##### 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 1934For the quarterly period ended
    September 29, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission file
    number 0-26946
  INTEVAC, INC.
 (Exact name of registrant as
    specified in its charter)
   Delaware

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
  non-accelerated Rule 12b-2
  o þ o
  Rule 12b-2 o þ
  APPLICABLE
    ONLY TO CORPORATE ISSUERS:




---



##### 



INTEVAC,
    INC.
  INDEX
  
  No.



PagePART I. FINANCIAL INFORMATIONItem 1.

Financial Statements (unaudited)Condensed Consolidated Balance Sheets


2Condensed Consolidated Statements of Income and
    Comprehensive Income


3Condensed Consolidated Statements of Cash
    Flows


4Notes to Condensed Consolidated Financial
    Statements


5Item 2.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


17Item 3.

Quantitative and Qualitative Disclosures About
    Market Risk


25Item 4.

Controls and Procedures


26PART II. OTHER INFORMATIONItem 1.

Legal Proceedings


27Item 1A.

Risk Factors


28Item 2.

Unregistered Sales of Equity Securities and Use
    of Proceeds


38Item 3.

Defaults Upon Senior Securities


38Item 4.

Submission of Matters to a Vote of Security
    Holders


38Item 5.

Other Information


38Item 6.

Exhibits


38SIGNATURES


39EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   1




---



##### Table of Contents



PART I.
    FINANCIAL INFORMATION
  Item 1.
    Financial
    Statements  INTEVAC,
    INC.
  CONDENSED
    CONSOLIDATED BALANCE SHEETS
  September 29,


December 31,2007


2006(Unaudited)(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
34,412


$
39,440Short term investments


98,490



55,595Trade and other accounts receivable, net of allowances of $67
    and $143 at September 29, 2007 and December 31, 2006


18,553



39,927Inventories


16,394



37,942Prepaid expenses and other current assets


2,099



2,506Deferred tax assets


4,100



3,269Total current assets


174,048



178,679Property, plant and equipment, net


14,929



13,546Long term investments


14,000



8,000Investment in 601 California Avenue LLC


2,431



2,431Goodwill


5,434



Other intangible assets, net of amortization of $173


227



Deferred income taxes and other long term assets


3,328



3,347Total assets

$
214,397


$
206,003LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Notes payable

$
1,968


$
Accounts payable


5,468



15,994Accrued payroll and related liabilities


9,238



11,769Other accrued liabilities


5,868



6,612Customer advances


6,017



26,243Total current liabilities


28,559



60,618Other long-term liabilities


622



1,075Long-term notes payable


1,875



Shareholders equity:Common stock and capital in excess of par value


103,085



99,468Additional paid in capital


12,880



7,319Accumulated other comprehensive income


446



354Retained earnings


66,930



37,169Total shareholders equity


183,341



144,310Total liabilities and shareholders equity

$
214,397


$
206,003      2




---



##### Table of Contents



INTEVAC,
    INC.
  CONDENSED
    CONSOLIDATED STATEMENTS OF INCOME
    AND COMPREHENSIVE INCOME
  Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006(Unaudited)(In thousands, except per share amounts)Net revenues:Systems and components

$
46,082


$
52,089


$
189,278


$
157,006Technology development


4,522



2,740



9,805



6,985Total net revenues


50,604



54,829



199,083



163,991Cost of net revenues:Systems and components


23,183



29,755



105,120



96,933Technology development


2,425



1,673



5,315



4,534Inventory provisions


381



121



424



676Total cost of net revenues


25,989



31,549



110,859



102,143Gross profit


24,615



23,280



88,224



61,848Operating expenses:Research and development


9,437



8,571



31,277



20,422Selling, general and administrative


7,062



5,565



22,414



15,683Total operating expenses


16,499



14,136



53,691



36,105Operating profit


8,116



9,144



34,533



25,743Interest income and other, net


1,797



1,113



4,655



2,440Income before income taxes


9,913



10,257



39,188



28,183Provision for income taxes


1,549



1,244



9,427



2,826Net income

$
8,364


$
9,013



29,761



25,357Other comprehensive income, net of income taxes:Foreign currency translation adjustments


82



(6
)


92



57Total comprehensive income

$
8,446


$
9,007


$
29,853


$
25,414Basic income per share:Net income

$
0.39


$
0.43


$
1.39


$
1.21Shares used in per share amounts


21,519



21,082



21,403



20,967Diluted income per share:Net income

$
0.38


$
0.41


$
1.34


$
1.16Shares used in per share amounts


22,130



21,899



22,155



21,888    3




---



##### Table of Contents



INTEVAC,
    INC.
  CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedSept. 29,


Sept. 30,2007


2006(Unaudited)(In thousands)Operating activitiesNet income

$
29,761


$
25,357Adjustments to reconcile net income to net cash and cash
    equivalents used in operating activities:Depreciation and amortization


3,242



1,881Inventory provisions


424



676Equity-based compensation


4,608



2,119Loss on disposal of equipment






30Changes in operating assets and liabilities


7,537



12,311Total adjustments


15,811



17,017Net cash and cash equivalents provided by operating activities


45,572



42,374Investing activitiesPurchases of investments


(111,571
)


(135,275
)Proceeds from maturities of investments


62,700



89,925Acquisition of DeltaNu LLC, net of cash acquired


(5,803
)


Purchases of leasehold improvements and equipment


(4,366
)


(5,462
)Net cash and cash equivalents used in investing activities


(59,040
)


(50,812
)Financing activitiesNet proceeds from issuance of common stock


3,591



3,028Issuance of notes payable


3,843



Tax benefit from equity-based compensation


953



Net cash and cash equivalents provided by financing activities


8,387



3,028Effect of exchange rate changes on cash


53



45Net decrease in cash and cash equivalents


(5,028
)


(5,365
)Cash and cash equivalents at beginning of period


39,440



15,255Cash and cash equivalents at end of period

$
34,412


$
9,890Supplemental Schedule of Cash Flow InformationCash paid for:Income taxes

$
8,044


$
4,222    4




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Business
    Activities and Basis of Presentation          Form 10-Q Regulation S-X. Form 10-K
      ® ® ® TM ®
  2.
    Concentrations      3.
    New
    Accounting Pronouncements   5




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        4.
    Inventories  first-in,
  September 29,


December 31,2007


2006(In thousands)Raw materials

$
11,935


$
19,906Work-in-progress


3,858



12,271Finished goods


601



5,765$
16,394


$
37,942     work-in-progress Work-in-progress
 6




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Nine Months EndedSeptember 29,


September 30,2007


2006(In thousands)Beginning balance

$
9,128


$
10,988New provisions in cost of sales


424



676New provisions for refurbishment of consigned products


89



7Disposals of inventory


(2,070
)


(2,873
)Miscellaneous adjustments


78



(42
)Ending balance

$
7,649


$
8,756   5.
    Stock-Based
    Compensation       7




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Compensation
    Expense
    Nine MonthsThree Months Ended


EndedSept 29,


Sept 30,


Sept 29,


Sept 30,2007


2006


2007


2006Stock-based compensation by type of award:Stock options

$
1,677


$
791


$
3,991


$
1,687Employee stock purchase plan


191



148



619



432Amounts capitalized as inventory


(32
)


(61
)


(105
)


(85
)Total stock-based compensation expense


1,836



878



4,505



2,034Tax effect on stock-based compensation expense


(285
)


(106
)


(1,081
)


(203
)Net effect on net income

$
1,551


$
772


$
3,424


$
1,831Effect on earnings per share:Basic

$
0.07


$
0.04


$
0.16


$
0.09Diluted

$
0.07


$
0.04


$
0.15


$
0.08   Valuation
    Assumptions
      Three Months Ended


Nine Months EndedSept 29,


Sept 30,


Sept 29,


Sept 30,2007


2006


2007


2006Stock Options:Expected volatility


66.51
%


72.34
%


66.91
%


74.82
%Risk free interest rate


4.13
%


4.54
%


4.26
%


4.69
%Expected term of options (in years)


4.51



4.55



4.49



4.73Dividend yield


None



None



None



None   8




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Nine MonthsThree Months Ended


EndedSept 29,


Sept 30,


Sept 29,


Sept 30,2007


2006


2007


2006Stock Purchase Rights:Expected volatility


63.14
%


59.12
%


63.15
%


59.25
%Risk free interest rate


3.92
%


4.67
%


3.94
%


4.67
%Expected term of options (in years)


2.00



2.00



1.97



1.92Dividend yield


None



None



None



None       Stock
    Plan Activity
  2004
    Equity Incentive Plan
    WeightedAverageRemaining


AggregateWeighted Average


Contractual Term


IntrinsicShares


Exercise Price


(Years)


ValueOptions outstanding at December 31, 2006


2,354,215


$
11.47



7.93


$
34,107,462Options granted


618,550


$
18.25Options forfeited


(163,858
)

$
16.25Options exercised


(273,794
)

$
8.10Options outstanding at September 29, 2007


2,535,113


$
13.18



7.85


$
9,156,996Vested and expected to vest at September 29, 2007


2,156,082


$
12.72



7.68


$
8,522,932Options exercisable at September 29, 2007


913,384


$
9.06



6.23


$
6,023,691Available to grant at September 29, 2007


731,678    9




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2003
    Employee Stock Purchase Plan
      6.
    Business
    Combinations      Net liabilities assumed, net of cash of $4

$
(31
)Goodwill


5,434Backlog


120Trademarks/Names


120Customer relationships


60Non-compete agreements


100Total

$
5,803      10




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    Warranty  case-by-case
      Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006(In thousands)Beginning balance

$
4,558


$
4,044


$
5,283


$
3,399Expenditures incurred under warranties


(983
)


(776
)


(3,406
)


(2,619
)Accruals for product warranties issued during the reporting
    period


243



888



1,990



2,974Adjustments to previously existing warranty accruals


17



(20
)


(32
)


382Ending balance

$
3,835


$
4,136


$
3,835


$
4,136     September 29,


December 31,2007


2006(In thousands)Other accrued liabilities

$
3,213


$
4,208Other long-term liabilities


622



1,075Total warranty provision

$
3,835


$
5,283   8.
    Guarantees   11




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.  Cash,
    Cash Equivalents and Investments
      September 29,


December 31,2007


2006(In thousands)Amortized Principal Amount:Debt securities issued by the US government and its agencies

$
19,000


$
8,000Auction rate securities


81,750



53,595Corporate debt securities


11,740



2,000Total investments in debt securities

$
112,490


$
63,595Short-term investments

$
98,490


$
55,595Long-term investments


14,000



8,000Total investments in debt securities

$
112,490


$
63,595Approximate fair value of investments in debt securities

$
112,504


$
63,585   EITF 03-01,
   12




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    Net
    Income Per Share    Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006(In thousands)Numerator:Numerator for diluted earnings per share  income
    available to common stockholders

$
8,364


$
9,013


$
29,761


$
25,357Denominator:Denominator for basic earnings per share 
    weighted-average shares


21,519



21,082



21,403



20,967Effect of dilutive securities:Employee stock options(1)


611



817



752



921Dilutive potential common shares


611



817



752



921Denominator for diluted earnings per share  adjusted


22,130



21,899



22,155



21,888     (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 September 29, 2007 and
    September 30, 2006 was 1,151,016 and 566,079, respectively,
    and the number of employee stock options excluded for the
    nine-month periods ended September 29, 2007 and
    September 30, 2006 and was 619,884 and 319,786,
    respectively.  11.
    Segment
    Reporting      Segment
    Profit or Loss and Segment Assets
   13




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Business
    Segment Net Revenues
  Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006(In thousands)Equipment

$
44,920


$
51,625


$
185,885


$
155,663Imaging


5,684



3,204



13,198



8,328Total

$
50,604


$
54,829


$
199,083


$
163,991   Business
    Segment Profit & Loss
  Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept. 29,


Sept. 30,2007


2006


2007


2006(In thousands)Equipment

$
8,477


$
9,833


$
39,308


$
29,287Imaging


35



(673
)


(3,080
)


(3,701
)Corporate activities


(396
)


(16
)


(1,695
)


157Operating income


8,116



9,144



34,533



25,743Interest income and other, net


1,797



1,113



4,655



2,440Income before income taxes

$
9,913


$
10,257


$
39,188


$
28,183   Business
    Segment Assets
  September 29,


December 31,2007


2006(In thousands)Equipment

$
38,281


$
84,366Imaging


17,453



7,379Corporate activities


158,663



114,258Total

$
214,397


$
206,003   Geographic
    Area Net Trade Revenues
  Three Months Ended


Nine Months EndedSept. 29,


Sept. 30,


Sept.29,


Sept. 30,2007


2006


2007


2006(In thousands)United States

$
15,558


$
5,665


$
31,460


$
22,294Asia


34,692



48,937



166,764



141,453Europe


350



227



816



244Rest of World


4







43



Total

$
50,604


$
54,829


$
199,083


$
163,991   12.
    Income
    Taxes   14




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        non-U.S. income
    13.
    Contingencies         15




---



##### Table of Contents



INTEVAC,
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      14.
    Capital
    Transactions    15.
    Financial
    Presentation    16.
    Subsequent
    Events   16




---



##### 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, income taxes, cash balances and
    financial results in 2007; projected customer requirements for
    our new and existing products, 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; legal proceedings; and internal controls. 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 2007,
    Form 10-Qs
    and
    Form 8-Ks.
  Critical
    Accounting Policies and Estimates
  Form 10-K.
        Revenue
    Recognition
   17




---



##### Table of Contents



Inventories
  first-in, work-in-progress
  Warranty
    Income
    Taxes
   18




---



##### Table of Contents



Results
    of Operations
  Three
    Months Ended September 29, 2007 and September 30,
    2006.
  Net
    revenues
  Change overThree Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Equipment net revenues

$
44,920


$
51,625


$
(6,705
)


(13
)%Imaging net revenues


5,684



3,204



2,480



77
%Total net revenues

$
50,604


$
54,829


$
(4,225
)


(8
)%        19




---



##### Table of Contents



Gross
    margin
  Three Months EndedSept. 29,


Sept. 30,2007


2006


% Change(In thousands, except percentages)Equipment gross profit

$
21,988


$
21,916



0
%% of Equipment net revenues


48.9
%


42.5
%Imaging gross profit

$
2,529


$
1,316



92
%% of Imaging net revenues


44.5
%


41.1
%Total gross profit

$
24,615


$
23,280



6
%% of net revenues


48.6
%


42.5
%        20




---



##### Table of Contents



Research
    and development
  Change overThree Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Research and development expense

$
9,437


$
8,571


$
866



10
%% of net revenues


18.6
%


15.6
%         Selling,
    general and administrative
  Change overThree Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Selling, general and administrative expense

$
7,062


$
5,565


$
1,497



27
%% of net revenues


14.0
%


10.1
%      21




---



##### Table of Contents



Interest
    income and other, net
  Change overThree Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Interest income and other, net

$
1,797


$
1,113


$
684



61
%     Provision
    for income taxes
  Change overThree Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Provision for income taxes

$
1,549


$
1,244


$
305



25
%       Nine
    Months Ended September 29, 2007 and September 30,
    2006
  Net
    revenues
  Change overNine Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Equipment net revenues

$
185,885


$
155,663


$
30,222



19
%Imaging net revenues


13,198



8,328



4,870



58
%Total net revenues

$
199,083


$
163,991


$
35,092



21
%      22




---



##### Table of Contents



Gross
    margin
  Nine Months EndedSept. 29,


Sept. 30,2007


2006


% Change(In thousands, except percentages)Equipment gross profit

$
82,842


$
59,213



40
%% of Equipment net revenues


44.6
%


38.0
%Imaging gross profit

$
5,382


$
2,635



104
%% of Imaging net revenues


40.8
%


31.6
%Total gross profit

$
88,224


$
61,848



43
%% of net revenues


44.3
%


37.7
%     Research
    and development
  Change overNine Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Research and development expense

$
31,277


$
20,422


$
10,855



53
%% of net revenues


15.7
%


12.5
%       Selling,
    general and administrative
  Change overNine Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Selling, general and administrative expense

$
22,414


$
15,683


$
6,731



43
%% of net revenues


11.3
%


9.6
%    23




---



##### Table of Contents



Interest
    income and other, net
  Change overNine Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Interest income and other, net

$
4,655


$
2,440


$
2,215



91
%     Provision
    for income taxes
  Change overNine Months Ended


Prior PeriodSept. 29,


Sept. 30,2007


2006


Amount


%(In thousands, except percentages)Provision for income taxes

$
9,427


$
2,826


$
6,601



234
%       Stock-Based
    Compensation
        Liquidity
    and Capital Resources
     24




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodTotal


< 1 Year


1-3 Years


3-5 Years


> 5 Years(In thousands)Operating lease obligations

$
10,563


$
2,277


$
4,639


$
3,558


$
89Purchase obligations


10,133



10,133











Total

$
20,696


$
12,410


$
4,639


$
3,558


$
89   Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest rate risk.
 25




---



##### Table of Contents



Fair2007


2008


2009


Beyond


Total


ValueCash equivalentsFixed rate amounts

$
8,971














$
8,971


$
8,971Weighted-average rate


5.37
%Variable rate amounts

$
8,322














$
8,322


$
8,322Weighted-average rate


5.24
%Short-term investmentsFixed rate amounts

$
91,689


$
6,801










$
98,490


$
98,490Weighted-average rate


5.95
%


5.24
%Long-term investmentsFixed rate amounts





$
6,000


$
8,000






$
14,000


$
14,014Weighted-average rate






5.23
%


5.40
%Total investment portfolio

$
108,982


$
12,801


$
8,000






$
129,783


$
129,797     Foreign exchange risk.
  Item 4.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures.
  Form 10-Q Rule 13a-15(b)
  Rule 13a-14
  Definition
    of Disclosure Controls
   26




---



##### Table of Contents



Limitations
    on the Effectiveness of Controls
    Changes
    in internal controls over financial reporting
  Form 10-Q
  PART II.
    OTHER INFORMATION
  Item 1.
    Legal
    Proceedings  Patent
    Infringement Complaint against Unaxis
         27




---



##### Table of Contents



Other
    Legal Matters
    Item 1A.
    Risk
    Factors  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




---



##### Table of Contents



We are
    exposed to risks associated with a highly concentrated customer
    base.
    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 computer systems, storage subsystems and consumer
    electronics containing disks our customers produce with our
    systems;
    delays or problems in the introduction and acceptance of our new
    products, or delivery of existing products;
    timing of orders, acceptance of new systems by our customers or
    cancellation of those orders; and
    new products, services or technological innovations by our
    competitors or us.    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.
   29




---



##### Table of Contents



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.
   30




---



##### Table of Contents



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.
        We
    operate in an intensely competitive marketplace, and our
    competitors have greater resources than we do.
   31




---



##### Table of Contents



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.
     32




---



##### Table of Contents



Unexpected
    increases in the cost to develop or manufacture our products
    under fixed-price contracts may cause us to experience
    un-reimbursed cost overruns.
    Our
    sales of equipment products 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;
    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; 33




---



##### Table of Contents




    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;
    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. 34




---



##### Table of Contents



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.
  Form 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.
    Our
    business depends on the integrity of our intellectual property
    rights and failure to protect our intellectual property rights
    adequately could have a material adverse effect on our
    business.
    
    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. 35




---



##### Table of Contents



We may
    be subject to claims of intellectual property
    infringement.
    Our
    success is dependent on recruiting and retaining a highly
    talented work force.
      Changes
    in demand caused by fluctuations in interest and currency
    exchange rates may reduce our international sales.
        Difficulties
    in integrating past or future acquisitions could adversely
    affect our business.
   36




---



##### Table of Contents



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.
    Anti-takeover
    provisions in our charter documents and under Delaware 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.
  Form 10-Q
  Business
    interruptions could adversely affect our
    operations.
   37




---



##### Table of Contents



Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    upon Senior Securities    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 5.
    Other
    Information    Item 6.
    Exhibits    ExhibitNumber

Description31
.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.  38




---



##### Table of Contents



SIGNATURES
      By:
    /s/  KEVIN
    FAIRBAIRN        By:
    /s/  JEFFREY
    ANDRESON   
   39




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description31
.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.