 | )              |   | (42,933 | )
|                                                                         |  |               |         |                |   |         |  
|Net deferred tax asset                                                   |  | $             | 55      |                | $ |        |  
|                                                                         |  |               |         |                |   |         |  

Management
believes, based upon the uncertain and volatile market conditions and because
the Company is in a cumulative pre-tax loss position over a three year-period,
it is not more likely than not that the deferred tax assets, net of deferred
tax liabilities, of $29,179 as of June 30, 2011 will be realized. 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.

F - 26

---



At June 30,
2011, our share of the cumulative undistributed earnings of foreign
subsidiaries was $8,897. 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,
2011, we have federal, state, and foreign NOL carry forwards of approximately
$44,343, $12,214, and $5,513, respectively, and various state and foreign tax
credit carry forwards of $3,866 and $257. The federal NOL will expire from
fiscal 2022 through fiscal 2030, while the state NOL and credits will expire
from fiscal 2013 through fiscal 2030. The foreign NOL will begin to expire in
fiscal 2028. We also have federal general business credit carry forwards of
$5,621 and foreign tax credits of $213 which are available to reduce federal
income taxes, if any, through 2029 and begin to expire in 2013. All deferred
tax assets relating to the NOLs and credits have been fully reserved in the
valuation allowance since June 30, 2009.

Due to our NOL
carry forwards, we have accrued no interest or penalties for any unrecognized
tax benefits; however, our policy is to recognize interest related to
unrecognized tax benefits in interest expense. Penalties, if incurred, would be
recognized as a component of income tax expense. In the normal course of
business, we provide for uncertain tax positions and adjust our unrecognized
tax benefits accordingly. We do not anticipate any significant changes to our
recognized tax benefits over the next twelve months.

The following
table is a reconciliation of the beginning and ending balances of unrecognized
tax benefits. If our unrecognized benefits were to become recognized in the future,
the ending balance for each respective year would then impact our effective
rate at the time which the unrecognized benefits are ultimately recognized.

|                                           |  |   |        |  
|------------------------------------------ |  | - | ------ | -
|Unrecognized tax benefit,
 June 30, 2008   |  | $ | 1,872  |  
|Decreases - tax positions
 of current year |  |   | (46    | )
|                                           |  |   |        |  
|Unrecognized tax benefit,
 June 30, 2009   |  | $ | 1,826  |  
|Decreases - tax positions
 of prior years  |  |   | (1,826 | )
|                                           |  |   |        |  
|Unrecognized tax benefit,
 June 30, 2010   |  |   |       |  
|Increases - tax positions
 of prior years  |  |   | 855    |  
|                                           |  |   |        |  
|Unrecognized tax benefit,
 June 30, 2011   |  | $ | 855    |  
|                                           |  |   |        |  

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, 2007, except to the extent we have NOLs
and credits arising from any of those years. Those years are subject to audit
at the time the NOL or credit is utilized. We are no longer subject to state
and foreign income tax audit or tax adjustments for years prior to June 30,
2006.

F - 27

---



NOTE 16: SEGMENT REPORTING

Our business
is organized into two operating divisions  Metrology Solutions (Metrology
Solutions segment) and Optical Systems (Optical Systems segment). Consistent
with our business structure, we reported our segments as Metrology and Optics.
Our Metrology Solutions segment includes 3-Dimensional surface metrology
products, precision positioning systems and custom engineered solutions. Zygos
Optical Systems segment designs, develops and manufactures high precision
optical components and electro-optical systems used in the semiconductor,
defense, life-sciences and research markets. The chief operating decision-maker
uses this information to allocate resources.

|                     |  |                             |         |      |   |         |   |   |         |  
|-------------------- |  | --------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                     |  | Fiscal
 Year Ended June 30, |        
|                     |  |                             |        
|                     |  | 2011                        |         | 2010 |   | 2009    |  
|                     |  |                             |         |      |   |         |  
|Metrology
 Solutions |  |                             |         |      |   |         |   |   |         |  
|Net revenues         |  | $                           | 92,947  |      | $ | 65,841  |   | $ | 82,766  |  
|Gross profit         |  |                             | 50,913  |      |   | 33,652  |   |   | 28,427  |  
|Gross margin         |  |                             | 55      | %    |   | 51      | % |   | 34      | %
|                     |  |                             |         |      |   |         |   |   |         |  
|Optical
 Systems     |  |                             |         |      |   |         |   |   |         |  
|Net revenues         |  | $                           | 57,179  |      | $ | 35,489  |   | $ | 31,968  |  
|Gross profit         |  |                             | 19,880  |      |   | 8,317   |   |   | 4,006   |  
|Gross margin         |  |                             | 35      | %    |   | 23      | % |   | 13      | %
|                     |  |                             |         |      |   |         |   |   |         |  
|Total                |  |                             |         |      |   |         |   |   |         |  
|Net revenues         |  | $                           | 150,126 |      | $ | 101,330 |   | $ | 114,734 |  
|Gross profit         |  |                             | 70,793  |      |   | 41,969  |   |   | 32,433  |  
|Gross margin         |  |                             | 47      | %    |   | 41      | % |   | 28      | %

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.
Revenues by geographic area based on shipping destination were as follows:

|               |  |                             |         |      |   |         |  |   |         | 
|-------------- |  | --------------------------- | ------- | ---- | - | ------- |  | - | ------- | 
|               |  | Fiscal
 Year Ended June 30, |        
|               |  |                             |        
|               |  | 2011                        |         | 2010 |   | 2009    | 
|               |  |                             |         |      |   |         | 
|               |  |                             |         |      |   |         |  |   |         | 
|Americas:      |  | $                           | 81,710  |      | $ | 54,066  |  | $ | 55,456  | 
|Far East:      |  |                             |         |      |   |         |  |   |         | 
|Japan          |  |                             | 31,648  |      |   | 18,280  |  |   | 26,352  | 
|Pacific Rim    |  |                             | 18,785  |      |   | 15,376  |  |   | 19,415  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Total Far East |  |                             | 50,433  |      |   | 33,656  |  |   | 45,767  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Europe         |  |                             | 17,983  |      |   | 13,608  |  |   | 13,511  | 
|               |  |                             |         |      |   |         |  |   |         | 
|Total          |  | $                           | 150,126 |      | $ | 101,330 |  | $ | 114,734 | 
|               |  |                             |         |      |   |         |  |   |         | 

NOTE 17: TRANSACTIONS WITH STOCKHOLDER

Sales to
Canon, Inc., a stockholder representing approximately 7% ownership at June 30,
2011, and Canon Sales Co., Inc., a distributor of certain of our products in
Japan and a subsidiary of Canon Inc. (collectively Canon), were $19,697 (13%
of net revenues), $8,809 (9% of net revenues) and $16,229 (14% of net
revenues), for the years ended June 30, 2011, 2010 and 2009, respectively.
Substantially all of these revenues occurred in the Metrology segment. Selling
prices of products sold to Canon are based, generally, on the normal terms
given to distributors.

At June 30,
2011 and 2010, there were, in the aggregate, $2,572 and $667, respectively, of
trade accounts receivable from Canon.

F - 28

---



NOTE 18: 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
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,
2011, we had six foreign currency forward contracts outstanding with notional
amounts aggregating to $3,060. Net unrealized losses recognized from foreign
currency forward contracts for fiscal 2011, 2010 and 2009 was $12, $64 and $49,
respectively, included in other income in the consolidated statements of
operations. These losses are substantially offset by foreign exchange gains on
intercompany balances recorded by our subsidiaries.

NOTE 19: QUARTERLY RESULTS (UNAUDITED)

The following
table sets forth certain unaudited quarterly financial data:

|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ------------ | - | --------- | - | -------- | ------ | - | - | ------ | 
|                                                                                 |  | For the Fiscal Year Ended June 30, 2011  |       
|                                                                                 |  |                                          |       
|                                                                                 |  | September 30                             |        | December 31  |   | March 31  |   | June 30  |       
|                                                                                 |  |                                          |        |              |   |           |   |          |       
|Net revenues                                                                     |  | $                                        | 31,119 |              | $ | 36,086    |   | $        | 40,235 |   | $ | 42,686 | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Gross profit                                                                     |  | $                                        | 14,203 |              | $ | 16,894    |   | $        | 18,864 |   | $ | 20,832 | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings                                                                     |  | $                                        | 3,256  |              | $ | 6,090     |   | $        | 4,834  |   | $ | 6,503  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings from continuing operations attributable
 to Zygo Corporation        |  | $                                        | 2,637  |              | $ | 5,774     |   | $        | 4,473  |   | $ | 6,104  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings attributable to Zygo Corporation                                    |  | $                                        | 2,728  |              | $ | 5,774     |   | $        | 4,473  |   | $ | 6,104  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings attributable to Zygo Corporation per
 basic common share            |  | $                                        | 0.16   |              | $ | 0.33      |   | $        | 0.25   |   | $ | 0.34   | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings attributable to Zygo Corporation per
 diluted common share          |  | $                                        | 0.16   |              | $ | 0.32      |   | $        | 0.24   |   | $ | 0.33   | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|                                                                                 |  | For
 the Fiscal Year Ended June 30, 2010 |       
|                                                                                 |  |                                          |       
|                                                                                 |  | September
 30                            |        | December
 31 |   | March
 31 |   | June
 30 |       
|                                                                                 |  |                                          |        |              |   |           |   |          |       
|Net revenues                                                                     |  | $                                        | 21,325 |              | $ | 26,081    |   | $        | 25,439 |   | $ | 28,485 | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Gross profit                                                                     |  | $                                        | 7,174  |              | $ | 10,953    |   | $        | 11,477 |   | $ | 12,365 | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings (loss)                                                              |  | $                                        | (5,655 | )            | $ | (1,592    | ) | $        | (2,464 | ) | $ | 4,374  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings (loss) from continuing operations attributable to Zygo
 Corporation |  | $                                        | (3,952 | )            | $ | (1,266    | ) | $        | (2,503 | ) | $ | 4,096  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings (loss) attributable to Zygo Corporation                             |  | $                                        | (5,787 | )            | $ | (1,905    | ) | $        | (2,696 | ) | $ | 4,094  | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings (loss) attributable to Zygo Corporation per basic common
 share     |  | $                                        | (0.34  | )            | $ | (0.11     | ) | $        | (0.16  | ) | $ | 0.23   | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 
|Net earnings (loss) attributable to Zygo Corporation per diluted
 common share   |  | $                                        | (0.34  | )            | $ | (0.11     | ) | $        | (0.16  | ) | $ | 0.23   | 
|                                                                                 |  |                                          |        |              |   |           |   |          |        |   |   |        | 

F - 29

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NOTE 20: DISCONTINUED OPERATIONS

During the
quarter ended September 30, 2009, we determined to sell or otherwise close down
the Singapore IC packaging metrology operations of our vision systems product
line, included in our Metrology Solutions segment. As of September 30, 2009,
operations had ceased at this location. The results of operations for the
aforementioned operations are presented as discontinued operations in the
Companys Consolidated Financial Statements. The financial presentation and
related footnotes for fiscal 2009 have been restated to show the comparable
effects of the discontinued operations.

The following
table summarizes the operating results of discontinued operations for the
fiscal years ended June 30, 2011, 2010 and 2009:

|                                                          |  |                             |     |      |   |        |   |   |        |  
|--------------------------------------------------------- |  | --------------------------- | --- | ---- | - | ------ | - | - | ------ | -
|                                                          |  | Fiscal
 Year Ended June 30, |    
|                                                          |  |                             |    
|                                                          |  | 2011                        |     | 2010 |   | 2009   |  
|                                                          |  |                             |     |      |   |        |  
|Net revenues                                              |  | $                           |    |      | $ | 665    |   | $ | 1,306  |  
|Cost of goods sold                                        |  |                             |    |      |   | 268    |   |   | 2,271  |  
|                                                          |  |                             |     |      |   |        |   |   |        |  
|Gross profit (loss)                                       |  |                             |    |      |   | 397    |   |   | (965   | )
|Operating (income)
 expenses, and other                   |  |                             | (91 | )    |   | 3,066  |   |   | 459    |  
|Asset impairment                                          |  |                             |    |      |   |       |   |   | 2,483  |  
|                                                          |  |                             |     |      |   |        |   |   |        |  
|Earnings (loss) before
 income taxes                      |  |                             | 91  |      |   | (2,669 | ) |   | (3,907 | )
|Income tax expense                                        |  |                             |    |      |   |       |   |   | (152   | )
|                                                          |  |                             |     |      |   |        |   |   |        |  
|Earnings
 (loss) from discontinued operations, net of tax |  | $                           | 91  |      | $ | (2,669 | ) | $ | (4,059 | )
|                                                          |  |                             |     |      |   |        |   |   |        |  

The following
table sets forth the assets and liabilities of our discontinued operations
included in the Consolidated Balance Sheets of the Company as of June 30, 2011
and 2010:

|                                                  |  |                |     |                 |   |     | 
|------------------------------------------------- |  | -------------- | --- | --------------- | - | --- | 
|                                                  |  | June 30,
 2011 |     | June
 30,
 2010 |  
|                                                  |  |                |     |                 |  
|Receivables                                       |  | $              |    |                 | $ |    | 
|Other assets                                      |  |                |    |                 |   | 17  | 
|                                                  |  |                |     |                 |   |     | 
|Current
 assets of discontinued operations        |  | $              |    |                 | $ | 17  | 
|                                                  |  |                |     |                 |   |     | 
|                                                  |  |                |     |                 |   |     | 
|Accounts payable                                  |  | $              |    |                 | $ |    | 
|Accrued expenses and other
 current liabilities   |  |                | 281 |                 |   | 287 | 
|                                                  |  |                |     |                 |   |     | 
|Current
 liabilities of discontinued operations   |  | $              | 281 |                 | $ | 287 | 
|                                                  |  |                |     |                 |   |     | 
|                                                  |  |                |     |                 |   |     | 
|Other long-term
 liabilities                      |  | $              |    |                 | $ | 281 | 
|                                                  |  |                |     |                 |   |     | 
|Long-term
 liabilities of discontinued operations |  | $              |    |                 | $ | 281 | 
|                                                  |  |                |     |                 |   |     | 

Liabilities remaining as of
June 30, 2011 include amounts due on a non-compete agreement that will be paid
in the next twelve months.

*     *     *     *     *

F - 30

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ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

SCHEDULE II -
VALUATION AND QUALIFYING ACCOUNTS

Years ended June 30, 2011, 2010 and 2009

(Thousands of
dollars)

|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|---------------------------------------------- |  | ------------------------------- | ------ | --------- | - | ----------------------- | - | ------------------------- | ------- | - | - | ------ | 
|Description                                    |  | Balance
 at
 Beginning of
 Year |        | Provision |   | Write-Offs
 and 
 Other |   | Balance
 at End 
 of Year |        
|                                               |  |                                 |        |           |   |                         |   |                           |        
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Year Ended
 June 30, 2011                      |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Allowance for doubtful accounts                |  | $                               | 1,975  |           | $ | (299                    | ) | $                         | 277     |   | $ | 1,399  | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 42,933 |           | $ | (5,920                  | ) | $                         | 7,834   |   | $ | 29,179 | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Year Ended
 June 30, 2010                      |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Allowance for doubtful accounts                |  | $                               | 2,550  |           | $ | (586                    | ) | $                         | (11     | ) | $ | 1,975  | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 39,015 |           | $ | (789                    | ) | $                         | (4,707  | ) | $ | 42,933 | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Year Ended
 June 30, 2009                      |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Allowance for doubtful accounts                |  | $                               | 349    |           | $ | 3,157                   |   | $                         | 956     |   | $ | 2,550  | 
|                                               |  |                                 |        |           |   |                         |   |                           |         |   |   |        | 
|Valuation allowance on net deferred tax assets |  | $                               | 2,105  |           | $ | 20,990                  |   | $                         | (15,920 | ) | $ | 39,015 | 

S - 1

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EXHIBIT INDEX

|                       |  |                                                                                                                                                                      
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
 TABLE
 NUMBER |  |                                                                                                                                                                      
|                       |  |                                                                                                                                                                      
|                       |  |                                                                                                                                                                      
|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                                             

---