**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For thequarterly period ended December 30, 2005**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For thetransition period from                 to                  **

 

**Commissionfile number 000-51642**

 

**AvizaTechnology, Inc.**

(Exact name of Registrant asSpecified in its Charter)

 
| **Delaware**                                                   | ** ** | **20-1979646**                          |
|----------------------------------------------------------------|------------|-----------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer Identification Number) |

 

**440 KingsVillage RoadScotts Valley, California    95066**

(Address of PrincipalExecutive Offices including Zip Code)

 

**(831) 438-2100**

(Registrant’s TelephoneNumber, Including Area Code)

 

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

YES   o      NO    ý

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  (Check one):

 

Large accelerated filer  o                                    Accelerated filer  o                                   Non-accelerated filer  ý

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

YES   o      NO   ý

 

Asof February 6, 2006, the registrant had 10,300,783 shares of its common stock,par value $0.0001 per share, outstanding.

 

 

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**AvizaTechnology, Inc.**

 

**Table ofContents**

 
| ** **                                                                                           | ** **                                                                                                                  | **Page  No.** |
|------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|---------------|
| **PART I.  FINANCIAL INFORMATION**                                                                   |                                                                                                                        |          |
| Item 1. Financial Statements  (unaudited):                                                           |                                                                                                                        |          |
|                                                                                                 | Condensed  Consolidated Balance Sheets — at December 30, 2005 and September 30, 2005                                   |          | 1 |
|                                                                                                 | Condensed  Consolidated Statements of Operations — for the Three Months Ended December  30, 2005 and December 24, 2004 |          | 2 |
|                                                                                                 | Condensed  Consolidated Statements of Cash Flows — for the Three Months Ended December  30, 2005 and December 24, 2004 |          | 3 |
|                                                                                                 | Notes  to Condensed Consolidated Financial Statements                                                                       |          | 4 |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |                                                                                                                        | 19            |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |                                                                                                                        | 29            |
| Item 4. Controls  and Procedures                                                                     |                                                                                                                        | 29            |
| **PART  II. OTHER INFORMATION**                                                                      | ** **                                                                                                                  | ** **    |
| Item 1. Legal Proceedings                                                                            |                                                                                                                        | 29            |
| Item 1A. Risk Factors                                                                                |                                                                                                                        | 29            |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 |                                                                                                                        | 42            |
| Item 3.  Defaults Upon Senior Securities                                                             |                                                                                                                        | 42            |
| Item 4.  Submission of Matters to a Vote of Security Holders                                         |                                                                                                                        | 42            |
| Item 5. Other  Information                                                                           |                                                                                                                        | 43            |
| Item 6. Exhibits                                                                                     |                                                                                                                        | 43            |

 

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**PART I — FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands, except par amounts and number of shares)**

**(unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                          | ** ** | **December 30,** | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                          | ** ** | **2005**         | ** ** | **2005**          | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                                          |       |             |       |              |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| CURRENT  ASSETS:                                                                                                                                                                                                                                                                                                    |       |             |       |              |       |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                           |       | $                | 10,335     |              | $          | 7,437 |   |
| Accounts receivable, net of allowance of  $628 and $564, respectively                                                                                                                                                                                                                                               |       | 29,625           |       | 23,630            |       |
| Inventory                                                                                                                                                                                                                                                                                                           |       | 37,846           |       | 24,253            |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                           |       | 8,340            |       | 11,632            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| Total current assets                                                                                                                                                                                                                                                                                                |       | 86,146           |       | 66,952            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| PROPERTY,  PLANT AND EQUIPMENT - net                                                                                                                                                                                                                                                                                |       | 22,713           |       | 19,569            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| INTANGIBLE  ASSETS - net                                                                                                                                                                                                                                                                                            |       | 5,157            |       | 4,000             |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| OTHER ASSETS  - net                                                                                                                                                                                                                                                                                                 |       | 554              |       | 388               |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| TOTAL                                                                                                                                                                                                                                                                                                               |       | $                | 114,570    |              | $          | 90,909 |   |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                                                                                                                                                                                            |       |             |       |              |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| CURRENT  LIABILITIES:                                                                                                                                                                                                                                                                                               |       |             |       |              |       |
| Bank borrowing - short term                                                                                                                                                                                                                                                                                         |       | $                | 27,184     |              | $          | 30,724 |   |
| Accounts payable                                                                                                                                                                                                                                                                                                    |       | 22,302           |       | 19,397            |       |
| Warranty liability                                                                                                                                                                                                                                                                                                  |       | 13,774           |       | 13,599            |       |
| Accrued liabilities                                                                                                                                                                                                                                                                                                 |       | 12,708           |       | 8,814             |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| Total current liabilities                                                                                                                                                                                                                                                                                           |       | 75,968           |       | 72,534            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| Mandatorily redeemable preferred stock,  Series B and B-1, $100 par value - 110,000 shares authorized; 110,000 shares  issued and outstanding at December 30, 2005 and September 30, 2005,  respectively (liquidation preference of $11,317 and $11,097 at December 30,  2005 and September 30, 2005, respectively) |       | 11,000           |       | 11,000            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| NOTE PAYABLE  - Long term                                                                                                                                                                                                                                                                                           |       | 6,402            |       | 6,463             |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| Total liabilities                                                                                                                                                                                                                                                                                                   |       | 93,370           |       | 89,997            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| COMMITMENTS  AND CONTINGENCIES (NOTE 8)                                                                                                                                                                                                                                                                             |       |             |       |              |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| PREFERRED STOCK, SERIES A, $0.001 PAR VALUE  - 10,000,000 shares authorized; 0 and 5,226,496 shares issued and outstanding  at December 30, 2005 and September 30, 2005, respectively (liquidation  preference of $32,650 at September 30, 2005)                                                                    |       | —           |       | 32,650            |       |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                                                                                                                                                 |       |             |       |              |       |
| Preferred stock, $0.0001 par value -  5,000,000 shares authorized; none outstanding                                                                                                                                                                                                                                 |       | —           |       | —            |       |
| Common stock, $0.0001 par value -  100,000,000 shares authorized; 10,300,783 and 475,065 shares issued and  outstanding at December 30, 2005 and September 30, 2005, respectively                                                                                                                                   |       | 1                |       | 1                 |       |
| Additional paid in capital                                                                                                                                                                                                                                                                                          |       | 61,597           |       | 4,040             |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                |       | (98              | )          | (110              | )          |
| Accumulated deficit                                                                                                                                                                                                                                                                                                 |       | (40,300          | )          | (35,669           | )          |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| Total stockholders’ equity (deficit)                                                                                                                                                                                                                                                                           |       | 21,200           |       | (31,738           | )          |
|                                                                                                                                                                                                                                                                                                                |       |             |       |              |       |
| TOTAL                                                                                                                                                                                                                                                                                                               |       | $                | 114,570    |              | $          | 90,909 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements.

 

1

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**AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 
| ** **                                | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **December 30,**  | ** ** | **December 24,** | ** ** |
| ** **                                | ** ** | **2005**          | ** ** | **2004** | ** ** |
| NET SALES                                 |       | $                 | 28,943     |   | $ | 62,519 |   |
|                                      |       |              |       |   |   |
| COST OF  GOODS SOLD                       |       | 21,808            |       | 55,804 |   |
|                                      |       |              |       |   |   |
| GROSS PROFIT                              |       | 7,135             |       | 6,715 |   |
|                                      |       |              |       |   |   |
| OPERATING  EXPENSES:                      |       |              |       |   |   |
| Research and development costs            |       | 4,643             |       | 4,251 |   |
| Selling, general and administrative costs |       | 5,115             |       | 3,469 |   |
| In-process research and development       |       | 393               |       | — |   |
|                                      |       |              |       |   |   |
| Total operating expenses                  |       | 10,151            |       | 7,720 |   |
|                                      |       |              |       |   |   |
| LOSS FROM  OPERATIONS                     |       | (3,016            | )          | (1,005 | ) |
|                                      |       |              |       |   |   |
| OTHER INCOME  (EXPENSE):                  |       |              |       |   |   |
| Interest income                           |       | 40                |       | 5 |   |
| Interest expense                          |       | (1,386            | )          | (840 | ) |
| Other income (expense) - net              |       | (147              | )          | 2 |   |
|                                      |       |              |       |   |   |
| Total other income (expense)              |       | (1,493            | )          | (833 | ) |
|                                      |       |              |       |   |   |
| LOSS BEFORE  INCOME TAXES                 |       | (4,509            | )          | (1,838 | ) |
|                                      |       |              |       |   |   |
| INCOME TAXES                              |       | 122               |       | 140 |   |
|                                      |       |              |       |   |   |
| NET LOSS                                  |       | $                 | (4,631     | ) | $ | (1,978 | ) |
|                                      |       |              |       |   |   |
| Loss per  share:                          |       |              |       |   |   |
| Basic and diluted                         |       | $                 | (1.25      | ) | $ | (7.92 | ) |
|                                      |       |              |       |   |   |
| Weighted  average common shares:          |       |              |       |   |   |
| Basic and diluted                         |       | 3,717,898         |       | 249,637 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

2

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**AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**

 
| ** **                                                                                               | ** ** | **Quarter Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                               | ** ** | **December 30,**  | ** ** | **December 24,** | ** ** |
| ** **                                                                                               | ** ** | **2005**          | ** ** | **2004** | ** ** |
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                                                   |       |              |       |   |   |
| Net loss                                                                                                 |       | $                 | (4,631     | ) | $ | (1,978 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                             |       |              |       |   |   |
| Depreciation                                                                                             |       | 714               |       | 516 |   |
| Amortization                                                                                             |       | 910               |       | 420 |   |
| Issuance of common stock warrants                                                                        |       | 251               |       | — |   |
| Stock based compensation                                                                                 |       | 107               |       | — |   |
| Preferred stock dividend accrued                                                                         |       | 219               |       | — |   |
| Provision for allowance for doubtful  accounts                                                           |       | 64                |       | (35 | ) |
| Changes in assets and liabilities:                                                                       |       |              |       |   |   |
| Accounts receivable                                                                                      |       | 8,224             |       | (5,914 | ) |
| Inventories                                                                                              |       | 983               |       | 3,108 |   |
| Prepaid and other assets                                                                                 |       | 4,191             |       | (3,290 | ) |
| Accounts payable                                                                                         |       | (1,304            | )          | (1,686 | ) |
| Warranty liability                                                                                       |       | (1,204            | )          | 345 |   |
| Accrued liabilities                                                                                      |       | 700               |       | (1,874 | ) |
|                                                                                                     |       |              |       |   |   |
| Net cash provided by (used in) operating  activities                                                     |       | 9,224             |       | (10,388 | ) |
|                                                                                                     |       |              |       |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                                                   |       |              |       |   |   |
| Cash acquired from Trikon merger net of  direct merger costs                                             |       | 7,366             |       | — |   |
| Purchases of property and equipment                                                                      |       | (1,462            | )          | (755 | ) |
|                                                                                                     |       |              |       |   |   |
| Net cash provided by (used in) investing  activities                                                     |       | 5,904             |       | (755 | ) |
|                                                                                                     |       |              |       |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                                                   |       |              |       |   |   |
| Net proceeds (payments) from credit lines                                                                |       | (3,625            | )          | 7,091 |   |
| Proceeds from issuance of common stock                                                                   |       | 26                |       | 9 |   |
| Payments on mortgage loan                                                                                |       | (70               | )          | (46 | ) |
| Payment on capital lease obligations                                                                     |       | (8                | )          | — |   |
| Payments on short term borrowings                                                                        |       | (8,650            | )          | — |   |
|                                                                                                     |       |              |       |   |   |
| Net cash provided by (used in) financing  activities                                                     |       | (12,327           | )          | 7,054 |   |
|                                                                                                     |       |              |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                    |       | 2,801             |       | (4,089 | ) |
|                                                                                                     |       |              |       |   |   |
| CASH AND  CASH EQUIVALENTS:                                                                              |       |              |       |   |   |
| Beginning of period                                                                                      |       | 7,437             |       | 9,429 |   |
|                                                                                                     |       |              |       |   |   |
| Effect of exchange rates on foreign cash  balances                                                       |       | 97                |       | (1,347 | ) |
|                                                                                                     |       |              |       |   |   |
| End of period                                                                                            |       | $                 | 10,335     |   | $ | 3,993 |   |
|                                                                                                     |       |              |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                                       |       |              |       |   |   |
| Cash paid for interest                                                                                   |       | $                 | 760        |   | $ | 377 |   |
| Income taxes paid                                                                                        |       | $                 | 31         |   | $ | — |   |
| Noncash investing and financing activities:                                                              |       |              |       |   |   |
| Fair value of common stock, options and  warrants issued in the acquisition of Trikon Technologies, Inc. |       | $                 | 24,442     |   | $ | — |   |
| Stock warrant issued in exchange for loan  guarantee                                                     |       | $                 | 251        |   | $ | — |   |
| Property and equipment included in accounts  payable at quarter end                                      |       | $                 | 232        |   | $ | — |   |
|                                                                                                          |            |                   |            |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

3

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**AVIZATECHNOLOGY, INC. AND SUBSIDIARIESNOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTSDecember 30, 2005**

***(Unaudited)***

 

**1.  Basis ofPresentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with United States (U.S.) generally accepted accountingprinciples for interim financial information and with the instructions to Article 10of Regulation S-X. The interim financial information is unaudited and doesnot include all of the information and footnotes required by U.S. generallyaccepted accounting principles for complete financial statements. In theopinion of management, all adjustments (consisting only of normal recurringadjustments) considered necessary for a fair statement of financial positionand operations have been included. Operating results for the quarter endedDecember 30, 2005 are not necessarily indicative of the results that may beexpected for future quarters and the fiscal year ended September 29, 2006.  The accompanying unaudited condensedconsolidated financial statements should be read in conjunction with the auditedconsolidated financial statements of Aviza Technology, Inc. (the “Company” or “Aviza”)for the year ended September 30, 2005, which are included in the Company’sAnnual Report on Form 10-K and the risk factors contained herein and therein.

 

Thepreparation of the accompanying unaudited condensed consolidated financialstatements requires the use of estimates that affect the reported amounts ofassets, liabilities, revenues, expenses and contingencies.  These estimates include, but are not limitedto, estimates related to revenue recognition, allowance for doubtful accounts,inventory valuation, tangible and intangible long-term asset valuation,warranty and other obligations, contingent liabilities and litigation.  Estimates are updated on an ongoing basis andare evaluated based on historical experience and current circumstances.  Changes in facts and circumstances in thefuture may give rise to changes in these estimates which may cause actualresults to differ from current estimates.

 

TheCompany’s current fiscal year will end on September 29, 2006 and includes52 weeks. The Company closes its fiscal quarters on the last Friday ofDecember, March, June and September.

 

OnDecember 1, 2005, Aviza, Inc., formerly Aviza Technology, Inc. (“Former Aviza”)completed its consolidation through merger with Trikon Technologies, Inc. (“Trikon”).The merger transaction was effected through the formation of a new companyoriginally named New Athletics, Inc., which issued shares of common stock inexchange for outstanding shares of common stock of Trikon and outstandingshares of common and series A preferred stock of Former Aviza. For accountingpurposes, Former Aviza is deemed to have acquired Trikon because, immediatelyafter the merger transaction, former stockholders of Former Aviza ownedapproximately 56% of the combined company and former stockholders of Trikonowned approximately 44% of the combined company. Each outstanding share ofFormer Aviza common and series A preferred stock was exchanged for .90043 of ashare of New Athletics, Inc. common stock. All common stock and series Apreferred stock and per share amounts for Former Aviza in these financialstatements have been adjusted to give retroactive effect to this exchange ratiofor all periods presented. Shares of series B and B-1 preferred stock of FormerAviza were not exchanged in the merger transaction and, accordingly, therelated share and per share amounts have not been adjusted.

 

Inconnection with the merger transaction, New Athletics, Inc. changed its name toAviza Technology, Inc. (“Aviza”), the common stock of which is publicly tradedon the NASDAQ National Market under the symbol “AVZA.”

 

Thefollowing table details the impact of the exchange of shares associated withthe merger on December 1, 2005:

 

4

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| ** **                  | ** ** | ** **       | ** ** | ** **   | ** ** | **Post Exchange**          | ** ** |
|-----------------------------|------------|------------------|------------|--------------|------------|----------------------------|------------|
| ** **                  | ** ** | **Pre Exchange** | ** ** | **Exchange** | ** ** | **Aviza Technology, Inc.** | ** ** |
| ** **                  | ** ** | **Shares**       | ** ** | **Ratio**    | ** ** | **Common Shares**          | ** ** |
| Former  Aviza:              |       |             |       |         |       |                       |       |
| Preferred stock, Series A   |       | 5,804,446        |       | 0.90043      |       | 5,226,496                  |       |
| Common stock                |       | 559,889          |       | 0.90043      |       | 504,140                    |       |
|                        |       | 6,364,335        |       |         |       |                       |       |
|                        |       |             |       |         |       |                       |       |
| Trikon:                     |       |             |       |         |       |                       |       |
| Common stock                |       | 15,754,985       |       | 0.29         |       | 4,568,946                  |       |
|                        |       |             |       |         |       |                       |       |
| Total post  exchange shares |       |             |       |         |       | 10,299,582                 |       |

 

Trikonand Former Aviza continue as subsidiaries of the Company.  The financial information presented in thisreport represents:

 

1)     the financial position of the Company and itssubsidiaries as of December 30, 2005;

 

2)     the financial position of Former Aviza as ofSeptember 30, 2005;

 

3)     the results of operations and changes in cashflow of the Company and its subsidiaries for the quarter ended December 30,2005, including Trikon from December 1, 2005 through December 30, 2005; and

 

4)     the results of operations and cash flows ofFormer Aviza for the quarter ended December 24, 2004.

 

SeeNote 5 for additional information related to the merger transaction.

 

Theconsolidated financial statements include the accounts of the Company and itssubsidiaries. All significant intercompany accounts and transactions have beeneliminated in consolidation.

 

## **2**. RecentAccounting Pronouncements

 

Effective October 1, 2005,the Company adopted the provisions of Statement of Financial AccountingStandards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) establishes accounting forstock-based awards exchanged for employee services.  Accordingly, stock-based compensation cost ismeasured at grant date, based on the fair value of the award, and is recognizedas an expense over the employee’s requisite service period.  The Company previously applied AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related Interpretations and provided the pro forma disclosuresof SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).  The Company adopted the modified prospectiveapplication method as provided by SFAS 123(R). Under this method, SFAS 123R was applied to new awards and to awardsmodified, repurchased or cancelled after the effective date.  Additionally,compensation cost for the portion of awards for which the requisite service hasnot been rendered, such as unvested stock options, that are outstanding as ofthe date of adoption will be recognized as the remaining requisite services arerendered.  The compensation cost relating to unvested awards on October 1,2005 was based on the grant-date fair value for those awards granted after June24, 2005, the date of the Company’s initial filing of its Form S-4 registrationstatement relating to the Trikon merger as discussed in Note 5, and based onthe intrinsic values as previously recorded under APB Opinion No. 25 for awardsgranted prior to that date.

 

In November 2004, the FASBissued SFAS No. 151, *Inventory Costs,an Amendment of ARB No. 43, Chapter 4* (“SFAS 151”). Theamendments made by SFAS 151 are intended to improve financial reporting byclarifying that abnormal amounts of idle facility expense, freight, handlingcosts and wasted materials (spoilage) should be recognized as current-periodcharges and by requiring the allocation of fixed production overheads toinventory based on the normal capacity of the production facilities. Theguidance is effective for inventory costs incurred during fiscal yearsbeginning after June 15, 2005. Earlier application is permitted forinventory costs incurred during fiscal years beginning after November 23,2004.  The provisions of SFAS 151 will beapplied prospectively. Aviza’s historical treatment of inventory costs isconsistent with SFAS 151, and therefore adoption of SFAS 151 did not have aneffect on its consolidated financial statements.

 

5

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InMarch 2005, the FASB issued FASB Interpretation No. 47, *Accounting for Conditional Asset RetirementObligations, an Interpretation of FASB Statement No. 143* (“FIN 47”).FIN 47 clarifies that the term “conditional asset retirement obligation”as used in FASB Statement No. 143, refers to a legal obligation to performan asset retirement activity in which the timing and (or) method of settlementare conditioned on a future event that may or may not be within the control ofthe entity. An entity is required to recognize a liability for the fair valueof a “conditional asset retirement obligation” if the fair value of theliability can be reasonably estimated. This interpretation also clarifies whenan entity would have sufficient information to reasonably estimate the fairvalue of a “conditional asset retirement obligation.” FIN 47 is effectiveno later than the end of fiscal years ending after December 15, 2005.Aviza does not believe the adoption of this interpretation will have an impacton its results of operations.

 

6

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**3.  BalanceSheet Details**

 
| ** **                                      | ** ** | **December 30,**   | ** ** | **September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **2005**           | ** ** | **2005**          | ** ** |
| ** **                                      | ** ** | **(in thousands)** | ** ** |
| **Inventories:**                                |       |               |       |              |       |
| Raw  materials                                  |       | $                  | 21,775     |              | $          | 14,149 |   |
| Work-in-process                                 |       | 10,306             |       | 10,104            |       |
| Finished  goods and evaluation systems          |       | 5,765              |       | —            |       |
| Total                                           |       | $                  | 37,846     |              | $          | 24,253 |   |
|                                            |       |               |       |              |       |
| **Prepaid  expenses and other current assets:** |       |               |       |              |       |
| Debt  issuance costs                            |       | $                  | 1,947      |              | $          | 2,079 |   |
| Deferred  installation costs                    |       | 2,818              |       | 3,685             |       |
| Acquisition  costs                              |       | —             |       | 4,112             |       |
| Other                                           |       | 3,575              |       | 1,756             |       |
| Total                                           |       | $                  | 8,340      |              | $          | 11,632 |   |
|                                            |       |               |       |              |       |
| **Property,  plant and equipment, net:**        |       |               |       |              |       |
| Land                                            |       | $                  | 1,839      |              | $          | 1,839 |   |
| Buildings  and improvements                     |       | 11,198             |       | 11,330            |       |
| Machinery  and equipment                        |       | 8,677              |       | 6,677             |       |
| Office  furnishings, fixtures and equipment     |       | 2,058              |       | 1,420             |       |
| Leasehold  improvement                          |       | 710                |       | —            |       |
| Construction  in process                        |       | 2,850              |       | 2,213             |       |
| Total                                           |       | 27,332             |       | 23,479            |       |
| Accumulated  depreciation                       |       | (4,619             | )          | (3,910            | )          |
| Net  property, plant and equipment              |       | $                  | 22,713     |              | $          | 19,569 |   |
|                                            |       |               |       |              |       |
| **Intangible  assets, net:**                    |       |               |       |              |       |
| Licenses                                        |       | $                  | 4,027      |              | $          | 4,000 |   |
| Developed  technology                           |       | 725                |       | —            |       |
| Brands and  trademarks                          |       | 102                |       | —            |       |
| Customer  relationships                         |       | 231                |       | —            |       |
| Patents                                         |       | 81                 |       | —            |       |
| Total                                           |       | 5,166              |       | 4,000             |       |
| Accumulated  amortization                       |       | (9                 | )          | —            |       |
| Net  intangible assets                          |       | $                  | 5,157      |              | $          | 4,000 |   |
|                                            |       |               |       |              |       |
| **Accrued  liabilities:**                       |       |               |       |              |       |
| Accrued  payroll and payroll taxes              |       | $                  | 3,492      |              | $          | 2,766 |   |
| Deferred  revenue                               |       | 1,342              |       | 545               |       |
| Customer  advance payments                      |       | 1,930              |       | —            |       |
| Other                                           |       | 5,944              |       | 5,503             |       |
| Total                                           |       | $                  | 12,708     |              | $          | 8,814 |   |

 

**4.  Stock-BasedCompensation**

 

EffectiveOctober 1, 2005, the Company adopted the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) establishes accounting forstock-based awards exchanged for employee services.  Accordingly, stock-based compensation cost ismeasured at grant date, based on the fair value of the award, and is recognizedas an

 

7

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expense over the employee’srequisite service period.  The Companypreviously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related Interpretations and provided thepro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”).

 

TheCompany adopted the modified prospective application method as provided by SFAS123(R).  Under this method, SFAS 123R wasapplied to new awards and to awards modified, repurchased or cancelled afterthe effective date.  Additionally, compensation cost for the portion ofawards for which the requisite service has not been rendered, such as unvestedstock options, that are outstanding as of the date of adoption will berecognized as the remaining requisite services are rendered.  Thecompensation cost relating to unvested awards at the date of adoption will bebased on the grant-date fair value for those awards granted after June 24,2005, the date of the Company’s initial filing of a Form S-4 registrationstatement relating to the merger transaction as discussed in Note 5, and basedon the intrinsic values as previously recorded under APB Opinion No. 25 forawards granted prior to that date.

 

Thefair value of each option is estimated at the date of grant using theBlack-Scholes option valuation model. The Company estimates expected stock price volatility based onhistorical volatility within a representative peer group.  The Company uses historical data to estimateexpected life and forfeiture rates.  Therisk-free interest rate for periods within the contractual life of the optionis based on the U.S. Treasury yield.

 

TheCompany recognized stock-based compensation expense of $107,000 during thequarter ended December 30, 2005.  Thereis no related income tax benefit recognized in the condensed consolidatedstatements of operations recorded for the quarter ended December 30, 2005.  The estimated fair value of the Company’sstock options, less expected forfeitures, is amortized over the awards’ vestingperiod on a straight-line basis.

 

Themodified prospective transition method of SFAS 123(R) requires the presentationof pro forma information, for periods presented prior to the adoption of SFAS123(R), regarding net loss and net loss per share as if the Company hadaccounted for its stock plans under the fair value method of SFAS 123(R).  For pro forma purposes, the fair value ofstock options was estimated using the Black-Scholes option valuation model andamortized on a straight-line basis.  Thepro forma amounts are as follows:

 
| ** **                                                                                   | ** ** | **Quarter Ended**                         | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **December 24, 2004**                     | ** ** |
| ** **                                                                                   | ** ** | **(in thousands, except per share data)** | ** ** |
| Net loss - as reported                                                                       |       | $                                         | (1,978     | ) |
| Deduction: stock-based employee  compensation expense determined under the fair value method |       | (1                                        | )          |
| Net loss - pro forma                                                                         |       | $                                         | (1,979     | ) |
|                                                                                         |       |                                      |       |
| Los per share:                                                                               |       |                                      |       |
| Basic and diluted - as reported                                                              |       | $                                         | (7.92      | ) |
| Basic and diluted - pro forma                                                                |       | $                                         | (7.93      | ) |

 

Thefair value of the Company’s stock options granted in the quarters endedDecember 30, 2005 and December 24, 2004 was estimated at the date of grantusing the following weighted average assumptions:

 

8

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| ** **               | ** ** | **Quarter Ended** | ** ** |
|--------------------------|------------|-------------------|------------|
| ** **               | ** ** | **December 30,**  | ** ** | **December 24,** | ** ** |
| ** **               | ** ** | **2005**          | ** ** | **2004** | ** ** |
| Expected  life (years)   |       | 6.1               |       | 5.0 |   |
| Risk-free  interest rate |       | 4.4               | %          | 4.0 | % |
| Stock price  volatility  |       | 76.1              | %          | 0.0 | % |
| Dividend  yield          |       | 0.0               | %          | 0.0 | % |

 

Thefollowing table summarizes the Company’s stock option activity under the Plansas of December 30, 2005 and changes during the quarter then ended:

 
| ** **                             | ** ** | **Outstanding Options** | ** ** |
|----------------------------------------|------------|-------------------------|------------|
| ** **                             | ** ** | ** **              | ** ** | **Weighted Average** | ** ** |
| ** **                             | ** ** | **Shares**              | ** ** | **Exercise Price** | ** ** |
| Options                                |       |                    |       |   |   |
| Outstanding  at September 30, 2005     |       | 1,554,444               |       | $ | 0.96 |   |
| Options  assumed in merger with Trikon |       | 512,401                 |       | $ | 21.57 |   |
| Granted                                |       | 815,000                 |       | $ | 5.60 |   |
| Exercised                              |       | (30,276                 | )          | $ | 0.87 |   |
| Forfeited                              |       | (16,940                 | )          | $ | 16.42 |   |
| Outstanding  at December 30, 2005      |       | 2,834,629               |       | $ | 5.93 |   |

 

Asof December 30, 2005, there was $3.7 million of unrecognized compensation costrelated to unvested stock options granted and outstanding, net of estimatedforfeitures.  The cost is expected to berecognized over a weighted average period of approximately two years.

 

9

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The following table details total stock-basedcompensation expense for the quarter ended December 30, 2005:

 
| ** **                                 | ** ** | **Quarter Ended**     | ** ** |
|--------------------------------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **December 30, 2005** | ** ** |
| ** **                                 | ** ** | **(in thousands)**    | ** ** |
| Cost of  goods sold                        |       | $                     | 12         |   |
| Research and  development costs            |       | 14                    |       |
| Selling,  general and administrative costs |       | 81                    |       |
| Pre-tax  stock-based compensation expense  |       | 107                   |       |
| Income tax  benefits                       |       | —                |       |
| Net  stock-based compensation expense      |       | $                     | 107        |   |

 

**5.  Merger andOther Transactions with Trikon Technologies, Inc.**

 

OnDecember 1, 2005, the stockholders of Trikon approved the merger of Trikon withthe Company.  Trikon designs,manufactures and services wafer processing semiconductor manufacturingequipment primarily for front end of line applications.  Its products are used for chemical andphysical vapor deposition and for etch applications and are sold tosemiconductor manufacturers worldwide. The Company believes that the addition of Trikon broadens the Company’sproduct portfolio and its ability to provide a wider suite of solutions forcustomer applications.  In accordancewith the provisions of SFAS No. 141, Aviza is treated as the acquirer forfinancial reporting purposes.  In themerger transaction, a wholly owned subsidiary of the Company was merged withand into Trikon.  Trikon stockholdersreceived 0.29 of a share of Aviza common stock in exchange for each share ofTrikon common stock they owned.  A totalof 4,568,946 shares of Aviza common stock were issued in exchange for theoutstanding common stock of Trikon as of December 1, 2005.  The common stock issued in the transactionwas valued using the average closing price of Trikon’s common stock on November30, and December 1, 2005.

 

Inconnection with the merger transaction, Aviza assumed a warrant issued byTrikon to an investor for the purchase of 101,500 shares of common stock (“investorwarrants’) with an exercise price of $21.55 per share. In addition, furtherwarrants for the purchase of 15,225 shares of common stock (“placement agentwarrants”) were issued to the placement agent. The warrants expireOctober 22, 2007. The warrants may be redeemed at the option of Trikon for$0.34 at any time after the first anniversary of the closing date provided thatfor any 20 trading days in a 30-day trading period the closing market priceexceeds $38.79 for the investor warrants, and $40.34 for the placement agentwarrants, and the average daily trading volume of Aviza common stock exceeds43,500 shares.

 

Inaddition, 629,570 shares of common stock were reserved for issuance uponexercise of Trikon common stock options and warrants assumed at December 1,2005.  The fair value of the common stockoptions and warrants was estimated to be $810,000.  The options and warrants were valued usingthe Black-Scholes option pricing model with the following assumptions:

 
| ** **                     | ** ** | **Common Stock** | ** ** |
|--------------------------------|------------|------------------|------------|
| ** **                     | ** ** | **Options**      | ** ** | **Warrants** | ** ** |
| Dividend  yield                |       | 0.0              | %          | 0.0 | % |
| Stock price  volatility        |       | 72.4             | %          | 60.5 | % |
| Expected  life (months)        |       | 56               |       | 21 |   |
| Risk-free  interest rate       |       | 4.4              | %          | 4.4 | % |
| Market value  per common share |       | $                | 5.17       |   | $ | 5.17 |   |
|                                |            |                  |            |  |  |  |  |

 

10

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A summary of the total consideration is as follows(in thousands):

 
| Issuance of Aviza common stock                                                                                                                            |   | $      | 23,632 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Value of substitute options and warrants to  acquire 629,570 shares of Aviza common stock in exchange for all outstanding  options and warrants of Trikon |   | 810    |   |
|                                                                                                                                                      |   |   |   |
| Total equity consideration                                                                                                                                |   | 24,442 |   |
| Direct merger costs                                                                                                                                       |   | 6,016  |   |
|                                                                                                                                                      |   |   |   |
| Total consideration                                                                                                                                       |   | $      | 30,458 |   |

 

Direct costs related to the merger totaled $6.0million.  This amount consisted of $2.7million for legal services, $1.5 million for accounting and finance services,$1.0 million for services from investment bankers, and $0.8 million of otherdirect costs related to the merger.

 

Under the purchase method of accounting, the totalconsideration issued for Trikon common stock, options and warrants as shown inthe table above is allocated to the Trikon tangible and intangible assets, andliabilities based on their estimated fair values as of the date of the mergertransaction.  The unaudited informationis based on management’s estimates of fair values supported as necessary byvaluations performed by external valuation professionals.  The allocation of total consideration toTrikon’s tangible and intangible assets is set forth in the following table (inthousands):

 
| Trikon  historical net book value                      |   |   |   | $       | 30,565 |   |
|--------------------------------------------------------|--------|--------|--------|---------|--------|--------|
| Estimated  fair value adjustments:                     |   |   |   |    |   |
| Inventory to fair value                                |   | 1,492  |   |    |   |
| Property, plant and equipment                          |   | 13,439 |   |    |   |
| Deferred income, net of related costs                  |   | 3,524  |   |    |   |
| Deferred rent                                          |   | 583    |   |    |   |
| Accrued liabilties                                     |   | (241   | )      |    |   |
| Intangible  assets:                                    |   |   |   |    |   |
| Customer relationships                                 |   | 2,126  |   |    |   |
| Brands and trademarks                                  |   | 940    |   |    |   |
| Patents                                                |   | 744    |   |    |   |
| Developed technology                                   |   | 6,673  |   |    |   |
| In-process research and development                    |   | 3,615  |   |    |   |
| Licenses                                               |   | 253    |   |    |   |
| Total  estimated fair value of intangible assets       |   | 14,351 |   |    |   |
|                                                   |   |   |   |    |   |
| Total fair  value adjustments                          |   |   |   | 33,148  |   |
|                                                   |   |   |   |    |   |
| Fair value  of net assets acquired                     |   |   |   | 63,713  |   |
| Excess of  fair value of net assets over consideration |   |   |   | (33,255 | )      |
| Total  consideration allocated                         |   |   |   | $       | 30,458 |   |

 

The purchase price allocation is subject to changeif the Company obtains additional information concerning the fair value ofcertain tangible assets and liabilities of Trikon at December 1, 2005.

 

In accordance with generally accepted accountingprinciples, the excess of the fair value of Trikon’s net assets over theconsideration given has been allocated as a pro rata reduction of the amountsthat would otherwise have been allocated to Trikon’s non-current assetsacquired.  The allocation of the excessfair value is as follows (in thousands):

 

11

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| Property,  plant and equipment                             |   | $      | 20,463 |   |
|------------------------------------------------------------|--------|--------|--------|--------|
|                                                       |   |   |   |
| Customer  relationships                                    |   | 1,895  |   |
| Brands and  trademarks                                     |   | 838    |   |
| Patents                                                    |   | 663    |   |
| Developed  technology                                      |   | 5,948  |   |
| In-process  research and development                       |   | 3,222  |   |
| Licenses                                                   |   | 226    |   |
|                                                       |   |   |   |
| Allocation  of excess fair market value to intangibles     |   | 12,792 |   |
|                                                       |   |   |   |
| Excess fair  market value of net assets over consideration |   | $      | 33,255 |   |

 

Afterallocation of the excess fair market value, the value of the intangiblesacquired via the merger is as follows (in thousands):

 
| Customer  relationships              |   | $   | 231    |   |
|--------------------------------------|--------|-----|--------|--------|
| Brands and  trademarks               |   | 102 |   |
| Patents                              |   | 81  |   |
| Developed  technology                |   | 725 |   |
| In-process  research and development |   | 393 |   |
| Licenses                             |   | 27  |   |
| Total intangibles acquired           |   | $   | 1,559  |   |

 

A portion of the merger consideration was allocatedto identifiable intangible assets.  Afterallocation of the excess fair market value related to the transaction, theidentifiable intangibles acquired totaled $1.6 million. Of the intangiblesacquired, $393,000 was allocated to in-process research and development.  The value of the in-process research anddevelopment was written off to in-process research and development expenseduring the quarter ended December 30, 2005.

 

The intangible assets are being amortized over theirestimated useful lives.  With theexception of in-process research and development, the useful lives of theintangibles range from ten to fifteen years. In-process research and development consists of research and developmentin process at the time of the merger which has not demonstrated itstechnological feasibility and does not have an alternative future use.

 

As a result of the merger transaction, Avizarecorded a restructuring liability of $241,000 primarily relating to buildingclosures of $96,000 and employee severance and related payments of$145,000.  These costs were included indetermination of the fair value of the net assets acquired in the mergertransaction.

 

Thewrite-ups and write-downs of Trikon’s assets to fair value for financialreporting purposes result in a difference for income tax reporting.  This fair value write-up of inventory andintangibles, as well as the reduction of deferred income, deferred rent andcertain accrued liabilities, was not recorded for tax purposes due to themerger transaction being a tax-free transaction.  This will cause Aviza to have less revenueand more expenses for financial statement purposes than for tax purposes withrespect to these items.   As a result,Aviza recorded a net current deferred tax liability of $1.6 million relating tothese items.  Similarly, the write-downof Trikon’s property, plant, and equipment, as well as the reduction of certainaccrued liabilities to fair value for financial reporting purposes results in adifference for income tax reporting. This will cause Aviza to have lessdepreciation and other expenses for financial statement purposes than for taxpurposes with respect to these items.  As a result, Aviza recorded a deferred tax asset of $1.6 millionrelating to these items.

 

A deferred tax asset of $31.8 million was recordedas part of the merger representing future tax deductions (primarily netoperating loss carry forwards) which can only be realized to the extent offuture taxable income.  At December 30,2005, management is unable to assert that it is more likely than not that theCompany will generate sufficient taxable income to realize its net deferred taxassets in excess of the

 

12

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deferred tax liabilitiesrecorded in relation to the write-up of inventory and intangibles to fair valueat the merger date described above. Accordingly, the net deferred tax assets have been offset in full by avaluation allowance at December 30, 2005.

 

On March 14, 2005, the Company entered into a jointdevelopment agreement with Trikon related to the development of controlsoftware to be used in certain of the Company’s products.  As part of the agreement, the Company paid a$4.0 million license fee and agreed to pay royalties based on sales of thelicensed product.  The license has anestimated life of 10 years. In connection with the merger transaction, noroyalty payments are made, and the $4.0 million license fee is amortized overthe 10-year estimated life of the license.

 

Amortization expense relating to the intangiblesdescribed above was $9,000 during the quarter ended December 30, 2005.  There was no amortization of intangiblesduring the quarter ended December 24, 2004.  Based on the intangible assets recorded at December 30, 2005, andassuming no subsequent additions to, or impairment of the underlying assets,the remaining estimated amortization expense is expected to be as follows (inthousands):

 
| **Fiscal year ending:**                  | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|
|                                     |       |       |       |
| September  29, 2006 (remaining 9 months) |       | $          | 354        |   |
| September  28, 2007                      |       | 516        |       |
| September  26, 2008                      |       | 516        |       |
| September  25, 2009                      |       | 516        |       |
| September  24, 2010                      |       | 516        |       |
| Thereafter                               |       | 2,739      |       |
| Total                                    |       | $          | 5,157      |   |

 

**Pro Forma Financial Information for the Acquisition ofTrikon**

 

The results of operations of Trikon have beenincluded in the results of operations of Aviza from the December 1, 2005 mergerdate.  The following unaudited pro formafinancial information presents the results of operations for the quarter endedDecember 30, 2005 as if the acquisition of Trikon had occurred on October 1,2005, the beginning of the Company’s fiscal year 2006.  The pro forma financial information for thecombined entities has been prepared for comparative purposes only and is notnecessarily indicative of what actual results may have been if the acquisitionhad in fact occurred at the beginning of fiscal 2006 or of future results.

 
| ** **           | ** ** | **Quarter Ended**                            | ** ** |
|----------------------|------------|----------------------------------------------|------------|
| ** **           | ** ** | **December 30,**                             | ** ** |
| ** **           | ** ** | **2005**                                     | ** ** |
| ** **           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net sales            |       | $                                            | 38,118     |   |
| Net loss             |       | $                                            | (4,744     | ) |
|                 |       |                                         |       |
| Net loss per  share: |       |                                         |       |
| Basic and diluted    |       | $                                            | (0.46      | ) |

 

**6.  BorrowingFacilities**

 

Asof December 30, 2005, the Company has a line of credit agreement with a bankunder which it may borrow up to $40,000,000. Of this amount, a total of $20,000,000 of the line is secured by firstpriority liens on all of Aviza’s existing and future acquired assets, and theremaining portion of the line is guaranteed by the Company’s majorityshareholder, VantagePoint Venture Partners (“VPVP”).  The credit facility has a stated maturity ofAugust 11, 2007.  Borrowings under theline of credit accrue interest at the bank’s prime rate plus 0.5%, which ispayable monthly.  The terms of the lineof credit agreement prohibit

 

13

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the Company from paying cashdividends on its common stock.  Under theterms of the line of credit agreement, Aviza is required to meet certainfinancial operating covenants.

 

At September 30, 2005, the Company was in violationof these covenants.  Based on VPVP’s guaranteethat it would not require reimbursement from the Company prior to September 30,2006, should VPVP be required to make payment under the guarantee, on December20, 2005, the bank waived non-compliance under the agreement as of September30, 2005.  The agreement has subsequentlybeen amended to include Aviza as obligor and the covenants reset.  At that time and in connection with themerger transaction, VPVP continued its guarantee under the line of credit onbehalf of the Company.  The Companyissued VPVP an additional warrant to purchase 290,000 shares of common stock inconnection with its continued guarantee. Borrowings under this credit line were $26,135,000 at December 30, 2005.

 

A subsidiary of theCompany has a revolving line of credit for 200,000,000 Japanese Yen(approximately $1,700,000 at the exchange rate on December 30, 2005) underwhich there were no borrowings at December 30, 2005. The credit line bearsinterest at 1.5% per annum.

 

Trikon had a creditfacility with a bank on which it had borrowed £5.0 million, approximately $8.7million at the exchange rate on December 30, 2005.  The facility was repaid in full on December30, 2005 and the facility expired December 31, 2005.

 

***Notes Payable***

 

***Mortgage***—Aviza’s mortgage note payable is secured by a mortgage onAviza’s land and buildings and matures on September 30, 2007. The debtcarries interest calculated as the sum of LIBOR rates plus a margin of 5.25%and is repayable in monthly principal installments of $23,333 plus interest.The effective interest rate at December 30, 2005 and September 30, 2005 was9.625% and 9.0%, respectively.

 

Under the provisions of the revolving line of creditand the mortgage note payable, Aviza is required to maintain interest rateprotection on a portion of its indebtedness. To satisfy this obligation, inAugust 2004 and September 2004, Aviza entered into interest rate cap agreementswith financial institutions for a total notional amount of $17,000,000,expiring on August 6, 2007 and October 10, 2006, respectively. Under therevolving line of credit agreement, Aviza continues to pay interest at the bank’sprime rate plus 0.50% (7.75% at December 30, 2005); however, the maximum rateis set at 8.25%. Under the note payable, Aviza continues to pay interest atLIBOR rates plus a margin of 5.25%; however, the maximum rate for the LIBORcomponent is 6.75%. Any changes in the fair value of the interest rate caps ischarged to or credited to interest expense. At December 30, 2005 and September30, 2005, the fair value of the interest rate caps was $11,000 and $14,000,respectively.

 

***Loan Guarantee — Warrants***

 

Prior tothe merger transaction, Former Aviza granted warrants to VPVP to purchase anaggregate of $20 million of preferred stock at a price of $5.625 pershare.  Former Aviza allocatedapproximately $3.5 million of the line of credit to the warrant and isamortizing the amount to interest expense over the term of the debt.  These warrants did not convert as part of themerger transaction.

 

Inexchange for its continued guarantee of a portion of the Company’s bank line ofcredit, on December 1, 2005, Aviza issued warrants to purchase 290,000 sharesof common stock of $31.03 per share to VPVP. The warrants have a term of four years. The warrants were valued using the Black-Scholes option valuation modelusing with the following assumptions:

 
| Stock price               |   | $    | 5.21   |   |
|---------------------------|--------|------|--------|--------|
| Expected  life (in years) |   | 4.0  |   |
| Exercise  price           |   | $    | 31.03  |   |
| Risk-free  interest rate  |   | 4.4  | %      |
| Stock price  volatility   |   | 70.8 | %      |
| Dividend  yield           |   | 0.0  | %      |

 

14

----

 

Based onthe preceding assumptions and the fair value of the related debt, the warrantsissued on December 1, 2005 were valued at $251,000 at December 1, 2005.  The fair value of the warrants will beamortized to interest expense over the remaining term of the bank line ofcredit.

 

The totalamount allocated to the debt associated with the above mentioned warrants, asdetermined using the Black-Scholes option valuation method, was $3.8 million.These amounts are being charged to interest expense on a straight-line basisover the lives of the related loans. The unamortized costs relating to thesecosts is recorded as prepaid expenses and other current assets and other assetsof $1,947,000 and $98,000 at December 30, 2005 and $2,079,000 and $131,000 atSeptember 30, 2005. An aggregate fee of $1,147,000 was paid to lenders forthe revolving line of credit and the property mortgage.

 

Duringthe three-month periods ended December 30, 2005 and December 24, 2004, Avizarecorded $413,000 and $402,000 of expense related to amortization of the debtissuance and warrant costs, respectively. The amortization is recorded in interest expense. Estimated futureamortization of these charges consists of the following (in thousands):

 
| **Fiscal Years Ending** |   |   |   |
|-------------------------|--------|--------|--------|
| September  29, 2006     |   | $      | 1,320  |   |
|                    |   |   |   |
| September  28, 2007     |   | 725    |   |
|                    |   |   |   |
| Total                   |   | $      | 2,045  |   |

 

**7.  Warranty andGuarantees**

 

***Warranty***—The Company accrues for the estimated cost of thewarranty on its systems, which includes the cost of the labor and partsnecessary to repair systems during the warranty period. The amounts recorded inthe warranty accrual are estimated based on actual historical costs incurredand on estimated probable future expenses related to current sales. Thewarranty accrual is spread over the warranty period on a straight-line basis.Systems typically have warranty periods ranging from one to three years. Thecomponents of the warranty accrual are as follows:

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **December 30,**       | ** ** | **December 24,** | ** ** |
| ** **                                                                         | ** ** | **2005**               | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(in thousands)**     | ** ** |
| Beginning warranty accrual                                                         |       | $                      | 13,599     |   | $ | 13,533 |   |
| Additional accruals charged to cost of  sales                                      |       | 1,311                  |       | 2,297 |   |
| Warranty liability assumed in merger                                               |       | 1,386                  |       | — |   |
| Warranty costs incurred                                                            |       | (1,286                 | )          | (1,767 | ) |
| Expirations and change in liability for  pre-existing warranties during the period |       | (1,236                 | )          | — |   |
| Ending warranty accrual                                                            |       | $                      | 13,774     |   | $ | 14,063 |   |

 

***Guarantees***—Inaddition to product warranties, the Company, from time to time, in the normalcourse of business, indemnifies certain customers against third-party claimsthat the Company’s products, when used for their intended purposes, infringethe intellectual property rights of such third party or other claims madeagainst certain parties. It is not possible to determine the maximum potentialamount of liability under these indemnification obligations due to the limitedhistory of prior indemnification claims and the unique facts and circumstancesthat are likely to be involved in each particular claim. Historically, theCompany has not made payments under these obligations and no liabilities havebeen recorded for these obligations on the balance sheet at December 30, 2005and September 30, 2005, respectively.

 

15

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**8.  Commitmentsand Contingencies**

 

TheCompany’s Scotts Valley location is a federal Superfund site. Chlorinatedsolvent and other contamination was identified at the site in the early 1980’s,and by the late 1980’s Watkins Johnson Corporation (“WJ”) (a previous owner ofthe Company) had installed a groundwater extraction and treatment system. In1991, WJ entered into a consent decree with the United States EnvironmentalProtection Agency providing for remediation of the site. In July 1999, WJsigned a remediation agreement with an environmental consulting firm, ARCADISGeraghty and Miller (“ARCADIS”). Pursuant to this remediation agreement, WJpaid approximately $3 million in exchange for which ARCADIS agreed toperform the work necessary to assure satisfactory completion of WJ’s obligationunder the consent decree. The agreement also includes a cost overrun guarantyfrom ARCADIS up to a total project cost of $15 million. In addition, theagreement included procurement of a ten-year, claims-made insurance policy tocover overruns of up to $10 million from American International Specialty(“AIS”), along with a ten-year, claims-made $10 million policy to coverunknown pollution conditions at the site.

 

Failureof WJ, ARCADIS, or AIS to fulfill their obligations may subject the Company tosubstantial fines, and the Company could be forced to suspend production, altermanufacturing processes or cease business operations, any of which could have amaterial negative effect on the sales, income and business operations.

 

Management believes that the likelihood of thefailure of WJ, ARCADIS or AIS is remote and that any remaining or uninsuredenvironmental liabilities will not have a material effect on the Company’sresults of operations or financial position.

 

In the merger transaction, Aviza assumed Trikon’sleases, commitments and contingencies. Trikon leases certain equipment under capital leases.  Trikon also leases its offices, manufacturingfacilities and certain equipment under non-cancelable operating leaseagreements.  Certain leases are subjectto escalation clauses based on applicable inflation indexes.

 

Other than operating leasesfor certain equipment and real assets, Aviza has no significant off-balancesheet transactions or unconditional purchase obligations.

 

As of December 30, 2005,Aviza’s cash obligations and commitments relating to its debt obligations andlease payments were as follows:

 
| ** **                            | ** ** | **Payments due by period** | ** ** |
|---------------------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | ** **                 | ** ** | **Less Than** | ** ** | **One to** | ** ** | **Three to** | ** ** | **Greater than** | ** ** |
| ** **                            | ** ** | **Total**                  | ** ** | **One Year** | ** ** | **Three Years** | ** ** | **Five Years** | ** ** | **Five Years** | ** ** |
| ** **                            | ** ** | **(in thousands)**         | ** ** |
| Bank Loan  (revolving line of credit) |       | $                          | 26,135     |   | $ | 26,135 |   | $ | — |   | $ | — |   | $ | — |   |
| Note Payable                          |       | 6,673                      |       | 280 |   | 6,393 |   | — |   | — |   |
| Other  Short-Term Borrowings          |       | 684                        |       | 684 |   | — |   | — |   | — |   |
| Operating  Lease Obligations          |       | 7,029                      |       | 2,394 |   | 3,263 |   | 1,370 |   | 2 |   |
| Capital  Lease Obligations            |       | 94                         |       | 85 |   | 9 |   | — |   | — |   |
|                                       |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Priorto the merger transaction, Trikon was a party to an employment lawsuit inFrance.  On March 10, 2004Dr. Jihad Kiwan departed Trikon as Director and Chief Executive Officer.On March 29, 2004 and April 2, 2004 Trikon received letters from aUnited Kingdom law firm and from a French law firm respectively, on behalf ofDr. Kiwan, detailing certain monetary claims for severance amounts due toDr. Kiwan with respect to his employment with Trikon. On April 28,2004 Dr. Kiwan filed a lawsuit in France and on June 10, 2004 filedsimilar proceedings in the United Kingdom. Dr. Kiwan has subsequentlywithdrawn the proceedings in the United Kingdom. Trikon and the Company are inthe process of vigorously defending against the French claim. Trikon and theCompany do not believe that the outcome of these claims will be material to theresults of operations or the financial condition of the Company.

 

16

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**9.  GeographicInformation and Major Customers**

 

Aviza’sbusiness consists of multiple products and services which operate in multipleoperational segments that are aggregated into one reportable segment due tosimilar economic characteristics and 1) the nature of the products and servicesbeing the same, 2) the nature of the production processes being the same, 3)the type or class of customer being similar, and 4) the distribution processfor products and services being similar. All products and services are marketedwithin the geographic regions in which the Company operates.

 

The Company operates in three geographical regions:Asia Pacific, Europe and the United States. For geographical reporting,revenues are attributed to the geographical locations in which the customers’facilities are located while long-lived tangible assets are attributed to thegeographic location in which they are located. The following details Companysales and long-lived assets by geographical region:

 
| ** **                        | ** ** | **Quarter Ended**  | ** ** |
|-----------------------------------|------------|--------------------|------------|
| ** **                        | ** ** | **December 30,**   | ** ** | **December 24,** | ** ** |
| ** **                        | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                        | ** ** | **(in thousands)** | ** ** |
| Net sales:                        |       |               |       |   |   |
| Asia Pacific                      |       | $                  | 17,002     |   | $ | 44,013 |   |
| Europe                            |       | 5,629              |       | 15,869 |   |
| United States                     |       | 6,312              |       | 2,637 |   |
| Total net  sales                  |       | $                  | 28,943     |   | $ | 62,519 |   |
|                              |       |               |       |   |   |
| ** **                        | ** ** | **December 30,**   | ** ** | **September 30,** | ** ** |
| ** **                        | ** ** | **2005**           | ** ** | **2005** | ** ** |
| ** **                        | ** ** | **(in thousands)** | ** ** |
| Long-lived  tangible assets:      |       |               |       |   |   |
| Asia Pacific                      |       | $                  | 268        |   | $ | 300 |   |
| Europe                            |       | 2,716              |       | 162 |   |
| United States                     |       | 19,729             |       | 19,107 |   |
| Total  long-lived tangible assets |       | $                  | 22,713     |   | $ | 19,569 |   |

 

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**10.  Comprehensive Loss**

 

Thecomponents of comprehensive loss are as follows:

 
| ** **                       | ** ** | **Quarter Ended**  | ** ** |
|----------------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **December 30,**   | ** ** | **December 24,** | ** ** |
| ** **                       | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                       | ** ** | **(in thousands)** | ** ** |
| Net loss                         |       | $                  | (4,631     | ) | $ | (1,978 | ) |
| Currency  translation adjustment |       | 12                 |       | (227 | ) |
|                             |       |               |       |   |   |
| Total  comprehensive loss        |       | $                  | (4,619     | ) | $ | (2,205 | ) |

 

**11.  Loss Per Share**

 

Basic loss per share has been computed based upon the weighted averagenumber of common shares outstanding for the periods presented. For diluted lossper share, shares used in the per share computation include weighted averagecommon and potentially dilutive shares outstanding. Potentially dilutive sharesduring the quarter ended December 30, 2005, consist of the Company’sSeries B and B-1 preferred stock and shares issuable upon the assumedexercise of dilutive stock options and warrants. During the quarter endedDecember 24, 2004, potentially dilutive shares consisted of the Company’sSeries A preferred stock exercisable into 5.2 million shares of common stockand shares issuable upon the assumed exercise of dilutive stock options.  Because the Company recorded a net lossduring the quarters ended December 30, 2005 and December 24, 2004, thecalculation of dilutive loss per share excludes potentially dilutive shares asthey were anti-dilutive and would have reduced the loss per share.  The following details the calculation of netloss per share for the periods presented (in thousands except share and pershare data):

 
| ** **                                      | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **December 30,**  | ** ** | **December 24,** | ** ** |
| ** **                                      | ** ** | **2005**          | ** ** | **2004** | ** ** |
| Numerator:                                      |       |              |       |   |   |
| Net loss                                        |       | $                 | (4,631     | ) | $ | (1,978 | ) |
|                                            |       |              |       |   |   |
| Denominator:                                    |       |              |       |   |   |
| Weighted average shares, basic                  |       | 3,717,898         |       | 249,637 |   |
| Dilutive effect of options and preferred  stock |       | —            |       | — |   |
| Total  diluted                                  |       | 3,717,898         |       | 249,637 |   |
|                                            |       |              |       |   |   |
| Basic and  diluted net loss per share           |       | $                 | (1.25      | ) | $ | (7.92 | ) |

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**Cautionary Statement Regarding Forward-LookingStatements**

 

*The statements in this report include forward-lookingstatements. These forward-looking statements are based on our management’scurrent expectations and beliefs and involve numerous risks and uncertaintiesthat could cause actual results to differ materially from expectations. Youshould not rely upon these forward-looking statements as predictions of futureevents because we cannot assure you that the events or circumstances reflectedin these statements will be achieved or will occur. You can identifyforward-looking statements by the use of forward-looking terminology, includingthe words “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,”“estimates” or “anticipates” or the negative of these words and phrases orother variations of these words and phrases or comparable terminology. Theseforward-looking statements relate to, among other things: our sales, results ofoperations and anticipated cash flows; capital expenditures; depreciation andamortization expenses; research and development expenses; sales, general andadministrative expenses; the development and timing of the introduction of newproducts and technologies; our ability to maintain and develop relationshipswith our existing and potential future customers and our ability to maintainthe level of investment in research and development and capacity that isrequired to remain competitive.  Many factors could cause our actualresults to differ materially from those projected in these forward-lookingstatements, including, but not limited to: whether we will be able to integrateTrikon’s business successfully and achieve anticipated synergies; variabilityof our revenues and financial performance; risks associated with productdevelopment and technological changes; the acceptance of our products in themarketplace by existing and potential future customers; disruption ofoperations or increases in expenses caused by civil or political unrest orother catastrophic events; general economic conditions and conditions in thesemiconductor industry in particular; the continued employment of our keypersonnel and risks associated with competition.*

 

*For a discussion of the factors that could cause actualresults to differ materially from the forward-looking statements, see the “RiskFactors” set forth in Item 1A of Part II of this report, the “Liquidityand Capital Resources” section under “Management’s Discussion and Analysisof Financial Condition and Results of Operations” in this item of  this report and the other risks anduncertainties that are set forth elsewhere in this report or detailed in ourother Securities and Exchange Commission reports and filings. We assume noobligation to update these forward-looking statements.*

 

The following discussion and analysis of thefinancial condition and results of operations of Aviza should be read togetherwith the condensed consolidated financial statements of Aviza and related notesthat are included elsewhere in this report and the consolidated financialstatements and related notes included in our Annual Report on Form 10-K for thefiscal year ended September 30, 2005.

 

**Overview**

 

AvizaTechnology, Inc. (“Aviza”), formerly New Athletics, Inc. was incorporated in2004 for the purpose of effecting the merger of Aviza, Inc., formerly AvizaTechnology, Inc., and Trikon Technologies, Inc. The financial condition, results of operations and changes in cash flowsfor periods prior to December 1, 2005 presented in the condensed consolidatedfinancial statements included in this report represent the activities of Aviza,Inc.

 

On December 1, 2005, Aviza completed its consolidation through mergerwith Trikon Technologies, Inc.  Aviza’scommon stock became publicly traded on the Nasdaq National Market under thesymbol “AVZA” upon the completion of the merger.  Aviza accounted for the merger transaction asa purchase of Trikon by Aviza, using the purchase method of accounting.  As a result of the completion of the mergertransaction, Aviza’s results of operations will include Trikon’s results ofoperations for all periods after December 1, 2005.  We believe that the combined product lines ofAviza and Trikon will present a more competitive suite of products to customersin the semiconductor industry.

 

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Aviza develops, manufactures, markets andservices integrated circuit fabrication process equipment for the globalsemiconductor, compound semiconductor, nanotechnology and other relatedindustries.  Customers for these productsinclude wafer manufacturers and semiconductor integrated circuit, or IC,manufacturers, who either use the ICs for their own captive products or sellthem to other companies. Aviza’s equipment is primarily used by ICmanufacturers in the beginning of the semiconductor manufacturing process, commonlyknown as front end of line, or FEOL, manufacturing. Aviza has developed avariety of distinct product lines, including thermal processing furnaces,atomic layer deposition, or ALD, low-pressure chemical vapor deposition, orLPCVD, and atmospheric pressure chemical vapor deposition, or APCVD, products.To date, more than 2,500 Aviza systems have been installed worldwide.

 

As part of its focus on the ALD market, Avizaacquired a license agreement with another semiconductor equipment company underwhich it distributed single wafer ALD products manufactured by thelicensor.  As a result of a disagreementas to interpretation of the rights of the parties under the license agreementand how best to approach the ALD market, the parties agreed in May 2004, as subsequentlyamended, to terminate the license agreement and that Aviza would not ship anysuch products after December 31, 2005. As a result, Aviza will notrecognize any revenue attributable to these products after December 31,2005, other than the remaining contractual revenue attributable to productspreviously shipped. Aviza recognized net sales of $2.9 million, $7.6 millionand $21.6 million attributable to these products in the fiscal quarters endedDecember 30, 2005 and December 24, 2004 and the fiscal year ended September 30,2005, respectively. Aviza is currently in the process of developing its ownproducts to address the ALD market.

 

Aviza’scustomers are primarily IC manufacturers. The semiconductor industry iscyclical and has experienced significant fluctuations, and Aviza’s revenue isimpacted by these broad industry trends. Moreover, Aviza has a highlyconcentrated customer base.

 

Aviza is often required to develop productsin advance of its customers’ demand for those products, and Aviza undertakessignificant product development efforts in advance of any of its customersexpressly indicating demand for Aviza’s products. Aviza’s product developmentefforts typically span six months to two years.

 

As a result of the length of Aviza’s salescycles, Aviza’s net sales for any period are generally weighted toward productsthat Aviza had introduced for sale in prior years. For purposes of revenuerecognition, Aviza classifies its products into two categories, “proventechnology” and “new technology.” Proven technology systems are those systemswith respect to which Aviza has a history of successful installations within areasonable time frame of delivery and the costs to complete installation do notvary materially from one instance to another. New technology systems are thosesystems with respect to which Aviza cannot demonstrate that it can meet theprovisions of customer acceptance at the time of shipment.

 

Aviza typically sells equipment andinstallation services as a bundled arrangement. In accordance with EITF 00-21, Revenue Arrangements with MultipleDeliverables, the fair value of installation is determined as the price Avizacharges for similar installation services provided to its customers withoutregard to the warranty provisions. Upon shipment of Aviza’s proven technology,Aviza records revenue upon shipment at the lesser of (i) the residualamount after deducting the fair value of undelivered services from thecontractual value or (ii) the non-contingent amount. The remainingcontractual revenue is recorded upon successful installation of the product.Cost of the equipment relating to proven technology is recorded upon shipment.To the extent a loss is calculated on shipment due to the foregoing deferral ofrevenue, a portion of the cost is also deferred to reflect zero gross profit atthe time of shipment. The residual revenue, deferred costs and installationcosts are recorded upon successful installation of the product. Revenue andcost of equipment relating to new technology is deferred until installation andacceptance at the customer’s premises is completed.

 

The result of these accounting policies isthat for new technology, Aviza’s recognition of both revenue and cost of goodssold is delayed until customer acceptance, at which time both revenue and costof goods sold are recognized in full in determining Aviza’s gross margin.However, for proven technology, Aviza’s cost of goods sold may be recognized infull upon shipment, but recognition of a portion of Aviza’s revenue is delayeduntil successful installation of the product. This can result in diminishedgross margins at the time of shipment.

 

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Aviza intends to pursue strategicacquisitions of other semiconductor equipment companies and other complementarytechnologies that it believes will enable it to expand its product offerings inthe IC fabrication equipment market.

 

## **Critical Accounting Policies**

 

Aviza’s discussion and analysis of itsfinancial condition and results of operations is based on Aviza’s consolidatedfinancial statements that have been prepared in accordance with accountingprinciples generally accepted in the United States of America. The preparationof these financial statements requires Aviza to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenue and expenses.Aviza bases its estimates on historical experience and on various otherassumptions that it believes to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions orconditions.

 

Aviza believes that the following criticalaccounting policies affect its more significant judgments used in thepreparation of its consolidated financial statements:

 

***Acquisitionof Trikon Technologies, Inc.***

 

In connection with Aviza’s acquisition of the business of Trikon, Avizaallocated the purchase price associated with the acquisition to the tangibleand intangible assets acquired and liabilities assumed based on their estimatedfair values. The valuations of these intangible assets required Aviza to makesignificant estimates and assumptions.

 

The critical estimates Aviza used inallocating the purchase price included future expected cash flows from customercontracts, distribution agreements and acquired developed technologies, as wellas assumptions about the periods of time the products would continue to be usedin Aviza’s product portfolio. Aviza’s estimates of fair value at the time theywere made were based upon assumptions that Aviza believed to be reasonable, butwhich are inherently uncertain and unpredictable.

 

#### ***Revenue Recognition***

 

Aviza recognizes revenue in accordance withSAB 104. SAB 104 requires that four basic criteria must be met before revenuecan be recognized: (1) persuasive evidence of an arrangement exists;(2) delivery has occurred or services have been rendered; (3) theprice is fixed or determinable; and (4) collectibility is reasonablyassured. Determination of criteria for items (3) and (4) above isbased on Aviza’s judgment regarding the fixed nature of the amounts charged forthe products delivered and the collectibility of those amounts.

 

For purposes of revenue recognition, Avizaclassifies its products into two categories, “proven technology” and “newtechnology.” Proven technology with respect to a single customer means thatAviza has a history of at least three successful installations within areasonable time frame of delivery to that customer and the costs to completeinstallation for that customer do not vary materially from one instance toanother. A given product becomes proven technology for all of Aviza’s customerswhen Aviza has successfully installed the product within a reasonable timeframe of delivery for at least three different customers and the costs tocomplete installation do not vary materially from one instance to another. Newtechnology systems are those systems with respect to which Aviza cannotdemonstrate that it can meet the provisions of customer acceptance at the timeof shipment.

 

Aviza typically sells equipment andinstallation services as a bundled arrangement. The fair value of installationis determined as the price Aviza charges for similar services provided to itscustomers without regard to the warranty provisions. Upon shipment of Aviza’sproven technology, Aviza records revenue upon shipment at the lesser of(i) the residual amount after deducting the fair value of undeliveredservices from the contractual value or (ii) the non-contingentamount. The remaining contractual revenue is recorded upon successfulinstallation of the product. Cost of the equipment relating to proventechnology is recorded upon shipment. To the extent a loss is calculated onshipment due to the foregoing deferral of revenue, a portion of

 

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the cost is also deferred to reflect zerogross profit at the time of shipment. The residual revenue, deferred costs andinstallation costs are recorded upon successful installation of the product.

 

Revenue on new technology is deferred untilinstallation and acceptance at the customer’s premises is completed, as thesesales do not meet the provisions of customer acceptance at the time of shipmentunder SAB 104 until this occurs. Cost of the equipment relating to newtechnology is also recorded upon customer acceptance. Upon the transition of aproduct from new technology to proven technology, Aviza accounts for theproduct as proven technology from that point forward.

 

Revenue from services is recognized as theservices are performed. Revenue from prepaid service contracts is recognizedratably over the life of the contract. Revenue from spare parts is recordedupon shipment.

 

Aviza assesses collectibility based on thecreditworthiness of its customers and past transaction history. Aviza performsongoing credit evaluations of its customers. In addition, Aviza requirescollateral from certain of its customers in the form of letters of credit.Aviza has not experienced significant collection losses in the past. However, asignificant change in the liquidity or financial position of any one of Aviza’scustomers, especially one or more of Aviza’s most significant customers, couldmake it more difficult for Aviza to assess creditworthiness, which could resultin a financial loss to Aviza.

 

***Stock-BasedCompensation***

 

Effective October 1, 2005, Aviza adopted theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-BasedPayment” (“SFAS 123(R)”).  SFAS 123(R)establishes standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services.  It also addresses transactions in which anentity incurs liabilities in exchange for goods or services that are based onthe fair value of the entity’s equity instruments or that may be settled by theissuance of those equity instruments. Accordingly, stock-based compensation cost is measured at grant date,based on the fair value of the award, and is recognized as expense over theemployee’s requisite service period.  Themeasurement of stock-based compensation cost is based on several criteriaincluding, but not limited to, the valuation model used and associated inputfactors such as expected term of the award, stock price volatility, dividendrate, risk-free interest rate, and award cancellation rate.  The input factors to use in the valuationmodel are based on subjective future expectations combined with managementjudgment.  If there is a differencebetween the assumptions used in determining stock-based compensation costs andthe actual factors which become known over time, Aviza may change the input factorsused in determining stock-based compensation costs.  These changes may materially impact Aviza’sresults of operations in the period such changes are made.

 

#### ***Inventory Valuation***

 

Aviza assesses the recoverability of itsinventory at the end of each quarter based on assumptions about customer demandand market conditions. Obsolete inventory or inventory in excess of Aviza’sestimated usage is written down to its estimated market value less costs tosell. The inventory write-downs are recorded as an inventory valuationallowance established on the basis of obsolete inventory or specificallyidentified inventory in excess of established usage. Inherent in Aviza’sestimates of market value in determining inventory valuation are estimatesrelated to economic trends, future demand for its products and technologicalobsolescence of its products. If actual market conditions are less favorablethan Aviza’s projections, Aviza may be required to write down additionalinventory.

 

***Warranty***

 

Aviza accrues for the estimated cost of thewarranty on its systems as cost of goods sold, which includes the cost of thelabor and parts necessary to repair systems during the warranty period. Theamounts recorded in the warranty accrual are estimated based on actualhistorical expenses incurred and on estimated probable future expenses relatedto Aviza’s current sales. The warranty service is generally incurred ratablyover the warranty period, therefore, the warranty accrual is spread over thewarranty period on a straight-line basis. Aviza’s systems typically havewarranty periods ranging from one to three years. Aviza’s actual warranty costsin the future may vary from Aviza’s historical warranty costs, which couldresult in adjustments to Aviza’s warranty reserves in future periods.

 

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#### ***Income Taxes***

 

As part of the process of preparing itsfinancial statements, Aviza is required to estimate its income tax provision(benefit) in each of the jurisdictions in which it operates. This processrequires Aviza to estimate its current income tax provision (benefit) andassess temporary differences resulting from differing treatment of items fortax and accounting purposes. These differences result in deferred tax assetsand liabilities, which are included in Aviza’s balance sheet.

 

Aviza records a valuation allowance to reduceits deferred tax assets to the amount that is more likely than not to berealized. While Aviza has considered future taxable income and any ongoingprudent and feasible tax planning strategies in assessing the need for thevaluation allowance, if Aviza were to determine that it would be able torealize its deferred tax assets in the future in excess of its net recordedamount, an adjustment to the deferred tax asset would increase income in theperiod such determination was made. Likewise, if Aviza were to determine thatit would not be able to realize all or part of a net deferred tax asset in thefuture, an adjustment to the deferred tax asset would be charged to income inthe period such determination was made. As of December 30, 2005, Aviza had afull valuation allowance for its net deferred tax assets.

 

***Results of Operations***

 

Thefinancial information in the table below is for the quarters ended December 30,2005 and December 24, 2004.

 
| ** **                                | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **December 30,**  | ** ** | **December 24,** | ** ** |
| ** **                                | ** ** | **2005**          | ** ** | **2004** | ** ** |
| Net sales                                 |       | 100               | %          | 100 | % |
| Cost of  goods sold                       |       | 75                | %          | 89 | % |
| Gross profit                              |       | 25                | %          | 11 | % |
| Operating  expenses:                      |       |              |       |   |   |
| Research and development costs            |       | 16                | %          | 7 | % |
| Selling, general and administrative costs |       | 18                | %          | 6 | % |
| In-process research and development       |       | 1                 | %          | — |   |
| Total operating expenses                  |       | 35                | %          | 13 | % |
| Loss from  operations                     |       | (10               | )%         | (2 | )% |
| Other income  (expense):                  |       |              |       |   |   |
| Interest income                           |       | 0                 | %          | 0 | % |
| Interest expense                          |       | (5                | )%         | (1 | )% |
| Other income (expense), net               |       | (1                | )%         | 0 | % |
| Total other income (expense)              |       | (6                | )%         | (1 | )% |
| Loss before  income taxes                 |       | (16               | )%         | (3 | )% |
| Income taxes                              |       | 0                 | %          | 0 | % |
| Net loss                                  |       | (16               | )%         | (3 | )% |

 

***NetSales***

 

Net sales consist of revenue recognized uponshipment or installation of proven technology and upon acceptance for newtechnology. In addition, spare parts sales are recognized upon shipment.Service revenue is recognized upon completion of the service activity orratably over the term of the service contract.

 

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| ** ** | ** ** | **Quarter Ended**  | ** ** |
|------------|------------|--------------------|------------|
| ** ** | ** ** | **December 30,**   | ** ** | **December 24,** | ** ** |
| ** ** | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** ** | ** ** | **(in thousands)** | ** ** |
| Net sales  |       | $                  | 28,943     |   | $ | 62,519 |   |
|            |            |                    |            |  |  |  |  |

 

Net sales for the quarter endedDecember 30, 2005 decreased by $33.6 million, or 54%, from the quarter endedDecember 24, 2004. Decrease in net sales from quarter to quarter was primarilydue to the change in status of Aviza’s RVP-300 and ALD products from “new” to “proven”technology during the quarter ended December 24, 2004, which resulted inrecognition of $29.3 million of revenue on previously shipped “new”technology.  The change in status was dueto sufficient customer acceptances of these products in accordance with Aviza’srevenue recognition policy. Approximately $2.7 million of the decline was due to a 15% decrease inunit shipments from quarter to quarter. Spares and service revenues decreased by 21% from the quarter endedDecember 24, 2004 due to the timing of sales in the prior quarter and lowercustomer demand for older legacy spare parts. In addition, Aviza had a $0.9 million one-time sale of spare partsassociated with a discontinued product line during the quarter ended December24, 2004.

 

The operations of the mergedTrikon subsidiary contributed approximately $0.6 million in revenue for theperiod from merger through the end of the quarter.

 

Aviza’s net sales for fiscal2006 may be adversely affected by Aviza’s inability to sell certain ALDproducts.  As a result of a disagreementas to the interpretation of the rights of the parties to a license agreementbetween Aviza and another semiconductor equipment company, under which Avizadistributed single wafer ALD products manufactured by the licensor, the partiesagreed to terminate the license agreement and Aviza would not ship any suchproducts subsequent to December 31, 2005. As a result, Aviza will not recognize any revenue attributable to theseproducts after December 31, 2005 other than the remaining contractual revenueattributable to products previously shipped. Aviza recognized net sales of $2.9 million, $7.6 million and $21.6million attributable to these products in the fiscal quarters ended December30, 2005 and December 24, 2004 and the fiscal year ended September 30, 2005,respectively.  Aviza is currently in theprocess of developing its own products to address the ALD market.

 

#### ***Gross Profit and Gross Margin***

 

Gross profit is the differencebetween net sales and cost of goods sold. Cost of goods sold consists ofpurchased material, labor and overhead to manufacture equipment or spare partsand the cost of service and factory and field support to customers forwarranty, installation and paid service calls. In addition, the cost ofoutsourcing the assembly or manufacturing of systems and subsystems to thirdparties is included in cost of goods sold. Gross margin is gross profit as apercentage of net sales.

 
| ** **   | ** ** | **Quarter Ended**          | ** ** |
|--------------|------------|----------------------------|------------|
| ** **   | ** ** | **December 30,**           | ** ** | **December 24,** | ** ** |
| ** **   | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| ** **   | ** ** | **(dollars in thousands)** | ** ** |
| Gross profit |       | $                          | 7,135      |   | $ | 6,715 |   |
| Gross margin |       | 25                         | %          | 11 | % |
|              |            |                            |            |  |  |  |  |

 

Theincrease in gross profit of $0.4 million, or 6%, for the quarter ended December30, 2005 versus the quarter ended December 24, 2004 was primarily a result ofhigher average selling prices on the RVP-300 product line, improvements inRVP-300 product line configurations, higher gross margins recognized on agreater number of product installations, and increased gross margins generatedby a change in product mix with a larger proportion of shipments relating toAviza’s older product lines (AVP, APCVD and VTR).  These increases were offset slightly by lowergross margins on spare parts and service sales and under-absorption ofmanufacturing costs in Trikon during December 2005.  The reduction in service gross marginsrelated primarily to the sale of $0.9 million of inventory in the quarter endedDecember 24, 2004 that had been previously written down.

 

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Avizarecords revenue upon shipment at the lesser of (i) the residual amount afterdeducting the fair value of undelivered services from the contractual value or(ii) the non-contingent amount, and only records the remaining contractualrevenue upon successful installation of the product.  During the quarter ended December 24, 2004,the Company’s RVP-300 and ALD products became “proven” technology.  Approximately $29.3 million in revenuerecognized on “proven” technology in that quarter related to systems shippedduring previous quarters as “new” technology. While this resulted in higher net sales for the quarter ended December24, 2004 compared to the quarter ended December 30, 2005, the gross marginattributable to this revenue was less than 10%, which resulted in lower grossmargins during the quarter ended December 24, 2004.

 

#### ***Research and Development***

 

Research and development expense consists ofemployment costs attributable to employees, consultants and contractors whoprimarily spend their time on product design, engineering and processdevelopment; materials and supplies used in product prototyping, includingwafers, chemicals and process gases; depreciation and amortization expenseallocable to research and development activities and facilities; direct chargesfor repairs to research equipment and laboratories; and costs of outsideservices for facilities, process engineering support and wafer analyticalservices. Aviza also includes in research and development expenses associatedwith the preparation, filing and prosecution of patents and other intellectualproperty.

 
| ** **                      | ** ** | **Quarter Ended**          | ** ** |
|---------------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **December 30,**           | ** ** | **December 24,** | ** ** |
| ** **                      | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| ** **                      | ** ** | **(dollars in thousands)** | ** ** |
| Research and  development costs |       | $                          | 4,643      |   | $ | 4,251 |   |
| Percent of  total revenue       |       | 16                         | %          | 7 | % |
|                                 |            |                            |            |  |  |  |  |

 

Theincrease in research and development costs was due primarily to $500,000 incosts incurred by Trikon subsequent to the merger transaction on December 1,2005. While spending by Former Aviza on research and development remainedrelatively constant from quarter to quarter, the distribution of the costs andexpenses during the quarter ended December 30, 2005 was directed more towardadvancement of Aviza’s ALD and variable batch thermal programs than during theprior period.

 

***Selling,General and Administrative***

 

Selling, general and administrative expenseconsists of employment costs attributable to employees, consultants andcontractors who primarily spend their time on sales, marketing and orderadministration and corporate administrative services; occupancy costs attributableto employees performing these functions; sales commissions; promotionalmarketing expenses; and legal and accounting expenses.

 
| ** **                                 | ** ** | **Quarter Ended**          | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **December 30,**           | ** ** | **December 24,** | ** ** |
| ** **                                 | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **(dollars in thousands)** | ** ** |
| Selling,  general and administrative costs |       | $                          | 5,115      |   | $ | 3,469 |   |
| Percent of  net sales                      |       | 18                         | %          | 6 | % |
|                                            |            |                            |            |  |  |  |  |

 

Theincrease in selling, general and administrative expenses in the quarter endedDecember 30, 2005 over the quarter ended December 24, 2004 was due primarily to$750,000 of expenses incurred in connection with the merger with Trikon, whichcontributed to an increase in sales commissions to third party representativesand the difference between foreign currency exchange losses of $208,000 for theDecember 2005 quarter as compared to a foreign currency exchange gains of$552,000 during the December 2004 quarter. These increases were partially offset by lower employee compensationcosts due to cost control measures implemented during the quarter.

 

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***In-process Research and Development***

 
| ** **                           | ** ** | **December 30,**           | ** ** | **December 24,** | ** ** |
|--------------------------------------|------------|----------------------------|------------|------------------|------------|
| ** **                           | ** ** | **2005**                   | ** ** | **2004**         | ** ** |
| ** **                           | ** ** | **(dollars in thousands)** | ** ** |
| In-process  research and development |       | $                          | 393        |             | $          | — |   |
| Percent of  net sales                |       | 1                          | %          | —           |       |
|                                      |            |                            |            |                  |            |  |  |

 

Inprocess research and development increased $393,000 as a result of theacquisition merger transaction with Trikon and represents the write-off oftechnology that had not yet reached technological feasibility.

 

#### ***Interest Expense***

 
| ** **            | ** ** | **December 30,**           | ** ** | **December 24,** | ** ** |
|-----------------------|------------|----------------------------|------------|------------------|------------|
| ** **            | ** ** | **2005**                   | ** ** | **2004**         | ** ** |
| ** **            | ** ** | **(dollars in thousands)** | ** ** |
| Interest  expense     |       | $                          | 1,386      |             | $          | 840 |   |
| Percent of  net sales |       | 5                          | %          | 1                | %          |
|                       |            |                            |            |                  |            |  |  |

 

Aviza’sinterest expense for the quarters ended December 30, 2005 and December 24, 2004consisted primarily of interest incurred on its revolving lines of credit, itsother line of credit, which is secured by a mortgage on Aviza’s land andbuildings, amortization of debt issue costs on its lines of credit andamortization of the fair value of the warrants issued to affiliates ofVantagePoint Venture Partners, or VPVP, in consideration for VPVP’s agreementto guarantee a portion of Aviza’s revolving line of credit.  Aviza’s aggregate borrowings under itsrevolving lines of credit and mortgage line of credit were $32.8 million as ofDecember 30, 2005 and $34.5 million as of December 24, 2004.  Aviza recorded amortization of debt issuancecosts and the fair value of warrants of $413,000 and $402,000 during thequarters ended December 30, 2005 and December 24, 2004, respectively.

 

During thequarter ended December 31, 2005 dividends earned of $220,000 on the mandatorilyredeemable preferred Series B and B-1 stock was charged to interestexpense.  There was no charge fordividends to interest expense in the quarter ended December 24, 2004.

 

#### ***Income Taxes***

 

Because Aviza has incurred significantoperating losses, no material federal or state income taxes have been recorded.Aviza recorded income taxes relating to certain profitable international subsidiaries.

 

## **Liquidity and Capital Resources**

 

At Aviza’s inception, affiliatesof VPVP funded Aviza with a cash investment of $32.7 million to acquirethe business from ASML and to fund Aviza’s initial operations. Since then,Aviza has funded its operations through borrowings under its revolving line ofcredit and its mortgage line of credit as well as from the proceeds of theissuance of preferred stock. As of December 30, 2005, Aviza had $13.9 millionavailable for additional borrowings under its revolving credit facility,subject to certain conditions, and $5.0 million available for additionalborrowings under its mortgage line of credit, subject to Aviza’s ability tomeet certain financial or property zoning criteria.

 

At December 30, 2005, Aviza’s cash and cashequivalents were $10.3 million as compared to $7.4 million at September30, 2005.

 

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At September 30, 2005, Aviza was in violationof the debt covenants under its revolving line of credit with Bank of America.Based on VPVP’s guarantee that it would not require reimbursement from Avizaprior to September 30, 2006 should VPVP be required to make any paymentunder the guarantee, as of December 1, 2005, Bank of America waived Aviza’s non-complianceunder the agreement at September 30, 2005, in the fourth amendment to therevolving credit facility.  The amendmentto the credit facility included revision of the covenants.

 

***Cash Flows fromOperating Activities***

 

Aviza’s cash provided by operating activitieswas $9.2 million for the quarter ended December 30, 2005.  This consisted primarily of cash used to fundnet losses of $4.6 million, which was offset in part by non-cash expenseadjustments (depreciation, amortization, bad debt, common stock warrants, preferredstock dividend and stock-based compensation) aggregating $2.2 million. Netchanges in assets and liabilities during the quarter ended December 30, 2005provided $11.6 million of cash.  Thisincrease in cash was provided by decreases of accounts receivable, inventory,and prepaid and other assets of $8.2 million, $1.0 million and $4.2 million,respectively.  This increase in cash wasreduced by a net decrease in accounts payable, warranty liability and accruedliabilities of $1.8 million.

 

Aviza’s cash used in operatingactivities for the quarter ended December 24, 2004 was $10.4 million.  This consisted primarily of cash used to fundnet losses of $2.0 million, which was offset in part by depreciation andamortization aggregating $0.9 million. Net changes in assets and liabilitiesduring the quarter ended December 24, 2004 used $9.3 million of cash.Approximately $5.9 million of cash was used to fund increased accountsreceivable, $3.3 million to fund prepaid and other assets, $1.6 million to funda reduction in accounts payable and $1.9 million to fund reductions in theaccrued liabilities. These increases were partially offset by a decrease ininventories of $3.1 million and a decrease in the warranty accrual of $0.3million.

 

***Cash Flows fromInvesting Activities***

 

Aviza’s cash provided by investing activitiesfor the quarter ended December 30, 2005 was $5.9 million. This consisted of$13.4 million provided by Trikon from the merger transaction which was reducedby direct merger costs of $6.0 million incurred by Aviza.  Cash of $1.5 million was used primarily topurchase equipment used in Aviza’s development and demonstration laboratories.

 

Aviza’s cash used in investing activities forthe quarter ended December 24, 2004 was $755,000 and was used entirely topurchase property and equipment.

 

#### ***Cash Flows from Financing Activities***

 

Aviza’s net cash used in financing activitiesfor the quarter ended December 30, 2005 was $12.3 million.  Aviza used $3.6 million of cash to reduce netbank borrowings under its revolving line of credit.  On December 30, 2005, Trikon repaid in full$8.7 million under its bank credit facility. The facility expired on December 31, 2005.

 

Aviza’s cash provided by financing activitiesfor the quarter ended December 24, 2004 was approximately $7.1 million.  This consisted of approximately $7.1 millionin net borrowings under Aviza’s revolving line of credit, partially offset bypayments on its mortgage line of credit.

 

At December 30, 2005, Aviza has a revolvingline of credit which consists of a $20.0 million revolving credit facilitythat is guaranteed by affiliates of VPVP and a separate revolving creditfacility that provides for borrowings up to $20.0 million based upon adefined borrowing base. The borrowings under Aviza’s revolving line of creditaccrue interest at a rate of the bank’s prime rate plus a margin of 0.50%, ofwhich $10.0 million is subject to an interest rate cap of 8.25%, which ispayable monthly. Aviza’s revolving line of credit has a stated maturity ofAugust 11, 2007. Aviza’s outstanding borrowings under its revolving lineof credit were $26.1 million at December 30, 2005 and $30.4 million atSeptember 30, 2005.

 

At December 30, 2005, Aviza has a$12.0 million line of credit secured by a mortgage on its land and buildings.The borrowings under Aviza’s mortgage line of credit accrue interest at a rateof LIBOR plus a

 

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margin of 5.25%, of which $7.0 millionis subject to a LIBOR rate capped at 6.75%, and is repayable in monthlyprincipal installments of $23,333 plus interest. Aviza’s mortgage line ofcredit matures on September 30, 2007. Outstanding borrowings under Aviza’smortgage line of credit were $6.7 million as of both December 30, 2005 andSeptember 30, 2005.  The remainingavailability of $5.0 million, which does not increase to reflectrepayments under the terms of Aviza’s mortgage line of credit, may be availablein the future if Aviza meets certain financial or property zoning criteria.

 

Aviza currently anticipates that it will needto preserve its existing lines of credit and raise additional capital to fundits expansion plans over the course of the next 12 months.

 

## **Off-Balance Sheet Arrangements**

 

As of December 30, 2005, Aviza had nooff-balance sheet arrangements as defined in Item 303(a)(4) ofRegulation S-K promulgated by the Securities and Exchange Commission.

 

## **Contractual Obligations**

 

Other than operating leases for certainequipment and real estate, Aviza has no significant off-balance sheet transactionsor unconditional purchase obligations. See Note 8 of the Condensed Consolidated Financial Statements for atable of Aviza’s cash obligations and commitments relating to its debtobligations and lease payments as of December 30, 2005.

 

## **Recent Accounting Pronouncements**

 

EffectiveOctober 1, 2005, the Company adopted the provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) establishes accounting forstock-based awards exchanged for employee services.  Accordingly, stock-based compensation cost ismeasured at grant date, based on the fair value of the award, and is recognizedas an expense over the employee’s requisite service period.  The Company previously applied Accounting PrinciplesBoard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” andrelated Interpretations and provided the pro forma disclosures of SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”).  The Company elected to adopt the modifiedprospective application method as provided by SFAS 123(R), and, accordingly,the Company recorded compensation costs as the requisite service rendered forthe unvested portion of previously issued awards that remain outstanding at theinitial date of adoption and any awards issued, modified, repurchased, orcancelled after the effective date of SFAS 123(R).  Under the modified prospective transitionmethod, results for prior periods are not restated.  See Note 3 to the Condensed Consolidated FinancialStatements for additional disclosures.

 

In May 2003, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 150, *Accounting for CertainInstruments with Characteristics of both Liabilities and Equity.*SFASNo. 150 clarifies the accounting for certain financial instruments withcharacteristics of both liabilities and equity and requires that thoseinstruments be classified as liabilities in statements of financial position.Previously, many of those financial instruments were classified as equity. SFASNo. 150 is effective for financial instruments entered into or modifiedafter December 15, 2003 and otherwise is effective at the beginning of thefirst interim period beginning after June 15, 2003. The adoption of SFASNo. 150 did not have a significant impact on Aviza’s financial statements.

 

In November 2004, the FASB issued SFASNo. 151, *Inventory Costs, an Amendmentof ARB No. 43, Chapter 4* (“SFAS 151”). The amendments madeby SFAS 151 are intended to improve financial reporting by clarifying thatabnormal amounts of idle facility expense, freight, handling costs and wastedmaterials (spoilage) should be recognized as current-period charges andby requiring the allocation of fixed production overheads to inventory based onthe normal capacity of the production facilities. The guidance is effective forinventory costs incurred during fiscal years beginning after June 15,2005. Earlier application is permitted for inventory costs incurred duringfiscal years beginning after November 23, 2004.  The provisions of SFAS 151 willbe applied prospectively. Aviza’s historical treatment of inventory costs isconsistent with SFAS 151, and therefore adoption of SFAS 151 did not have aneffect on its consolidated financial statements.

 

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In March 2005, the FASB issued FIN 47, *Accounting for Conditional Asset RetirementObligations, an Interpretation of FASB Statement No. 143* (“FIN 47”).FIN 47 clarifies that the term “conditional asset retirement obligation”as used in FASB Statement No. 143, refers to a legal obligation to performan asset retirement activity in which the timing and (or) method of settlementare conditioned on a future event that may or may not be within the control ofthe entity. An entity is required to recognize a liability for the fair valueof a “conditional asset retirement obligation” if the fair value of theliability can be reasonably estimated. This interpretation also clarifies whenan entity would have sufficient information to reasonably estimate the fairvalue of a “conditional asset retirement obligation.” FIN 47 is effectiveno later than the end of fiscal years ending after December 15, 2005.Aviza does not believe the adoption of this interpretation will have an impacton its results of operations.

 

**ITEM 3.    QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

Forquantitative and qualitative disclosures about market risk currently affectingAviza, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk”included in our Annual Report on Form 10-K for the fiscal year ended September30, 2005.  The Company’s exposure tomarket risk has not changed materially since September 30, 2005.

 

**ITEM 4.    CONTROLS AND PROCEDURES**

 

***Disclosure Controls and Procedures***

 

Avizamaintains disclosure controls and procedures that are designed with theobjective of providing reasonable assurance that information required to bedisclosed in its Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to its management,including its Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating its disclosure controls and procedures, managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management is required to apply its judgment inevaluating the cost-benefit relationship of possible controls and procedures.

 

As of December30, 2005, the end of the period covered by this report, based on the evaluationof the Chief Executive Officer and Chief Financial Officer of the effectivenessof the design and operation of its disclosure controls and procedures, theChief Executive Officer and Chief Financial Officer concluded that Aviza’sdisclosure controls and procedures were effective at the reasonable assurancelevel.

 

***Changes in Internal Control Over FinancialReporting***

 

There has been no change in Aviza’s internalcontrol over financial reporting during the first quarter of fiscal 2006 thathas materially affected, or is reasonably likely to materially affect, itsinternal control over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

None.

 

**ITEM1A.  RISK FACTORS**

 

Thereare no material changes to the risk factors described in the section entitled “RiskFactors” in Item 1A in Part I of our Annual Report on Form 10-K for the fiscalyear ended September 30, 2005.

 

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***Avizawill need to raise capital in order to support its operations******and expansion plans,which capital may not be available on terms acceptable to Aviza, or at all.***

 

As of December 30, 2005, Aviza had cash andcash equivalents of approximately $10.3 million and short-term debt ofapproximately $27.2 million. As a result, Aviza will need to raise capital fromthe sale of debt or equity securities or other sources in order to support itsoperations and expansion plans. Aviza may not be able to obtain this capital onacceptable terms, or at all. If Aviza issues additional equity or convertibledebt securities to raise this capital, current stockholders’ percentageownership of Aviza will be reduced, and they may experience significantdilution. In addition, new investors in Aviza may demand rights, preferences orprivileges that differ from, or are senior to, those of existing investors,including warrants in addition to the securities purchased and protectionagainst future dilutive transactions.

 

***Aviza has incurred losses over the last fewyears, and Aviza may not be able to achieve profitability.***

 

Aviza incurred net losses of $4.6million,  $16.0 million and$19.7 million for the quarter ended December 30, 2005 and the fiscal yearsended September 30, 2005 and September 24, 2004, respectively. As aresult, Aviza will need to increase sales and reduce costs in order to achieveprofitability. However, Aviza may never generate sufficient revenues or reducecosts sufficiently to achieve profitability. Even if Aviza does achieveprofitability, it may not sustain or increase profitability on a quarterly or annualbasis in the future. If Aviza is unable to achieve profitability, it may beforced to implement expense reduction measures, including selling its assets,consolidating its operations, reducing its workforce or delaying, canceling orreducing certain product development, marketing or other operational programs,any of which could harm its business.

 

***Aviza’s netsales in calendar 2006 may be adversely affected by the loss of Aviza’s presentALD product line.***

 

When Aviza acquired the ThermalDivision of ASML Holding, N.V., which we refer to in this report as thePredecessor, Aviza acquired a license agreement with another semiconductorequipment company pursuant to which it distributed single-wafer atomiclayer deposition, or single-wafer ALD, products manufactured by thelicensor. Aviza recognized net sales of $2.9 million, or approximately 10% ofits net sales, and $7.6 million, or approximately 12% of its net sales,attributable to these products in the quarters ended December 30, 2005 andDecember 24, 2004, respectively. During fiscal 2005, Aviza recognized net salesof $21.6 million, or approximately 12.6% of its net sales, attributable tothese products.  Aviza and the licensoragreed in May 2004 that Aviza would not ship any such products after December 31,2005. As a result, Aviza will not recognize any revenue attributable to theseproducts after December 31, 2005, other than the remaining contractualrevenue attributable to products previously shipped. If Aviza is unable todevelop its own products to address the ALD market in lieu of these products,its net sales may decline and its business may be harmed.

 

***Aviza expectsto receive a substantial portion of its revenues from a small number ofcustomers, and the loss of, or a significant reduction or fluctuation in,orders from those customers could harm Aviza’s business.***

 

During the quarter endedDecember 30, 2005, approximately 60% of Aviza’s net sales were attributable tothree customers and approximately 85% of Aviza’s net sales were attributable toits top ten customers.  WinbondElectronics Corp., Infineon Technologies, Inc. and Inotera Memories, Inc.accounted for 34%, 13% and 13% of Aviza’s net sales, respectively, for thequarter ended December 30, 2005.  For thefiscal year ended September 30, 2005, approximately 69% of Aviza’s net saleswere attributable to three customers and approximately 84% of Aviza’s net saleswere attributable to its top ten customers. Inotera Memories, Inc., InfineonTechnologies, Inc. and Winbond Electronics Corp. accounted for 43%, 15% and 11%of Aviza’s net sales, respectively, for the fiscal year ended September 30,2005. As a result, Aviza expects to receive a substantial portion of itsrevenues from a small number of customers. Sales to any single customer may varysignificantly from quarter to quarter. If Aviza’s largest customers delay,cancel or do not place orders, Aviza may not be able to replace these orderswith new orders. As Aviza expects to configure its products to customerspecifications, changing, rescheduling or canceling orders may result insignificant non-recoverable costs. The loss of, or a decline or fluctuation insales to, any of Aviza’s major customers would negatively impact its business.

 

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***Aviza may not achieve the benefits expected from its merger transactionwith Trikon, which may harm its business and could result in the loss of keycustomers and personnel.***

 

Achieving thebenefits of Aviza’s merger transaction with Trikon will depend in part onwhether Aviza will be able to successfully integrate Trikon’s technology,operations and personnel in a timely and efficient manner to minimize theimpact on customers, employees and management. The integration of Trikon andAviza will be a complex, time-consuming and expensive process and may harmAviza’s business, financial condition and results of operations. The challengesinvolved in this integration include, but are not limited to, the following:

 

•                  retainingexisting customers of both Trikon and Aviza;

 

•                  retainingand integrating management and other key employees of both Trikon and Aviza;

 

•                  coordinatingfunctions between Aviza’s geographically separate primary offices located inScotts Valley, California and Newport, South Wales, U.K.;

 

•                  consolidatingAviza’s and Trikon’s sales and marketing efforts so that the industry receivesuseful information about Aviza’s products;

 

•                  identifying andeliminating redundant operations and assets;

 

•                  coordinatingresearch and development activities to integrate existing technologies andenhance introduction of new products and technologies;

 

•                  integratingpurchasing and procurement operations in multiple locations;

 

•                  combiningproduct offerings effectively and quickly;

 

•                  integratingsales and service efforts so that customers can do business easily with Aviza;

 

•                  persuadingemployees that the business cultures of Trikon and Aviza are compatible;

 

•                  offeringproducts and services of Trikon and Aviza to each other’s customers; and

 

•                  developing andmaintaining uniform standards, controls, procedures and policies, includinginternal controls and procedures that Aviza will be required to maintain underthe Sarbanes-Oxley Act of 2002.

 

Aviza cannot assure you that Aviza and Trikon can successfullyintegrate their businesses in a timely manner or that all or any of theanticipated benefits of the merger transaction will be realized.

 

The merger transaction involves the integration of two companies thatpreviously have operated independently. Risks to the successful integration ofthe two companies include:

 

•                  theimpairment of relationships with employees, customers, distributors, strategicpartners and suppliers;

 

•                  the potentialdisruption of Aviza’s business and distraction of its management;

 

•                  the difficulty ofincorporating acquired technology into Aviza’s product offerings;

 

•                  not achievingexpected synergies; and

 

•                  unanticipatedexpenses related to integrating Aviza and Trikon.

 

Aviza may not succeed in addressing these risks or any other problemsencountered in connection with the merger transaction.

 

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***Thesemiconductor industry is highly cyclical and unpredictable.***

 

Aviza’s business and operationsdepend upon the capital expenditures of semiconductor manufacturers, which inturn depend on the current anticipated market demand for integrated circuits.The semiconductor industry has historically been cyclical due to sudden changesin manufacturing capacity. These changes in capacity have affected the timing andamounts of Aviza’s customers’ capital equipment purchases and investments intechnology, and continue to affect orders, net sales, gross margins and resultsof operations.

 

During periods of decreasing demand forintegrated circuit manufacturing equipment, Aviza must be able to appropriatelyalign cost structure with prevailing market conditions and effectively motivateand retain key employees. Conversely, during periods of increasing demand,Aviza must have sufficient manufacturing capacity and inventory to meetcustomer demand and must be able to attract, retain and motivate a sufficientnumber of qualified individuals. If Aviza is unable to timely adjust coststructure with business conditions and to manage resources and productioncapacity effectively during changes in demand, this inability could harm Aviza’sbusiness, financial condition or results of operations.

 

***Aviza’soperating results may be unpredictable and could vary dramatically from periodto period.***

 

Aviza’s products aretechnologically complex. Prospective customers generally must commitsignificant resources to test and evaluate these products and to install andintegrate them into their manufacturing lines. In addition, customers oftenrequire a significant number of product presentations and demonstrations, insome instances evaluating equipment on-site, before reaching a sufficient levelof confidence in the product’s performance and compatibility with theirrequirements to place an order. As a result, the sales process is often subjectto delays associated with lengthy approval processes that typically accompanythe design and testing of new products. The sales cycles of Aviza’s productsoften have lasted for many months or even years. Longer sales cycles require aninvestment of significant resources in attempting to make sales and delay thegeneration of revenues. In addition, Aviza may incur significant costs insupporting evaluation equipment at customers’ facilities, and orders expectedin one quarter could shift to another quarter because of the timing of Aviza’scustomers’ purchase decisions.

 

Furthermore, individual orders for Aviza’sproducts and services will have large unit prices and low volumes. In addition,gross margins and sales terms may vary greatly across Aviza’s product andservice offerings. As such, a loss or delay or change in the product andservices mix of even a single customer could have a significant effect on theearnings per share that Aviza reports in any given period.

 

Aviza’s revenues may also fluctuate greatlyfrom period to period as the products sold by Aviza change from “new technology”to “proven technology,” as discussed in more detail in the subsection entitled “*Revenue Recognition*” in the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in Item 2 of Part I of this report.

 

***Aviza’sdeferred revenue and orders backlog may not result in future net sales.***

 

Revenue recognition guidancerequires that revenues and any associated profit from the sale of newlyintroduced systems that are subject to contractual customer acceptanceprovisions and substantive installation obligations be deferred until thecustomer has acknowledged its acceptance of the system or the installation workis completed. If the system does not meet the agreed specifications and thecustomer refuses to accept the system, the deferred revenue and any associateddeferred profit will not be realized and Aviza may be required to refund anycash payments previously received from the customer, which may harm Aviza’sbusiness, financial condition, results of operations and cash flows.

 

Order backlog does not necessarily includeall sales needed to achieve net revenue expectations for a subsequent period.Aviza will schedule the production of its systems based in part upon orderbacklog. Due to possible customer changes in delivery schedules andcancellations of orders, Aviza’s backlog at any particular date will notnecessarily be indicative of actual sales for any succeeding period. In addition,while Aviza will evaluate each customer order on a case-by-case basis todetermine qualification for inclusion in backlog, Aviza cannot assure you thatamounts included in backlog will ultimately result in future sales. A reductionin backlog during any particular period, or the failure of Aviza’s backlog toresult in future sales, could harm Aviza’s business, financial condition,results of operations and cash flows.

 

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***Aviza’s backlog orders may be subject tocancellation or delay.***

 

Although Aviza expects tomaintain a backlog of customer orders with expected shipment dates within12 months, Aviza’s customers may request cancellations or delivery delays.As a result, Aviza’s backlog may not be a reliable indication of its futurerevenues. If shipments of orders in backlog are cancelled or delayed, Aviza’srevenues could fall below its expectations and the expectations of marketanalysts and investors.

 

***Aviza’sresults of operations may suffer if it fails to effectively manage itsinventory.***

 

***Aviza needs tomanage its inventory of component parts, work-in-process and finished goodseffectively to meet customer delivery demands at an acceptable risk and cost.Customers are increasingly requiring very short lead times for delivery, whichmay require Aviza to purchase and carry additional inventory. For both theinventories that will support manufacturing of Aviza’s products and Aviza’sspare parts inventories, if the customer demand Aviza anticipates does notmaterialize in a timely manner, Aviza will incur increased carrying costs andsome inventory could become unsellable or obsolete, resulting in write-offswhich would adversely affect the results of Aviza’s operations.***

 

***Warrantyclaims in excess of Aviza’s projections could seriously harm its business.***

 

***Aviza offers awarranty on its products. The cost associated with this warranty will besignificant, and in the event that Aviza’s projections and estimates of thiscost are inaccurate, Aviza’s financial performance could be seriously harmed.***

 

***If Avizadelivers systems with defects, its credibility may be harmed, sales and marketacceptance of its systems may decrease and Aviza may incur liabilitiesassociated with those defects.***

 

Aviza’s systems are complex and sometimes have contained errors,defects and bugs when introduced. If Aviza delivers systems with errors,defects or bugs, its credibility and the market acceptance and sales of itssystems could be harmed. Further, if Aviza’s systems contain errors, defects orbugs, Aviza may be required to expend significant capital and resources toalleviate these problems. Defects could also lead to commercial or productliability as a result of lawsuits against Aviza or against its customers. Avizahas agreed to product liability indemnities, and its product and commercialliability insurance policies currently provide only limited coverage per claim.In the event of a successful product liability or commercial claim, Aviza couldbe obligated to pay damages that may not be covered by insurance or that aresignificantly in excess of its insurance coverage.

 

***Aviza’semployment costs in the short-term will be fixed to a large extent, andtherefore any unexpected revenue shortfall could adversely affect its operatingresults.***

 

Aviza’s operating expenselevels are based in significant part on its headcount, which generally will bedriven by longer-term revenue goals. For a variety of reasons, particularly thehigh cost and disruption of layoffs and the costs of recruiting and training,Aviza’s headcount in the short term is fixed to a large extent. As a result,Aviza may be unable to reduce its employment costs in a timely manner tocompensate for any unexpected revenue or gross margin shortfalls, which couldadversely affect Aviza’s operating results.

 

***Aviza’s highspending levels on research and development and its need to maintain a highlevel of customer service and support could harm its results of operations.***

 

In order to remain competitive, Aviza willneed to maintain high levels of investment in research and development,marketing and customer service, while at the same time controlling itsoperating expenses.

 

The industry in which Aviza operates ischaracterized by the need for continued investment in research and developmentas well as a high level of worldwide customer service and support. As a resultof Aviza’s need to maintain spending levels in these areas, its operatingresults could be harmed if its net sales fall below expectations. In addition,because of the emphasis that Aviza places on research and development andtechnological innovation, Aviza’s operating costs may increase further in thefuture, which could have a negative impact on its results of operations andcash flows in any given period.

 

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Aviza cannot assure you that itwill have sufficient resources to make a high level of investment in researchand development, marketing and customer service while controlling its operatingexpenses or that Aviza’s products will be viewed as competitive as a result oftechnological advances by its competitors or changes in semiconductorprocessing technology. Any such competitive pressures may require Aviza tosignificantly reduce prices or result in lost customer orders, which could harmAviza’s business, financial condition, results of operations and cash flows.

 

***Adisruption of Aviza’s manufacturing operations could harm its business.***

 

Although Aviza is increasinglyoutsourcing the manufacturing for certain of its products or sub-assembliesto third parties, Aviza produces most of its products at its manufacturingfacilities in Scotts Valley, California and Newport, South Wales.  Aviza will have very limited ability tointerchangeably produce its products at either facility, and in the event of adisruption of operations at its facilities, Aviza’s third-partymanufacturers would not be able to make up the capacity loss. Aviza’smanufacturing operations could be subject to disruption for a variety ofreasons, including natural disasters, work stoppages, operational facilityconstraints and terrorism. Any such disruption could cause delays in shipmentsof products to Aviza’s customers, result in cancellation of customer orders orloss of customers and seriously harm Aviza’s business.

 

***Aviza is increasingly outsourcingmanufacturing and logistics activities to third-party service providers, whichdecreases its control over the performance of these functions.***

 

Aviza has already outsourced certain manufacturing and spare partslogistics functions to third party service providers, and Aviza may outsourcemore of those functions in the future. While Aviza expects to achieveoperational flexibility and cost savings as a result of this outsourcing,outsourcing has a number of risks and reduces our control over the performanceof the outsourced functions. Significant performance problems by thesethird-party service providers could result in cost overruns, delayeddeliveries, shortages, quality issues or other problems that could result insignificant customer dissatisfaction and could harm Aviza’s business, financialcondition and results of operations.

 

If for any reason one or more of these third-party service providersbecomes unable or unwilling to continue to provide services of acceptablequality, at acceptable costs and in a timely manner, Aviza’s ability to deliverits products or spare parts to its customers could be severely impaired. Avizawould quickly need to identify and qualify substitute service providers or increaseits internal capacity, which could be expensive, time consuming and difficult,and could result in unforeseen operations problems. Substitute serviceproviders might not be available or, if available, might be unwilling or unableto offer services on acceptable terms.

 

If customer demand for Aviza’s products increases, it may be unable tosecure sufficient additional capacity from its current service providers oncommercially reasonable terms, if at all.

 

Aviza’s requirements are expected to represent a small portion of thetotal capacities of its third-party service providers, and these third-partyservice providers may preferentially allocate capacity to other customers, evenduring periods of high demand for Aviza’s products. In addition, these third-partyservice providers could suffer financial difficulties or disruptions in theiroperations due to causes beyond Aviza’s control.

 

***Avizawill not be able to compete effectively if it fails to address the technologyneeds of its customers.***

 

Aviza operates in a highly competitiveenvironment, and its future success is heavily dependent on effectivedevelopment, commercialization and customer acceptance of new products comparedto its competitors. In addition, Aviza’s future success is dependent upon its abilityto timely and cost-effectively:

 

•                  develop and market new products andtechnologies;

 

•                  improve existing products andtechnologies;

 

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•                  expand into or develop equipmentsolutions for new markets for integrated circuit products;

 

•                  achieve market acceptance andaccurately forecast demand for products and technologies;

 

•                  achieve cost efficiencies acrossproduct offerings;

 

•                  qualify new or improved products forvolume manufacturing with customers; and

 

•                  lower customers’ cost of ownership.

 

Aviza will also need to develop technologyand other applications, and it cannot assure you that such developments will beconsistent with the needs of customers.

 

Aviza may not be able to forecast or respondaccurately to the technological trends in the semiconductor industry or respondto specific product announcements by competitors who may be developingtechnologies and products that are more effective or that achieve morewidespread acceptance. In addition, Aviza may incur substantial costs to ensurethe functionality and reliability of current and future products. If newlydeveloped products are unreliable or do not meet Aviza’s customers’expectations, then reduced orders, higher manufacturing costs, delays incollecting accounts receivable or additional service and warranty expense couldresult. Any delays in meeting customer demands could limit the potential forfollow-on sales for manufacturing. Any of these events could negatively affectthe ability to generate the return that Aviza would expect to achieve on itsinvestments in these new products.

 

If Aviza fails to develop solutions toachieve all of the specifications required by device manufacturers and thedevice manufacturers fail to integrate these technologies successfully withtheir other processes, or competitors develop competing solutions, then Aviza’sability to grow revenues from these products could be negatively affected.

 

***Aviza’soperating results could be negatively affected by currency fluctuations.***

 

Although Aviza’s revenues are generally denominated in U.S. dollars andAviza will report its financial results in U.S. dollars, Aviza’s Newport, SouthWales operation is based in the United Kingdom and most of its operatingexpenses are incurred in British pounds. As a result, a significant portion of Aviza’s costs will be subject tocurrency fluctuations.  Accordingly, ifthe British pound increases in value against the U.S. dollar, Aviza’s expensesas a percentage of revenues will increase and Aviza’s gross margins will bereduced.  In addition, Aviza’s sales inJapan and other foreign service revenue are denominated in local currency. As aresult, fluctuations in those local currencies could also have an impact onAviza’s operating results.

 

***Thesemiconductor industry is global and is expanding within Asia. If Aviza isunable to penetrate this market, its ability to grow revenues could berestricted.***

 

The percentage of worldwidesemiconductor production that is based in Asia is growing more rapidly than inother regions. Although Aviza derived approximately 59% and 70% of its netsales for the quarters ended December 30, 2005 and December 24, 2004,respectively, and 66% and 46% of its net sales for the fiscal years endedSeptember 30, 2005 and September 24, 2004, respectively, from its sales inthe Asia Pacific region, its brand recognition is limited. In order to grow itsbusiness, it will be necessary for Aviza to penetrate the region with theaddition of new customers and the expansion of its relationships with existingcustomers. Aviza has traditionally sold its products primarily through itsdirect sales force. As a result, retaining and attracting key sales and servicepersonnel will be of critical importance to Aviza. These markets are typicallysubject to growth rates that are higher than worldwide growth rates. AlthoughAviza has a direct sales force in this region, we cannot assure you that wewill be able to continue penetrating markets in the Asia Pacific region.Failure to penetrate these markets, or failure to attract the additionalpersonnel necessary to service new and existing customers, may harm Aviza’scompetitive position and adversely affect our future business prospects.

 

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***Aviza’scompetitors have greater financial resources and greater name recognition andtherefore may compete more successfully.***

 

Aviza faces competition orpotential competition from many companies with greater resources. If Aviza isunable to compete effectively with these companies, market share may declineand Aviza’s business could be harmed. Virtually all of Aviza’s primarycompetitors are substantially larger companies and some of them have broaderproduct lines. These competitors have well-established reputations in themarkets in which Aviza competes, greater experience with high-volumemanufacturing, broader name recognition, substantially larger customer basesand substantially greater financial, technical, manufacturing and marketingresources. Aviza will also face potential competition from new market entrants,including established manufacturers in other segments of the semiconductorcapital equipment market who may decide to diversify and develop and marketproducts that compete with Aviza’s product offerings.

 

***Semiconductormanufacturers are typically loyal to their existing semiconductor equipmentsuppliers, which may make it difficult for Aviza to obtain new customers.***

 

Because semiconductor manufacturers must makea substantial investment to install and integrate capital equipment into asemiconductor fabrication facility, these manufacturers tend to choosesemiconductor equipment manufacturers based on established relationships,product compatibility and proven system performance.

 

Once a semiconductor manufacturer selects aparticular vendor’s capital equipment, the manufacturer generally relies for asignificant period of time upon the equipment from this vendor of choice forthe specific production line application. To do otherwise creates risk for themanufacturer because manufacturing a semiconductor requires many process stepsand a fabrication facility will contain many different types of machines thatmust work cohesively to produce products that meet the customers’specifications. If any piece of equipment fails to perform as expected, thecustomer could incur significant costs related to defective products,production line downtime or low production yields.

 

Since most new fabrication facilities aresimilar to existing ones, semiconductor manufacturers tend to continue usingequipment that has a proven track record. Based on experience with majorcustomers such as Infineon, Aviza has observed that once a particular piece ofequipment is selected from a vendor, the customer is likely to continuepurchasing that same piece of equipment from the vendor for similarapplications in the future. Aviza’s customer lists, though limited, increasedin fiscal 2005. However, broadening market share remains difficult due tochoices made by customers that continue to be influenced by pre-existing basesinstalled by competing vendors. As a result, Aviza’s ability to obtain newcustomers and additional orders may be limited.

 

A semiconductor manufacturer frequently will attempt to consolidate itsother capital equipment requirements with the same vendor. As a result, Avizamay face narrow windows of opportunity to be selected as the “vendor of choice”by potential new customers. It may be difficult for Aviza to sell to aparticular customer for a significant period of time once that customer selectsa competitor’s product, and Aviza may not be successful in obtaining broaderacceptance of its systems and technology. If Aviza is not able to achievebroader market acceptance of its systems and technology, Aviza may be unable togrow its business and operating results, and Aviza’s financial condition may beharmed.

 

***Avizadepends upon sole suppliers for certain key components.***

 

Substantially all of Aviza’srevenues have come from the sale of products that contain key components thatare available only from a single source or limited sources. As a result, Avizadepends on a number of sole suppliers for key components used in themanufacturing of its products. If Aviza is unable to obtain timely delivery ofsufficient quantities of these components, it will be unable to manufactureproducts to meet customer demand on a timely basis. Most significantly, certainproduct lines are designed around automation modules supplied by solesuppliers. Due to the high cost of these modules, Aviza keeps very few ininventory. Although Aviza has never been unable to manufacture or ship aproduct due to its inability to obtain a component sourced from a solesupplier, if a sole supplier fails to deliver the component on a timely basis, deliveryof certain products could be delayed. If a sole supplier is unable to deliverany such modules for a prolonged period of time, Aviza may have to redesigncertain products.

 

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Aviza cannot assure you that it will be ableto do so, or that customers will adopt the redesigned systems.

 

***IfAviza is unable to hire and retain a sufficient number of qualified personnel,its results of operations will be negatively affected.***

 

Aviza’s business and future operating resultswill depend in part upon the ability to attract and retain qualifiedmanagement, technical, sales and support personnel for its operations on aworldwide basis. Competition for qualified personnel is intense, particularlyin the San Francisco Bay Area, where Aviza’s headquarters are located, andAviza cannot assure you that it will be able to continue to attract and retainqualified personnel. Aviza’s results of operations could be negatively affectedby its loss of key executives or employees or its inability to attract andretain skilled executives and employees as needed.

 

***Aviza’sability to compete could be jeopardized by its inability to protectintellectual property rights from challenges by third parties.***

 

Aviza’s success and ability to compete dependin large part upon protecting proprietary technology. Aviza has relied on acombination of patent, trade secret, copyright and trademark laws,non-disclosure and other contractual agreements and technical measures toprotect its proprietary rights.

 

Aviza cannot assure you that patents will beissued on pending patent applications or that competitors will not be ablelegitimately to ascertain proprietary information embedded in Aviza’s productsthat is not covered by patent or copyright. If this happens, Aviza may not beable to prevent the competitor from using this information.

 

In addition, if Aviza asserts patent rightsagainst a competitor’s product, Aviza cannot assure you that any claim in anypatent will be sufficiently broad nor, if sufficiently broad, that the patentwill not be challenged, invalidated or circumvented, or that Aviza will havesufficient resources to prosecute its rights. Failure to protect itsintellectual property rights could have an adverse effect on Aviza’s business.

 

***Claimsor litigation regarding its intellectual property rights could seriously harmAviza’s business or require Aviza to incur significant costs.***

 

In recent years, there has been significantlitigation in the semiconductor equipment industry involving patents and otherintellectual property rights. Infringement claims may be asserted against Avizain the future and, if such claims are made, Aviza may not be able to defendagainst such claims successfully or, if necessary, obtain licenses on reasonableterms. Any claim that Aviza’s products infringe the proprietary rights ofothers would force Aviza to defend itself and possibly its customers againstthe alleged infringement. These claims and any resulting lawsuit, ifsuccessful, could subject Aviza to significant liability for damages andinvalidate its proprietary rights. These lawsuits, regardless of their outcome,would likely be time-consuming and expensive to resolve and would divertmanagement’s time and attention. Any potential intellectual property litigationcould force Aviza to do one or more of the following:

 

•                  lose or forfeit proprietary rights;

 

•                  stop manufacturing or sellingproducts that incorporate the challenged intellectual property;

 

•                  obtain from the owner of theinfringed intellectual property right a license to sell or use the relevanttechnology, which license may not be available on reasonable terms or at alland may involve significant royalty payments;

 

•                  pay damages, including treble damagesand attorneys’ fees in some circumstances; or

 

•                  redesign those products that use thechallenged intellectual property.

 

If Aviza is forced to take any of theseactions, its business could be severely harmed.

 

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***Aviza’sefforts to protect its intellectual property may be less effective in someforeign countries where intellectual property rights are not as well protectedas in the United States.***

 

Most of Aviza’s net sales forthe quarter ended December 30, 2005 and fiscal 2005 were derived from sales inforeign countries, including certain countries in Asia such as Singapore,Taiwan, Japan, Malaysia, China and Korea. The laws of some foreign countries donot protect proprietary rights to as great an extent as do the laws of theUnited States, and many U.S. companies have encountered substantial problems inprotecting their proprietary rights against infringement in such countries,some of which are countries in which Aviza has sold and in which Aviza expectsto continue to sell systems. For example, Taiwan and China are not signatoriesto the Patent Cooperation Treaty, which is designed to specify rules andmethods for defending intellectual property internationally. In Taiwan andChina, the publication of a patent prior to its filing would invalidate theability of a company to obtain a patent. Similarly, in contrast to the UnitedStates where the contents of patent applications remain confidential during thepatent prosecution process, the contents of a patent application are publishedupon filing which provides competitors an advanced view of the contents ofpatent applications prior to the establishment of patent rights. There is arisk that Aviza’s means of protecting its proprietary rights may not beadequate in these countries. Aviza’s competitors in these countries mayindependently develop similar technology or duplicate Aviza’s systems. If Avizafails to adequately protect its intellectual property in those countries, itwould be easier for Aviza’s competitors to sell competing products in thosecountries.

 

***Aviza’soperations are subject to health and safety and environmental laws that mayexpose it to liabilities for noncompliance.***

 

Aviza is subject to a variety of governmentalregulations relating to the use, storage, discharge, handling, manufacture anddisposal of all materials present at, or are output from, Aviza’s facilities,including the toxic or other hazardous chemical byproducts of the manufacturingprocesses. Aviza is also subject to governmental regulations affecting the content,reuse, recycling, distribution and labeling of products containing hazardousmaterials. Environmental claims, or failure to comply with any present orfuture regulations, could result in significant costs to remediate, theassessment of damages or imposition of fines, the suspension of production ofcertain products or the cessation of operations.

 

New regulations could require the purchase ofcostly equipment or the incurrence of other significant expenses. Failure tocontrol the use or adequately restrict the discharge of hazardous substancescould subject Aviza to future liabilities, which could negatively affect Aviza’soperating results and financial condition.

 

Aviza owns and operates a facility located inScotts Valley, California, or the Scotts Valley Site, which is currentlysubject to an Administrative Order on Consent, or Consent Order, dated as ofJuly 16, 1991 entered into by Watkins-Johnson Company (now WJCommunications, Inc.), a prior owner of the Scotts Valley Site, and theUnited States Environmental Protection Agency, or EPA. The Scotts Valley Siteis listed on the National Priorities List as the “Watkins-JohnsonSuperfund Site” pursuant to the Comprehensive Environmental ResponseCompensation and Liability Act, or CERCLA. The contamination on the ScottsValley Site includes chlorinated solvents in soil and groundwater. The site isbeing remediated under the terms of an agreement under which an environmentalconsultant, Arcadis Geraghty & Miller, has agreed to complete the workusing funds from an escrow account and is indemnifying Aviza for allremediation costs. Aviza is also protected from liability by an insurancepolicy covering the remediation and by certain indemnities fromWJ Communications, Inc. At this point in time, only small amounts ofgroundwater contamination remain, and Arcadis Geraghty & Miller is indiscussions with the EPA regarding ceasing remedial activities.

 

***Aviza has hadmaterial weaknesses in internal control over financial reporting in the pastand Aviza cannot assure you that additional material weaknesses will not beidentified in the future. Aviza’s failure to implement and maintain effectiveinternal control over financial reporting could result in materialmisstatements in Aviza’s financial statements, which could require Aviza torestate its financial statements, cause investors to lose confidence in Aviza’sreported financial information and have a negative effect on Aviza’s stockprice.***

 

In connection with the audit of Aviza’sfinancial statements for the period from October 7, 2003 throughSeptember 24, 2004, Aviza’s independent registered public accounting firmidentified material weaknesses in Aviza’s internal control over financialreporting as defined in the standards established by the Public Company AccountingOversight Board (United States) that affected Aviza’s financial statements forits fiscal year ended September 24, 2004.

 

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The material weaknesses in Aviza’s internalcontrol over financial reporting are summarized below:

 

•                  Afterissuance of the financial statements by the Predecessor for calendar year 2002and the period from January 1, 2003 through October 9, 2003, Avizadiscovered errors in these financial statements which required Aviza to restatethe financial statements of the Predecessor for both periods.

 

•                  Significantadjustments were required in areas involving management judgment such aswarranty accrual, receivables allowance and in-transit inventory, andassumptions used by Aviza to record accounting entries did not initially havedetailed support.

 

•                  Avizadid not have in its possession an interest rate cap agreement with its bank inconnection with Aviza’s revolving line of credit and had not recorded theagreement as a derivative in its financial statements. In addition, Aviza wasnot aware that it was required to record dividends under its corporate charterprior to correction of its corporate charter.

 

Although the management of Aviza believesthat it has remediated each of these identified material weaknesses, Avizacannot assure you that it will not identify additional material weaknesses orsignificant deficiencies in its internal control over financial reporting inthe future.

 

In addition,in May 2005, Trikon restated it previously issued financial statements withrespect to

 

•                  theclassification of accounts receivable and deferred revenue on contracts with aportion of the contract price that is withheld until final acceptance;

 

•                  thetiming of recognition of costs on those contracts; and

 

•                  theallocation of facilities costs.

 

To address thematerial weaknesses in Trikon’s internal control over financial reportingevidenced by this restatement, Trikon took remedial measures related to theselection, application and monitoring of its accounting policies.

 

Any failure to maintain or implement requirednew or improved controls, or any difficulties Aviza encounters in theirimplementation, could result in additional material weaknesses or significantdeficiencies, cause Aviza to fail to meet its periodic reporting obligations orresult in material misstatements in Aviza’s financial statements. Any suchfailure could also adversely affect the results of periodic managementevaluations and annual auditor attestation reports regarding the effectivenessof Aviza’s internal control over financial reporting that will be required whenthe SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002become applicable to Aviza beginning with its first Annual Report onForm 10-K for the fiscal year ending in September 2007, which will befiled in December 2007. The existence of a material weakness could resultin errors in Aviza’s financial statements that could result in a restatement offinancial statements, cause Aviza to fail to meet its reporting obligations andcause investors to lose confidence in its reported financial information,leading to a decline in Aviza’s stock price.

 

***Aviza will be required to spend significanttime, money and other resources to ensure and determine that its internalcontrol over financial reporting is effective. If Aviza is unable to achieveand maintain effective internal control over financial reporting, the value ofyour investment in Aviza could decline.***

 

Pursuant to Section 404 ofthe Sarbanes-Oxley Act of 2002, beginning with Aviza’s Annual Report onForm 10-K for its fiscal year ending in September 2007, Aviza will berequired to furnish a report on its internal control over financial reporting.This report will contain an assessment by Aviza’s management of theeffectiveness of Aviza’s internal control over financial reporting and astatement that Aviza’s independent registered public accounting firm hasattested to and reported on Aviza’s management’s assessment of Aviza’s internalcontrol over financial reporting.

 

Aviza has identified material weaknesses ininternal control over financial reporting as of the end of fiscal 2004, andTrikon restated its financial statements in May 2005 as a result of Trikon’sidentification of

 

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material weaknesses in its internal controlover financial reporting.  In addition,because it just recently became a public company, Aviza has not been subject toSection 404 of the Sarbanes-Oxley Act of 2002. As a result of Aviza’sand Trikon’s identified material weaknesses and the fact that Aviza justrecently became a public company, Aviza faces a significant challenge inensuring its operations are designed in a manner that is consistent with theframework of internal control established by the Committee of SponsoringOrganization of the Treadway Commission.

 

Aviza’s internal control over financialreporting may not be considered effective if, among other things:

 

•                  anymaterial weaknesses in Aviza’s internal control over financial reporting exist;

 

•                  Avizafails to evaluate key controls in a timely fashion; or

 

•                  Avizafails to remediate assessed deficiencies.

 

If Aviza’s management asserts that Aviza’sinternal control over financial reporting is ineffective, or if Aviza’s independentregistered public accounting firm expresses an adverse opinion on Aviza’smanagement’s assessment or that Aviza’s internal control over financialreporting is ineffective, the value of your investment in Aviza could decline.

 

***Avizawill not be required to furnish a report on its internal control over financialreporting until December 2007.***

 

Aviza is not currently required to furnish areport on its internal control over financial reporting pursuant to the SEC’srules under Section 404 of the Sarbanes-Oxley Act of 2002 as part ofthe Annual Reports that it files on Form 10-K. However, these rules willapply to Aviza when it files its Annual Report on Form 10-K for its fiscalyear ending in September 2007, which will be filed in December 2007.

 

***Aviza’s ability to usenet operating losses to offset future taxable income is subject to limitations.***

*** ***

In general, under Section 382 of the Internal Revenue Code, acorporation that undergoes an “ownership change” is subject to limitations onits ability to utilize its pre-change net operating losses to offset futuretaxable income. A corporation generally undergoes an “ownership change” if thepercentage of stock of the corporation owned by one or more of its 5%stockholders has increased by more than 50 percentage points over a three-yearperiod.

 

Trikon’s netoperating losses are subject to limitations arising from previous ownershipchanges and will be subject to additional limitations as a result of the mergertransaction. In addition, if Aviza undergoes an ownership change after themerger transaction, Aviza’s ability to utilize NOLs could be limited by Section382 of the Internal Revenue Code. It is impossible for Aviza to ensure that itwill not experience an ownership change in the future because changes in itsstock ownership, some of which are outside of Aviza’s control, could result inan ownership change under Section 382 of the Internal Revenue Code.

 

Generally, the limitations on Aviza’s ability to use either its orTrikon’s pre-merger transaction NOLs to offset future taxable income areexpected to be significant, and thus Aviza’s liability for future U.S. federalincome taxes may be materially higher than that liability would have beenabsent such limitations. Similar rules may apply for foreign and state incometax purposes as well.

 

***Businessinterruptions could adversely affect Aviza’s business.***

 

Aviza’s operations are vulnerable tointerruption by fire, earthquake, power loss, telecommunications failure andother events beyond its control. A disaster could severely damage Aviza’sability to deliver its products to its customers. In order to manufacture itsproducts, Aviza will need to maintain and protect its manufacturing facilitiesand computer systems, many of which will be located in or near its headquartersin Scotts Valley, California. Scotts Valley is located near a known earthquakefault zone. Although Aviza’s facilities are designed to be fault tolerant,Aviza’s systems are susceptible to damage from fire, floods,

 

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earthquakes, power loss, telecommunicationsfailures and similar events. Although Aviza will maintain general businessinsurance against interruptions such as fires and floods, there can be noassurance that the amount of coverage will be adequate in any particular case.

 

***Anyacquisitions Aviza may make could disrupt business and harm its financialcondition.***

 

Aviza may invest incomplementary products, companies or technologies. Such investments involvenumerous risks, including:

 

•                  diversionof management’s attention from other operational matters;

 

•                  inabilityto complete acquisitions as anticipated or at all;

 

•                  inabilityto realize synergies expected to result from an acquisition;

 

•                  failureto commercialize purchased technologies;

 

•                  ineffectivenessof an acquired company’s internal controls;

 

•                  impairmentof acquired intangible assets as a result of technological advancements orworse-than-expected performance of the acquired company or its productofferings;

 

•                  unknownand undisclosed commitments or liabilities;

 

•                  failureto integrate and retain key employees; and

 

•                  ineffectiveintegration of operations.

 

Mergers and acquisitions are inherentlysubject to significant risks, and Aviza’s inability to manage these risks effectivelycould adversely affect its business, financial condition and results ofoperations.

 

***IfAviza is unable to establish and build a recognized brand, it may be unable togrow its business.***

 

Aviza’s management has made the decision touse the “Aviza” brand going forward and believes that transferring marketacceptance for the “Trikon” brand to Aviza and maintaining a recognized brandfor Aviza will be critical to the success of its strategy.  In the near term, Aviza may face somedisruption in the marketplace due to the disappearance of the “Trikon” brandand a lack of recognition for the “Aviza” brand.  The adoption of the “Aviza” brand may preventAviza from taking advantage of certain goodwill of existing customers andstrategic partners of Trikon.  Furthermore,in order to promote the “Aviza” brand in response to competitive pressures,Aviza may find it necessary to increase its marketing expenditures or otherwiseincrease its financial commitment to building and maintaining brand loyalty andawareness among existing and potential clients. If Aviza fails to promote, maintain and protect its brand, or incursexcessive expenses in an attempt to promote and maintain its brand, itsbusiness, financial condition, results of operations and prospects will be harmed.

 

***Avizais controlled by affiliates of VantagePoint, which will limit your ability toinfluence corporate activities of Aviza.***

 

At February 1, 2006, affiliatesof VantagePoint beneficially own approximately 52% of Aviza’s outstandingvoting power. VantagePoint exercises significant influence over Aviza’soperations and business strategy and is able to control the outcome of votes onall matters requiring stockholder approval, including the approval ofsignificant corporate transactions, such as mergers or other businesscombinations. VantagePoint may have interests that differ from the interests ofother stockholders of Aviza. This concentration of ownership may also have theeffect of delaying or preventing a change of control of Aviza or discouragingothers from making tender offers for shares of Aviza, which could prevent theother stockholders of Aviza from receiving a premium for your shares.

 

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***Avizais a “controlled company” within the meaning of the rules of the NasdaqNational Market, and as a result qualifies for, and is currently relying on,exemptions from certain corporate governance requirements.***

 

Because affiliates of VantagePoint own more than 50% of Aviza’s votingpower, Aviza is a “controlled company” under the rules of the Nasdaq NationalMarket. As a result, Aviza qualifies for, and is currently relying upon, the “controlledcompany” exception to the board of directors and committee requirements underthe rules of the Nasdaq National Market. Pursuant to this exception, so long asaffiliates of VantagePoint continue to own more than 50% of Aviza’s votingpower, Aviza will be exempt from the rules that would otherwise require thatits board of directors be comprised of a majority of “independent directors”and that its compensation committee and corporate governance and nominatingcommittee be comprised solely of “independent directors” as defined under therules of the Nasdaq National Market. As a result, the other stockholders ofAviza currently do not have the same protections afforded to stockholders ofcompanies that are subject to all of the Nasdaq National Market corporategovernance requirements.

 

***The price of Aviza’scommon stock has fluctuated and may fluctuate significantly in the future,which may lead to losses by investors or to securities litigation.***

 

The market price of Aviza’s common stock has been and may become highlyvolatile in the future, and Aviza’s stock price may decline in the future.  For example, for the period from December 2,2005, Aviza’s first day of trading, through February 10, 2006, the price rangeof Aviza’s common stock was $4.61 to $5.26 per share.

 

In addition, in recent years, the stock market in general, and themarket for shares of high technology stocks in particular, have experiencedextreme price fluctuations.  Thefluctuations have frequently been unrelated to the operating performance of theaffected companies.  Such fluctuationscould adversely affect the market price of Aviza’s common stock.  In the past, securities litigation has oftenbeen instituted against a company following periods of volatility in its stockprice.  This type of litigation, if filedagainst Aviza, could result in substantial costs and divert management’sattention and resources.

 

**ITEM 2.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

FromOctober 1, 2005 to December 30, 2005, Aviza Inc., which was formerly calledAviza Technology, Inc. and which is now our subsidiary, sold an aggregate of29,075 shares of its common stock to its directors and employees for anaggregate purchase price of $25,219 pursuant to the exercise of stock optionsto purchase shares of its common stock that Aviza, Inc. granted to theseindividuals pursuant to the terms of its 2003 stock plan.

 

Aviza, Inc.’s issuance of the securities in each of the transactionsdescribed above was exempt from registration under the Securities Act inreliance on Rule 701 promulgated under Section 3(b) of the Securities Act astransactions pursuant to compensatory benefit plans and contracts relating tocompensation as provided under Rule 701. The recipients of the securities ineach of these transactions represented their intention to acquire thesecurities for investment only and not with a view to or for sale in connectionwith any distribution thereof, and appropriate legends were affixed to theshare certificates and other instruments issued in such transactions. The salesof these securities were made without general solicitation or advertising.

 

**ITEM 3.  DEFAULTS UPONSENIOR SECURITIES**

 

None.

 

**ITEM 4.  SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

42

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**ITEM 5.OTHER INFORMATION**

 

None.

 

**ITEM 6.  EXHIBITS**

 
| 2.1    |   | Agreement and Plan of Merger, dated as of  March 14, 2005, by and among Trikon Technologies, Inc., Aviza, Inc.  (formerly, Aviza Technology, Inc.), Aviza Technology, Inc. (formerly, New  Athletics, Inc.), Baseball Acquisition Corp. I and Baseball Acquisition  Corp. II, as amended, incorporated by reference to Annex A to  Amendment No. 4 to the Registration Statement on Form S-4 filed by Aviza  Technology, Inc. (formerly, New Athletics, Inc.) with the Commission on  October 28, 2005 (File No. 333-126098). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1    |   | Amended and Restated Certificate of Incorporation of  Aviza Technology, Inc. (formerly, New Athletics, Inc.), incorporated by  reference to Exhibit 3.1 to our Annual Report on Form 10-K filed with the  Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2    |   | Amended and Restated Bylaws of Aviza Technology, Inc.,  incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K  filed with the Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.1    |   | Specimen certificate of common stock of Aviza  Technology, Inc., incorporated by reference to Exhibit 4.1 to our Annual  Report on Form 10-K filed with the Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.2    |   | Form of redeemable warrant to purchase shares of  common stock dated October 22, 2003 issued in connection with the sale  of common stock and warrants to Special Situations Fund III LP and certain of  its affiliate funds, incorporated by reference to Exhibit 4.1 to the  Current Report on Form 8-K filed by Trikon Technologies, Inc. with  the Commission on October 23, 2003.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1   |   | Amendment No. 4, dated as of December 1, 2005, to Credit  Agreement between Bank of America, N.A. and Aviza, Inc. (formerly, Aviza  Technology, Inc.), incorporated by reference to Exhibit 10.1 to the Current  Report on Form 8-K filed by Aviza Technology, Inc. with the Commission on  December 28, 2005.                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.1   |   | Certification of the Chief Executive Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.2   |   | Certification of the Chief Financial Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1   |   | Certification of the Chief Executive Officer pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.2   |   | Certification of the Chief Financial Officer pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

43

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                     | Aviza Technology, Inc.                                                                                                              |                              |
|--------------------------|-------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|
|                     | *(Registrant)*                                                                                                                      |                              |
|                     |                                                                                                                                |
|                     |                                                                                                                                |
| Dated: February 13, 2006 |                                                                                                                                |
|                     | By:                                                                                                                                 | **/s/  PATRICK C. O’CONNOR** |   |
|                     |                                                                                                                                |
|                     | **Patrick  C. O’Connor***Executive  Vice President and Chief Financial  Officer  (Principal Financial and Accounting Officer)* |
|                          |                                                                                                                                     |                                   |  |  |

 

44

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EXHIBIT INDEX

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.1                 |       | Agreement and Plan of Merger, dated as of  March 14, 2005, by and among Trikon Technologies, Inc., Aviza, Inc.  (formerly, Aviza Technology, Inc.), Aviza Technology, Inc. (formerly, New  Athletics, Inc.), Baseball Acquisition Corp. I and Baseball Acquisition  Corp. II, as amended, incorporated by reference to Annex A to  Amendment No. 4 to the Registration Statement on Form S-4 filed by Aviza  Technology, Inc. (formerly, New Athletics, Inc.) with the Commission on  October 28, 2005 (File No. 333-126098). |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1                 |       | Amended and Restated Certificate of Incorporation of  Aviza Technology, Inc. (formerly, New Athletics, Inc.), incorporated by  reference to Exhibit 3.1 to our Annual Report on Form 10-K filed with the  Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2                 |       | Amended and Restated Bylaws of Aviza Technology, Inc.,  incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K  filed with the Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.1                 |       | Specimen certificate of common stock of Aviza  Technology, Inc., incorporated by reference to Exhibit 4.1 to our Annual  Report on Form 10-K filed with the Commission on December 29, 2005.                                                                                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.2                 |       | Form of redeemable warrant to purchase shares of  common stock dated October 22, 2003 issued in connection with the sale  of common stock and warrants to Special Situations Fund III LP and certain of  its affiliate funds, incorporated by reference to Exhibit 4.1 to the  Current Report on Form 8-K filed by Trikon Technologies, Inc. with  the Commission on October 23, 2003.                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1                |       | Amendment No. 4, dated as of December 1, 2005, to  Credit Agreement between Bank of America, N.A. and Aviza, Inc. (formerly,  Aviza Technology, Inc.), incorporated by reference to Exhibit 10.1 to the  Current Report on Form 8-K filed by Aviza Technology, Inc. with the  Commission on December 28, 2005.                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.1                |       | Certification of the Chief Executive Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.2                |       | Certification of the Chief Financial Officer pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1                |       | Certification of the Chief Executive Officer pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.2                |       | Certification of the Chief Financial Officer pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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