##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended July 1, 2006                                                 
|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 0-26946


INTEVAC, INC.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|California                                                         |  | 94-3125814                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No.)

3560 Bassett Street


Santa Clara, California 95054


(Address of principal executive office, including Zip
Code)


Registrants telephone number, including area code:


(408) 986-9888


þ o


12b-2


o þ o


12b-2 o þ


APPLICABLE ONLY TO CORPORATE ISSUERS:












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##### 



INTEVAC, INC.


INDEX







|                                  |  |                                                                                           |    |                                                                                 |      |  |   | 
|--------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------- | ---- |  | - | 
|No.                               |  |                                                                                           |    |                                                                                 | Page | 
|                                  |  |                                                                                           |    |                                                                                 |      | 
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Financial Statements (unaudited)                                                          |    |                                                                                 | 2    | 
|                                  |  |                                                                                           |    | Condensed Consolidated Balance Sheets                                           |      |  | 2 | 
|                                  |  |                                                                                           |    | Condensed Consolidated Statements of Income
    and Comprehensive Income (Loss) |      |  | 3 | 
|                                  |  |                                                                                           |    | Condensed Consolidated Statements of Cash
    Flows                             |      |  | 4 | 
|                                  |  |                                                                                           |    | Notes to Condensed Consolidated Financial
    Statements                        |      |  | 5 | 
|Item 2.                           |  | Managements Discussion and
    Analysis of Financial Condition and Results of Operations |    |                                                                                 | 16   | 
|Item 3.                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |    |                                                                                 | 24   | 
|Item 4.                           |  | Controls and Procedures                                                                   |    |                                                                                 | 25   | 
|                                 
|PART II. OTHER
    INFORMATION   
|Item 1.                           |  | Legal Proceedings                                                                         |    |                                                                                 | 26   | 
|Item 1A.                          |  | Risk Factors                                                                              |    |                                                                                 | 26   | 
|Item 2.                           |  | Unregistered Sales of Equity
    Securities and Use of Proceeds                           |    |                                                                                 | 36   | 
|Item 3.                           |  | Defaults Upon Senior Securities                                                           |    |                                                                                 | 36   | 
|Item 4.                           |  | Submission of Matters to a Vote of
    Security Holders                                   |    |                                                                                 | 37   | 
|Item 5.                           |  | Other Information                                                                         |    |                                                                                 | 37   | 
|Item 6.                           |  | Exhibits                                                                                  |    |                                                                                 | 37   | 
|SIGNATURES                        |  |                                                                                           | 38 |                                                                                
|EXHIBIT 31.1                     
|EXHIBIT 31.2                     
|EXHIBIT 32.1                     



1



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##### Table of Contents






PART I. FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements

INTEVAC, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                        |                                                                                                                  |                           |                                            |        |              |         |       |        |         |         | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ----- | ------ | ------- | ------- | 
|                                        |                                                                                                                  | July 1,                   |                                            |        | December 31, |        
|                                        |                                                                                                                  | 2006                      |                                            |        | 2005         |        
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  | (Unaudited)               |                                            |        |             
|                                        |                                                                                                                  | (In thousands)            |                                           
|ASSETS                                 
|Current assets:                         |                                                                                                                  |                           |                                            |        |              |         |       |       
|                                        | Cash and cash equivalents                                                                                        |                           | $                                          | 20,321 |              |         | $     | 15,255 |        
|                                        | Short term investments                                                                                           |                           |                                            | 45,312 |              |         |       | 34,476 |        
|                                        | Trade and other accounts receivable, net of allowances of $87
    and $154 at July 1, 2006 and December 31, 2005 |                           |                                            | 41,558 |              |         |       | 42,847 |        
|                                        | Inventories                                                                                                      |                           |                                            | 33,857 |              |         |       | 24,837 |        
|                                        | Prepaid expenses and other current assets                                                                        |                           |                                            | 2,063  |              |         |       | 1,814  |        
|                                        | Deferred tax assets                                                                                              |                           |                                            | 2,479  |              |         |       |       |        
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  | Total current assets      |                                            |        | 145,590      |         |       |        | 119,229 |        
|Property, plant and equipment, net      |                                                                                                                  |                           | 8,853                                      |        |              |         | 7,980 |       
|Investment in 601 California Avenue LLC |                                                                                                                  |                           | 2,431                                      |        |              |         | 2,431 |       
|Other long term assets                  |                                                                                                                  |                           | 1,437                                      |        |              |         | 804   |       
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  | Total assets              |                                            | $      | 158,311      |         |       | $      | 130,444 |        
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                       
|LIABILITIES AND SHAREHOLDERS EQUITY   
|Current liabilities:                    |                                                                                                                  |                           |                                            |        |              |         |       |       
|                                        | Accounts payable                                                                                                 |                           | $                                          | 11,639 |              |         | $     | 7,049  |        
|                                        | Accrued payroll and related liabilities                                                                          |                           |                                            | 6,634  |              |         |       | 5,509  |        
|                                        | Other accrued liabilities                                                                                        |                           |                                            | 5,852  |              |         |       | 6,182  |        
|                                        | Customer advances                                                                                                |                           |                                            | 25,569 |              |         |       | 23,136 |        
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  | Total current liabilities |                                            |        | 49,694       |         |       |        | 41,876  |        
|Other long-term liabilities             |                                                                                                                  |                           | 933                                        |        |              |         | 694   |       
|Shareholders equity:                   |                                                                                                                  |                           |                                            |        |              |         |       |       
|                                        | Common stock, no par value                                                                                       |                           |                                            | 99,388 |              |         |       | 97,165 |        
|                                        | Additional paid in capital                                                                                       |                           |                                            | 1,180  |              |         |       |       |        
|                                        | Accumulated other comprehensive income                                                                           |                           |                                            | 301    |              |         |       | 238    |        
|                                        | Retained earnings (accumulated deficit)                                                                          |                           |                                            | 6,815  |              |         |       | (9,529 | )      
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  |                           | Total shareholders equity                 |        |              | 107,684 |       |        |         | 87,874  | 
|                                        |                                                                                                                  |                           |                                            |        |              |        
|                                        |                                                                                                                  |                           | Total liabilities and shareholders equity |        | $            | 158,311 |       |        | $       | 130,444 | 
|                                        |                                                                                                                  |                           |                                            |        |              |        



2



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##### Table of Contents



INTEVAC, INC.





CONDENSED CONSOLIDATED STATEMENTS OF INCOME


AND COMPREHENSIVE INCOME (LOSS)


|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |        |        | 
|--------------------------------- | ---------------------------------------- | ---------------------------------------- | ------ | ------ | ---------------- | - | ----- | ------- | ------ | - | ------- | ------- | ------- | - | ------ | ------ | ------ | 
|                                  |                                          | Three Months Ended                       |        |        | Six Months Ended |  
|                                  |                                          |                                          |        |        |                  |  
|                                  |                                          | July 1,                                  |        |        | July 2,          |   |       | July 1, |        |   | July 2, |        
|                                  |                                          | 2006                                     |        |        | 2005             |   |       | 2006    |        |   | 2005    |        
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|                                  |                                          | (Unaudited)                              |       
|                                  |                                          | (In thousands, except per share amounts) |       
|Net revenues:                     |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Systems and components                   |                                          | $      | 56,843 |                  |   | $     | 28,545  |        |   | $       | 104,917 |         |   | $      | 37,139 |       
|                                  | Technology development                   |                                          |        | 2,699  |                  |   |       | 1,873   |        |   |         | 4,245   |         |   |        | 3,884  |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|                                  |                                          | Total net revenues                       |        |        | 59,542           |   |       |         | 30,418 |   |         |         | 109,162 |   |        |        | 41,023 | 
|Cost of net revenues:             |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Systems and components                   |                                          |        | 35,838 |                  |   |       | 19,425  |        |   |         | 67,178  |         |   |        | 25,821 |       
|                                  | Technology development                   |                                          |        | 1,909  |                  |   |       | 1,298   |        |   |         | 2,861   |         |   |        | 2,792  |       
|                                  | Inventory provisions                     |                                          |        | 533    |                  |   |       | 34      |        |   |         | 555     |         |   |        | 754    |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|                                  |                                          | Total cost of net revenues               |        |        | 38,280           |   |       |         | 20,757 |   |         |         | 70,594  |   |        |        | 29,367 | 
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Gross profit                      |                                          |                                          | 21,262 |        |                  |   | 9,661 |         |        |   | 38,568  |         |         |   | 11,656 |       
|Operating expenses:               |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Research and development                 |                                          |        | 6,290  |                  |   |       | 3,413   |        |   |         | 11,851  |         |   |        | 6,538  |       
|                                  | Selling, general and administrative      |                                          |        | 5,004  |                  |   |       | 2,741   |        |   |         | 10,118  |         |   |        | 5,932  |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|                                  |                                          | Total operating expenses                 |        |        | 11,294           |   |       |         | 6,154  |   |         |         | 21,969  |   |        |        | 12,470 | 
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Operating profit (loss)           |                                          |                                          | 9,968  |        |                  |   | 3,507 |         |        |   | 16,599  |         |         |   | (814   | )     
|Interest income and other, net    |                                          |                                          | 729    |        |                  |   | 423   |         |        |   | 1,327   |         |         |   | 854    |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Income before income taxes        |                                          |                                          | 10,697 |        |                  |   | 3,930 |         |        |   | 17,926  |         |         |   | 40     |       
|Provision for income taxes        |                                          |                                          | 1,364  |        |                  |   | 3     |         |        |   | 1,582   |         |         |   | 10     |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Net income                        |                                          | $                                        | 9,333  |        |                  | $ | 3,927 |         |        | $ | 16,344  |         |         | $ | 30     |       
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Other comprehensive income:       |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Foreign currency translation adjustments |                                          |        | 34     |                  |   |       | (21     | )      |   |         | 63      |         |   |        | (37    | )     
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Total comprehensive income (loss) |                                          | $                                        | 9,367  |        |                  | $ | 3,906 |         |        | $ | 16,407  |         |         | $ | (7     | )     
|                                  |                                          |                                          |        |        |                  |   |       |         |        |   |         |        
|Basic income per share:           |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Net income                               |                                          | $      | 0.44   |                  |   | $     | 0.19    |        |   | $       | 0.78    |         |   | $      | 0.00   |       
|                                  | Shares used in per share amounts         |                                          |        | 20,987 |                  |   |       | 20,391  |        |   |         | 20,910  |         |   |        | 20,317 |       
|Diluted income per share:         |                                          |                                          |        |        |                  |   |       |         |        |   |         |         |         |   |        |       
|                                  | Net income                               |                                          | $      | 0.42   |                  |   | $     | 0.19    |        |   | $       | 0.75    |         |   | $      | 0.00   |       
|                                  | Shares used in per share amounts         |                                          |        | 21,972 |                  |   |       | 21,144  |        |   |         | 21,883  |         |   |        | 20,989 |       



3



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INTEVAC, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                       |              |                                             |          |       |         |   |        |   |         |  
|------------------------------------------------------------------------------------------------------ | ------------ | ------------------------------------------- | -------- | ----- | ------- | - | ------ | - | ------- | -
|                                                                                                       |              | Six Months Ended                            |         
|                                                                                                       |              |                                             |         
|                                                                                                       |              | July 1,                                     |          |       | July 2, |  
|                                                                                                       |              | 2006                                        |          |       | 2005    |  
|                                                                                                       |              |                                             |          |       |         |  
|                                                                                                       |              | (Unaudited)                                 |         
|                                                                                                       |              | (In thousands)                              |         
|Operating activities                                                                                   |              |                                             |          |       |         |   |        |  
|Net income                                                                                             |              | $                                           | 16,344   |       |         | $ | 30     |  
|Adjustments to reconcile net income to net cash and cash
    equivalents used in operating activities: |              |                                             |          |       |         |   |        |  
|                                                                                                       |              | Depreciation and amortization               |          |       | 1,240   |   |        |   | 1,049   |  
|                                                                                                       |              | Inventory provisions                        |          |       | 555     |   |        |   | 754     |  
|                                                                                                       |              | Equity-based compensation                   |          |       | 1,180   |   |        |   |        |  
|                                                                                                       |              | Loss on disposal of equipment               |          |       | 5       |   |        |   | 4       |  
|                                                                                                       |              | Changes in operating assets and liabilities |          |       | (3,584  | ) |        |   | (10,253 | )
|                                                                                                       |              |                                             |          |       |         |  
|Total adjustments                                                                                      |              |                                             | (604     | )     |         |   | (8,446 | )
|                                                                                                       |              |                                             |          |       |         |  
|Net cash and cash equivalents provided by (used in) operating
    activities                           |              |                                             | 15,740   |       |         |   | (8,416 | )
|Investing activities                                                                                   |              |                                             |          |       |         |   |        |  
|Purchases of investments                                                                               |              |                                             | (183,453 | )     |         |   | (8,859 | )
|Proceeds from maturities of investments                                                                |              |                                             | 172,700  |       |         |   | 18,000 |  
|Purchases of leasehold improvements and equipment                                                      |              |                                             | (2,196   | )     |         |   | (1,462 | )
|                                                                                                       |              |                                             |          |       |         |  
|Net cash and cash equivalents provided by (used) in
    investing activities                           |              |                                             | (12,949  | )     |         |   | 7,679  |  
|Financing activities                                                                                   |              |                                             |          |       |         |   |        |  
|Net proceeds from issuance of common stock                                                             |              |                                             | 2,223    |       |         |   | 1,427  |  
|                                                                                                       |              |                                             |          |       |         |  
|Net cash and cash equivalents provided by financing activities                                         |              |                                             | 2,223    |       |         |   | 1,427  |  
|Effect of exchange rate changes on cash                                                                |              |                                             | 52       |       |         |   | (56    | )
|                                                                                                       |              |                                             |          |       |         |  
|Net increase in cash and cash equivalents                                                              |              |                                             | 5,066    |       |         |   | 634    |  
|Cash and cash equivalents at beginning of period                                                       |              |                                             | 15,255   |       |         |   | 17,455 |  
|                                                                                                       |              |                                             |          |       |         |  
|Cash and cash equivalents at end of period                                                             |              | $                                           | 20,321   |       |         | $ | 18,089 |  
|                                                                                                       |              |                                             |          |       |         |  
|Supplemental Schedule of Cash Flow Information                                                         |              |                                             |          |       |         |   |        |  
|Cash paid for:                                                                                         |              |                                             |          |       |         |   |        |  
|                                                                                                       | Income taxes |                                             | $        | 2,723 |         |   | $      | 2 |        



4



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##### Table of Contents






INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




|   |                                              
|-- | ---------------------------------------------
|1. | Business Activities and Basis of Presentation









10-Q S-X. 10-K






® ® ® ®




|   |               
|-- | --------------
|2. | Concentrations







|   |                              
|-- | -----------------------------
|3. | New Accounting Pronouncements

03-01,


5



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


03-01 03-01;


04-13). 04-13 04-13






|   |            
|-- | -----------
|4. | Inventories

first-in,


|                 |  |                |        |  |              |   |        | 
|---------------- |  | -------------- | ------ |  | ------------ | - | ------ | 
|                 |  | July 1,        |        |  | December 31, |  
|                 |  | 2006           |        |  | 2005         |  
|                 |  |                |        |  |              |  
|                 |  | (In thousands) |       
|Raw materials    |  | $              | 17,234 |  |              | $ | 15,070 | 
|Work-in-progress |  |                | 13,757 |  |              |   | 6,303  | 
|Finished goods   |  |                | 2,866  |  |              |   | 3,464  | 
|                 |  |                |        |  |              |  
|                 |  | $              | 33,857 |  |              | $ | 24,837 | 
|                 |  |                |        |  |              |  



work-in Work-in


6



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |  |                  |        |   |         |   |        |  
|------------------------------------------------------ |  | ---------------- | ------ | - | ------- | - | ------ | -
|                                                       |  | Six Months Ended |       
|                                                       |  |                  |       
|                                                       |  | July 1,          |        |   | July 2, |  
|                                                       |  | 2006             |        |   | 2005    |  
|                                                       |  |                  |        |   |         |  
|                                                       |  | (In thousands)   |       
|Beginning balance                                      |  | $                | 10,988 |   |         | $ | 9,863  |  
|New provisions in cost of sales                        |  |                  | 555    |   |         |   | 754    |  
|New provisions for refurbishment of consigned products |  |                  | 7      |   |         |   | 87     |  
|Disposals of inventory                                 |  |                  | (2,058 | ) |         |   |       |  
|Miscellaneous adjustments                              |  |                  |       |   |         |   | (96    | )
|                                                       |  |                  |        |   |         |  
|Ending balance                                         |  | $                | 9,492  |   |         | $ | 10,608 |  
|                                                       |  |                  |        |   |         |  



|   |                         
|-- | ------------------------
|5. | Stock-Based Compensation









7



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Descriptions of Plans



| |                           
| | --------------------------
| | 2004 Equity Incentive Plan





| |                                  
| | ---------------------------------
| | 2003 Employee Stock Purchase Plan





| |                                      
| | -------------------------------------
| | Impact of the Adoption of SFAS 123(R)



|                                           |         |                              |     |      |              |  |       |      |     | 
|------------------------------------------ | ------- | ---------------------------- | --- | ---- | ------------ |  | ----- | ---- | --- | 
|                                           |         | Three Months                 |     |      | Six Months   | 
|                                           |         | Ended                        |     |      | Ended        | 
|                                           |         | July 1, 2006                 |     |      | July 1, 2006 | 
|                                           |         |                              |     |      |              | 
|Stock-based compensation by type of award: |         |                              |     |      |              |  |       |     
|                                           |         | Stock options                |     | $    | 552          |  |       | $    | 896 | 
|                                           |         | Employee stock purchase plan |     |      | 167          |  |       |      | 283 | 
|Amounts capitalized as inventory           |         |                              | (24 | )    |              |  | (56   | )   
|                                           |         |                              |     |      |              | 
|Total stock-based compensation             |         |                              | 695 |      |              |  | 1,123 |     
|Tax effect on stock-based compensation     |         |                              | (61 | )    |              |  | (99   | )   
|                                           |         |                              |     |      |              | 
|Net effect on net income                   |         |                              | 634 |      |              |  | 1,024 |     
|                                           |         |                              |     |      |              | 
|Effect on earnings per share:              |         |                              |     |      |              |  |       |     
|                                           | Basic   |                              | $   | 0.03 |              |  | $     | 0.05 |    
|                                           | Diluted |                              | $   | 0.03 |              |  | $     | 0.04 |    

8



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INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Valuation Assumptions





|                                                        |  |               |       |  
|------------------------------------------------------- |  | ------------- | ----- | -
|                                                        |  | Three Months  |      
|                                                        |  | Ended         |      
|                                                        |  | July 1, 2006  |      
|                                                        |  |               |      
|                                                        |  | Stock Options |      
|                                                        |  |               |      
|Expected volatility                                     |  |               | 81.71 | %
|Risk free interest rate                                 |  |               | 5.09  | %
|Expected term of options and purchase rights (in years) |  |               | 5.76  |  
|Dividend yield                                          |  |               | None  |  

|                                                        |  |                  |       |          |                |  |       |  
|------------------------------------------------------- |  | ---------------- | ----- | -------- | -------------- |  | ----- | -
|                                                        |  | Six Months Ended |      
|                                                        |  | July 1, 2006     |      
|                                                        |  |                  |      
|                                                        |  |                  |       | Employee |               
|                                                        |  | Stock            |       |          | Stock Purchase | 
|                                                        |  | Options          |       |          | Plan           | 
|                                                        |  |                  |       |          |                | 
|Expected volatility                                     |  |                  | 77.91 | %        |                |  | 61.47 | %
|Risk free interest rate                                 |  |                  | 4.88  | %        |                |  | 4.64  | %
|Expected term of options and purchase rights (in years) |  |                  | 4.95  |          |                |  | 0.5   |  
|Dividend yield                                          |  |                  | None  |          |                |  | None  |  



9



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INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                      
| | -------------------------------------
| | Expense Information Under SFAS 123(R)



| |                           
| | --------------------------
| | 2004 Equity Incentive Plan



|                                         |                   |        |           |                  |                |                  |                  |         |  |                     |       |  |  |   |            |  | 
|---------------------------------------- | ----------------- | ------ | --------- | ---------------- | -------------- | ---------------- | ---------------- | ------- |  | ------------------- | ----- |  |  | - | ---------- |  | 
|                                         |                   |        |           |                  |                | Weighted Average |                  |         | 
|                                         |                   |        |           |                  |                | Remaining        |                  |         | 
|                                         |                   |        |           | Weighted Average |                |                  | Contractual Term |         |  | Aggregate Intrinsic |      
|                                         |                   | Shares |           |                  | Exercise Price |                  |                  | (Years) |  |                     | Value | 
|                                         |                   |        |           |                  |                |                  |                  |         |  |                     |       | 
|Options outstanding at December 31, 2005 |                   |        | 1,867,570 |                  |                | $                | 7.19             |         |  |                     | 7.55  |  |  | $ | 11,482,717 | 
|                                         | Options granted   |        |           | 387,000          |                |                  | $                | 19.40   |  |                     |       |  |  |   |            |  | 
|                                         | Options forfeited |        |           | (38,760          | )              |                  | $                | 8.06    |  |                     |       |  |  |   |            |  | 
|                                         | Options exercised |        |           | (260,700         | )              |                  | $                | 7.18    |  |                     |       |  |  |   |            |  | 
|Options outstanding at July 1, 2006      |                   |        | 1,955,110 |                  |                | $                | 9.59             |         |  |                     | 7.88  |  |  | $ | 23,781,813 | 
|Options exercisable at July 1, 2006      |                   |        | 880,234   |                  |                | $                | 7.79             |         |  |                     | 6.93  |  |  | $ | 12,229,177 | 





|                         |  |                     |           |                  |                     |  |      |                |  |   |             |  |  |                |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- | ------------------- |  | ---- | -------------- |  | - | ----------- |  |  | -------------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |                  |                    
|                         |  |                     |           |                  | Options Exercisable | 
|                         |  |                     |           | Weighted Average |                     |  |      |                |  |  
|                         |  | Number of           |           |                  | Remaining           |  |      | Weighted       |  |   | Number      |  |  | Weighted       |        
|                         |  | Shares              |           |                  | Contractual Term    |  |      | Average        |  |   | Vested and  |  |  | Average        |        
|Range of Exercise Prices |  | Outstanding         |           |                  | (In Years)          |  |      | Exercise Price |  |   | Exercisable |  |  | Exercise Price |        
|                         |  |                     |           |                  |                     |  |      |                |  |   |             |  |  |                |        
|$ 2.63 - $ 3.98          |  |                     | 350,140   |                  |                     |  | 5.42 |                |  | $ | 2.88        |  |  |                | 277,049 |  |  | $ | 2.80  | 
|$ 3.99 - $ 6.38          |  |                     | 277,970   |                  |                     |  | 7.33 |                |  | $ | 4.55        |  |  |                | 86,885  |  |  | $ | 4.77  | 
|$ 6.39 - $ 7.84          |  |                     | 343,550   |                  |                     |  | 8.05 |                |  | $ | 7.57        |  |  |                | 45,150  |  |  | $ | 7.20  | 
|$ 7.85 - $10.01          |  |                     | 318,200   |                  |                     |  | 8.39 |                |  | $ | 9.04        |  |  |                | 202,900 |  |  | $ | 9.63  | 
|$10.02 - $15.50          |  |                     | 280,250   |                  |                     |  | 8.29 |                |  | $ | 12.60       |  |  |                | 268,250 |  |  | $ | 12.62 | 
|$15.50 - $22.55          |  |                     | 385,000   |                  |                     |  | 9.67 |                |  | $ | 19.39       |  |  |                |        |  |  | $ |      | 
|                         |  |                     |           |                  |                     |  |      |                |  |   |             |  |  |                |        
|$ 2.63 - $28.55          |  |                     | 1,955,110 |                  |                     |  | 7.88 |                |  | $ | 9.59        |  |  |                | 880,234 |  |  | $ | 7.79  | 





| |                                  
| | ---------------------------------
| | 2003 Employee Stock Purchase Plan



10



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                         
| | ----------------------------------------
| | Prior to the Adoption of SFAS No. 123(R)



|                                                                                                                                                    |             |              |       |      |              |   |        |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------ | ----- | ---- | ------------ | - | ------ | ----- | -
|                                                                                                                                                    |             | Three Months |       |      | Six Months   |  
|                                                                                                                                                    |             | Ended        |       |      | Ended        |  
|                                                                                                                                                    |             | July 1, 2005 |       |      | July 1, 2005 |  
|                                                                                                                                                    |             |              |       |      |              |  
|Net income, as reported                                                                                                                             |             | $            | 3,927 |      |              | $ | 30     |      
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |             |              | (717  | )    |              |   | (1,109 | )    
|                                                                                                                                                    |             |              |       |      |              |  
|Pro forma net income (loss)                                                                                                                         |             | $            | 3,210 |      |              | $ | (1,079 | )    
|                                                                                                                                                    |             |              |       |      |              |  
|Basic income (loss) per share:                                                                                                                      |             |              |       |      |              |   |        |      
|                                                                                                                                                    | As reported |              | $     | 0.19 |              |   | $      | 0.00  |  
|                                                                                                                                                    | Pro forma   |              | $     | 0.16 |              |   | $      | (0.05 | )
|Diluted income (loss) per share:                                                                                                                    |             |              |       |      |              |   |        |      
|                                                                                                                                                    | As reported |              | $     | 0.19 |              |   | $      | 0.00  |  
|                                                                                                                                                    | Pro forma   |              | $     | 0.15 |              |   | $      | (0.05 | )



|                                                        |  |               |       |                  |               |  |       |               |  |  |       |  
|------------------------------------------------------- |  | ------------- | ----- | ---------------- | ------------- |  | ----- | ------------- |  |  | ----- | -
|                                                        |  |               |       | Six Months Ended |              
|                                                        |  |               |       |                  |              
|                                                        |  | Three Months  |       |                  | July 2, 2005  |  |       | July 2, 2005  | 
|                                                        |  | Ended         |       |                  |               |  |       |               | 
|                                                        |  | July 2, 2005  |       |                  | Employee      |  |       |              
|                                                        |  |               |       |                  | Stock         |  |       |              
|                                                        |  | Stock Options |       |                  | Purchase Plan |  |       | Stock Options | 
|                                                        |  |               |       |                  |               |  |       |               | 
|Expected volatility                                     |  |               | 91.43 | %                |               |  | 93.02 | %             |  |  | 92.65 | %
|Risk free interest rate                                 |  |               | 3.68  | %                |               |  | 3.83  | %             |  |  | 4.32  | %
|Expected term of options and purchase rights (in years) |  |               | 5.0   |                  |               |  | 1.5   |               |  |  | 6.6   |  
|Dividend yield                                          |  |               | None  |                  |               |  | None  |               |  |  | None  |  





|   |         
|-- | --------
|6. | Warranty



11



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                       |  |                |       |   |            |   |       |         |  |   |         |   |  |   |       |  
|---------------------------------------------------------------------- |  | -------------- | ----- | - | ---------- | - | ----- | ------- |  | - | ------- | - |  | - | ----- | -
|                                                                       |  | Three Months   |       |   | Six Months |  
|                                                                       |  | Ended          |       |   | Ended      |  
|                                                                       |  |                |       |   |            |  
|                                                                       |  | July 1,        |       |   | July 2,    |   |       | July 1, |  |   | July 2, |  
|                                                                       |  | 2006           |       |   | 2005       |   |       | 2006    |  |   | 2005    |  
|                                                                       |  |                |       |   |            |   |       |         |  |   |         |  
|                                                                       |  | (In thousands) |      
|Beginning balance                                                      |  | $              | 3,573 |   |            | $ | 1,011 |         |  | $ | 3,399   |   |  | $ | 1,116 |  
|Expenditures incurred under warranties                                 |  |                | (720  | ) |            |   | (263  | )       |  |   | (1,844  | ) |  |   | (709  | )
|Accruals for product warranties issued during the reporting
    period |  |                | 1,102 |   |            |   | 709   |         |  |   | 2,077   |   |  |   | 994   |  
|Adjustments to previously existing warranty accruals                   |  |                | 89    |   |            |   | 220   |         |  |   | 412     |   |  |   | 276   |  
|                                                                       |  |                |       |   |            |   |       |         |  |   |         |  
|Ending balance                                                         |  | $              | 4,044 |   |            | $ | 1,677 |         |  | $ | 4,044   |   |  | $ | 1,677 |  
|                                                                       |  |                |       |   |            |   |       |         |  |   |         |  



|                            |  |                |       |  |              |   |       | 
|--------------------------- |  | -------------- | ----- |  | ------------ | - | ----- | 
|                            |  | July 1,        |       |  | December 31, |  
|                            |  | 2006           |       |  | 2005         |  
|                            |  |                |       |  |              |  
|                            |  | (In thousands) |      
|Other accrued liabilities   |  | $              | 3,111 |  |              | $ | 2,705 | 
|Other long-term liabilities |  |                | 933   |  |              |   | 694   | 
|                            |  |                |       |  |              |  
|Total warranty provision    |  | $              | 4,044 |  |              | $ | 3,399 | 
|                            |  |                |       |  |              |  



|   |           
|-- | ----------
|7. | Guarantees





|   |                                                          
|-- | ---------------------------------------------------------
|8. | Cash, Cash Equivalents and Investments in Debt Securities



held-to Held-to


12



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                         |                                                              |                |        |        |              |   |        |        | 
|-------------------------------------------------------- | ------------------------------------------------------------ | -------------- | ------ | ------ | ------------ | - | ------ | ------ | 
|                                                         |                                                              | July 1,        |        |        | December 31, |  
|                                                         |                                                              | 2006           |        |        | 2005         |  
|                                                         |                                                              |                |        |        |              |  
|                                                         |                                                              | (In thousands) |       
|Amortized Principal Amount:                              |                                                              |                |        |        |              |   |        |       
|                                                         | Debt securities issued by the US government and its agencies |                | $      |       |              |   | $      | 10,991 | 
|                                                         | Auction rate securities                                      |                |        | 33,700 |              |   |        | 15,000 | 
|                                                         | Corporate debt securities                                    |                |        | 11,612 |              |   |        | 8,485  | 
|                                                         |                                                              |                |        |        |              |  
|                                                         | Total investments in debt securities, all short-term         |                | $      | 45,312 |              |   | $      | 34,476 | 
|                                                         |                                                              |                |        |        |              |  
|Approximate fair value of investments in debt securities |                                                              | $              | 45,291 |        |              | $ | 34,408 |       
|                                                         |                                                              |                |        |        |              |  

03-01,






|   |                     
|-- | --------------------
|9. | Net Income Per Share



|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |        |     |  |   |        |     | 
|------------ | --------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------ | ---------------- |  | - | ------- | --- |  | ------- | ------ | --- |  | - | ------ | --- | 
|             |                                                                                                           | Three Months Ended        |   |        | Six Months Ended | 
|             |                                                                                                           |                           |   |        |                  | 
|             |                                                                                                           | July 1,                   |   |        | July 2,          |  |   | July 1, |     |  | July 2, |       
|             |                                                                                                           | 2006                      |   |        | 2005             |  |   | 2006    |     |  | 2005    |       
|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |       
|             |                                                                                                           | (In thousands)            |  
|Numerator:   |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |        |     |  |   |       
|             | Numerator for diluted earnings per share  income
    available to common stockholders                    |                           | $ | 9,333  |                  |  | $ | 3,927   |     |  | $       | 16,344 |     |  | $ | 30     |    
|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |       
|Denominator: |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |        |     |  |   |       
|             | Denominator for basic earnings per share 
    weighted-average shares                                    |                           |   | 20,987 |                  |  |   | 20,391  |     |  |         | 20,910 |     |  |   | 20,317 |    
|             | Effect of dilutive securities:                                                                            |                           |   |        |                  |  |   |         |     |  |         |        |     |  |   |        |    
|             |                                                                                                           | Employee stock options(1) |   |        | 985              |  |   |         | 753 |  |         |        | 973 |  |   |        | 672 | 
|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |       
|             | Dilutive potential common shares                                                                          |                           |   | 985    |                  |  |   | 753     |     |  |         | 973    |     |  |   | 672    |    
|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |       
|             | Denominator for diluted earnings per share  adjusted
    weighted-average shares and assumed conversions |                           |   | 21,972 |                  |  |   | 21,144  |     |  |         | 21,883 |     |  |   | 20,989 |    
|             |                                                                                                           |                           |   |        |                  |  |   |         |     |  |         |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Potentially dilutive securities, consisting of shares issuable
    upon exercise of employee stock options and weighted-average
    unamortized compensation expense, are excluded from the
    calculation of diluted EPS when their effect is anti-dilutive.
    The weighted average number of employee stock options excluded
    for the three-month periods ended July 1, 2006 and
    July 2, 2005 was 196,000 and 218,313, respectively, and the
    number of employee stock options excluded for the six-month
    periods ended July 1, 2006 and July 2, 2005 was
    196,640 and 281,522, respectively.

13



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                  
|--- | -----------------
|10. | Segment Reporting



| |                    
| | -------------------
| | Segment Description







| |                                          
| | -----------------------------------------
| | Segment Profit or Loss and Segment Assets





| |                              
| | -----------------------------
| | Business Segment Net Revenues

|          |       |                    |        |        |                  |   |        |         |  |   |         |         |  |   |        |        | 
|--------- | ----- | ------------------ | ------ | ------ | ---------------- | - | ------ | ------- |  | - | ------- | ------- |  | - | ------ | ------ | 
|          |       | Three Months Ended |        |        | Six Months Ended |  
|          |       |                    |        |        |                  |  
|          |       | July 1,            |        |        | July 2,          |   |        | July 1, |  |   | July 2  |        
|          |       | 2006               |        |        | 2005             |   |        | 2006    |  |   | 2005    |        
|          |       |                    |        |        |                  |   |        |         |  |   |         |        
|          |       | (In thousands)     |       
|Equipment |       | $                  | 56,465 |        |                  | $ | 28,337 |         |  | $ | 104,038 |         |  | $ | 36,873 |       
|Imaging   |       |                    | 3,077  |        |                  |   | 2,081  |         |  |   | 5,124   |         |  |   | 4,150  |       
|          |       |                    |        |        |                  |   |        |         |  |   |         |        
|          | Total |                    | $      | 59,542 |                  |   | $      | 30,418  |  |   | $       | 109,162 |  |   | $      | 41,023 | 
|          |       |                    |        |        |                  |   |        |         |  |   |         |        



| |                               
| | ------------------------------
| | Business Segment Profit & Loss

|                                  |  |                    |        |   |                  |   |        |         |  |   |         |   |  |   |        |  
|--------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ | -
|                                  |  | Three Months Ended |        |   | Six Months Ended |  
|                                  |  |                    |        |   |                  |  
|                                  |  | July 1,            |        |   | July 2,          |   |        | July 1, |  |   | July 2, |  
|                                  |  | 2006               |        |   | 2005             |   |        | 2006    |  |   | 2005    |  
|                                  |  |                    |        |   |                  |   |        |         |  |   |         |  
|                                  |  | (In thousands)     |       
|Equipment                         |  | $                  | 10,974 |   |                  | $ | 4,672  |         |  | $ | 19,454  |   |  | $ | 2,001  |  
|Imaging                           |  |                    | (1,159 | ) |                  |   | (1,278 | )       |  |   | (3,028  | ) |  |   | (2,459 | )
|Corporate activities              |  |                    | 153    |   |                  |   | 113    |         |  |   | 173     |   |  |   | (356   | )
|                                  |  |                    |        |   |                  |   |        |         |  |   |         |  
|Operating income (loss)           |  |                    | 9,968  |   |                  |   | 3,507  |         |  |   | 16,599  |   |  |   | (814   | )
|Interest income and other, net    |  |                    | 729    |   |                  |   | 423    |         |  |   | 1,327   |   |  |   | 854    |  
|                                  |  |                    |        |   |                  |   |        |         |  |   |         |  
|Income (loss) before income taxes |  | $                  | 10,697 |   |                  | $ | 3,930  |         |  | $ | 17,926  |   |  | $ | 40     |  
|                                  |  |                    |        |   |                  |   |        |         |  |   |         |  

14



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##### Table of Contents



INTEVAC, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                        
| | -----------------------
| | Business Segment Assets

|                     |       |                |        |         |              |   |        |         | 
|-------------------- | ----- | -------------- | ------ | ------- | ------------ | - | ------ | ------- | 
|                     |       | July 1,        |        |         | December 31, |  
|                     |       | 2006           |        |         | 2005         |  
|                     |       |                |        |         |              |  
|                     |       | (In thousands) |       
|Equipment            |       | $              | 76,610 |         |              | $ | 68,672 |        
|Imaging              |       |                | 8,314  |         |              |   | 7,665  |        
|Corporate activities |       |                | 73,387 |         |              |   | 54,107 |        
|                     |       |                |        |         |              |  
|                     | Total |                | $      | 158,311 |              |   | $      | 130,444 | 
|                     |       |                |        |         |              |  





| |                                   
| | ----------------------------------
| | Geographic Area Net Trade Revenues

|              |       |                    |        |        |                  |   |        |         |  |   |         |         |  |   |        |        | 
|------------- | ----- | ------------------ | ------ | ------ | ---------------- | - | ------ | ------- |  | - | ------- | ------- |  | - | ------ | ------ | 
|              |       | Three Months Ended |        |        | Six Months Ended |  
|              |       |                    |        |        |                  |  
|              |       | July 1,            |        |        | July 2,          |   |        | July 1, |  |   | July 2, |        
|              |       | 2006               |        |        | 2005             |   |        | 2006    |  |   | 2005    |        
|              |       |                    |        |        |                  |   |        |         |  |   |         |        
|              |       | (In thousands)     |       
|United States |       | $                  | 8,073  |        |                  | $ | 2,798  |         |  | $ | 16,629  |         |  | $ | 9,583  |       
|Asia          |       |                    | 51,452 |        |                  |   | 27,332 |         |  |   | 92,516  |         |  |   | 30,967 |       
|Europe        |       |                    | 17     |        |                  |   | 288    |         |  |   | 17      |         |  |   | 473    |       
|              |       |                    |        |        |                  |   |        |         |  |   |         |        
|              | Total |                    | $      | 59,542 |                  |   | $      | 30,418  |  |   | $       | 109,162 |  |   | $      | 41,023 | 
|              |       |                    |        |        |                  |   |        |         |  |   |         |        



|    |             
|--- | ------------
|11. | Income Taxes







|    |                     
|--- | --------------------
|12. | Capital Transactions





|    |                       
|--- | ----------------------
|13. | Financial Presentation



15



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##### Table of Contents








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

This Quarterly Report on
Form 10-Q contains
forward-looking statements, which involve risks and
uncertainties. Words such as believes,
expects, anticipates and the like
indicate forward-looking statements. These forward looking
statements include comments related to our shipments, projected
revenue recognition, product costs, gross margin, operating
expenses, interest income, cash balances and financial results
in 2006; our projected customer requirements for new capacity
and for technology upgrades for their installed base of our
thin-film disk sputtering equipment, and when, and if, our
customers will place orders for these products; Imagings
ability to proliferate its technology into major military
weapons programs and to develop and introduce commercial imaging
products; and the timing of delivery and/or acceptance of the
systems and products that comprise our backlog for revenue. Our
actual results may differ materially from the results discussed
in the forward-looking statements for a variety of reasons,
including those set forth under Risk Factors and in
other documents we file from time to time with the Securities
and Exchange Commission, including Intevacs Annual Report
on Form 10-K filed
in March 2006,
Form 10-Qs
and
Form 8-Ks.


Critical Accounting Policies and Estimates


10-K.










| |                    
| | -------------------
| | Revenue Recognition



16



---



##### Table of Contents



®






percentage-of




| |            
| | -----------
| | Inventories

first-in, work-in




| |         
| | --------
| | Warranty





| |             
| | ------------
| | Income Taxes



17



---



##### Table of Contents







Results of Operations




| |                                                     
| | ----------------------------------------------------
| | Three Months Ended July 1, 2006 and July 2,
    2005



| |             
| | ------------
| | Net revenues

|                       |                    |                                    |        |        |                   |   |        |        |  |   |        |        |  |  |     |     | 
|---------------------- | ------------------ | ---------------------------------- | ------ | ------ | ----------------- | - | ------ | ------ |  | - | ------ | ------ |  |  | --- | --- | 
|                       |                    | Three Months Ended                 |        |        | Change Over Prior |  
|                       |                    |                                    |        |        | Period            |  
|                       |                    | July 1,                            |        |        | July 2,           |   |        |        | 
|                       |                    | 2006                               |        |        | 2005              |   |        | Amount |  |   | %      |       
|                       |                    |                                    |        |        |                   |   |        |        |  |   |        |       
|                       |                    | (In thousands, except percentages) |       
|Equipment net revenues |                    | $                                  | 56,465 |        |                   | $ | 28,337 |        |  | $ | 28,128 |        |  |  | 99% |    
|Imaging net revenues   |                    |                                    | 3,077  |        |                   |   | 2,081  |        |  |   | 996    |        |  |  | 48% |    
|                       |                    |                                    |        |        |                   |   |        |        |  |   |        |       
|                       | Total net revenues |                                    | $      | 59,542 |                   |   | $      | 30,418 |  |   | $      | 29,124 |  |  |     | 96% | 
|                       |                    |                                    |        |        |                   |   |        |        |  |   |        |       



®








18



---



##### Table of Contents





| |             
| | ------------
| | Gross margin

|                       |                    |              |      |      |              |  |      |        |   |  |          |         |  |  |        |       | 
|---------------------- | ------------------ | ------------ | ---- | ---- | ------------ |  | ---- | ------ | - |  | -------- | ------- |  |  | ------ | ----- | 
|                       |                    | Three Months |      |      |             
|                       |                    | Ended        |      |      | Change Over  | 
|                       |                    |              |      |      | Prior Period | 
|                       |                    | July 1,      |      |      | July 2,      |  |      |        |  
|                       |                    | 2006         |      |      | 2005         |  |      | Amount |   |  | %        |        
|                       |                    |              |      |      |              |  |      |        |   |  |          |        
|Equipment gross margin |                    |              | 36.4 | %    |              |  | 33.4 | %      |   |  | 3.0 pts  |         |  |  | 8.8%   |      
|Imaging gross margin   |                    |              | 25.4 | %    |              |  | 9.2  | %      |   |  | 16.2 pts |         |  |  | 175.3% |      
|                       |                    |              |      |      |              |  |      |        |   |  |          |        
|                       | Total gross margin |              |      | 35.7 | %            |  |      | 31.8   | % |  |          | 3.9 pts |  |  |        | 12.4% | 
|                       |                    |              |      |      |              |  |      |        |   |  |          |        









| |                         
| | ------------------------
| | Research and development

|                                 |  |                                    |       |   |              |   |       |        |  |   |       |  |  |  |     | 
|-------------------------------- |  | ---------------------------------- | ----- | - | ------------ | - | ----- | ------ |  | - | ----- |  |  |  | --- | 
|                                 |  | Three Months                       |       |   |             
|                                 |  | Ended                              |       |   | Change Over  |  
|                                 |  |                                    |       |   | Prior Period |  
|                                 |  | July 1,                            |       |   | July 2,      |   |       |        | 
|                                 |  | 2006                               |       |   | 2005         |   |       | Amount |  |   | %     | 
|                                 |  |                                    |       |   |              |   |       |        |  |   |       | 
|                                 |  | (In thousands, except percentages) |      
|Research and development expense |  | $                                  | 6,290 |   |              | $ | 3,413 |        |  | $ | 2,877 |  |  |  | 84% | 
|% of net revenues                |  |                                    | 10.6  | % |              |   | 11.2  | %      |  |   |       |  |  |  |     | 







19



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| |                                    
| | -----------------------------------
| | Selling, general and administrative

|                                            |  |                                    |       |   |              |   |       |        |  |   |       |  |  |  |    |  
|------------------------------------------- |  | ---------------------------------- | ----- | - | ------------ | - | ----- | ------ |  | - | ----- |  |  |  | -- | -
|                                            |  | Three Months                       |       |   |             
|                                            |  | Ended                              |       |   | Change Over  |  
|                                            |  |                                    |       |   | Prior Period |  
|                                            |  | July 1,                            |       |   | July 2,      |   |       |        | 
|                                            |  | 2006                               |       |   | 2005         |   |       | Amount |  |   | %     | 
|                                            |  |                                    |       |   |              |   |       |        |  |   |       | 
|                                            |  | (In thousands, except percentages) |      
|Selling, general and administrative expense |  | $                                  | 5,004 |   |              | $ | 2,741 |        |  | $ | 2,263 |  |  |  | 83 | %
|% of net revenues                           |  |                                    | 8.4   | % |              |   | 9.0   | %      |  |   |       |  |  |  |    |  







| |                               
| | ------------------------------
| | Interest income and other, net

|                               |  |                                    |     |  |              |   |     |        |  |   |     |  |  |  |    |  
|------------------------------ |  | ---------------------------------- | --- |  | ------------ | - | --- | ------ |  | - | --- |  |  |  | -- | -
|                               |  | Three Months                       |     |  |             
|                               |  | Ended                              |     |  | Change Over  |  
|                               |  |                                    |     |  | Prior Period |  
|                               |  | July 1,                            |     |  | July 2,      |   |     |        | 
|                               |  | 2006                               |     |  | 2005         |   |     | Amount |  |   | %   | 
|                               |  |                                    |     |  |              |   |     |        |  |   |     | 
|                               |  | (In thousands, except percentages) |    
|Interest income and other, net |  | $                                  | 729 |  |              | $ | 423 |        |  | $ | 306 |  |  |  | 72 | %





| |                           
| | --------------------------
| | Provision for income taxes

|                           |  |                                    |       |  |              |   |   |        |  |   |       |  |  |  |        |  
|-------------------------- |  | ---------------------------------- | ----- |  | ------------ | - | - | ------ |  | - | ----- |  |  |  | ------ | -
|                           |  | Three Months                       |       |  |             
|                           |  | Ended                              |       |  | Change Over  |  
|                           |  |                                    |       |  | Prior Period |  
|                           |  | July 1,                            |       |  | July 2,      |   |   |        | 
|                           |  | 2005                               |       |  | 2006         |   |   | Amount |  |   | %     | 
|                           |  |                                    |       |  |              |   |   |        |  |   |       | 
|                           |  | (In thousands, except percentages) |      
|Provision for income taxes |  | $                                  | 1,364 |  |              | $ | 3 |        |  | $ | 1,361 |  |  |  | 45,367 | %



20



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| |                                                   
| | --------------------------------------------------
| | Six Months Ended July 1, 2006 and June 2,
    2005



| |             
| | ------------
| | Net revenues

|                       |                    |                                    |         |         |              |   |        |        |  |   |        |        |  |  |      |      | 
|---------------------- | ------------------ | ---------------------------------- | ------- | ------- | ------------ | - | ------ | ------ |  | - | ------ | ------ |  |  | ---- | ---- | 
|                       |                    | Six Months Ended                   |         |         | Change Over  |  
|                       |                    |                                    |         |         | Prior Period |  
|                       |                    | July 1,                            |         |         | July 2,      |   |        |        | 
|                       |                    | 2006                               |         |         | 2005         |   |        | Amount |  |   | %      |       
|                       |                    |                                    |         |         |              |   |        |        |  |   |        |       
|                       |                    | (In thousands, except percentages) |        
|Equipment net revenues |                    | $                                  | 104,038 |         |              | $ | 36,873 |        |  | $ | 67,165 |        |  |  | 182% |     
|Imaging net revenues   |                    |                                    | 5,124   |         |              |   | 4,150  |        |  |   | 974    |        |  |  | 23%  |     
|                       |                    |                                    |         |         |              |   |        |        |  |   |        |       
|                       | Total net revenues |                                    | $       | 109,162 |              |   | $      | 41,023 |  |   | $      | 68,139 |  |  |      | 166% | 
|                       |                    |                                    |         |         |              |   |        |        |  |   |        |       







| |             
| | ------------
| | Gross margin

|                       |                    |            |      |      |              |  |      |        |   |  |          |         |  |  |        |       | 
|---------------------- | ------------------ | ---------- | ---- | ---- | ------------ |  | ---- | ------ | - |  | -------- | ------- |  |  | ------ | ----- | 
|                       |                    | Six Months |      |      |             
|                       |                    | Ended      |      |      | Change Over  | 
|                       |                    |            |      |      | Prior Period | 
|                       |                    | July 1,    |      |      | July 2,      |  |      |        |  
|                       |                    | 2006       |      |      | 2005         |  |      | Amount |   |  | %        |        
|                       |                    |            |      |      |              |  |      |        |   |  |          |        
|Equipment gross margin |                    |            | 35.8 | %    |              |  | 30.2 | %      |   |  | 5.6 pts  |         |  |  | 18.7%  |      
|Imaging gross margin   |                    |            | 25.7 | %    |              |  | 12.1 | %      |   |  | 13.6 pts |         |  |  | 112.7% |      
|                       |                    |            |      |      |              |  |      |        |   |  |          |        
|                       | Total gross margin |            |      | 35.3 | %            |  |      | 28.4   | % |  |          | 6.9 pts |  |  |        | 24.4% | 
|                       |                    |            |      |      |              |  |      |        |   |  |          |        





21



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| |                         
| | ------------------------
| | Research and development

|                                 |  |                                    |        |   |              |   |       |        |  |   |       |  |  |  |     | 
|-------------------------------- |  | ---------------------------------- | ------ | - | ------------ | - | ----- | ------ |  | - | ----- |  |  |  | --- | 
|                                 |  | Six Months Ended                   |        |   | Change Over  |  
|                                 |  |                                    |        |   | Prior Period |  
|                                 |  | July 1,                            |        |   | July 2,      |   |       |        | 
|                                 |  | 2006                               |        |   | 2005         |   |       | Amount |  |   | %     | 
|                                 |  |                                    |        |   |              |   |       |        |  |   |       | 
|                                 |  | (In thousands, except percentages) |       
|Research and development expense |  | $                                  | 11,851 |   |              | $ | 6,538 |        |  | $ | 5,313 |  |  |  | 81% | 
|% of net revenues                |  |                                    | 10.9   | % |              |   | 15.9  | %      |  |   |       |  |  |  |     | 







| |                                    
| | -----------------------------------
| | Selling, general and administrative

|                                            |  |                                    |        |   |              |   |       |        |  |   |       |  |  |  |     | 
|------------------------------------------- |  | ---------------------------------- | ------ | - | ------------ | - | ----- | ------ |  | - | ----- |  |  |  | --- | 
|                                            |  | Six Months Ended                   |        |   | Change Over  |  
|                                            |  |                                    |        |   | Prior Period |  
|                                            |  | July 1,                            |        |   | July 2,      |   |       |        | 
|                                            |  | 2006                               |        |   | 2005         |   |       | Amount |  |   | %     | 
|                                            |  |                                    |        |   |              |   |       |        |  |   |       | 
|                                            |  | (In thousands, except percentages) |       
|Selling, general and administrative expense |  | $                                  | 10,118 |   |              | $ | 5,932 |        |  | $ | 4,186 |  |  |  | 71% | 
|% of net revenues                           |  |                                    | 9.3    | % |              |   | 14.5  | %      |  |   |       |  |  |  |     | 





| |                               
| | ------------------------------
| | Interest income and other, net

|                               |  |                                    |       |  |              |   |     |        |  |   |     |  |  |  |     | 
|------------------------------ |  | ---------------------------------- | ----- |  | ------------ | - | --- | ------ |  | - | --- |  |  |  | --- | 
|                               |  | Six Months Ended                   |       |  | Change Over  |  
|                               |  |                                    |       |  | Prior Period |  
|                               |  | July 1,                            |       |  | July 2,      |   |     |        | 
|                               |  | 2006                               |       |  | 2005         |   |     | Amount |  |   | %   | 
|                               |  |                                    |       |  |              |   |     |        |  |   |     | 
|                               |  | (In thousands, except percentages) |      
|Interest income and other, net |  | $                                  | 1,327 |  |              | $ | 854 |        |  | $ | 473 |  |  |  | 55% | 





| |                           
| | --------------------------
| | Provision for income taxes

|                           |  |                                    |       |  |              |   |    |        |  |   |       |  |  |  |         | 
|-------------------------- |  | ---------------------------------- | ----- |  | ------------ | - | -- | ------ |  | - | ----- |  |  |  | ------- | 
|                           |  | Six Months Ended                   |       |  | Change Over  |  
|                           |  |                                    |       |  | Prior Period |  
|                           |  | July 1,                            |       |  | July 2,      |   |    |        | 
|                           |  | 2006                               |       |  | 2005         |   |    | Amount |  |   | %     | 
|                           |  |                                    |       |  |              |   |    |        |  |   |       | 
|                           |  | (In thousands, except percentages) |      
|Provision for income taxes |  | $                                  | 1,582 |  |              | $ | 10 |        |  | $ | 1,572 |  |  |  | 15,720% | 



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Stock-Based Compensation












Liquidity and Capital Resources




work-in


23



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Contractual Obligations




|                            |  |                |        |                        |         |   |        |           |  |   |           |  |  |          |       |  |  |   |       | 
|--------------------------- |  | -------------- | ------ | ---------------------- | ------- | - | ------ | --------- |  | - | --------- |  |  | -------- | ----- |  |  | - | ----- | 
|                            |  |                |        | Payments Due by Period |        
|                            |  |                |        |                        |        
|                            |  | Total          |        |                        | <1 Year |   |        | 1-3 Years |  |   | 3-5 Years |  |  | >5 Years |      
|                            |  |                |        |                        |         |   |        |           |  |   |           |  |  |          |      
|                            |  | (In thousands) |       
|Operating lease obligations |  | $              | 12,151 |                        |         | $ | 3,249  |           |  | $ | 3,601     |  |  | $        | 3,713 |  |  | $ | 1,588 | 
|Purchase obligations        |  |                | 23,093 |                        |         |   | 23,093 |           |  |   |          |  |  |          |      |  |  |   |      | 
|                            |  |                |        |                        |         |   |        |           |  |   |           |  |  |          |      
|Total                       |  | $              | 35,244 |                        |         | $ | 26,342 |           |  | $ | 3,601     |  |  | $        | 3,713 |  |  | $ | 1,588 | 
|                            |  |                |        |                        |         |   |        |           |  |   |           |  |  |          |      






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest rate risk.




|                           |                       |                       |        |        |      |   |       |       |     |   |        |      |  |       |   |   |       |   |        |        |  |   |        |        |  | 
|-------------------------- | --------------------- | --------------------- | ------ | ------ | ---- | - | ----- | ----- | --- | - | ------ | ---- |  | ----- | - | - | ----- | - | ------ | ------ |  | - | ------ | ------ |  | 
|                           |                       |                       |        |        |      |   |       |       |     |   |        | Fair | 
|                           |                       | 2006                  |        |        | 2007 |   |       | 2008  |     |   | Beyond |      |  | Total |   |   | Value |  
|                           |                       |                       |        |        |      |   |       |       |     |   |        |      |  |       |   |   |       |  
|Cash equivalents           |                       |                       |        |        |      |   |       |       |     |   |        |      |  |       |   |   |       |   |        |        |  |   |        |       
|                           | Fixed rate amounts    |                       | $      | 9,426  |      |   |       |      |     |   |        |     |  |       |   |  |       |   | $      | 9,426  |  |   | $      | 9,421  | 
|                           |                       | Weighted-average rate |        |        | 5.12 | % |       |       |     |   |        |      |  |       |   |   |       |   |        |        |  |   |        |        |  | 
|                           | Variable rate amounts |                       | $      | 4,860  |      |   |       |      |     |   |        |     |  |       |   |  |       |   | $      | 4,860  |  |   | $      | 4,860  | 
|                           |                       | Weighted-average rate |        |        | 4.88 | % |       |       |     |   |        |      |  |       |   |   |       |   |        |        |  |   |        |        |  | 
|Short-term investments     |                       |                       |        |        |      |   |       |       |     |   |        |      |  |       |   |   |       |   |        |        |  |   |        |       
|                           | Fixed rate amounts    |                       | $      | 43,303 |      |   | $     | 2,009 |     |   |        |     |  |       |   |  |       |   | $      | 45,312 |  |   | $      | 45,291 | 
|                           |                       | Weighted-average rate |        |        | 5.12 | % |       |       | 4.8 | % |        |      |  |       |   |   |       |   |        |        |  |   |        |        |  | 
|Total investment portfolio |                       | $                     | 57,589 |        |      | $ | 2,009 |       |     |   |       |      |  |       |  |   |       | $ | 59,598 |        |  | $ | 59,572 |       



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Foreign exchange risk.







|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of disclosure controls and procedures.


10-Q 13a-15(b)


13a-14


Definition of Disclosure Controls




Limitations on the Effectiveness of Controls




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Changes in internal controls over financial reporting


10-Q





PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

Patent Infringement Complaint against Unaxis




Other Legal Matters









|         |             
|-------- | ------------
|Item 1A. | Risk Factors



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Our operating results fluctuate significantly from quarter
    to quarter, which may cause the price of our stock to
    decline.





| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in the demand, due to seasonality, cyclicality and other
    factors, for the computer systems, storage subsystems and
    consumer electronics containing disks our customers produce with
    our systems; and
|
| |  | delays or problems in the introduction and acceptance of our new
    products, or delivery of existing products;                                                                                                        
|
| |  | announcements of new products, services or technological
    innovations by us or our competitors.                                                                                                                      

quarter-to


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| |                                                                                 
| | --------------------------------------------------------------------------------
| | We are exposed to risks associated with a highly
    concentrated customer base.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our long-term revenue growth is dependent on new products.
    If these new products are not successful, then our results of
    operations will be adversely affected.







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®






| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Demand for capital equipment is cyclical, which subjects
    our business to long periods of depressed revenues interspersed
    with periods of unusually high revenues.







| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the projected growth in demand for hard disk drives
    does not materialize and our customers do not replace or upgrade
    their installed base of disk sputtering systems, then future
    sales of our disk sputtering systems will suffer.





28



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| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Our products are complex, constantly evolving and often
    must be customized to individual customer requirements.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales cycle is long and unpredictable, which requires
    us to incur high sales and marketing expenses with no assurance
    that a sale will result.



state-of






| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | We operate in an intensely competitive marketplace, and
    our competitors have greater resources than we do.



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| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We experienced significant growth in our business and
    operations and if we do not appropriately manage this growth and
    any future growth, our operating results will be negatively
    affected.







| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Imaging business depends heavily on government
    contracts, which are subject to immediate termination and are
    funded in increments. The termination of or failure to fund one
    or more of these contracts could have a negative impact on our
    operations.





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| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be successful in maintaining and obtaining the
    necessary export licenses to conduct operations abroad, and the
    United States government may prevent proposed sales to foreign
    customers.





| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales of disk sputtering systems are dependent on
    substantial capital investment by our customers, far in excess
    of the cost of our products.





| |                             
| | ----------------------------
| | Our stock price is volatile.





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | our perceived prospects;                                                                             
|
| |  | hard disk drive market expectations;                                                                 
|
| |  | variations in our operating results and whether we achieve our
    key business targets;             
|
| |  | sales or purchases of large blocks of our stock;                                                     
|
| |  | changes in, or our failure to meet, our revenue and earnings
    estimates;                          
|
| |  | changes in securities analysts buy or sell recommendations;                                         
|
| |  | differences between our reported results and those expected by
    investors and securities analysts;
|
| |  | announcements of new contracts, products or technological
    innovations by us or our competitors;  

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| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | market reaction to any acquisitions, joint ventures or strategic
    investments announced by us or our competitors;            
|
| |  | our high fixed operating expenses, including research and
    development expenses;                                             
|
| |  | developments in the financial markets; and                                                                                      
|
| |  | general economic, political or stock market conditions in the
    United States and other major regions in which we do business.





| |                                                                         
| | ------------------------------------------------------------------------
| | Changes in tax rates or tax liabilities could affect
    future results.







| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Our future success depends on international sales and the
    management of global operations.





| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | varying regional and geopolitical business conditions and
    demands;                                                                                            
|
| |  | global trade issues;                                                                                                                                              
|
| |  | variations in protection of intellectual property and other
    legal rights in different countries;                                                              
|
| |  | rising raw material and energy costs;                                                                                                                             
|
| |  | variations in the ability to develop relationships with
    suppliers and other local businesses;                                                                 
|
| |  | changes in laws and regulations of the United States (including
    export restrictions) and other countries, as well as their
    interpretation and application;
|
| |  | fluctuations in interest rates and currency exchange rates;                                                                                                       

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| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the need to provide sufficient levels of technical support in
    different locations;                                                                                         
|
| |  | political instability, natural disasters (such as earthquakes,
    hurricanes or floods), pandemics, terrorism or acts of war where
    we have operations, suppliers or sales;
|
| |  | cultural differences; and                                                                                                                                                      
|
| |  | shipping delays.                                                                                                                                                               



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in existing financial accounting standards or
    practices or taxation rules or practices may adversely affect
    our results of operations.





| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are required to evaluate our internal control over
    financial reporting under Section 404 of the Sarbanes-Oxley
    Act of 2002 and any adverse results from such evaluation could
    result in a loss of investor confidence in our financial reports
    and have an adverse effect on our stock price.

10-K


10-K,






| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our dependence on suppliers for certain parts, some of
    them sole-sourced, makes us vulnerable to manufacturing
    interruptions and delays, which could affect our ability to meet
    customer demand.



33



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| |                                                                               
| | ------------------------------------------------------------------------------
| | Our business depends on the integrity of our intellectual
    property rights.





| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any of our pending or future patent applications will be allowed
    or that any of the allowed applications will be issued as
    patents or will issue with claims of the scope we sought;
|
| |  | any of our patents will not be invalidated, deemed
    unenforceable, circumvented or challenged;                                                                                           
|
| |  | the rights granted under our patents will provide competitive
    advantages to us;                                                                                                         
|
| |  | other parties will not develop similar products, duplicate our
    products or design around our patents; or                                                                                
|
| |  | our patent rights, intellectual property laws or our agreements
    will adequately protect our intellectual property or competitive
    position.                                          



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Failure to protect our intellectual property rights
    adequately could have a material adverse effect on our
    business.







| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Our success is dependent on recruiting and retaining a
    highly talented work force.





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| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Changes in demand caused by fluctuations in interest and
    currency exchange rates may reduce our international
    sales.









| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may evaluate acquisition candidates and other
    diversification strategies.





| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We use hazardous materials and are subject to risks of
    non-compliance with environmental and safety regulations.





| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Future sales of shares of our common stock by our
    officers, directors and affiliates could cause our stock price
    to decline.



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| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions in our charter documents and
    under California law could prevent or delay a change in control,
    which could negatively impact the value of our common stock by
    discouraging a favorable merger or acquisition of us.





| |                                    
| | -----------------------------------
| | We could be involved in litigation.





| |                                                                  
| | -----------------------------------------------------------------
| | Business interruptions could adversely affect our
    operations.








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








|        |                                
|------- | -------------------------------
|Item 3. | Defaults upon Senior Securities



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



|                                                                                                                                                                          |                 |             |            |            |          |  |           |             |  |  |            |   |  |  |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------- | ---------- | ---------- | -------- |  | --------- | ----------- |  |  | ---------- | - |  |  | --------- | --------- | 
|                                                                                                                                                                          |                 |             |            |            |          |  |           | Abstentions | 
|                                                                                                                                                                          |                 | Affirmative |            |            | Negative |  |           | Votes       |  |  | and Broker |  
|                                                                                                                                                                          |                 | Votes       |            |            | Votes    |  |           | Withheld    |  |  | Non-Votes  |  
|                                                                                                                                                                          |                 |             |            |            |          |  |           |             |  |  |            |  
|(a) Election of Directors                                                                                                                                                 |                 |             |            |            |          |  |           |             |  |  |            |   |  |  |           |          
|                                                                                                                                                                          | Norman H. Pond  |             |            | 19,296,325 |          |  |           | 471,708     |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | Kevin Fairbairn |             |            | 19,369,674 |          |  |           | 398,359     |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | David S. Dury   |             |            | 18,814,164 |          |  |           | 953,869     |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | Stanley J. Hill |             |            | 18,887,373 |          |  |           | 880,660     |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | Robert Lemos    |             |            | 18,664,418 |          |  |           | 1,103,615   |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | Arthur L. Money |             |            | 14,816,266 |          |  |           | 4,951,767   |  |  |            |  |  |  |           | 1,156,568 | 
|                                                                                                                                                                          | Ping Yang       |             |            | 19,369,224 |          |  |           | 398,809     |  |  |            |  |  |  |           | 1,156,568 | 
|(b) Proposal to approve an amendment to the 2004 Equity
    Incentive Plan to increase the number of shares reserved for
    issuance thereunder by 800,000               |                 |             | 14,492,641 |            |          |  | 1,519,563 |             |  |  |           |   |  |  | 3,755,829 |          
|(c) Proposal to approve an amendment to the 2003 Employee
    Stock Purchase Plan to increase the number of shares reserved
    for issuance thereunder by 400,000 shares |                 |             | 15,499,675 |            |          |  | 512,329   |             |  |  |           |   |  |  | 3,756,029 |          
|(d) Ratification of Grant Thornton LLP as independent
    public accountants for the fiscal year ending December 31,
    2006                                             |                 |             | 19,670,277 |            |          |  | 95,565    |             |  |  |           |   |  |  | 2,191     |          






|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits



|       |    |             |  |                                                                                                                                                                                 
|------ | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |    | Exhibit    
|Number |    | Description
|       |    |            
|       | 31 | .1          |  | Certification of President and Chief Executive Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                           
|      
|       | 31 | .2          |  | Certification of Vice President, Finance and Administration,
    Chief Financial Officer, Treasurer and Secretary Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|      
|       | 32 | .1          |  | Certification Pursuant to U.S.C. 1350 adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                    

37



---



##### Table of Contents






SIGNATURES






| |              
| | -------------
| | INTEVAC, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ KEVIN FAIRBAIRN

| | 
| | 
| | 



| |                                                
| | -----------------------------------------------
| | Kevin Fairbairn                                
| | President, Chief Executive Officer and Director
| | (Principal Executive Officer)                  





| |     |                        
| | --- | -----------------------
| | By: | /s/ CHARLES B. EDDY III

| | 
| | 
| | 



| |                                                 
| | ------------------------------------------------
| | Charles B. Eddy III                             
| | Vice President, Finance and Administration,     
| | Chief Financial Officer, Treasurer and Secretary
| | (Principal Financial and Accounting Officer)    



38



---



##### Table of Contents



EXHIBIT INDEX


|       |    |             |  |                                                                                                                                                                                 
|------ | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |    | Exhibit    
|Number |    | Description
|       |    |            
|       | 31 | .1          |  | Certification of President and Chief Executive Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                           
|      
|       | 31 | .2          |  | Certification of Vice President, Finance and Administration,
    Chief Financial Officer, Treasurer and Secretary Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|      
|       | 32 | .1          |  | Certification Pursuant to U.S.C. 1350 adopted Pursuant to
    Section 906 of the Sarbanes- Oxley Act of 2002.                                                                   

39