** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **
| **x**                                                                                                | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                                                                           | ** ** | ** **                                                                                    |
| **For the  quarterly period ended June 29, 2007**                                                    |
| ** **                                                                                           | ** ** | ** **                                                                                    |
| **OR**                                                                                               |
| ** **                                                                                           | ** ** | ** **                                                                                    |
| **o**                                                                                                | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                           | ** ** | ** **                                                                                    |
| **For the  transition period from             to** |

 

**Commission file number000-51642**

 

**Aviza Technology, Inc.**

(Exact name of Registrantas Specified in its Charter)

 

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

 

**440 Kings Village Road**

**Scotts Valley, California 95066**

(Address of PrincipalExecutive Offices including Zip Code)

** **

**(831) 438-2100**

(Registrant’s TelephoneNumber, Including Area Code)

 

Indicate by check 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 such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES  x     NO  o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

| Large accelerated filer  o |   | Accelerated filer  o |   | Non-accelerated filer  x |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|

 

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

YES  o     NO  x

As of August 7, 2007, the registrant had 20,845,273 shares of itscommon stock, par value $0.0001 per share, outstanding.

 

 

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**Aviza Technology, Inc.**

** **

**Table of Contents**

 
|             | ** ** |                                                                                                                                        | ** ** | **Page  No.** |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|---------------|
|        |       |                                                                                                                                   |       |          |
| **PART I.** | ** ** | **FINANCIAL INFORMATION**                                                                                                              |       |          |
| Item 1.     |       | Financial Statements  (unaudited):                                                                                                     |       |          |
|        |       | Condensed  Consolidated Balance Sheets — at June 29, 2007 and September 29, 2006                                                  |       | 3             |
|        |       | Condensed  Consolidated Statements of Operations — for the Three and Nine Months Ended  June 29, 2007 and June 30, 2006 |       | 4             |
|        |       | Condensed  Consolidated Statements of Cash Flows — for the Nine Months Ended  June 29, 2007 and June 30, 2006           |       | 5             |
|        |       | Notes to  Condensed Consolidated Financial Statements                                                                                  |       | 6             |
| Item 2.     |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                            |       | 18            |
| Item 3.     |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                            |       | 30            |
| Item 4.     |       | Controls and  Procedures                                                                                                               |       | 30            |
| PART II.    | ** ** | **OTHER INFORMATION**                                                                                                                  |       | 31            |
| Item 1.     |       | Legal Proceedings                                                                                                                      |       | 31            |
| Item  1A.   |       | Risk  Factors                                                                                                                          |       | 31            |
| Item 2.     |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                           |       | 43            |
| Item 3.     |       | Defaults  Upon Senior Securities                                                                                                       |       | 43            |
| Item 4.     |       | Submission  of Matters to a Vote of Security Holders                                                                                   |       | 43            |
| Item 5.     |       | Other Information                                                                                                                      |       | 43            |
| Item  6.    |       | Exhibits                                                                                                                               |       | 43            |

 

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**ITEM1.**                             FINANCIALSTATEMENTS

**AVIZA TECHNOLOGY, INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATEDBALANCE SHEETS**

**(in thousands, exceptpar amounts and number of shares)**

**(unaudited)**
| ** **                                                                                                                                                                           | ** ** | **June 29,  2007** | ** ** | **September 29,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|
| **ASSETS**                                                                                                                                                                           |       |                    | ** ** | ** **                   | ** ** |
| CURRENT ASSETS:                                                                                                                                                                      |       |                    |       |                         |       |
| Cash and cash  equivalents                                                                                                                                                           |       | $                       | 21,992     |                         | $          | 10,722 |   |
| Accounts  receivable, net of allowance of $255 and $262, respectively                                                                                                                |       | 41,478                  |       | 26,763                       |       |
| Inventory                                                                                                                                                                            |       | 47,401                  |       | 54,499                       |       |
| Prepaid expenses  and other current assets                                                                                                                                           |       | 7,373                   |       | 6,638                        |       |
| Total current  assets                                                                                                                                                                |       | 118,244                 |       | 98,622                       |       |
|                                                                                                                                                                                 |       |                    |       |                         |       |
| PROPERTY, PLANT AND  EQUIPMENT—net                                                                                                                                              |       | 30,878                  |       | 25,266                       |       |
| INTANGIBLE ASSETS—net                                                                                                                                                           |       | 3,939                   |       | 4,755                        |       |
| OTHER ASSETS                                                                                                                                                                         |       | 874                     |       | 463                          |       |
| TOTAL                                                                                                                                                                                |       | $                       | 153,935    |                         | $          | 129,106 |   |
|                                                                                                                                                                                 |       |                    |       |                         |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                       |       |                    |       |                         |       |
| CURRENT LIABILITIES:                                                                                                                                                                 |       |                    |       |                         |       |
| Short term  borrowings and current portion of notes payable                                                                                                                          |       | $                       | 18,155     |                         | $          | 28,632 |   |
| Accounts payable                                                                                                                                                                     |       | 20,369                  |       | 30,792                       |       |
| Warranty  liability                                                                                                                                                                  |       | 12,025                  |       | 10,816                       |       |
| Accrued  liabilities                                                                                                                                                                 |       | 15,658                  |       | 13,716                       |       |
| Total current  liabilities                                                                                                                                                           |       | 66,207                  |       | 83,956                       |       |
| NOTES PAYABLE—Long term                                                                                                                                                         |       | 15,014                  |       | 6,256                        |       |
| Total liabilities                                                                                                                                                                    |       | 81,221                  |       | 90,212                       |       |
|                                                                                                                                                                                 |       |                    |       |                         |       |
| COMMITMENTS AND  CONTINGENCIES (Note 10)                                                                                                                                             |       |                    |       |                         |       |
|                                                                                                                                                                                 |       |                    |       |                         |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                           |       |                    |       |                         |       |
| Preferred stock,  $0.0001 par value - 5,000,000 shares authorized; none outstanding                                                                                                  |       | —                  |       | —                       |       |
| Common stock,  $0.0001 par value—100,000,000 shares authorized; 20,844,260 and 16,150,752  shares issued and outstanding at June 29, 2007 and September 29, 2006,  respectively |       | 2                       |       | 2                            |       |
| Additional  paid-in capital                                                                                                                                                          |       | 117,874                 |       | 88,655                       |       |
| Accumulated  other comprehensive income                                                                                                                                              |       | 2,207                   |       | 594                          |       |
| Accumulated  deficit                                                                                                                                                                 |       | (47,369                 | )          | (50,357                      | )          |
| Total  stockholders’ equity                                                                                                                                                     |       | 72,714                  |       | 38,894                       |       |
| TOTAL                                                                                                                                                                                |       | $                       | 153,935    |                         | $          | 129,106 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

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**AVIZA TECHNOLOGY, INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

**(unaudited)**

 
| ** **                           | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| NET SALES                            |       | $                       | 57,421     |                            | $          | 43,662 |   | $ | 181,251 |   | $ | 108,846 |   |
| COST OF GOODS SOLD                   |       | 39,246                  |       | 32,916                          |       | 125,304 |   | 81,774 |   |
| GROSS PROFIT                         |       | 18,175                  |       | 10,746                          |       | 55,947 |   | 27,072 |   |
|                                 |       |                    |       |                            |       |   |   |   |   |
| OPERATING EXPENSES:                  |       |                    |       |                            |       |   |   |   |   |
| Research and  development            |       | 8,101                   |       | 6,547                           |       | 23,815 |   | 17,743 |   |
| Selling, general  and administrative |       | 8,217                   |       | 6,795                           |       | 24,846 |   | 18,392 |   |
| In-process  research and development |       | —                  |       | (29                             | )          | — |   | 373 |   |
| Total operating  expenses            |       | 16,318                  |       | 13,313                          |       | 48,661 |   | 36,508 |   |
|                                 |       |                    |       |                            |       |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS       |       | 1,857                   |       | (2,567                          | )          | 7,286 |   | (9,436 | ) |
|                                 |       |                    |       |                            |       |   |   |   |   |
| OTHER INCOME (EXPENSE):              |       |                    |       |                            |       |   |   |   |   |
| Interest income                      |       | 146                     |       | 79                              |       | 283 |   | 132 |   |
| Interest expense                     |       | (663                    | )          | (1,424                          | )          | (2,978 | ) | (4,166 | ) |
| Other income  (expense) - net        |       | (449                    | )          | 16                              |       | (425 | ) | (129 | ) |
| Total other  expense -net            |       | (966                    | )          | (1,329                          | )          | (3,120 | ) | (4,163 | ) |
|                                 |       |                    |       |                            |       |   |   |   |   |
| INCOME (LOSS) BEFORE  INCOME TAXES   |       | 891                     |       | (3,896                          | )          | 4,166 |   | (13,599 | ) |
| INCOME TAXES                         |       | 382                     |       | 70                              |       | 1,178 |   | 310 |   |
|                                 |       |                    |       |                            |       |   |   |   |   |
| NET INCOME (LOSS)                    |       | $                       | 509        |                            | $          | (3,966 | ) | $ | 2,988 |   | $ | (13,909 | ) |
|                                 |       |                    |       |                            |       |   |   |   |   |
| Income (loss) per  share:            |       |                    |       |                            |       |   |   |   |   |
| Basic                                |       | $                       | 0.02       |                            | $          | (0.27 | ) | $ | 0.16 |   | $ | (1.45 | ) |
| Diluted                              |       | $                       | 0.02       |                            | $          | (0.27 | ) | $ | 0.16 |   | $ | (1.45 | ) |
|                                 |       |                    |       |                            |       |   |   |   |   |
| Weighted average common  shares:     |       |                    |       |                            |       |   |   |   |   |
| Basic                                |       | 20,763,221              |       | 14,667,980                      |       | 18,150,976 |   | 9,563,903 |   |
| Diluted                              |       | 21,607,161              |       | 14,667,980                      |       | 18,964,575 |   | 9,563,903 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

4

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**AVIZA TECHNOLOGY, INC.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**
| ** **                                                                                                | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                | ** ** | **June 29  2007**          | ** ** | **June 30  2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                    |       |                            |       |   |   |
| Net income  (loss)                                                                                        |       | $                               | 2,988      |   | $ | (13,909 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) provided by operating  activities:      |       |                            |       |   |   |
| Depreciation                                                                                              |       | 2,908                           |       | 2,500 |   |
| Amortization                                                                                              |       | 945                             |       | 1,611 |   |
| Tax benefit from  use of acquired net operating losses                                                    |       | 509                             |       | — |   |
| Fair value of  common stock warrants issued for loan guarantee                                            |       | —                          |       | 251 |   |
| Stock based  compensation                                                                                 |       | 1,530                           |       | 700 |   |
| Mandatorily  redeemable preferred stock dividend accrued                                                  |       | —                          |       | 497 |   |
| (Gain) loss on  disposal of equipment                                                                     |       | —                          |       | (75 | ) |
| Provision for  allowance for doubtful accounts                                                            |       | (19                             | )          | (156 | ) |
| Write off of  costs of prior financing agreements                                                         |       | 176                             |       | — |   |
| Write off  in-process research and development from purchase of Trikon                                    |       | —                          |       | 373 |   |
| Changes in assets and  liabilities (net of assets and liabilities acquired):                              |       |                            |       |   |   |
| Accounts  receivable                                                                                      |       | (13,936                         | )          | 5,656 |   |
| Inventory                                                                                                 |       | 8,829                           |       | (6,476 | ) |
| Prepaid expenses  and other current assets                                                                |       | 104                             |       | 4,584 |   |
| Accounts payable                                                                                          |       | (11,199                         | )          | 3,504 |   |
| Warranty  liability                                                                                       |       | 1,104                           |       | (2,088 | ) |
| Accrued  liabilities                                                                                      |       | 1,609                           |       | 3,550 |   |
| Net cash (used  in) provided by operating activities                                                      |       | (4,452                          | )          | 522 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                    |       |                            |       |   |   |
| Cash acquired  from Trikon net of direct merger costs                                                     |       | —                          |       | 7,366 |   |
| Purchases of  property and equipment                                                                      |       | (7,479                          | )          | (4,248 | ) |
| Proceeds from  sale of equipment                                                                          |       | —                          |       | 175 |   |
| Net cash (used  in) provided by investing activities                                                      |       | (7,479                          | )          | 3,293 |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                    |       |                            |       |   |   |
| Net proceeds  (payments) from credit lines                                                                |       | (12,341                         | )          | 260 |   |
| Proceeds from  the issuance of common stock                                                               |       | 27,689                          |       | 15,041 |   |
| Net proceeds on  refinancing of mortgage loan                                                             |       | 5,635                           |       |   |   |
| Proceeds from  equipment loan                                                                             |       | 4,000                           |       |   |   |
| Payments on  mortgage loan                                                                                |       | (253                            | )          | (210 | ) |
| Payments on  other borrowings                                                                             |       | (958                            | )          | (8,658 | ) |
| Payment on  equipment loan                                                                                |       | (95                             | )          |   |   |
| Payments on  capital lease obligations                                                                    |       | (195                            | )          | (44 | ) |
| Net cash  provided by financing activities                                                                |       | 23,482                          |       | 6,389 |   |
| Effect of  exchange rates on foreign cash balances                                                        |       | (281                            | )          | 210 |   |
| NET INCREASE IN CASH  AND CASH EQUIVALENTS                                                                |       | 11,270                          |       | 10,414 |   |
| CASH AND CASH  EQUIVALENTS:                                                                               |       |                            |       |   |   |
| Beginning of  period                                                                                      |       | 10,722                          |       | 7,437 |   |
| End of period                                                                                             |       | $                               | 21,992     |   | $ | 17,851 |   |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION:                                                        |       |                            |       |   |   |
| Interest paid                                                                                             |       | $                               | 2,560      |   | $ | 2,368 |   |
| Income taxes  paid                                                                                        |       | $                               | 353        |   | $ | 139 |   |
| Noncash investing and  financing activities:                                                              |       |                            |       |   |   |
| Notes payable  issued for services to be rendered                                                         |       | $                               | 1,737      |   | $ | — |   |
| Equipment  acquired under capital lease                                                                   |       | $                               | 715        |   | $ | — |   |
| Fair value of  common stock, options and warrants issued in the acquisition of Trikon  Technologies, Inc. |       | $                               | —     |   | $ | 24,131 |   |
| Conversion of  preferred stock, Series A, to common stock                                                 |       | $                               | —     |   | $ | 11,594 |   |
| Fair value of  common stock warrants issued in exchange for loan guarantee                                |       | $                               | —     |   | $ | 251 |   |
| Property and equipment  included in accounts payable at end of quarter                                    |       | $                               | 537        |   | $ | 134 |   |

** **

The accompanying notes are an integral part of these condensedconsolidated financial statements.

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**AVIZA TECHNOLOGY, INC.AND SUBSIDIARIES**

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

***(Unaudited)***

**1.  Basis of Presentation**

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with United States (U.S.)generally accepted accounting principles for interim financial information andapplicable regulations of the U.S. Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments(consisting only of normal recurring adjustments) considered necessary for afair statement of financial position and results of operations have beenincluded.  Our operating results for thequarter and nine months ended June 29, 2007 are not necessarily indicative ofthe results that may be expected for future quarters and the fiscal year endingSeptember 28, 2007.  The accompanyingunaudited condensed consolidated financial statements should be read inconjunction with our audited consolidated financial statements for the yearended September 29, 2006, which are included in our Annual Report on Form 10-Kand the risk factors contained herein and therein.

The preparation of the accompanying unauditedcondensed consolidated financial statements requires the use of estimates thataffect the reported amounts of assets, liabilities, revenues, expenses andcontingencies.  These estimates include,but are not limited to, estimates related to revenue recognition, allowance fordoubtful accounts, inventory valuation, tangible and intangible long-term assetvaluation, warranty and other obligations, contingent liabilities andlitigation.  Estimates are updated on anongoing basis and are evaluated based on historical experience and currentcircumstances.  Changes in facts andcircumstances in the future may give rise to changes in these estimates whichmay cause actual results to differ from current estimates.

Aviza Technology Inc.’s (the “Company” or “Aviza”)current fiscal year will end on September 28, 2007 and includes 52 weeks.  We close our fiscal quarters on the last Fridayof December, March, June and September.

On December 1, 2005, we completed our consolidationthrough merger with Trikon Technologies, Inc. (“Trikon”).  In connection with the merger transaction,our common stock became publicly traded on the NASDAQ Global Market under thesymbol “AVZA.”  The financial informationpresented in this report represents:

1)              thefinancial position of the Company and its subsidiaries as of June 29, 2007 andSeptember 29, 2006;

2)              theresults of operations of the Company and its subsidiaries for the quarter andnine months ended June 29, 2007;

3)              thecash flows of the Company and its subsidiaries for the nine months ended June29, 2007;

4)              theresults of operations of the Company and its subsidiaries for the quarter andnine months ended June 30, 2006, including Trikon from December 2, 2005; and

5)              thecash flows of the Company and its subsidiaries for the nine months ended June30, 2006, including Trikon from December 2, 2005.

See Note 5 for additional information related to the mergertransaction.

The condensed consolidated financial statementsinclude the accounts of the Company and its subsidiaries.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

6

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**2.  RecentAccounting Pronouncements**

During the quarter ended September 29, 2006, theSecurities and Exchange Commission (“SEC”) released Staff Accounting Bulletin108, “Considering the Effects of Prior Year Misstatements in Current YearFinancial Statements” (“SAB 108”), which provides guidance on how the effectsof the carryover or reversal of prior year misstatements should be consideredin quantifying a current year misstatement. SAB 108 calls for the quantification of errors using both a balance sheetand income statement approach based on the effects of such errors on each ofthe company’s financial statements and the related financial statementdisclosures.  SAB 108 is effective forfinancial statements issued for the fiscal year ending after November 15,2006.  Adoption of SAB 108 did not havean impact on our results of operations or financial condition.

On December 21, 2006, the Financial AccountingStandards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging IssuesTask Force (“EITF”) 00-19-2, “Accounting for Registration Payment Arrangements,”which requires an issuer to account for a contingent obligation to transferconsideration under a registration payment arrangement in accordance with FASBStatement No. 5, “Accounting for Contingencies” and FASB Interpretation 14, “ReasonableEstimation of the Amount of Loss.” Registration payment arrangements are frequently entered into inconnection with issuance of unregistered financial instruments, such as equityshares or warrants.  A registrationpayment arrangement contingently obligates the issuer to make future paymentsor otherwise transfer consideration to another party if the issuer fails tofile a registration statement with the SEC for the resale of specifiedfinancial instruments or fails to have the registration statement declaredeffective within a specific period.  TheFSP requires issuers to make certain disclosures for each registration paymentarrangement or group of similar arrangements. The FSP is effective immediately for registration payment arrangementsand financial instruments entered into or modified after the FSP’s issuancedate.  For previously issued registrationpayment arrangements and financial instruments subject to those arrangements,the FSP is effective for financial statements issued for fiscal years beginningafter December 15, 2006.  The adoption ofthis FSP did not have a significant impact on our financial condition orresults of operations.

In June 2006, the FASB issued FASB Interpretation No.48, *Accounting for Uncertainty in IncomeTaxes* (“FIN No. 48”), which clarifies the accounting for uncertaintyin income taxes recognized in the financial statements in accordance with SFASNo. 109, *Accounting For Income Taxes*(“SFAS109”).  The interpretation prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  Theinterpretation also provides guidance in derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  FIN No. 48 requires that tax positions previously held whichno longer meet the more-likely-than-not recognition threshold should bederecognized in the first financial reporting period in which the threshold isno longer met.  Use of a valuation allowance as per SFAS 109 is no longeran appropriate substitute for the derecognition of a tax position.  Theinterpretation is effective for fiscal years beginning after December 15,2006.  We have not yet evaluated the impact of the adoption of FIN No. 48on our financial position, results of operations or cash flows.

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**3.  BalanceSheet Details**
| ** **                                      | ** ** | **June 29,  2007** | ** ** | **September 29,  2006** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|
|                                            | ** ** | **(in thousands)**      | ** ** |
| **Inventory:**                                  |       |                    |       |                         |       |
| Raw materials                                   |       | $                       | 28,250     |                         | $          | 29,414 |   |
| Work-in-process                                 |       | 16,636                  |       | 21,337                       |       |
| Finished goods and evaluation systems           |       | 2,515                   |       | 3,748                        |       |
| Total                                           |       | $                       | 47,401     |                         | $          | 54,499 |   |
| **Prepaid  expenses and other current assets:** |       |                    |       |                         |       |
| Deferred installation costs                     |       | $                       | 1,294      |                         | $          | 1,301 |   |
| Taxes                                           |       | 2,575                   |       | 2,003                        |       |
| Other                                           |       | 3,504                   |       | 3,334                        |       |
| Total                                           |       | $                       | 7,373      |                         | $          | 6,638 |   |
| **Property,  plant and equipment, net:**        |       |                    |       |                         |       |
| Land                                            |       | $                       | 1,839      |                         | $          | 1,839 |   |
| Buildings and improvements                      |       | 12,181                  |       | 12,047                       |       |
| Machinery and equipment                         |       | 16,833                  |       | 12,947                       |       |
| Office furnishings, fixtures and equipment      |       | 2,874                   |       | 2,659                        |       |
| Construction in process                         |       | 7,236                   |       | 2,840                        |       |
| Total                                           |       | 40,963                  |       | 32,332                       |       |
| Accumulated depreciation                        |       | (10,085                 | )          | (7,066                       | )          |
| Net property, plant and equipment               |       | $                       | 30,878     |                         | $          | 25,266 |   |
| **Accrued  liabilities:**                       |       |                    |       |                         |       |
| Accrued payroll and payroll taxes               |       | $                       | 6,718      |                         | $          | 4,584 |   |
| Deferred revenue                                |       | 1,623                   |       | 2,023                        |       |
| Other taxes payable                             |       | 2,463                   |       | 2,153                        |       |
| Other                                           |       | 4,854                   |       | 4,956                        |       |
| Total                                           |       | $                       | 15,658     |                         | $          | 13,716 |   |

 

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**4. Stock-Based Compensation**

Effective October 1, 2005, we adopted the provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “*Share-Based Payment*” (“SFAS 123(R)”).  SFAS 123(R) establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services.  It also addressestransactions in which an entity incurs liabilities in exchange for goods orservices that are based on the fair value of the entity’s equity instruments orthat may be settled by the issuance of those equity instruments.  Accordingly, stock-based compensation cost ismeasured at grant date, based on the fair value of the award, and is recognizedas expense over the employee’s requisite service period.  The measurement of stock-based compensationcost is based on several criteria including, but not limited to, the valuationmodel used and associated input factors such as expected term of the award,stock price volatility, dividend rate, risk-free interest rate and awardcancellation rate.  The input factorsused in the valuation model are based on subjective future expectationscombined with management judgment.  Ifthere is a difference between the assumption used in determining stock-basedcompensation costs and the actual factors, which become known over time, we maychange future input factors used in determining stock-based compensationcosts.  These changes may materiallyimpact our results of operations in the period such changes are made.

We adopted the modified prospective application methodas provided by SFAS 123(R).  Under thismethod, SFAS 123R was applied to new awards and to awards modified, repurchasedor cancelled after the effective date. Accordingly, prior period amounts have not been restated.  Additionally, compensation cost for theportion of awards for which the requisite service has not been rendered, suchas unvested stock options, that were outstanding as of the date of adoption arebeing recognized as the remaining requisite services are rendered.  The compensation cost relating to unvestedawards at the date of adoption was based on the grant-date fair value for thoseawards granted after June 24, 2005, the date of the Company’s initial filing ofa Form S-4 registration statement relating to the merger transaction asdiscussed in Note 5, and based on the intrinsic values as previously recordedunder APB Opinion No. 25 for awards granted prior to that date.

The fair value of each option is estimated at the dateof grant using the Black-Scholes option valuation model.  We estimate expected stock price volatilitybased on historical volatility within a representative peer group.  We believe that because of our limitedhistory and our merger transaction with Trikon, the expected life of ouroptions should be determined by using the methodology under the safe harborprovisions of Staff Accounting Bulletin 107, “Share-Based Payment” (“SAB 107”),released by the SEC.  The risk-freeinterest rate for periods within the contractual life of the option is based onthe U.S. Treasury yield with similar expected life.

Under our stock option plans, we may grant options topurchase up to a maximum of 5,644,000 shares of common stock, includingoutstanding options, to employees, directors and consultants at prices not lessthan the fair market value on the date of the grant.  These options generally vest over four tofive years and generally expire seven to ten years from the date of the grant.

We recognized stock-based compensation expense of $616,000and $1,530,000 during the quarter and nine months ended June 29, 2007,respectively, and $61,000 and $700,000 during the quarter and nine months endedJune 30, 2006, respectively.  Due touncertainty surrounding the realization of the income tax benefit related tostock-based compensation expense, there is no related income tax benefitrecognized in the consolidated statements of operations for the quarters andnine months ended June 29, 2007 and June 30, 2006, respectively, as a fullvaluation allowance has been provided against the deferred tax asset.

9

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The fair value of our stock options granted in thequarter and nine month periods ended June 29, 2007 and June 30, 2006,respectively, was estimated using the following weighted average assumptions:
| ** **               | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|--------------------------|------------|-------------------------|------------|---------------------------------|------------|
|                          | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| Expected life  (years)   |       | 4.8                     |       | 4.8                             |       | 4.6 |   | 5.3 |   |
| Risk-free  interest rate |       | 4.6                     | %          | 5.0                             | %          | 4.7 | % | 4.5 | % |
| Stock price  volatility  |       | 60.1                    | %          | 67.2                            | %          | 60.8 | % | 74.6 | % |
| Dividend yield           |       | 0.0                     | %          | 0.0                             | %          | 0.0 | % | 0.0 | % |

 

The following table summarizes our stock optionactivity under the stock plans during the quarter and nine months ended June29, 2007:
| ** **                                                               | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|--------------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  September 29, 2006                                       |       | 3,791,164  |       | $                                          | 5.08       |                                                             | 7.50       |                            | $          | 4,181,950 |   |
| Granted                                                                  |       | 111,500    |       | 4.55                                       |       | —                                                           |       | —                          |       |
| Forfeited                                                                |       | (44,433    | )          | 17.23                                      |       | —                                                           |       | —                          |       |
| Outstanding at  December 29, 2006                                        |       | 3,858,231  |       | 4.92                                       |       | 7.26                                                             |       | 4,876,582                       |       |
| Granted                                                                  |       | 170,000    |       | 6.06                                       |       | —                                                           |       | —                          |       |
| Exercised                                                                |       | (64,500    | )          | 2.49                                       |       | —                                                           |       | —                          |       |
| Forfeited                                                                |       | (38,565    | )          | 9.88                                       |       | —                                                           |       | —                          |       |
| Outstanding at  March 30, 2007                                           |       | 3,925,166  |       | 4.97                                       |       | 7.00                                                             |       | 13,476,757                      |       |
| Granted                                                                  |       | 356,000    |       | 5.91                                       |       | —                                                           |       | —                          |       |
| Exercised                                                                |       | (29,008    | )          | 1.92                                       |       | —                                                           |       | —                          |       |
| Forfeited                                                                |       | (16,155    | )          | 9.05                                       |       | —                                                           |       | —                          |       |
| Outstanding at  June 29, 2007                                            |       | 4,236,003  |       | 5.05                                       |       | 6.76                                                             |       | 8,441,317                       |       |
| Options  exercisable at June 29, 2007 and expected to become exercisable |       | 3,691,602  |       | 5.07                                       |       | 6.76                                                             |       | 7,885,079                       |       |
| Options vested and  exercisable at June 29, 2007                         |       | 2,108,707  |       | $                                          | 5.25       |                                                             | 6.72       |                            | $          | 6,126,444 |   |

 

The aggregate intrinsic value represents total pre-taxintrinsic value based on the closing stock price of $3.80, $4.27, $7.24 and$5.90 per share at September 29, 2006, December 29, 2006, March 30, 2007 andJune 29, 2007, respectively.

As of June 29, 2007, there was $4.6 million ofunrecognized compensation cost related to unvested stock options granted andoutstanding, net of estimated forfeitures. The cost is expected to be recognized over a weighted average period ofapproximately 3.01 years.

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The following table details total stock-basedcompensation expense for the quarter and nine months ended June 29, 2007 andJune 30, 2006, respectively:
| ** **                                | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
|                                           | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                                | ** ** | **(in  thousands)**     | ** ** |
| Cost of goods  sold                       |       | $                       | 58         |                            | $          | (21 | ) | $ | 159 |   | $ | 66 |   |
| Research and  development                 |       | 140                     |       | (44                             | )          | 363 |   | 99 |   |
| Selling, general  and administrative      |       | 418                     |       | 126                             |       | 1,008 |   | 535 |   |
| Pre-tax  stock-based compensation expense |       | 616                     |       | 61                              |       | 1,530 |   | 700 |   |
| Income tax  benefits                      |       | —                  |       | —                          |       | — |   | — |   |
| Net stock-based  compensation expense     |       | $                       | 616        |                            | $          | 61 |   | $ | 1,530 |   | $ | 700 |   |

 

The optionsoutstanding and exercisable at June 29, 2007 were in the following exerciseprice ranges:
| ** **                              | ** ** | **Options  Outstanding**                | ** ** | **Options  Exercisable**                                                     | ** ** |
|-----------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------|------------|
| **Range of Exercise  Prices** | ** ** | **Number of  Shares  Outstanding** | ** ** | **Weighted Average  Remaining  Contractual Life  (in years)** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number  Vested and  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| $0.83 - $0.83                           |       | 1,104,624                               |       | 6.63                                                                         |       | $ | 0.83 |   | 969,608 |   | $ | 0.83 |   |
| $0.84 - $4.98                           |       | 1,476,639                               |       | 6.03                                                                         |       | 4.17 |   | 457,521 |   | 3.51 |   |
| $4.99 - $5.60                           |       | 894,750                                 |       | 8.47                                                                         |       | 5.57 |   | 365,318 |   | 5.58 |   |
| $5.61 - $87.07                          |       | 759,990                                 |       | 6.36                                                                         |       | 12.27 |   | 316,260 |   | 20.96 |   |
| $0.83 - $87.07                          |       | 4,236,003                               |       | 6.76                                                                         |       | $ | 5.05 |   | 2,108,707 |   | $ | 5.25 |   |

 

The weighted average fair value of options on thegrant date, as determined under SFAS 123(R), granted during the quarter andnine months ended June 29, 2007 was $3.21 and $3.07 per share, respectively,and $2.92 and $3.45 per share for the quarter and nine months ended June 30,2006, respectively.

The total intrinsic value of options exercised duringthe quarter and nine months ended June 29, 2007 was $129,000 and $419,000,respectively.  For the quarter and ninemonths ended June 30, 2006, the intrinsic value was $34,000 and $152,000,respectively.  The total cash receivedfrom employees as a result of employee stock option exercises during thequarter and nine months ended June 29, 2007 was $56,000 and $216,000, respectively.  For the quarter and nine months ended June30, 2006 the amount received was $7,000 and $48,000, respectively.

**5.  Merger and Other Transactions with TrikonTechnologies, Inc.**

On December 1, 2005, the stockholders of Trikonapproved the merger of Trikon with the Company. Trikon designs, manufactures and services wafer processing semiconductormanufacturing equipment primarily for semiconductor devices.  Its products are used for chemical andphysical vapor deposition and for etch applications and are sold tosemiconductor manufacturers worldwide. In accordance with the provisions of SFAS No. 141, Aviza was treated asthe acquirer for financial reporting purposes. In the merger transaction, a wholly owned subsidiary of the Company wasmerged with and into Trikon.  Trikonstockholders received 0.29 of a share of Aviza common stock in exchange foreach share of Trikon common stock they owned. A total of 4,568,946 shares of Aviza common stock were issued inexchange for the outstanding common stock of Trikon as of December 1,2005.  In addition, 629,126 shares ofcommon stock were reserved for issuance upon exercise of Trikon common stockoptions and warrants assumed at December 1, 2005.  The options and warrants were valued usingthe Black-Scholes option pricing model.

 

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A summary of the total consideration given in themerger with Trikon is as follows (in thousands, except share and per shareamounts):
| Issuance of Aviza  common stock (4,568,946 shares at $5.17 per share)                                                                                                  |   | $      | 23,632 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Value of fully vested  substitute options and warrants to acquire 629,126 shares of Aviza common  stock in exchange for all outstanding options and warrants of Trikon |   | 499    |   |
| Total equity  consideration                                                                                                                                            |   | 24,131 |   |
| Direct merger costs                                                                                                                                                    |   | 6,116  |   |
| Total consideration                                                                                                                                                    |   | $      | 30,247 |   |

 

Under the purchase method of accounting, the totalconsideration issued for Trikon common stock, options and warrants as shown inthe table above was allocated to the Trikon tangible and intangible assets, andliabilities based on their estimated fair values as of the date of the mergertransaction.

**Pro Forma FinancialInformation for the Merger with Trikon**

The results of operations of Trikon have been includedin our results of operations for all periods subsequent to the December 1, 2005merger date.  The following pro formafinancial information includes adjustments related to the amortization ofpurchased intangibles, depreciation of purchased fixed assets, elimination ofdeferred rent liability and stock-based compensation costs that would have beenrecorded if the acquisition had occurred at the beginning of the periodpresented.  The pro forma financialinformation for the combined entities has been prepared for comparativepurposes only and is not necessarily indicative of what the actual results mayhave been if the acquisition had in fact occurred at the beginning of theperiod presented or of future results. Pro forma results for the nine months ended June 30, 2006 were (inthousands, except per share amounts):

|                                  | ** ** | **Nine Months  Ended** | ** ** |
|----------------------------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **June 30, 2006** | ** ** |
| Net sales                        |       | $                           | 115,979    |   |
| Net loss                         |       | $                           | (15,368    | ) |
| Net loss per share:              |       |                        |       |
| Basic and  diluted               |       | $                           | (1.31      | ) |
| Weighted average common  shares: |       |                        |       |
| Basic and diluted                |       | 11,753                      |       |

** **

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**6.  Borrowing Facilities**

Borrowings consist of the following (in thousands):

|                                        | ** ** | **June 29,  2007** | ** ** | **September 29,  2006** | ** ** |
|----------------------------------------|------------|-------------------------|------------|------------------------------|------------|
| Bank loans (revolving  line of credit) |       | $                       | 15,936     |                         | $          | 28,277 |   |
| Equipment note payable                 |       | 3,905                   |       | —                       |       |
| Mortgage note payable                  |       | 11,846                  |       | 6,463                        |       |
| Other notes payable                    |       | 779                     |       | —                       |       |
| Capital lease  obligations             |       | 703                     |       | 148                          |       |
| Total                                  |       | 33,169                  |       | 34,888                       |       |
| Less current portion                   |       | 18,155                  |       | 28,632                       |       |
| Long term portion                      |       | $                       | 15,014     |                         | $          | 6,256 |   |

 

During April 2007, we entered into a new creditagreement with a syndication of banks to refinance our existing bank loan andmortgage note payable.  The new creditfacility includes a revolving line of credit secured by accounts receivable andinventory, an equipment term loan and a commercial real estate term loan.  We may borrow up to $55,000,000 under the newcredit facility.  The revolving portionof the loan has a two-year term.  Theequipment term loan has a three-year amortization period with monthlypayments of principal and accrued interest and is secured by a lien on theequipment of the Company.  Maximumborrowings under this provision of the facility are $4,000,000, which weborrowed during the quarter ended June 29, 2007.  The real estate portion of the facility has afour-year term and is secured by a deed of trust on our Scotts Valleyfacility.  Monthly payments of principaland accrued interest will be based on a 20-year amortization period of the loanprincipal.  Maximum borrowing under thereal estate portion of the facility is $11,935,000, which we borrowed duringthe quarter ended June 29, 2007.  Asprincipal is paid down under the equipment and real estate portions of thefacility, additional borrowing availability will be created under the revolvingportion of the credit facility so that we have a maximum of $55,000,000 inborrowing availability at all times under the agreement.  The weighted-average interest rate for thequarter ended and at June 29, 2007 for these loans was 7.75%. The creditagreement contains certain financial and operating covenants.  As of June 29, 2007, we were incompliance with these financial and operating covenants.  Loan commitment fees and other directexpenses totaling $302,000, incurred to secure the facility, will be amortizedover the lives of the revolving line of credit, equipment term loan andcommercial  real estate loan, asapplicable.

In connection with the refinancing above,approximately $461,000 of costs relating to the prior financing agreements wasexpensed under other income (expenses)-net during the quarter ended June 29,2007.  This included the write-offof approximately $176,000 in deferred costs related to the prior financing.

**7.  Intangible Assets**

Intangible assets are recorded at cost, net ofaccumulated amortization, and are amortized over their estimated useful livesusing the straight-line method.  The estimateduseful lives for our intangible assets are as follows:

| Licenses               |   | 10 to 15 years |   |
|------------------------|--------|-------------------------------|--------|
| Developed technology   |   | 10 years                      |   |
| Brands and trademarks  |   | 10 years                      |   |
| Customer relationships |   | 10 years                      |   |
| Patents                |   | 10 years                      |   |

 

We evaluate intangibles for indicators of possibleimpairment when events or circumstances indicate the carrying amount of theasset may not be recoverable.

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Intangible assets at June 29, 2007 and September 29,2006 consist of the following (in thousands):
|   |   | ** ** | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** |
|--------|--------|------------|------------|------------|------------|------------|--------|------------|------------|------------|

 
| ** **             | ** ** | **June 29, 2007** | ** ** | **September 29, 2006**          | ** ** |
|------------------------|------------|-------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **Cost**          | ** ** | **Income Tax  Adjustment** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** |
| Licenses               |       | $                 | 4,028      |                            | $          | (12 | ) | $ | (570 | ) | $ | 3,446 |   | $ | 4,026 |   | $ | (268 | ) | $ | 3,758 |   |
| Developed technology   |       | 744               |       | (321                            | )          | (109 | ) | 314 |   | 694 |   | (58 | ) | 636 |   |
| Brands and trademarks  |       | 104               |       | (45                             | )          | (15 | ) | 44 |   | 96 |   | (8 | ) | 88 |   |
| Customer relationships |       | 236               |       | (101                            | )          | (35 | ) | 100 |   | 220 |   | (18 | ) | 202 |   |
| Patents                |       | 83                |       | (36                             | )          | (12 | ) | 35 |   | 78 |   | (7 | ) | 71 |   |
| Total                  |       | $                 | 5,195      |                            | $          | (515 | ) | $ | (741 | ) | $ | 3,939 |   | $ | 5,114 |   | $ | (359 | ) | $ | 4,755 |   |

 

During the nine months ended June 29, 2007, one of thesubsidiaries we acquired in connection with the merger with Trikon generatedsufficient taxable income to recognize a portion of the net deferred tax assetsacquired in the merger related to net operating loss carryforwards.  Management has previously been unable toassert that it was more likely than not that the Company would generatesufficient taxable income to realize the net deferred tax assets in excess ofthe deferred tax liabilities recorded in relation to the write-up of inventoryand intangibles to fair value at December 1, 2005, the date of the consummationof the merger transaction.  Accordingly,the net deferred tax assets had been previously offset in full by a valuationallowance on that date.  In the absenceof goodwill, under generally accepted accounting principles, the tax benefitderived from reversal of this valuation allowance must be applied first toreduce non-current intangible assets related to the merger transaction, andsecond to reduce income tax expense. Approximately $179,000 and $515,000 of the valuation allowanceattributed to net deferred tax assets relating to the net operating losscarry-forward acquired in the merger transaction was recognized during thequarter and nine months ended June 29, 2007, respectively, and the intangibleassets acquired in the merger transaction have been reduced accordingly.  The remaining net deferred tax assetscontinue to be offset in full by a valuation allowance at June 29, 2007.

Amortization expenses relating to all intangibles,excluding in-process research and development acquired from Trikon, was$116,000 and $369,000 for the quarter and nine months ended June 29, 2007,respectively, and $123,000 and $231,000 for the quarter and nine months endedJune 30, 2006, respectively.  Based onthe intangible assets recorded at June 29, 2007, and assuming no subsequentadditions to, or impairment of the underlying assets, the remainingamortization expense is expected to be as follows (in thousands):
| **Year Ending:**                        | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| September 28, 2007  (remaining three months) |       | $          | 117        |   |
| September 26, 2008                           |       | 467        |       |
| September 25, 2009                           |       | 467        |       |
| September 24, 2010                           |       | 467        |       |
| September 30, 2011                           |       | 467        |       |
| Thereafter                                   |       | 1,954      |       |
| Total                                        |       | $          | 3,939      |   |

 

**8.  Warranty and Guarantees**

***Warranty***—TheCompany accrues for the estimated cost of the warranty on its systems, whichincludes the cost of the labor and parts necessary to repair systems during thewarranty period.  The amounts recorded inthe warranty accrual are estimated based on actual historical costs incurredand on estimated probable future expenses related to current sales.  New systems typically have warranty periodsranging from one to three years.  Thecomponents of the warranty accrual are as follows:
| ** **                                                                        | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                                                                        | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                                                                        | ** ** | **(in thousands)**      |       |
| Beginning warranty  accrual                                                       |       | $                       | 12,903     |                            | $          | 12,978 |   | $ | 10,816 |   | $ | 13,599 |   |
| Additional accruals for  new shipments                                            |       | 2,484                   |       | 2,473                           |       | 8,248 |   | 5,184 |   |
| Warranty liability  assumed in merger                                             |       | —                  |       | —                          |       | — |   | 1,386 |   |
| Warranty costs incurred                                                           |       | (2,806                  | )          | (1,633                          | )          | (6,560 | ) | (4,861 | ) |
| Expirations and change  in liability for pre-existingwarranties during the period |       | (556                    | )          | (919                            | )          | (479 | ) | (2,409 | ) |
| Ending warranty accrual                                                           |       | $                       | 12,025     |                            | $          | 12,899 |   | $ | 12,025 |   | $ | 12,899 |   |

 

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***Guarantees***—Inaddition to system warranties, the Company, from time to time, in the normalcourse of business, indemnifies certain customers against third-party claimsthat the Company’s systems, when used for their intended purposes, infringe theintellectual property rights of such third party or other claims made againstcertain parties.  It is not possible todetermine the maximum potential amount of liability under these indemnificationobligations due to the limited history of prior indemnification claims and theunique facts and circumstances that are likely to be involved in eachparticular claim.  Historically, theCompany has not made payments under these obligations and no liabilities havebeen recorded for these obligations on the balance sheet at June 29, 2007 orSeptember 29, 2006, respectively.

**9.  Stock Issuance**

On February 28, 2007, we sold 4,000,000 shares of ourcommon stock in a public offering at $6.50 per share pursuant to ourregistration statement on Form S-1 filed under the Securities Act of 1933.  Proceeds from the sale, net of direct costsrelated to the offering, were approximately $23.9 million.

During April 2007, the underwriter of our publicoffering exercised its right to purchase an additional 600,000 shares of ourcommon stock to cover over-allotments. Net proceeds from the sale of these shares, after the underwritingdiscount, were approximately $3.6 million.

**10.  Commitments and Contingencies**

In November 2006, we discovered that we may have exportedcertain pressure transducers that are listed on the U.S. Bureau of Industry andSecurity’s Commerce Control List without proper authorization, either in theform of an export license or pursuant to an exception to the Bureau of Industryand Security’s export license requirements, and on December 20, 2006, wesubmitted our initial notification of a voluntary self-disclosure of possibleexport compliance problems to the Office of Export Enforcement in accordancewith applicable Export Administration Regulations.  Since December 20, 2006, we conducted acomprehensive review of our exports of pressure transducers and determined thatduring the period between September 2003 and November 2006, controlled pressuretransducers had been exported on 38 occasions without proper export licenses orother authorization from the U.S. Bureau of Industry and Security.  Accordingly, we voluntarily submitted asupplementary self-disclosure letter to the Office of Export Enforcement onApril 13, 2007.  During July 2007, wereceived a letter from the United States Department of Commerce stating thatthe Office of Export Enforcement decided not to refer this matter for criminalor administrative prosecution and is closing this matter with the issuance ofsuch letter.

On April 11, 2006, IPS, Ltd. filed a lawsuit againstus in the United States District Court for the Central District of California.The complaint alleges that we improperly used IPS’s confidential information todevelop our Celsior single-wafer atomic layer deposition technology. We havefiled an answer denying the claim. The complaint is for unspecified monetarydamages, injunctive relief and an order rescinding the settlement anddistributor agreements that IPS and Aviza entered into in May 2004 insettlement of a prior lawsuit that IPS filed against

15

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ASML U.S., Inc. and Aviza in March 2004 relating toassets that we acquired from ASML in October 2003. We believe that we havecomplied with the settlement and distributor agreements and that theallegations contained in IPS’s complaint are without merit. We intend tocontest the lawsuit vigorously.  In May2007, Aviza successfully moved the dispute into arbitration. Discoverycommenced in June 2007.

Prior to our merger transaction with TrikonTechnologies, Inc., Trikon was a party to an employment lawsuit in France.  On March 10, 2004, Dr. Jihad Kiwan departedTrikon 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 to Dr.Kiwan with respect to his employment with Trikon.  On April 28, 2004, Dr. Kiwan filed a lawsuitin France and on June 10, 2004, filed similar proceedings in the UnitedKingdom.  Dr. Kiwan has subsequentlywithdrawn the proceedings in the United Kingdom.  We are in the process of vigorouslycontesting the French claim and do not believe that the outcome of the claimwill be material to our business, financial condition or results of operations.

Our Scotts Valley location is a federal Superfundsite.  Chlorinated solvent and othercontamination was identified at the site in the early 1980’s, and by the late1980’s Watkins Johnson Corporation (“WJ”) (a previous owner of the Company) hadinstalled a groundwater extraction and treatment system.  In 1991, WJ entered into a consent decreewith the United States Environmental Protection Agency providing for remediationof the site.  In July 1999, WJ signed aremediation agreement with an environmental consulting firm, ARCADIS Geraghtyand Miller (“ARCADIS”).  Pursuant to thisremediation agreement, WJ paid approximately $3 million in exchange for whichARCADIS agreed to perform the work necessary to assure satisfactory completionof WJ’s obligation under the consent decree. The agreement also includes a cost overrun guaranty from ARCADIS up to atotal project cost of $15 million.  Inaddition, the agreement included procurement of a ten-year, claims-made insurancepolicy to cover overruns of up to $10 million from American InternationalSpecialty (“AIS”), along with a ten-year, claims-made $10 million policyto cover unknown pollution conditions at the site.

Failure of WJ, ARCADIS, or AIS to fulfill their obligationsmay subject the Company to substantial fines, and the Company could be forcedto suspend production, alter manufacturing processes or cease businessoperations, any of which could have a material negative effect on the Company’ssales, income and business operations.

Management believes that the likelihood of the failureof 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.

Other than operating leases for certain equipment andreal assets, Aviza has no significant off-balance sheet transactions orunconditional purchase obligations.

**11.  Major Customers**

During the quarter and nine months ended June 29,2007, one customer accounted for 20% and 35% of total net sales,respectively.  During the quarter endedJune 29, 2007, a different customer accounted for 27% of the total netsales.  For the quarter ended June 30,2006, two customers accounted for 31% and 11% of total net sales,respectively.  During the nine monthsended June 30, 2006, three customers accounted for 24%, 12% and 12% of totalnet sales, respectively.

**12.  Comprehensive Income (Loss)**

The components of comprehensive income (loss) are asfollows:
| ** **                         | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                         | ** ** | **(in thousands)**      | ** ** |
| Net income (loss)                  |       | $                       | 509        |                            | $          | (3,966 | ) | $ | 2,988 |   | $ | (13,909 | ) |
| Currency translation  adjustment   |       | 404                     |       | 451                             |       | 1,613 |   | 435 |   |
| Total comprenhensive income (loss) |       | $                       | 913        |                            | $          | (3,515 | ) | $ | 4,601 |   | $ | (13,474 | ) |

 

16

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**13.  Income (Loss) Per Share**

Basic income (loss) pershare has been computed based upon the weighted average number of common sharesoutstanding for the periods presented. Diluted income (loss) per share is calculated as though all potentiallydilutive shares were outstanding during the period, based upon the applicationof the treasury stock method.  Thefollowing details the calculation of net income (loss) per share for theperiods presented (in thousands except share and per share data):
| ** **                                    | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| Numerator:                                    |       |                    |       |                            |       |   |   |   |   |
| Net income (loss)                             |       | $                       | 509        |                            | $          | (3,966 | ) | $ | 2,988 |   | $ | (13,909 | ) |
| Denominator:                                  |       |                    |       |                            |       |   |   |   |   |
| Weighted average  shares, basic               |       | 20,763,221              |       | 14,667,980                      |       | 18,150,976 |   | 9,563,903 |   |
| Effect of  potentially dilutive securities:   |       |                    |       |                            |       |   |   |   |   |
| Stock options                                 |       | 843,940                 |       | —                          |       | 813,599 |   | — |   |
| Dilutive weighted  average shares outstanding |       | 21,607,161              |       | 14,667,980                      |       | 18,964,575 |   | 9,563,903 |   |
| Net income (loss) per  share - basic          |       | $                       | 0.02       |                            | $          | (0.27 | ) | $ | 0.16 |   | $ | (1.45 | ) |
| Net income (loss) per share - diluted         |       | $                       | 0.02       |                            | $          | (0.27 | ) | $ | 0.16 |   | $ | (1.45 | ) |

 

For the quarter and nine months ended June 29, 2007and June 30, 2006, the Company had securities outstanding that couldpotentially dilute basic earnings per share in the future, but were excluded inthe computation of diluted net income (loss) per share in the periodspresented, as their effect would have been anti-dilutive.  The shares of common stock issuable uponconversion or exercise of such outstanding securities consist of the following:
| ** **                                                 | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                                                 | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| Stock options                                              |       | 2,261,110               |       | 3,804,623                       |       | 2,413,741 |   | 3,100,513 |   |
| Common stock warrants                                      |       | 406,725                 |       | 406,725                         |       | 406,725 |   | 406,725 |   |
| Series B and B-1 preferred stock converted to common stock |       | —                  |       | 2,536,974                       |       | — |   | 2,536,974 |   |

 

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| **ITEM 2.** |   | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|--------|-------------------------------------------------------------------------------------------------|

** **

**CautionaryStatement Regarding Forward-Looking Statements**

*The statements in this report includeforward-looking statements.  These forward-lookingstatements are based on our management’s current expectations and beliefs andinvolve numerous risks and uncertainties that could cause actual results todiffer 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 identify forward-looking statementsby the use of forward-looking terminology, including the words “believes,” “expects,”“may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates” or “anticipates”or the negative of these words and phrases or other variations of these wordsand phrases or comparable terminology. These forward-looking statements relate to, among other things:*

·                  *our sales, results ofoperations and anticipated cash flows;*

·                  *capital expenditures;depreciation and amortization expenses;*

·                  *research and developmentexpenses;*

·                  *sales, general andadministrative expenses;*

·                  *the development and timingof the introduction of new products and technologies; and*

·                  *our ability to maintainand develop relationships with our existing and potential future customers andour ability to maintain the level of investment in research and development andcapacity that is required to remain competitive.*

*Many factors could cause our actual results todiffer materially from those projected in these forward-looking statements,including:*

·                  *variability of ourrevenues and financial performance;*

·                  *risks associated withproduct development and technological changes;*

·                  *the acceptance of ourproducts in the marketplace by existing and potential future customers;*

·                  *disruption of operationsor increases in expenses due to our involvement in litigation or caused bycivil or political unrest or other catastrophic events;*

·                  *general economicconditions and conditions in the semiconductor industry in particular; and*

·                  *the continued employmentof our key personnel and risks associated with competition.*

*For a discussion of thefactors that could cause actual results to differ materially from theforward-looking statements, see the “Risk Factors” set forth in Item 1A of PartII of this report, the “Liquidity and Capital Resources” section under “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inthis item of this report and the other risks and uncertainties that are setforth elsewhere in this report or detailed in our other Securities and ExchangeCommission reports and filings.  Weassume no obligation to update these forward-looking statements.*

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**Overview**

We design, manufacture, sell and support advancedsemiconductor capital equipment and process technologies for the globalsemiconductor industry and related markets. We offer both front-end-of-line and back-end-of-line systems andprocess technologies used for these markets addressing critical thin filmformation technologies, including ALD, PEC, which consists of PVD, Etch andCVD, and thermal processing systems.

Our customer base is geographically diverse andincludes both integrated device manufacturers and foundry-basedmanufacturers.  We have a broad installedbase, with approximately 2,500 systems in active operation for which we areproviding ongoing parts and services worldwide. We sell our systems globally primarily through a direct sales force andin some instances through local independent sales representatives.  For the nine months ended June 29, 2007, onecustomer, Inotera Memories Inc., accounted for 35% of our net sales andapproximately 69% of our net sales was attributable to our top tencustomers.  For the fiscal year endedSeptember 29, 2006, two customers, Winbond Electronics Corp. and InoteraMemories Inc., accounted for 24% and 11% of our net sales, respectively, andapproximately 74% of our net sales in fiscal 2006 was attributable to our topten customers.  For the fiscal year endedSeptember 30, 2005, three customers, Inotera Memories, Inc., InfineonTechnologies AG and Winbond Electronics Corp., accounted for 43%, 15% and 11%of our net sales, respectively, and approximately 84% of our net sales infiscal 2005 was attributable to our top ten customers.  Our largest customers may vary from year toyear depending upon, among other things, the customer’s annual budget forcapital expenditures, plans for new fabrication facilities and expansions andnew system introductions by us.  Weexpect sales of our systems to relatively few customers will continue toaccount for a high percentage of net sales during future periods.

Aviza Technology, Inc. was incorporated on December 8,2004 to facilitate the merger transaction of our subsidiaries, Aviza, Inc. andTrikon Technologies, Inc. Aviza, Inc. was incorporated on September 18, 2003 byaffiliates of VantagePoint as Thermal Acquisition Corporation, a Delawarecorporation, for the purpose of acquiring the business of the Thermal Divisionof ASML Holding, N.V., a Netherlands corporation, which division of ASML isreferred to in this discussion as the Predecessor.  On October 10, 2003, Thermal AcquisitionCorporation acquired the business of the Predecessor and changed its name toAviza Technology, Inc., which name was subsequently changed to Aviza, Inc. inconnection with the merger transaction with Trikon.

On December 1, 2005, we completed the mergertransaction with Trikon, and our common stock is publicly traded on the NasdaqGlobal Market under the symbol “AVZA.” We accounted for the merger transactionas a purchase of Trikon, using the purchase method of accounting.  As a result of the merger transaction, ourresults of operations include Trikon’s results of operations for all periodsafter December 1, 2005.

We are often required to develop systems in advance ofour customers’ demand for those systems, and we undertake significant systemdevelopment efforts in advance of any of our customers expressly indicatingdemand for our systems.  Our systemdevelopment efforts typically span six months to two years.

We intend to pursue strategic acquisitions of othersemiconductor equipment companies and other complementary technologies that webelieve will enable us to expand our system offerings in the IC fabricationequipment market.

**Critical AccountingPolicies**

Our discussion and analysis of our financial conditionand results of operations is based on our consolidated financial statementsthat have been prepared in accordance with accounting principles generallyaccepted in the United States of America. The preparation of these financial statements requires us to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenueand expenses.  We base our estimates onhistorical experience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under different assumptionsor conditions.

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We believe that the following critical accountingpolicies affect our more significant judgments used in the preparation of ourconsolidated financial statements:

***Acquisitionsof the Businesses of the Predecessor and Trikon***

In connection with our acquisitions of the businessesof the Predecessor and Trikon, we allocated the purchase price associated withthe acquisition of the tangible and intangible assets acquired and liabilitiesassumed based on their estimated fair values. The valuations of these intangible assets required us to makesignificant estimates and assumptions.

The critical estimates we used in allocating thepurchase price included future expected cash flows from customer contracts,distribution agreements and acquired developed technologies, as well as assumptionsabout the periods of time the systems would continue to be used in ourportfolio of systems.  Our estimates offair value at the time they were made were based upon assumptions that webelieved to be reasonable, but which are inherently uncertain and unpredictable.

***RevenueRecognition***

We recognize revenue in accordance with StaffAccounting Bulletin No. 104 (“SAB 104”) and EITF 00-21.  These accounting standards require that fourbasic criteria must be met before revenue can be recognized:

(1) persuasive evidence of an arrangement exists; (2)delivery has occurred or services have been rendered; (3) the price is fixed ordeterminable; and (4) collectability is reasonably assured.  Determination of criteria for items (3) and(4) above is based on our judgment regarding the fixed nature of the amountscharged for the systems delivered and the collectability of those amounts.

We often undertake significant system developmentefforts in advance of any of our customers expressly indicating demand for oursystems.  As a result of the length ofour sales cycles, our net sales for any period are generally weighted towardsystems that we introduced for sale in prior years.  For purposes of revenue recognition, weclassify our systems into two categories, “proven technology” and “newtechnology.” “Proven technology” systems are those systems with respect towhich we have a history of successful installations within a reasonable timeframe of delivery and the costs to complete installation do not vary materiallyfrom one instance to another.  “Newtechnology” systems are those systems with respect to which we cannotdemonstrate that we can meet the provisions of customer acceptance at the timeof shipment.

We typically sell equipment and installation servicesas a bundled arrangement.  In accordancewith EITF 00-21, the fair value of installation is determined as the price wecharge for similar installation services provided to our customers withoutregard to the warranty provisions.  Uponshipment of “proven technology,” we record revenue upon shipment at the lesserof (i) the residual amount after deducting the fair value of undeliveredservices from the contractual value or (ii) the non-contingent amount.  The remaining contractual revenue is recordedupon successful installation of the system. Cost of the equipment relating to “proven technology” is recorded uponshipment.  To the extent a loss iscalculated on shipment due to the foregoing deferral of revenue, a portion ofthe cost is also deferred to reflect zero gross profit at the time ofshipment.  The residual revenue, deferredcosts and installation costs are recorded upon successful installation of thesystem.  Revenue and cost of equipmentand installation relating to “new technology” is deferred until installationand acceptance at the customer’s premises is completed.

The result of these accounting policies is that for “newtechnology,” our recognition of both revenue and cost of goods sold is delayeduntil customer acceptance, at which time both revenue and cost of goods soldare recognized in full in determining our gross margin.  However, for “proven technology,” our cost ofgoods sold may be recognized in full upon shipment, but recognition of aportion of our revenue is delayed until successful installation of thesystem.  This can result in diminishedgross margins at the time of shipment.

Revenue from services is recognized as the servicesare performed.  Revenue from prepaidservice contracts is recognized ratably over the life of the contract.  Revenue from spare parts is recorded uponshipment.

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We assess collectability based on the creditworthinessof our customers and past transaction history. We perform ongoing credit evaluations of our customers.  In addition, we require collateral fromcertain of our customers in the form of letters of credit.  We have not experienced significantcollection losses in the past.  However,a significant change in the liquidity or financial position of any one of ourcustomers, especially one or more of our most significant customers, could makeit more difficult for us to assess creditworthiness, which could result in afinancial loss.

***InventoryValuation***

We assess the recoverability of our inventory at theend of each quarter based on assumptions about customer demand and marketconditions.  Obsolete inventory orinventory in excess of our estimated usage is written down to its estimatedmarket value less costs to sell.  Theinventory write-downs are recorded as an inventory valuation allowanceestablished on the basis of obsolete inventory or specifically identifiedinventory in excess of established usage. Inherent in our estimates of market value in determining inventoryvaluation are estimates related to economic trends, future demand for oursystems and technological obsolescence of our systems.  If actual market conditions are lessfavorable than our projections, we may be required to write down additionalinventory.

***Warranty***

We accrue for the estimated cost of the warranty onour systems as cost of goods sold, which includes the cost of the labor andparts necessary to repair systems during the warranty period.  The amounts recorded in the warranty accrualare estimated based on actual historical expenses incurred and on estimatedprobable future expenses related to our current sales.  The warranty service is generally incurredratably over the warranty period.  Oursystems typically have warranty periods ranging from one to three years.  Our actual warranty costs in the future mayvary from our historical warranty costs, which could result in adjustments toour warranty reserves in future periods.

***IncomeTaxes***

As part of the process of preparing our financialstatements, we are required to estimate our income tax provision (benefit) ineach of the jurisdictions in which we operate. This process requires us to estimate our current income tax provision(benefit) and assess temporary differences resulting from differing treatmentof items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, whichare included in our balance sheet.

We record a valuation allowance to reduce our deferredtax assets to the amount that is more likely than not to be realized.  While we have considered future taxableincome and any ongoing prudent and feasible tax planning strategies inassessing the need for the valuation allowance, if we were to determine that wewould be able to realize our deferred tax assets in the future in excess of ournet recorded amount, an adjustment to the deferred tax asset would increaseincome in the period such determination was made.  Likewise, if we were to determine that wewould 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 June 29, 2007, we had a full valuation allowance for our netdeferred tax assets.

***Stock-BasedCompensation***

Effective October 1, 2005, we adopted the provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 123(R), *Share-Based Payment* (“SFAS 123(R)”).  SFAS 123(R) establishes accounting for stock-basedawards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date,based on the fair value of the award, and is recognized as an expense over theemployee’s requisite service period.  Wepreviously applied Accounting Principles Board (“APB”) Opinion No. 25, “*Accounting for Stock Issued to Employees*,” and relatedInterpretations and provided the pro forma disclosures of SFAS No. 123, *Accounting for Stock-Based Compensation*(“SFAS 123”).

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We adopted the modified prospective application methodas provided by SFAS 123(R).  Under thismethod, SFAS 123(R) was applied to new awards and to awards modified,repurchased or cancelled after the effective date.  Additionally, compensation cost for theportion of awards for which the requisite service has not been rendered, suchas unvested stock options, that are outstanding as of the date of adoption willbe recognized as the remaining requisite services are rendered.  The compensation cost relating to unvestedawards on the date of adoption was based on the grant-date fair value for thoseawards granted after June 24, 2005, the date of our initial filing of our FormS-4 registration statement relating to our merger transaction with Trikon, andbased on the intrinsic values as previously recorded under APB Opinion No. 25for awards granted prior to that date.

The fair value of each option is estimated at the dateof grant using the Black-Scholes option valuation model.  We estimate expected stock price volatilitybased on historical volatility within a representative peer group.  We believe that because of our limitedhistory and our merger transaction with Trikon, the expected life of ouroptions should be determined by using the methodology under the safe harborprovisions of Staff Accounting Bulletin 107, “Share-Based Payment” (“SAB 107”),released by the SEC. The risk-free interest rate for periods within theexpected life of the option is based on the U.S. Treasury yield.

***Resultsof Operations***

The financial informationin the table below is for the quarters and nine months ended June 29, 2007 andJune 30, 2006:

|                                      | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| Net sales                            |       | 100                     | %          | 100                             | %          | 100 | % | 100 | % |
| Cost of goods sold                   |       | 68                      | %          | 75                              | %          | 69 | % | 75 | % |
| Gross margin                         |       | 32                      | %          | 25                              | %          | 31 | % | 25 | % |
| Operating expenses:                  |       |                    |       |                            |       |   |   |   |   |
| Research and  development            |       | 14                      | %          | 15                              | %          | 13 | % | 17 | % |
| Selling, general  and administrative |       | 15                      | %          | 16                              | %          | 14 | % | 17 | % |
| In-process  research and development |       | 0                       | %          | 0                               | %          | 0 | % | 0 | % |
| Total operating  expenses            |       | 29                      | %          | 31                              | %          | 27 | % | 34 | % |
| Income (loss) from  operations       |       | 3                       | %          | (6                              | )%         | 4 | % | (9 | )% |
| Other income (expense):              |       |                    |       |                            |       |   |   |   |   |
| Interest income                      |       | 0                       | %          | 0                               | %          | 0 | % | 0 | % |
| Interest expense                     |       | (1                      | )%         | (3                              | )%         | (2 | )% | (4 | )% |
| Other income  (expense), net         |       | 0                       | %          | 0                               | %          | 0 | % | 0 | % |
| Total other  income (expense)        |       | (1                      | )%         | (3                              | )%         | (2 | )% | (4 | )% |
| Income (loss) before  income taxes   |       | 2                       | %          | (9                              | )%         | 2 | % | (13 | )% |
| Income taxes                         |       | 1                       | %          | 0                               | %          | 1 | % | 0 | % |
| Net income (loss)                    |       | 1                       | %          | (9                              | )%         | 1 | % | (13 | )% |

 

***NetSales***

|           | ** ** | **Quarter Ended**  | ** ** | **Nine Months Ended** | ** ** |
|-----------|------------|-------------------------|------------|---------------------------------|------------|
|           | ** ** | **June 29,  2007** | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
|      | ** ** | **(in thousands)**      |       |
| Net sales |       | $                       | 57,421     |                            | $          | 43,662 |   | $ | 181,251 |   | $ | 108,846 |   |
|           |            |                         |            |                                 |            |  |  |  |  |  |  |  |  |

 

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Net sales for the quarterended June 29, 2007 increased by approximately $13.8 million, or 32%, from thequarter ended June 30, 2006.  Thisincrease was due primarily to the following:

·                                          Approximately$5.7 million increase in net sales of our PVD, Etch and CVD systems primarilyrelated to increased unit shipments of our systems during the quarter endedJune 29, 2007 over the quarter ended June 30, 2006.  The increase also reflects greaterpenetration of these products into the Asia Pacific markets.

·                                          Approximately$8.2 million increase in net sales related to our deposition and thermalprocessing systems.  Sales recognizedupon shipment of our ALD systems increased by approximately $6.9 million.  Overall unit shipments of our deposition andthermal processing systems increased by 4% during the quarter ended June 29,2007 over the quarter ended June 30, 2006. Sales recognized upon customer acceptance of our systems increased byapproximately $2.3 million due to higher RVP 300*plus*and ALD system acceptances.  Service andspare parts sales decreased by approximately 12% over the quarter ended June30, 2006 due primarily to lower volume in the Asia Pacific region.

Net sales for the nine months ended June 29, 2007increased by approximately $72.4 million, or 67%, over the nine months endedJune 30, 2006.  This increase was dueprimarily to the following:

·                                          Theintegration of our PVD, Etch and CVD system lines into our suite of productsand customer base.  Because our mergerwith Trikon occurred on December 1, 2005, the nine-month period ended June 30,2006 included only $17.9 million of net sales contributed by our Trikonsubsidiary.  Net sales related to thesesystems during the nine months ended June 29, 2007 increased by approximately$27.0 million over the nine months ended June 30, 2006.  Unit shipments of our PEC systems increasedby approximately 200% during the nine months ended June 29, 2007 as compared tothe nine months ended June 30, 2006.  In additionto the timing of the merger transaction, increased penetration of thesesystems, particularly our Etch systems into the Asia Pacific market contributedsignificantly to the growth in system sales. Service and spare parts related to the PEC systems increasedapproximately 45% during the nine months ended June 29, 2007 as compared to thenine months ended June 30, 2006.

·                                          Approximately$45.4 million increase in net sales related to our deposition and thermalprocessing equipment.  Unit shipments ofour deposition and thermal processing equipment increased by 50% during the ninemonths ended June 29, 2007 over the nine months ended June 30, 2006.  Net sales recognized upon shipment increasedby $43.0 million due to the increase in shipments, lower average revenuedeferrals on our RVP 300*plus* systemsand sales recognized on our ALD Celsior system shipments.  The lower average revenue deferrals on theRVP 300*plus* systems are primarily the result ofmore favorable payment terms negotiated with our customers.  The change in payment terms in most instancesreduces the amount of contingent revenue that we need to defer upon systemshipment.  Service and spare parts salesincreased by approximately 7% due primarily to increased demand in the AsiaPacific region and field option upgrade sales.

During the quarter and nine months ended June 30,2006, our ALD Celsior system was considered to be “new technology” for revenuerecognition purposes.  Under our revenuerecognition policy, sales of systems considered to be new technology are 100%deferred at shipment and not recognized until customer acceptance.  Upon achievement of the required number ofcustomer acceptances necessary to transition a system to proven technology, allnon-contingent revenue associated with shipments of that particular system isrecognized upon shipment.  During the quarterand nine months ended June 29, 2007, we recognized $10.1 million and $25.9million in net sales upon shipment of our ALD systems, respectively.

During the quarter ended December 29, 2006, our DeepSilicon Etch Chamber, or DSi Chamber, which offers benefits to production usersin system-in-package, wafer level packaging and conventional micro electromechanical systems applications, became “proven technology” after sufficientsuccessful installations and acceptances at our customer sites to warrant thechange from “new technology” to “proven technology.”

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***GrossProfit and Gross Margin***

Gross profit is the difference between net sales andcost of goods sold.  Cost of goods soldconsists of purchased material, labor and overhead to manufacture equipment orspare parts and the cost of service and factory and field support to customersfor warranty, installation and paid service calls.  In addition, the cost of outsourcing theassembly or manufacturing of systems and subsystems to third parties isincluded in cost of goods sold.  Grossmargin is gross profit expressed as a percentage of net sales.
| ** **   | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|--------------|------------|----------------------------|------------|---------------------------------|------------|
|              | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **   | ** ** | **(dollars in thousands)** | ** ** |
| Gross profit |       | $                          | 18,175     |                            | $          | 10,746 |   | $ | 55,947 |   | $ | 27,072 |   |
| Gross margin |       | 32                         | %          | 25                              | %          | 31 | % | 25 | % |
|              |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

The increase in gross margin of 7% during the quarterended June 29, 2007 as compared to the quarter ended June 30, 2006 wasprimarily the result of improved gross margins on net sales recorded atshipment of our thermal processing systems and improved gross margins on thenet sales recorded on customer acceptance of our systems.  These improvements are summarized as follows:

·                                          Grossmargin recognized on shipment of the RVP 300*plus* systemsincreased by approximately 11% over the June 2006 quarter.  This was due primarily to certainreconfigurations of the systems, which more than offset lower average sellingprices.  Net sales on RVP 300*plus* systems constituted 33% of net sales during the quarterended June 29, 2007 as compared to 38% during the quarter ended June 30, 2006.

·                                          Netsales related to the shipment of our higher gross margin PEC systems increasedto 20% of net sales during the quarter ended June 29, 2007 from 13% during thequarter ended June 30, 2006.

·                                          Netsales related to the shipment of higher gross margin ALD Celsior systemsincreased to 20% of total net sales which contributed to higher gross marginsduring the quarter ended June 29, 2007. Net sales on the shipment of ALDCelsior systems during the quarter ended June 30, 2006 constituted 5% of totalnet sales.

·                                          Grossmargin recognized upon customer acceptance of our systems increased byapproximately 25% due primarily to lower costs deferred at shipment on the RVP300*plus* systems related to lowermanufacturing costs and increased PEC system acceptance.

·                                          Lowerservice revenue as a percentage of total revenue partially offset gross marginimprovements in other areas.

During the nine months ended June 29, 2007, grossmargin increased by 6% as compared with the nine months ended June 30,2006.  The increase was primarily due tothe following:

·                                          Changesin the product mix of the systems sold. The percentage of net sales attributable to the higher gross margin ALDand PEC systems increased by 7% and 9%, to 15% and 20% of total net sales,respectively.  These product miximprovements were partially offset by lower service revenues as a percentage oftotal revenue during the nine months ended June 29, 2007 as compared to thenine months ended June 30, 2006.

·                                          Grossmargins recognized on shipment of our RVP 300*plus*systems increased by 7% due to lower manufacturing costs which more than offsetlower average selling prices.

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·                                          TheALD Celsior system achieved significantly higher gross margins than itspredecessor, the ALD Pantheon system.

·                                          Grossmargins recognized on shipment of our PEC systems that we acquired in ourmerger with Trikon in December 2005 increased by 4% during the nine monthsended June 29, 2007 as compared to the nine months ended June 30, 2006.  This was primarily due to purchase accountingadjustments related to inventory that we acquired in our merger with Trikon inDecember 2005.

·                                          Grossmargins recognized on acceptance of our systems increased by 16% primarily dueto lower costs deferred at shipment on the RVP 300*plus*system contributed by lower manufacturing costs and increased PEC systemsacceptance related gross margin.

***Researchand Development***

Research and development expense consists ofemployment costs attributable to employees, consultants and contractors whoprimarily spend their time on system design, engineering and processdevelopment; materials and supplies used in system 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.  We also include in researchand development expenses associated with the preparation, filing andprosecution of patents and other intellectual property.
| ** **                     | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------|------------|----------------------------|------------|---------------------------------|------------|
|                                | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)** | ** ** |
|  Research and development |       | $                          | 8,101      |                            | $          | 6,547 |   | $ | 23,815 |   | $ | 17,743 |   |
|  Percent of net sales     |       | 14                         | %          | 15                              | %          | 13 | % | 17 | % |
|                                |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

The increase in research and development costs ofapproximately $1.6 million, or 24%, during the quarter ended June 29, 2007 overthe quarter ended June 30, 2006 was primarily due to increased prototype supplyspending, salaries and benefits, stock based compensation and demonstration labcosts.  These increases were related toongoing research and development activities in support of the PEC, ALD andthermal batch processing system lines. Lower patent related legal costs and other outside services costspartially offset these increases.

During the nine months ended June 29, 2007, researchand development costs increased by approximately $6.1 million, or 34%, ascompared to the nine months ended June 30, 2006.  The increase in research and developmentcosts was due to the following:

·                                          Increasedcosts related to ongoing research and development of PEC related productstotaling $4.1 million.  Approximately$1.2 million of the increase was related to prototype materials supporting anext generation product development project. In addition, the nine months ended June 30, 2006 only included costsincurred subsequent to the December 2005 merger with Trikon.

·                                          Increasedsalaries and benefits, stock based compensation and development lab relatedcosts, including facilities, supplies, chemicals and gases, and depreciation,partially offset by lower patent related legal costs, made up the majority of a$1.9 million increase in costs related to our ongoing ALD and thermal batchprocessing research and development efforts.

***Selling,General and Administrative***

Selling, general and administrative expense consistsof employment costs attributable to employees, consultants and contractors whoprimarily spend their time on sales, marketing and order administration and

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corporate administrative services; occupancy costsattributable to employees performing these functions; sales commissions;promotional marketing expenses; and legal and accounting expenses.
| ** **                           | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                           | ** ** | **(dollars in thousands)** | ** ** |
| Selling, general and  administrative |       | $                          | 8,217      |                            | $          | 6,795 |   | $ | 24,846 |   | $ | 18,392 |   |
| Percent of net sales                 |       | 15                         | %          | 16                              | %          | 14 | % | 17 | % |
|                                      |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

The increase in selling, general and administrativeexpense of approximately $1.4 million, or 21%, in the quarter ended June 29,2007 as compared to the quarter ended June 30, 2006 was primarily due toapproximately $0.6 million of increases in salaries, stock compensation expenseand commissions, $0.3 million in increased cost related to internationalinfrastructure build-up, a $0.2 million increase in outside service costsrelated primarily to the upgrade of our Oracle system and preparing toimplement the requirements of Sarbanes-Oxley and approximately $0.5 millionrelated to foreign currency exchange transactions.  These increases were partially offset bylower legal and accounting costs and lower licensing and franchise tax feestotaling approximately $0.5 million.

Selling, general and administrative expenses increasedby approximately $6.5 million, or 35%, during the nine months ended June 29,2007 as compared to the nine months ended June 30, 2006.  The increase was related primarily toincreased salaries and benefits, stock compensation expense and commission ofapproximately $2.4 million, increased legal and accounting costs of $0.6million, increases in export, licensing and franchise tax fees of $0.2 million,increased costs related to international infrastructure build-up of $0.7million and approximately $0.5 million increase in fees for outside servicesrelated primarily to the Oracle upgrade and preparing to implement therequirements of Sarbanes-Oxley.  A lowernet gain on foreign currency transaction and an increase in allocated facilitycosts of $0.4 million and $0.3 million, respectively, also contributed to theincrease.  In addition, $0.8 million inincreased selling, general and administrative costs was due to the inclusion ofthe merged Trikon subsidiary for only a portion of the nine-month period endedJune 30, 2006 subsequent to our December 2005 merger transaction with Trikon.

***In-processResearch and Development***
| ** **                                | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)** | ** ** |
|  In-process research and development |       | $                          | —     |                            | $          | (29 | ) | $ | — |   | $ | 373 |   |
|  Percent of net sales                |       | 0                          | %          | 0                               | %          | 0 | % | 0 | % |
|                                           |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

In-process research and development costs incurredduring the nine months ended June 30, 2006 were the result of our mergertransaction with Trikon in December 2005 and represent the write-off oftechnology that had not reached technological feasibility at the time of themerger.

***InterestExpense***
| ** **           | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|----------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **           | ** ** | **(dollars in thousands)** | ** ** |
| Interest expense     |       | $                          | 663        |                            | $          | 1,424 |   | $ | 2,978 |   | $ | 4,166 |   |
| Percent of net sales |       | 1                          | %          | 3                               | %          | 2 | % | 4 | % |
|                      |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

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Our interest expense for the quarters and nine monthsended June 29, 2007 and June 30, 2006 consisted primarily of interest incurredon our revolving line of credit, another line of credit, which is secured by amortgage on our land and buildings, amortization of debt issuance costs 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.  In addition, dividends that were accrued onour mandatorily redeemable Series B and B-1 preferred stock were charged tointerest during the quarter and nine months ended June 30, 2006.

During April 2007, we entered into a new creditagreement with a syndication of banks to refinance our existing bank loans andmortgage note payable.  The new creditfacility includes a revolving line of credit, an equipment term loan andcommercial real estate loan.

Aggregate borrowings under our new revolving line ofcredit, equipment term loan and commercial real estate loan were $31.7 millionat June 29, 2007.  Aggregate borrowingsunder the prior credit facilities were $37.1 million at June 30, 2006.

During the quarter ended June 29, 2007, interestexpense decreased by approximately $0.8 million from the quarter ended June 30,2006 due to a combination of lower average borrowings and lower interest rateson our new credit facility.  In additionlower debt issuance costs and warrant amortization contributed to lowerinterest expense for the quarter.

Interest expense during the nine months ended June 29,2007 was approximately $1.2 million less than the nine months ended June 30,2006 due primarily to the lower interest rate on our new credit facilities,lower debt issuance and warrant amortization costs and no dividends beingrecorded on our mandatorily redeemable Series B and B-1 preferred stock duringthe nine months ended June 29, 2007, as these shares were converted to ourcommon stock in April 2006.  Dividendsrecorded during the nine months ended June 30, 2006 were approximately $0.5million.

***OtherIncome (Expense)-net***
| ** **                  | ** ** | **Quarter Ended**     | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **June 29,  2007**    | ** ** | **June 30,  2006**         | ** ** | **June 29,  2007** | ** ** | **June 30,  2006** | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** |
| Other income  (expense)-net |       | $                          | (449       | )                               | $          | 16 |   | $ | (425 | ) | $ | (129 | ) |
| Percent of net sales        |       | 0                          | %          | 0                               | %          | 0 | % | 0 | % |
|                             |            |                            |            |                                 |            |  |  |  |  |  |  |  |  |

 

Other income (expense)-net during the quarter and ninemonths ended consisted primarily of the write off of approximately $461,000 incosts related to our prior financing agreements, which were refinanced througha different lender during the quarter ended June 29, 2007.

***IncomeTaxes***

Because we have incurred significant operating losses,we have recorded no material federal or state income taxes.  We recorded income taxes relating to certainprofitable international subsidiaries.

***Liquidityand Capital Resources***

At June 29, 2007, our cash and cash equivalents were$22.0 million as compared to $10.7 million at September 29, 2006.  The net increase in cash and cash equivalentswas primarily due to the following:

·                                          Proceedsfrom our public offering of 4,600,000 shares of our commons stock at $6.50 pershare. Cash received from this offering net of direct offering costs was approximately$27.5 million;

·                                          Reductionsin borrowings of approximately $4.2 million;

·                                          Cashused in operations of approximately $4.5 million primarily related to increasedaccounts receivable and reductions in accounts payable, which more than offsetnet income adjusted for non-cash reconciling items and reductions ininventories; and

·                                          Cashused in our acquisition of approximately $7.5 million in plant and equipmentrelated primarily to our development and demonstration laboratories.

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During April 2007, we entered into a new creditagreement with a syndication of banks to refinance our existing bank loan andmortgage note payable.  The new creditfacility includes a revolving line of credit secured by accounts receivable andinventory, an equipment term loan and a commercial real estate term loan.  We may borrow up to $55,000,000 under the newcredit facility.  The revolving portionof the loan has a two-year term.  Theequipment term loan has a three-year amortization period with monthly paymentsof principal and accrued interest and is secured by a lien on the equipment ofthe Company.  Maximum borrowings underthis provision of the facility are $4,000,000, which we borrowed during thequarter ended June 29, 2007.  The realestate portion of the facility has a four-year term and is secured by a deed oftrust on our Scotts Valley facility. Monthly payments of principal and accrued interest will be based on a20-year amortization period of the loan principal.  Maximum borrowing under the real estateportion of the facility is $11,935,000, which we borrowed during the quarterended June 29, 2007.  As principal ispaid down under the equipment and real estate portions of the facility,additional borrowing availability will be created under the revolving portionof the credit facility so that we have a maximum of $55,000,000 in borrowingavailability at all times under the agreement. The weighted-average interest rate for the quarter ended and atJune 29, 2007 for these loans was 7.75%. The credit agreement contains certain financial and operatingcovenants.  As of June 29, 2007, we were incompliance with these financial and operating covenants. Loan commitment feesand other direct expenses totaling $302,000 incurred to secure the facility,will be amortized over the life of the loans.

We currently anticipate that our existing cashbalances, cash provided by operations, and available borrowings under our newcredit agreement will be sufficient to meet our anticipated cash needs for atleast the next 12 months.  However, wemay choose to raise additional capital from the sale of debt or equitysecurities or from other sources in order to support our operations andexpansion plans.  We may not be able toobtain any additional capital on acceptable terms, if at all.

***CashFlows from Operating Activities***

Cash used in operating activities for the nine monthsended June 29, 2007 was $4.5 million. Net income during the nine months ended June 29, 2007 of approximately$3.0 million, together with non-cash expense adjustments (primarilydepreciation, amortization, stock-based compensation, bad debt and netoperating loss utilization) aggregating $6.0 million, provided cash fromoperating activities to offset cash used to fund changes in operating assetsand liabilities.  Net changes inoperating assets and liabilities during the nine months ended June 29, 2007used approximately $13.5 million of cash. Cash used to fund increases in accounts receivable and a reduction inaccounts payable was $13.9 million and $11.2 million, respectively.  These uses of cash were partially offset bycash generated through reductions in inventory, decreases in prepaid and otherassets and increases in warranty liability and accrued liabilities ofapproximately $8.8 million, $0.1 million, $1.1 million and $1.6 million,respectively.

***CashFlows from Investing Activities***

Cash used in investing activities for the nine monthsended June 29, 2007 was $7.5 million. Investing activities during the nine months ended June 29, 2007consisted of purchasing equipment primarily used in our development anddemonstration laboratories.

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***CashFlows from Financing Activities***

Net cash generated by financing activities for thenine months ended June 29, 2007 was $23.5 million.  Net proceeds from our public offering of4,600,000 shares of our common stock and exercise of stock options provided$27.7 million in cash.  Reduction of ouraggregate borrowings partially offset proceeds from the issuance of our commonstock.

***Off-BalanceSheet Arrangements***

As of June 29, 2007, we had no off-balance sheetarrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by theSecurities and Exchange Commission.

***ContractualObligations***

Other than operating leases for certain equipment andreal assets, we have no significant off-balance sheet transactions or unconditionalpurchase obligations.  As of June 29,2007, our cash obligations and commitments relating to our debt obligations andlease payments were as follows:
| ** **                            | ** ** | **Payments due by period** | ** ** |
|---------------------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | **Total**                  | ** ** | **Less Than One  Year** | ** ** | **One to Three  Years** | ** ** | **Three to Five  Years** | ** ** | **Greater than  Five Years** | ** ** |
|                                  | ** ** | **(in thousands)**         | ** ** |
| Bank loan (Revolving  line of Credit) |       | $                          | 15,936     |   | $ | 15,936 |   | $ | — |   | $ | — |   | $ | — |   |
| Equipment note payable                |       | 3,905                      |       | 1,239 |   | 2,666 |   | — |   | — |   |
| Mortgage note payable                 |       | 11,846                     |       | 257 |   | 583 |   | 11,006 |   | — |   |
| Other notes payable                   |       | 818                        |       | 454 |   | 364 |   | — |   | — |   |
| Operating lease  obligations          |       | 6,232                      |       | 2,772 |   | 3,192 |   | 109 |   | 159 |   |
| Capital lease obligations             |       | 742                        |       | 322 |   | 394 |   | 26 |   | — |   |
|                                       |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Payments due by period include interest expense on alldebt and capital lease obligations with fixed interest rates.  This excludes interest on our revolving lineof credit, equipment and mortgage notes payable.

***RecentAccounting Pronouncements***

During the quarter ended September 29, 2006, theSecurities and Exchange Commission (“SEC”) released Staff Accounting Bulletin108, “Considering the Effects of Prior Year Misstatements in Current YearFinancial Statements” (“SAB 108”), which provides guidance on how the effectsof the carryover or reversal of prior year misstatements should be consideredin quantifying a current year misstatement. SAB 108 calls for the quantification of errors using both a balancesheet and income statement approach based on the effects of such errors on eachof the company’s financial statements and the related financial statementdisclosures.  SAB 108 is effective forfinancial statements issued for the fiscal year ending after November 15,2006.  Adoption of SAB 108 did not have animpact on our results of operations or financial condition.

On December 21, 2006, the Financial Accounting StandardsBoard (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)00-19-2, “Accounting for Registration Payment Arrangements,” which requires anissuer to account for a contingent obligation to transfer consideration under aregistration payment arrangement in accordance with FASB Statement No. 5, “Accountingfor Contingencies” and FASB Interpretation 14, “Reasonable Estimation of theAmount of Loss.”  Registration paymentarrangements are frequently entered into in connection with issuance ofunregistered financial instruments, such as equity shares or warrants.  A registration payment arrangementcontingently obligates the issuer to make future payments or otherwise transferconsideration to another party if the issuer fails to file a registrationstatement with the SEC for the resale of specified financial instruments orfails to have the registration statement declared effective within a specificperiod.  The FSP requires issuers to makecertain disclosures for each registration payment arrangement or group ofsimilar arrangements.  The

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FSP is effective immediately for registration paymentarrangements and financial instruments entered into or modified after the FSP’sissuance date.  For previously issuedregistration payment arrangements and financial instruments subject to thosearrangements, the FSP is effective for financial statements issued for fiscalyears beginning after December 15, 2006. The adoption of this FSP did not have a significant impact on ourfinancial condition or results of operations.

In June 2006, the FASB issued FASB Interpretation No.48, *Accounting for Uncertainty in IncomeTaxes* (“FIN No. 48”), which clarifies the accounting for uncertaintyin income taxes recognized in the financial statements in accordance with SFASNo. 109, *Accounting For Income Taxes*(“SFAS109”).  The interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return.  Theinterpretation also provides guidance in derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  FIN No. 48 requires that tax positions previously held whichno longer meet the more-likely-than-not recognition threshold should bederecognized in the first financial reporting period in which the threshold isno longer met.  Use of a valuation allowance as per SFAS 109, is no longeran appropriate substitute for the derecognition of a tax position.  Theinterpretation is effective for fiscal years beginning after December 15,2006.  We have not yet evaluated the impact of the adoption of FIN No. 48on our financial position, results of operations or cash flows.

**ITEM3.**                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures aboutmarket risk currently affecting Aviza, see Item 7A:  “Quantitative and Qualitative DisclosuresAbout Market Risk” included in our Annual Report on Form 10-K for the fiscalyear ended September 29, 2006.  TheCompany’s exposure to market risk has not changed materially since September29, 2006.

**ITEM4.**                             CONTROLS AND PROCEDURES

***DisclosureControls and Procedures***

We maintain disclosure controls and procedures thatare designed with the objective of providing reasonable assurance thatinformation required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.  In designing and evaluatingour disclosure controls and procedures, management recognizes that any controlsand procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, and ourmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

As of June 29, 2007, the end of the period covered bythis report, based on the evaluation of our Chief Executive Officer and ChiefFinancial Officer of the effectiveness of the design and operation of ourdisclosure controls and procedures, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective.

***Changesin Internal Control Over Financial Reporting***

There was no change in our internal control overfinancial reporting during the three months ended June 29, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PARTII.  OTHER INFORMATION**

**ITEM1.**                             LEGAL PROCEEDINGS

On April 11, 2006, IPS, Ltd. filed a lawsuit againstus in the United States District Court for the Central District of California.The complaint alleges that we improperly used IPS’s confidential information todevelop our Celsior single-wafer atomic layer deposition technology. We havefiled an answer denying the claim. The complaint is for unspecified monetarydamages, injunctive relief and an order rescinding the settlement anddistributor agreements that IPS and Aviza entered into in May 2004 insettlement of a prior lawsuit that IPS filed against ASML U.S., Inc. and Avizain March 2004 relating to assets that we acquired from ASML in October 2003. Webelieve that we have complied with the settlement and distributor agreementsand that the allegations contained in IPS’s complaint are without merit. Weintend to contest the lawsuit vigorously. In May 2007, Aviza successfully moved the dispute into arbitration.Discovery commenced in June 2007.

Prior to our merger transaction with TrikonTechnologies, Inc., Trikon was a party to an employment lawsuit in France.  On March 10, 2004, Dr. Jihad Kiwan departedTrikon 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 to Dr.Kiwan with respect to his employment with Trikon.  On April 28, 2004, Dr. Kiwan filed a lawsuitin France and on June 10, 2004, filed similar proceedings in the UnitedKingdom.  Dr. Kiwan has subsequentlywithdrawn the proceedings in the United Kingdom.  We are in the process of vigorouslycontesting the French claim and do not believe that the outcome of the claimwill be material to our business, financial condition or results of operations.

**ITEM1A.**                    RISK FACTORS

There are no material changes to the risk factorsdescribed in the section entitled “Risk Factors” in Item 1A in Part II of ourQuarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2007,except for the deletion of the risk factor entitled, “We are subject to exportregulations and could be required to pay substantial fines and penalties if wefail to comply with these regulations.”

***Wereceive most of our net sales from a small number of customers, and the lossof, or a significant reduction or fluctuation in, orders from those customerscould seriously harm our business.***

For the nine months ended June 29, 2007, approximately35% of our net sales were attributable to Inotera Memories Inc. andapproximately 69% of our sales were attributable to our top 10 customers.  For our fiscal year ended September 29, 2006,approximately 35% of our net sales were attributable to two customers andapproximately 74% of our net sales were attributable to our top 10customers.  Winbond Electronics Corp. andInotera Memories, Inc. accounted for 24% and 11% of our net sales in fiscal2006, respectively.  For our fiscal yearended September 30, 2005, approximately 69% of our net sales were attributableto three customers and approximately 84% of our net sales were attributable toour top 10 customers.  Inotera Memories,Inc., Infineon Technologies AG and Winbond Electronics Corp. accounted for 43%,15% and 11% of our net sales in fiscal 2005, respectively.  We expect to continue to receive asubstantial portion of our net sales from a small number of customers for theforeseeable future.  If our largestcustomers delay, cancel or do not place orders, we may not be able to replacethose orders with new orders.  As weexpect to configure our systems to customer specifications, changing,rescheduling or canceling orders may result in significant non-recoverablecosts.  The loss of, or a significantreduction in, orders from any of our major customers could seriously harm ourbusiness.

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

Our business depends upon the capital expenditures ofsemiconductor manufacturers, which in turn depend on the current anticipatedmarket demand for ICs and, in particular, the DRAM segment of the semiconductorindustry, which accounted for a majority of our net sales for nine months endedJune 29, 2007 and the fiscal year ended September 29, 2006.  The semiconductor industry has historicallybeen cyclical due to sudden changes in manufacturing capacity.  These changes in capacity have affected thetiming and amounts of our customers’ capital

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equipment purchases and investments in technology, andcontinue to affect our orders, net sales, gross margins and results ofoperations.

During periods of decreasing demand for ICmanufacturing equipment, we must be able to align our cost structureappropriately with prevailing market conditions and motivate and retain keyemployees effectively.  Conversely,during periods of increasing demand, we must have sufficient manufacturingcapacity and inventory to meet customer demand and must be able to attract,retain and motivate a sufficient number of qualified individuals.  If we are unable to align our cost structurewith business conditions in a timely manner and manage our resources andproduction capacity effectively, it could harm our business, financialcondition and results of operations.

***Wehave incurred losses for most of our existence, and we may never again be ableto achieve profitability.***

We achieved net income of approximately $3.0 millionfor the nine months ended June 29, 2007. However, we incurred net losses of $14.7 million, $16.0 million and$19.7 million for the fiscal years ended September 29, 2006 (fiscal 2006),September 30, 2005 (fiscal 2005) and the fiscal period from October 7, 2003through September 24, 2004 (fiscal 2004), respectively.  As a result, we will need to continue toincrease our sales and reduce our costs in order to sustain profitability.  However, we may never again generatesufficient net sales or reduce our costs sufficiently to achieve profitability.  Even if we again achieve profitability, wemay not have sustainable profitability on a quarterly or annual basis in thefuture.  If we are unable to sustainprofitability, we may be forced to implement expense reduction measures,including selling assets, consolidating operations, reducing our workforce ordelaying, canceling or reducing certain system development, marketing or otheroperational programs, any of which could harm our business.

***Claimsor litigation regarding our intellectual property rights could seriously harmour business or require us to incur significant costs.***

In recent years, there has been significant litigationin the semiconductor equipment industry involving patents and otherintellectual property rights. Infringement claims have been asserted against us and may be assertedagainst us in the future, and we may not be able to defend ourselves againstsuch claims successfully.  Any claim thatour systems infringe the proprietary rights of others would force us to defendourselves and possibly our customers against the alleged infringement.  These claims and any resulting lawsuits, ifsuccessful, could subject us to significant liability for damages andinvalidate our proprietary rights.  Theselawsuits, regardless of their outcome, would likely be time-consuming and expensiveto resolve and would divert management’s time and attention.  Any potential intellectual propertylitigation could force us to do one or more of the following:

·                                          loseor forfeit our proprietary rights;

·                                          stopmanufacturing or selling systems that incorporate the challenged intellectualproperty;

·                                          obtainfrom the owner of the infringed intellectual property right a license to sellor use the relevant technology, which license may not be available onreasonable terms or at all and may involve significant royalty payments;

·                                          paydamages and attorneys’ fees in some circumstances; or

·                                          redesignthose systems that use the challenged intellectual property.

If we are forced to take any of these actions, ourbusiness could be severely harmed.

On April 11, 2006, IPS, Ltd. filed a lawsuit againstus in the United States District Court for the Central District of California.The complaint alleges that we improperly used IPS’s confidential information todevelop our Celsior single-wafer atomic layer deposition technology. Thecomplaint is for unspecified monetary damages, injunctive relief and an orderrescinding the settlement and distributor agreements that we and IPS enteredinto in May 2004 in settlement of a prior lawsuit that IPS filed against ASMLU.S., Inc. and us in March 2004 relating to

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assets that we acquired from ASML in October 2003. Weintend to contest the lawsuit vigorously. In May 2007, Aviza successfully moved the dispute into arbitration.Discovery commenced in June 2007.

In the event of a negative outcome in this dispute, wemay be required to discontinue sales of our Celsior system, forgo developmentof other atomic layer deposition systems and pay monetary damages and attorneys’fees, which could harm our business, financial condition and results ofoperations.

***Wewill not be able to compete effectively if we fail to address the technologyneeds of our customers.***

We operate in a highly competitive environment, andour future success is dependent upon our ability, in a timely andcost-effective manner, to:

·                                          developand market new systems and technologies;

·                                          improveour existing systems and technologies;

·                                          expandinto or develop equipment solutions for new markets for IC products;

·                                          achievemarket acceptance and accurately forecast demand for our systems andtechnologies;

·                                          achievecost efficiencies across our system offerings;

·                                          qualifynew or improved systems for volume manufacturing with our customers; and

·                                          lowerour customers’ cost of ownership.

We may not be able to forecast or respond accuratelyto the technological trends in the semiconductor industry or respond tospecific product announcements by competitors that may be developingtechnologies and systems that are more effective or that achieve morewidespread acceptance than ours.  We alsomay not be able to develop strategic alliances with equipment and materialssuppliers to the semiconductor industry to produce next-generation films andprocesses.  In addition, we may incursubstantial costs to ensure the functionality and reliability of our currentand future systems.  If our newlydeveloped systems are unreliable or do not meet our customers’ expectations,then we could experience reduced orders, higher manufacturing costs, delays incollecting accounts receivable or additional service and warrantyexpenses.  Our failure to meet ourcustomers’ technology needs and other demands will impair our ability tocompete effectively, which in turn could harm our business, financial conditionand results of operations.

***Weare substantially leveraged, which could limit our ability to adjust ourbusiness to respond to competitive pressures and to obtain sufficient funds tosatisfy our future manufacturing capacity and research and development needs.***

We have significant indebtedness.  At June 29, 2007, we had total debt ofapproximately $33.2 million.  Ourindebtedness could have serious consequences for our business, includinglimiting our ability to obtain additional financing in the future for workingcapital, capital expenditures, acquisitions and general corporate or otherpurposes.

Our ability to pay the principal of, and interest on,our indebtedness and to make planned expenditures will depend on our futureoperating performance, which could be affected by changes in economicconditions and other factors, some of which are beyond our control.  Our failure to comply with the covenants andother provisions contained in the agreements governing our indebtedness couldresult in events of default under these agreements, which in turn could permitour lenders to accelerate payment of our indebtedness.  If we are at any time unable to generatesufficient cash flows from operations to service our indebtedness, we may berequired to attempt to renegotiate the terms of our indebtedness, refinance allor a portion of our indebtedness or obtain additional financing.  We cannot assure you that we will be able tosuccessfully renegotiate or refinance our indebtedness or obtain any additionalfinancing on acceptable terms, or at all.

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***Wemay need to raise capital in order to support our operations, which capital maynot be available on terms acceptable to us, or at all.***

At June 29, 2007, we had cash and cash equivalents ofapproximately $22.0 million and short-term and long term debt of approximately$33.2 million.  We may need to raisecapital from the sale of debt or equity securities or other sources in order tosupport our operations.  We may not beable to obtain this capital on acceptable terms, or at all.  If we issue additional equity or convertibledebt securities to raise capital, your percentage ownership of Aviza will bereduced, and you may experience significant dilution.  In addition, new investors in Aviza maydemand rights, preferences or privileges that differ from, or are senior to,yours, including warrants in addition to the securities purchased andprotection against future dilutive transactions.

***Wehave long sales cycles for our systems, which may cause our results ofoperations to fluctuate from period to period.***

Our systems are technologically complex.  Our prospective customers generally mustcommit significant resources to test and evaluate our systems and to installand integrate them into their manufacturing lines.  In addition, our customers often require asignificant number of system presentations and demonstrations, in someinstances evaluating equipment on site, before reaching a sufficient level ofconfidence in our systems’ performance and compatibility with theirrequirements to place an order.  As aresult, our sales process is often subject to delays associated with lengthyapproval processes that typically accompany the design and testing of newsystems.  Our sales cycles often havelasted for many months or even years and require us to invest significantresources.  In addition, we may incursignificant costs in supporting evaluation equipment at customers’ facilities,and orders expected in one quarter could shift to another quarter because ofthe timing of our customers’ purchase decisions.  All of these factors could cause our resultsof operations to fluctuate from period to period.

***Becausewe lack long-term purchase commitments from our customers, our net sales andinventory could fluctuate from period to period, which could harm our resultsof operations.***

We generally do not enter into long-term purchasecontracts with our customers.  Ourbusiness is characterized by short-term purchase orders and shipment schedules,and our customers may cancel or delay their orders without penalty.  As a result, it is difficult for us to forecastour net sales and to determine the appropriate levels of inventory that we needto carry in order to meet future demand. In addition, because we do not have long-term contracts with ourcustomers, we forecast our net sales and plan our production and inventorylevels based upon the demand forecasts of our customers, which are highlyunpredictable and can fluctuate substantially. This could lead to increased inventory levels and increased carryingcosts and risk of excess or obsolete inventory due to unanticipated reductionsin purchases by our customers.

***Ourdeferred revenue from sales of our systems that constitute “new technology” andour backlog of customer orders may not result in future net sales.***

We defer revenue and any associated profit from thesale of newly introduced systems that are subject to contractual customeracceptance provisions and substantive installation obligations, which we referto as “new technology,” until our customer has acknowledged its acceptance ofthe system or the installation work is completed.  If the system does not meet the agreedspecifications and the customer refuses to accept the system, we will notrealize the deferred revenue and any associated deferred profit and we may berequired to refund any cash payments previously received from the customer,which may harm our business, financial condition and results of operations.

We schedule the production of our systems based inpart upon our backlog.  Due to possiblecustomer changes in delivery schedules and cancellations of orders, our backlogat any particular date will not necessarily be indicative of actual sales forany future period.  In addition, while weevaluate each customer order on a case-by-case basis to determine qualificationfor inclusion in backlog, we cannot assure you that amounts that we include inbacklog will ultimately result in future sales. As a result, our backlog may not be a reliable indication of our futurenet sales.  A reduction in backlog duringany particular period, or the failure of our backlog to result in future netsales, could harm our business, financial condition and results of operations,and cause our net sales to fall below our expectations and the expectations ofanalysts and investors.

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***Our results of operations may sufferif we fail to manage our inventory effectively.***

We need to manage our inventory of component parts,work-in-process and finished goods effectively to meet customer deliverydemands at an acceptable risk and cost. Our customers are increasingly requiring very short lead times fordelivery, which may require us to purchase and carry additional inventory.  For both the inventories that support themanufacture of our systems and our spare parts inventories, if the customerdemand we anticipate does not materialize in a timely manner, we will incurincreased carrying costs and some inventory could become obsolete or otherwiseunfit for sale, resulting in write-offs which would harm our results ofoperations.  Conversely, if customerdemand for our systems materializes more quickly than we anticipate, ourinventories may be insufficient, which could result in lost sales opportunitiesthat could harm our results of operations.

***Ourcompetitors have greater financial resources and greater name recognition and thereforemay compete more successfully.***

We face competition or potential competition from manycompanies that have greater resources than we have.  If we are unable to compete effectively withthese companies, our market share may decline and our business could beharmed.  Virtually all of our principalcompetitors are substantially larger than we are and most of them have broaderproduct lines than we do.  Thesecompetitors have well-established reputations in the markets in which wecompete, greater experience with high-volume manufacturing, broader namerecognition, substantially larger customer bases and substantially greaterfinancial, technical, manufacturing and marketing resources than we do.  We also face potential competition from newmarket entrants, including established manufacturers in other segments of thesemiconductor capital equipment market who may decide to diversify and developand market products that compete with our system offerings.

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

Because semiconductor manufacturers must makesubstantial investments to install and integrate capital equipment into theirsemiconductor fabrication facilities, they tend to choose semiconductorequipment manufacturers based on established relationships, productcompatibility and proven system performance.

Once a semiconductor manufacturer selects a particularvendor’s capital equipment, the manufacturer generally relies for a significantperiod of time upon the equipment from this vendor of choice for the specificproduction line application.  To dootherwise creates risk for the manufacturer because manufacturing asemiconductor requires many process steps and a fabrication facility willcontain many different types of machines that must work cohesively to produceproducts that meet the customers’ specifications.  If any piece of equipment fails to perform asexpected, the customer could incur significant costs related to defectiveproducts, production line downtime or low production yields.

Since most new fabrication facilities are similar toexisting ones, semiconductor manufacturers tend to continue using equipmentthat has a proven track record.  Based onour experience with our major customers, we have observed that once aparticular piece of equipment is selected from a vendor, the customer is likelyto continue purchasing that same piece of equipment from the vendor for similarapplications in the future.  Broadeningour market share remains difficult due to choices made by customers thatcontinue to be influenced by pre-existing bases installed by competingvendors.  As a result, our ability toobtain new customers and additional orders may be limited.

A semiconductor manufacturer frequently will attemptto consolidate its other capital equipment requirements with the samevendor.  As a result, we may face narrowwindows of opportunity to be selected as the “vendor of choice” by potentialnew customers.  It may be difficult forus to sell to a particular customer for a significant period of time once thatcustomer selects a competitor’s product, and we may not be successful inobtaining broader acceptance of our systems and technology.  If we are not able to achieve broader marketacceptance of our systems and technology, it could harm our business, financialcondition and results of operations.

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***We depend upon sole suppliers forcertain key components.***

Substantially all of our net sales have come from thesale of systems that contain key components that are available only from asingle source or limited sources.  As aresult, we depend on a number of sole suppliers for key components used in themanufacturing of our systems.  If we areunable to obtain timely delivery of sufficient quantities of these components,we will be unable to manufacture systems to meet customer demand on a timelybasis.  Most significantly, certainsystems are designed around automation modules supplied by sole suppliers.  Due to the high cost of these modules, we keepvery few in inventory.  Although we havenever been unable to manufacture or ship a system due to an inability to obtaina component sourced from a sole supplier, if a sole supplier fails to deliverthe component on a timely basis, delivery of certain systems could bedelayed.  If a sole supplier is unable todeliver any such components for a prolonged period of time, we may have toredesign certain systems.  Redesigningsystems could take significant time and be expensive, and we cannot assure youthat we will be able to do so, or that customers will adopt the redesignedsystems.

***Warrantyclaims in excess of our estimates could seriously harm our business.***

We offer a warranty on all of our systems.  If our customers make claims under ourwarranties that exceed our estimates of the cost of our warranties, it couldharm our business, financial condition and results of operations.

***Ifwe deliver systems with defects, our credibility may be harmed, sales andmarket acceptance of our systems may decrease and we may incur liabilitiesassociated with those defects.***

Our systems are complex and sometimes have containederrors, defects and bugs when introduced. If we deliver systems with errors, defects or bugs, our credibility andthe market acceptance and sales of our systems could be harmed.  Further, if our systems contain errors,defects or bugs, we may be required to expend significant capital and resourcesto alleviate these problems.  Defectscould also lead to commercial or product liability as a result of lawsuitsagainst us or against our customers.  Wehave agreed to product liability indemnities with some of our customers, andour product and commercial liability insurance policies currently provide onlylimited coverage per claim.  In the eventof a successful product liability or commercial claim, we could be obligated topay damages that may not be covered by insurance or that significantly exceedour insurance coverage.

***Ouremployment costs in the short-term are fixed to a large extent, and thereforeany unexpected shortfalls in net sales could harm our results of operations.***

Our operating expense levels are based in significantpart on our headcount, which generally is driven by our long-term net salesgoals.  For a variety of reasons,particularly the high cost and disruption of layoffs and the costs ofrecruiting and training, our headcount in the short-term is fixed to a largeextent.  As a result, we may be unable toreduce our employment costs in a timely manner to compensate for any unexpectedshortfalls in net sales, which could harm our results of operations.

***Ourhigh spending levels on research and development and our need to maintain ahigh level of customer service and support could harm our results ofoperations.***

In order to remain competitive, we need to maintainhigh levels of investment in research and development, marketing and customerservice, while at the same time controlling our operating expenses.

The industry in which we operate is characterized bythe need for continued investment in research and development as well as a highlevel of worldwide customer service and support.  As a result of our need to maintain spendinglevels in these areas, our results of operations could be harmed if our netsales fall below expectations.  Inaddition, because of the emphasis that we place on research and development andtechnological innovation, our operating expenses may increase further in thefuture, which could harm our results of operations.

We cannot assure you that we will have sufficientresources to make a high level of investment in research and development,marketing and customer service while controlling our operating expenses or thatour systems will be viewed as competitive as a result of technological advancesby our competitors or changes in semiconductor

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processing technology. Any such competitive pressures may require us to reduce pricessignificantly or result in lost customer orders, which could harm our business,financial condition and results of operations.

***Adisruption of our manufacturing operations could harm our business.***

Although we outsource the manufacturing for certain ofour systems or sub-assemblies to third parties, we produce most of our systemsat our manufacturing facilities in Scotts Valley, California and Newport, SouthWales, U.K.  In the event of a disruptionof operations at our facilities, our third-party manufacturers would not beable to make up the capacity loss.  Ourmanufacturing operations could be subject to disruption for a variety ofreasons, including natural disasters, work stoppages, operational facilityconstraints and terrorism.  Any suchdisruption could cause delays in shipments of systems to our customers, resultin cancellation of customer orders or loss of customers and seriously harm ourbusiness.

***Weoutsource manufacturing and logistics activities to third-party serviceproviders, which decreases our control over the performance of these functions.***

We currently outsource certain manufacturing and spareparts logistics functions to third-party service providers, and we mayoutsource more of those functions in the future.  While we expect to achieve operationalflexibility and cost savings as a result of this outsourcing, outsourcing has anumber of risks and reduces our control over the performance of the outsourcedfunctions.  Significant performanceproblems by these third-party service providers could result in cost overruns,delayed deliveries, shortages, quality issues or other problems that couldresult in significant customer dissatisfaction and could harm our business,financial condition and results of operations.

If for any reason one or more of these third-partyservice providers becomes unable or unwilling to continue to provide servicesof acceptable quality, at acceptable costs and in a timely manner, our abilityto deliver our systems or spare parts to our customers could be severelyimpaired.  We would quickly need toidentify and qualify substitute service providers or increase our internalcapacity, which could be expensive, time consuming and difficult, and couldresult in unforeseen operations problems. Substitute service providers might not be available or, if available,might be unwilling or unable to offer services on acceptable terms.

If customer demand for our systems increases, we maybe unable to secure sufficient additional capacity from our current serviceproviders on commercially reasonable terms, if at all.

Our requirements currently represent and are expectedto continue to represent a small portion of the total capacities of ourthird-party service providers, and they may preferentially allocate capacity toother customers, even during periods of high demand for our systems.  In addition, these third-party service providerscould suffer financial difficulties or disruptions in their operations due tocauses beyond our control.

***Thesemiconductor industry is global and has expanded within Asia.  We have penetrated this market with some ofour systems.  If we are unable tocontinue to penetrate this market with those systems and penetrate this marketwith our other systems, our business could be harmed.***

The percentage of worldwide semiconductor productionthat is based in Asia is growing more rapidly than in other regions.  Although we derived approximately 62% of ournet sales for the nine months ended June 29, 2007 and 64%, 65% and 46% of ournet sales for fiscal 2006, 2005 and 2004, respectively, from our sales tocustomers located in the Asia Pacific region, our brand recognition in theregion is limited.  In order to grow ourbusiness, we need to penetrate the region with the addition of new customers,new systems and the expansion of our relationships with our existing customers.  We have traditionally sold our systemsprimarily through our direct sales force. Although we have a direct sales force and local representatives in theAsia Pacific region, we cannot assure you that we will be able to continuepenetrating markets in this region.  Ourfailure to continue to penetrate these markets, or failure to attract theadditional personnel necessary to service new and existing customers, may harmour competitive position and our future business prospects.

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***If we are unable to hire andretain a sufficient number of qualified personnel, our results of operationscould be negatively affected.***

Our success depends in part upon our ability toattract and retain qualified management, technical, sales and support personnelfor our operations on a worldwide basis. We believe that our success is particularly dependent on thecontributions of the principal members of our management, operations andengineering staff, including Jerauld J. Cutini, our President and ChiefExecutive Officer, Patrick C. O’Connor, our Executive Vice President and ChiefFinancial Officer, and John Macneil, our Executive Vice President and ChiefTechnology Officer.  We do not havelong-term employment contracts with these or any of our other key personnel,and their knowledge of our business and industry would be extremely difficultfor us to replace.  Competition forqualified personnel is intense, particularly in the San Francisco Bay Area,where our headquarters is located, and we cannot assure you that we will beable to continue to attract and retain qualified personnel.  Our results of operations could be negativelyaffected by our loss of key executives or employees or our inability to attractand retain skilled executives and employees.

***Changesin accounting standards for equity-based compensation may adversely affect ourresults of operations and our ability to attract and retain employees.***

Our adoption of SFAS No. 123(R) required us to expenseall equity-based compensation that we provide to our employees and directorsbeginning with our fiscal quarter ended December 30, 2005.  The environment for skilled employees thatare knowledgeable about our systems and services is a competitive one, and webelieve that equity-based compensation is an important part of the overallcompensation that we offer to attract and retain such employees.  SFAS No. 123(R) has adversely affected andwill continue to adversely affect our results of operations.  If we decide to decrease the amounts of equity-basedcompensation that we offer to our current and prospective employees on accountof the related expenses that we have to incur as a result of SFAS No. 123(R),it could impair our ability to attract and retain employees.

***Ourability to compete could be jeopardized by our inability to protect ourintellectual property rights from challenges by third parties.***

Our success and ability to compete depend in largepart upon protecting proprietary technology. We have relied on a combination of patent, trade secret, copyright andtrademark laws, non-disclosure and other contractual agreements and technicalmeasures to protect our proprietary rights.

We cannot assure you that patents will be issued onpending patent applications or that competitors will not be able tolegitimately ascertain proprietary information embedded in our systems that isnot covered by patent or copyright.  Ifthis happens, we may not be able to prevent the competitor from using thisinformation.

In addition, if we assert patent rights against acompetitor’s product, we cannot assure you that any claim in any patent will besufficiently broad nor, if sufficiently broad, that the patent will not bechallenged, invalidated or circumvented. We may not have sufficient resources to establish, monitor and protectour rights.  Failure to protect ourintellectual property rights could harm our business.

***Ourefforts to protect our intellectual property may be less effective in someforeign countries where intellectual property rights are not as well protectedas in the United States.***

We derived a significant portion of our net sales forthe nine months ended June 29, 2007 and fiscal 2006 from sales in foreigncountries, including certain countries in Asia such as Singapore, Taiwan,Japan, Malaysia, China and Korea.  Thelaws of some foreign countries do not protect proprietary rights to as great anextent as do the laws of the United States, and many U.S. companies haveencountered substantial problems in protecting their proprietary rights againstinfringement in such countries, some of which are countries in which we havesold and in which we expect to continue to sell systems.  For example, Taiwan is not a signatory to thePatent Cooperation Treaty, which is designed to specify rules and methods fordefending intellectual property internationally.  In Taiwan, the publication of a patent priorto its filing would invalidate the ability of a company to obtain apatent.  There is a risk that our meansof protecting our proprietary rights may not be adequate in some foreigncountries.

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Our competitors in these countries may independentlydevelop similar technology or duplicate our systems.  If we fail to protect our intellectualproperty adequately in those countries, it would be easier for our competitorsto sell competing products in those countries.

***We will be required to spendsignificant time, money and other resources to determine whether our internalcontrol over financial reporting is effective. If we are unable to achieve and maintain effective internal control overfinancial reporting, the value of your investment in Aviza could decline.***

Section 404 of the Sarbanes-Oxley Act of 2002, orSection 404, requires that beginning with our Annual Report on Form 10- K forour fiscal year ending in September 2008, we must furnish a report on ourinternal control over financial reporting. This report will contain an assessment by our management of theeffectiveness of our internal control over financial reporting.  Beginning with our Annual Report on Form 10-Kfor our fiscal year ending in September 2009, this report will also contain anopinion by our independent registered public accounting firm as to theeffectiveness of our internal control over financial reporting.

We identified material weaknesses in our internalcontrol over financial reporting as of the end of fiscal 2004, and TrikonTechnologies, Inc., or Trikon, with which we completed our merger transactionin December 2005, restated its financial statements in May 2005 as a result ofTrikon’s identification of errors which resulted in material weaknesses in itsinternal control over financial reporting. As a result of our and Trikon’s identified material weaknesses, we facea significant challenge in ensuring our operations are designed in a mannerthat is consistent with the framework of internal control established by theCommittee of Sponsoring Organizations of the Treadway Commission.

Our internal control over financial reporting may notbe considered effective if, among other things:

·                                          anymaterial weaknesses in our internal control over financial reporting exist;

·                                          wefail to evaluate key controls in a timely fashion; or

·                                          wefail to remediate assessed deficiencies.

The process of implementing our internal control overfinancial reporting and complying with Section 404 will be expensive and timeconsuming, and will require significant effort by management.  We cannot assure you that we will implementand maintain effective internal control over financial reporting.  If management asserts that our internalcontrol over financial reporting is ineffective or if our independentregistered public accounting firm expresses an adverse opinion on theeffectiveness of our internal control over financial reporting the value ofyour investment in Aviza could decline. In addition, a delay in complying with Section 404 may subject us to avariety of administrative actions, including ineligibility for short-formresale registration, action by the SEC, the suspension or delisting of ourcommon stock from the Nasdaq Global Market and the inability of registered broker-dealersto make a market in our common stock, which could further reduce our stockprice and could harm our business.

***Wewill not be required to furnish a report on our internal control over financialreporting until December 2008.***

We are not currently required to furnish a report onour internal control over financial reporting pursuant to the SEC’s rules underSection 404 as part of the Annual Reports that we file on Form 10-K.  These rules will apply to us when we file ourAnnual Report on Form 10-K for our fiscal year ending in September 2008, whichwe are required to file in December 2008. As a result, we cannot assure you that our internal control overfinancial reporting is effective, and you will not have a report from us tothat effect until December 2008, and our independent registered publicaccounting firm will not have to provide its opinion as to the effectiveness ofour internal control over financial reporting until December 2009.

 

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***Ourresults of operations could be negatively affected by currency fluctuations.***

Although our net sales are generally denominated inU.S. dollars and we report our results of operations in U.S. dollars, ourNewport, South Wales operations are based in the United Kingdom and most of theoperating expenses attributable to those operations are incurred in Britishpounds.  As a result, a significantportion of our costs are subject to currency fluctuations.  Accordingly, if the British pound increasesin value against the U.S. dollar, our operating expenses as a percentage of ournet sales will increase and our gross margins will decline.  In addition, our sales in Japan and otherforeign service sales are denominated in local currency.  As a result, fluctuations in those localcurrencies could also have an impact on our results of operations.

***Becausewe have significant operations outside of the United States, we are subject topolitical, economic and other international conditions that could increase ouroperating expenses and the regulation of our systems and make it more difficultfor us to maintain operating and financial controls.***

We have manufacturing facilities in Newport, SouthWales, U.K., and sales and service offices in many other countries.  In addition, approximately 62% of our netsales for the nine months ended June 29, 2007 and 64% of our net sales forfiscal 2006 were derived from sales in the Asia Pacific region.  In recent years, Asian economies have been highlyvolatile and recessionary, resulting in significant fluctuations in localcurrencies and other instabilities. Instabilities in Asian economies may continue and recur in the future orinstability could occur in other foreign economies, any of which could harm ourbusiness, financial condition and results of operations.

Our exposure to the business risks presented by Asianeconomies and other foreign economies will increase to the extent we continueto expand our global operations.  Ourinternational operations will continue to subject us to a number of risks,including:

·                                          longersales cycles;

·                                          multiple,conflicting and changing governmental laws and regulations;

·                                          protectionistlaws and business practices that favor local companies;

·                                          priceand currency exchange rates and controls;

·                                          difficultiesin collecting accounts receivable;

·                                          traveland transportation difficulties resulting from actual or perceived healthrisks, such as Severe Acute Respiratory Syndrome and Avian Influenza, commonlyreferred to as SARS and Bird Flu, respectively; and

·                                          politicaland economic instability.

Any of these risks could harm our business, financialcondition and results of operations.

***Ouroperations are subject to health and safety and environmental laws that mayexpose us to liabilities for noncompliance.***

We are subject to a variety of governmentalregulations relating to the use, storage, discharge, handling, manufacture anddisposal of all materials present at, or are output from, our facilities,including toxic or other hazardous chemical byproducts of the manufacturingprocesses.  We are also subject togovernmental regulations affecting the content, reuse, recycling, distributionand labeling of systems and parts containing hazardous materials.  Environmental claims, or failure to complywith any present or future regulations, could result in significant costs toremediate, the assessment of damages or imposition of fines, the suspension ofproduction of certain systems or the cessation of operations.

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New regulations could require the purchase of costly equipmentor the incurrence of other significant expenses.  Failure to control the use or adequatelyrestrict the discharge of hazardous substances could subject us to futureliabilities, which could negatively affect our financial condition and resultsof operations.

We own and operate a facility located in ScottsValley, California, or the Scotts Valley Site, which is currently subject to anAdministrative Order on Consent, or Consent Order, dated as of July 16, 1991entered into by Watkins-Johnson Company (now WJ Communications, Inc.), a priorowner of the Scotts Valley Site, and the United States Environmental ProtectionAgency.  The Scotts Valley Site is listedon the National Priorities List as the “Watkins-Johnson Superfund Site”pursuant to the Comprehensive Environmental Response Compensation and LiabilityAct.  The contamination on the ScottsValley Site includes chlorinated solvents in soil and groundwater.  The site is being remediated under the termsof an agreement under which an environmental consultant, ARCADIS Geraghty &Miller International, has agreed to complete the work, and an insurance policyis in place to cover certain remediation costs. If, however, ARCADIS, WJ Communications and the insurance provider failto fulfill their obligations, we could be subject to substantial fines and beforced to suspend production, alter manufacturing processes or cease businessoperations, any of which could harm our business, financial condition orresults of operations.

***Ourability to use net operating losses to offset future taxable income is subjectto limitations.***

In general, under Section 382 of the Internal RevenueCode, a corporation that undergoes an “ownership change” is subject tolimitations on its ability to utilize its pre-change net operating losses, orNOLs, to offset future taxable income.  Acorporation generally undergoes an “ownership change” if the percentage ofstock of the corporation owned by one or more of its 5% stockholders (where allstock owned by stockholders who are not 5% stockholders generally is treated asowned by one or more 5% stockholders) has increased by more than 50 percentagepoints over a three-year period.

Trikon’s net operating losses are subject tolimitations arising from previous ownership changes and will be subject toadditional limitations as a result of our merger transaction with Trikon.  Our existing net operating losses also may besubject to limitations, and our merger transaction with Trikon may haveresulted in our undergoing an ownership change, thus potentially furtherlimiting our ability to use our net operating losses.  It is impossible for us to ensure that wewill not experience an ownership change in the future because changes in ourstock ownership, some of which are outside of our control, could result in anownership change under Section 382 of the Internal Revenue Code.

Generally, the limitations on our ability to useeither our or Trikon’s pre-merger transaction NOLs to offset future taxableincome are expected to be significant, and thus our liability for future U.S.federal income taxes may be materially higher than that liability would havebeen absent such limitations.  Similarrules may apply for foreign and state income tax purposes as well.

***Businessinterruptions could adversely affect our business.***

Our operations are vulnerable to interruption by fire,earthquake, power loss, telecommunications failure and other events beyond ourcontrol.  A disaster could severelydamage our ability to deliver our systems to our customers.  In order to manufacture our systems, we willneed to maintain and protect our manufacturing facilities and computer systems,many of which will be located in or near our headquarters in Scotts Valley,California.  Scotts Valley is locatednear a known earthquake fault zone. Although our facilities are designed to be fault-tolerant, our systemsare susceptible to damage from fire, floods, earthquakes, power loss,telecommunications failures and similar events. Although we maintain general business insurance against interruptionssuch as fires and floods, we cannot assure you that the amount of coverage willbe adequate in any particular case.

***Anyacquisitions we may make could disrupt business and harm our financialcondition.***

We may invest in complementary products, companies ortechnologies.  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.

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Mergers and acquisitions are inherently subject tosignificant risks, and our inability to manage these risks effectively couldharm our business, financial condition and results of operations.

***Ouraffiliates own a large amount of our common stock, which will limit yourability to influence our corporate activities.***

At June 29, 2007, affiliates of VantagePoint VenturePartners, which we refer to collectively as VantagePoint, and Caisse de dépôtet placement du Québec, which we refer to as CDPQ, beneficially ownedapproximately 37% and 15.8%, respectively, of our outstanding commonstock.  VantagePoint and CDPQ exercisesignificant influence over our operations, business strategy and the outcome ofvotes on all matters requiring stockholder approval, including the approval ofsignificant corporate transactions such as mergers or other businesscombinations.  VantagePoint or CDPQ mayhave interests that differ from the interests of our other stockholders.  This concentration of ownership may also havethe effect of delaying or preventing a change of control of Aviza ordiscouraging others from making tender offers for shares of our common stock,which could prevent our other stockholders from receiving a premium for theirshares.

***Theprice of our common stock has been and may continue to be volatile, which maylead to losses by investors or to securities litigation.***

The market price of our common stock has been and maycontinue to be volatile, and our stock price may decline in the future.  For example, for the period from December 2,2005, the first day that our common stock was publicly traded, through August7, 2007, the closing price range of our common stock was $3.66 to $8.74 pershare.

In addition, in recent years, the stock market ingeneral, and the market for shares of high technology stocks in particular,have experienced extreme price fluctuations, and these fluctuations havefrequently been unrelated to the operating performance of the affectedcompanies.  These fluctuations could leadto a decline in the market price of our 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 us, could result in substantial costs and divert management’s attentionand resources.

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**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS**

None.

**ITEM3.**                             DEFAULTS UPON SENIOR SECURITIES

None.

**ITEM4.**                             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

**ITEM5.**                             OTHER INFORMATION

None.

**ITEM6.**                             EXHIBITS
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                      |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |       | Amended and Restated Certificate of Incorporation of  Aviza Technology, Inc., incorporated by reference to Exhibit 3.1 to the  Annual Report on Form 10-K filed by the registrant 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 the Annual Report on Form  10-K filed by the registrant 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 the Annual  Report on Form 10-K filed by the registrant with the Commission on December  29, 2005.                                                                                                                      |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.1           |       | Amendment No. 7, dated as of March 29, 2007, to  Credit Agreement between Bank of America, N.A. and Aviza, Inc., incorporated  by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the  registrant with the Commission on April 4, 2007.                                                                         |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.2           |       | Loan and Security Agreement by and among Aviza  Technology, Inc., Aviza, Inc., United Commercial Bank, East West Bank and  Chinatrust Bank (U.S.A.), entered into as of April 13, 2007, incorporated by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the  registrant with the Commission on April 19, 2007. |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.3           |       | Second Amended and Restated 2005 Stock Plan,  incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K  filed by the registrant with the Commission on May 15, 2007.                                                                                                                                              |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.4           |       | Amendment No. 2 to the 2003 Equity Incentive Plan of  Aviza, Inc., incorporated by reference to Exhibit 10.2 to the Current Report  on Form 8-K filed by the registrant with the Commission on May 15, 2007.                                                                                                                         |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.5           |       | Amendment No. 2 to the 2004 Equity Incentive Plan of  Trikon Technologies, Inc., incorporated by reference to Exhibit 10.3 to the  Current Report on Form 8-K filed by the registrant with the Commission on May  15, 2007.                                                                                                          |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.6           |       | Purchase Agreement and Joint and Mutual Escrow  Instructions, dated as of July 9, 2007, between Aviza Technology, Inc., and  Morley Bros., LLC., incorporated by reference to Exhibit 10.1 to the Current  Report on Form 8-K filed by the registrant with the Commission on July 13,  2007.                                         |

 

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| 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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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|                         | Aviza Technology, Inc. |                                                                                                                              |                             |
|-------------------------|------------------------|-----------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                    | *(Registrant)*         |                                                                                                                              |                             |
|                    |                   | * *                                                                                                                          |                             |   |
| Dated: August  13, 2007 |                   |                                                                                                                              |                             |   |
|                    |                   |                                                                                                                              |                             |   |
|                    | By:                    |                                                                                                                              | /s/ **PATRICK C. O’CONNOR** |
|                    |                   | **Patrick C. O’Connor***Executive Vice President  and Chief Financial Officer  (Principal Financial and Accounting Officer)* |
|                         |                        |                                                                                                                                   |                                  |  |  |

 

 

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**EXHIBIT INDEX**
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                      |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |       | Amended and Restated Certificate of Incorporation of  Aviza Technology, Inc., incorporated by reference to Exhibit 3.1 to the  Annual Report on Form 10-K filed by the registrant 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 the Annual Report on Form  10-K filed by the registrant 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 the Annual  Report on Form 10-K filed by the registrant with the Commission on December  29, 2005.                                                                                                                      |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.1           |       | Amendment No. 7, dated as of March 29, 2007, to  Credit Agreement between Bank of America, N.A. and Aviza, Inc., incorporated  by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the  registrant with the Commission on April 4, 2007.                                                                         |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.2           |       | Loan and Security Agreement by and among Aviza  Technology, Inc., Aviza, Inc., United Commercial Bank, East West Bank and  Chinatrust Bank (U.S.A.), entered into as of April 13, 2007, incorporated by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the  registrant with the Commission on April 19, 2007. |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.3           |       | Second Amended and Restated 2005 Stock Plan,  incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K  filed by the registrant with the Commission on May 15, 2007.                                                                                                                                              |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.4           |       | Amendment No. 2 to the 2003 Equity Incentive Plan of  Aviza, Inc., incorporated by reference to Exhibit 10.2 to the Current Report  on Form 8-K filed by the registrant with the Commission on May 15, 2007.                                                                                                                         |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.5           |       | Amendment No. 2 to the 2004 Equity Incentive Plan of  Trikon Technologies, Inc., incorporated by reference to Exhibit 10.3 to the  Current Report on Form 8-K filed by the registrant with the Commission on May  15, 2007.                                                                                                          |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 10.6           |       | Purchase Agreement and Joint and Mutual Escrow  Instructions, dated as of July 9, 2007, between Aviza Technology, Inc., and  Morley Bros., LLC., incorporated by reference to Exhibit 10.1 to the Current  Report on Form 8-K filed by the registrant with the Commission on July 13,  2007.                                         |
|           |       |                                                                                                                                                                                                                                                                                                                                 |
| 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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