Asyst 10Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2005


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

For the transition period from to

Commission File number: 000-22430

ASYST TECHNOLOGIES, INC.

(Exact name of Registrant, as specified in its charter)


California (State or other jurisdiction of incorporation or organization)		94-2942251 (IRS Employer identification Number)

48761 Kato Road, Fremont, California 94538
(Address of principal executive offices, including zip code)

(510) 661-5000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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

The number of shares of the Registrant’s Common Stock, no par value, outstanding as of February 1, 2006 was 48,444,190

ASYST TECHNOLOGIES, INC.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION
Item 1- Financial Statements:
Condensed Consolidated Balance Sheets — December 31, 2005 and March 31, 2005		3
Condensed Consolidated Statements of Operations — Three and Nine Month Periods Ended December 31, 2005 and December 31, 2004		4
Condensed Consolidated Statements of Cash Flows — Nine Month Periods Ended December 31, 2005 and December 31, 2004		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3 —Quantitative and Qualitative Disclosures About Market Risk		42
Item 4 —Controls and Procedures		43
PART II -OTHER INFORMATION
Item 1 —Legal Proceedings
Item 6 —Exhibits		47
Signatures		49
Exhibit Index		50
EXHIBIT 10.61
EXHIBIT 10.62
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

Part I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)


	December 31,			March 31,
	2005			2005
ASSETS
CURRENT ASSETS:

Cash and cash equivalents	$	101,190		$	55,094
Short-term investments		27,244			46,086
Accounts receivable, net of allowances for doubtful accounts of $10,530 and $6,980 at December 31 and March 31, 2005, respectively		146,154			189,943
Inventories		38,309			33,515
Prepaid expenses and other current assets		23,904			33,971

Total current assets		336,801			358,609
Property and equipment, net		17,855			15,458
Goodwill		58,708			64,014
Intangible assets, net		23,001			40,898
Other assets		3,796			4,795

Total assets	$	440,161		$	483,774

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:

Short-term loans and notes payable	$	19,388		$	20,563
Current portion of long-term debt and capital leases		1,776			2,757
Accounts payable		71,196			83,913
Accounts payable-related parties		21,656			39,242
Accrued and other liabilities		72,985			70,439
Deferred margin		6,770			6,013

Total current liabilities		193,771			222,927

LONG-TERM LIABILITIES
Long-term debt and capital leases, net of current portion		87,422			88,750
Deferred tax liability		3,222			8,548
Other long-term liabilities		11,430			9,771

Total long-term liabilities		102,074			107,069

COMMITMENTS AND CONTINGENCIES (see Note 10)
MINORITY INTEREST		61,839			63,855

SHAREHOLDERS’ EQUITY
Common stock		452,080			450,005
Deferred stock-based compensation		(1,597	)		(1,312	)
Accumulated deficit		(368,392	)		(366,239	)
Accumulated other comprehensive income		386			7,469

Total shareholders’ equity		82,477			89,923

Total liabilities, minority interest and shareholders’ equity	$	440,161		$	483,774

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

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
NET SALES	$	106,824		$	161,383		$	348,870		$	469,414
COST OF SALES		64,828			133,814			229,664			383,902

Gross profit		41,996			27,569			119,206			85,512


OPERATING EXPENSES:
Research and development		6,310			8,485			20,461			27,237
Selling, general and administrative		21,075			22,551			62,450			56,820
Amortization of acquired intangible assets		3,494			5,086			13,126			15,178
Restructuring charges (credits)		(138	)		1,116			(45	)		1,703
Asset impairment charges		—			4,645			—			4,645

Total operating expenses		30,741			41,883			95,992			105,583

Income (loss) from operations		11,255			(14,314	)		23,214			(20,071	)


INTEREST AND OTHER INCOME (EXPENSE), NET:
Interest income		706			479			1,798			1,197
Interest expense		(1,714	)		(1,691	)		(5,126	)		(4,953	)
Other income, net		3,417			1,509			4,267			2,692

Interest and other income (expense), net		2,409			297			939			(1,064	)

Income (loss) before benefit from (provision for) income taxes and minority interest		13,664			(14,017	)		24,153			(21,135	)

BENEFIT FROM (PROVISION FOR) INCOME TAXES		(6,507	)		962			(16,191	)		2,549
MINORITY INTEREST		(4,178	)		1,411			(10,115	)		2,825

NET INCOME (LOSS)	$	2,979		$	(11,644	)	$	(2,153	)	$	(15,761	)


NET INCOME (LOSS) PER BASIC SHARE	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)

NET INCOME (LOSS) PER DILUTED SHARE	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)


SHARES USED IN THE PER SHARE CALCULATION
- Basic		48,019			47,553			47,918			47,387

– Diluted		48,789			47,553			47,918			47,387

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

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Nine Months Ended December 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(2,153	)	$	(15,761	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		18,189			20,621
Allowance for doubtful accounts receivable		5,003			3,634
Asset impairment charges		—			4,645
Minority interest in net income (loss) of consolidated subsidiaries		10,115			(2,825	)
Loss on disposal of fixed assets		464			157
Stock-based compensation expense		1,095			1,057
Amortization of lease incentive		(52	)		—
Deferred taxes, net		(1,620	)		(5,502	)
Changes in assets and liabilities:
Accounts receivable, net		25,742			(60,908	)
Inventories		(7,517	)		(15,445	)
Prepaid expenses and other assets		10,428			(4,151	)
Accounts payable, accrued liabilities and deferred margin		(16,695	)		70,155

Net cash provided by (used in) operating activities		42,999			(4,323	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments		(184,638	)		(225,226	)
Sale or maturity of short-term investments		203,375			176,750
Release of restricted cash and cash equivalents		—			1,904
Purchase of property and equipment, net		(5,306	)		(3,856	)

Net cash provided by (used in) investing activities		13,431			(50,428	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) lines of credit, net		1,794			19,381
Payments on short-term loans		—			(3,692	)
Dividends paid to a minority shareholder		(5,939	)		—
Principal payments on long-term debt and capital leases		(2,994	)		—
Proceeds from issuance of common stock		694			2,999

Net cash provided by (used in) financing activities		(6,445	)		18,688

Effect of exchange rate changes on cash and cash equivalents		(3,889	)		1,205

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		46,096			(34,858	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		55,094			112,907

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	101,190		$	78,049

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

ASYST TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION OF THE COMPANY

The accompanying condensed consolidated financial statements include the accounts of Asyst Technologies, Inc. (“we”, “our”, “us”, “Asyst” or “ATI”) which was incorporated in California on May 31, 1984, our subsidiaries and our majority-owned joint venture. We develop, manufacture, sell and support integrated automation systems, primarily for the semiconductor and the flat panel display (“FPD”) manufacturing industries.

In October 2002, we purchased a 51.0 percent interest in Asyst Shinko, Inc (“ASI”) a joint venture with Shinko Electric, Co. Ltd. (“Shinko”) of Japan.

In April 2003, our majority-owned joint venture, ASI, acquired that portion of Shinko that provides ongoing support to ASI’s North American Automated Material Handling Systems (“AMHS”,) customers. ASI renamed this subsidiary Asyst Shinko America (“ASAM”.)

The above transactions, which were unrelated, were accounted for using the purchase method of accounting. Accordingly, our Condensed Consolidated Statements of Operations for the three and nine month periods ended December 31, 2005 and 2004, and of Cash Flows for the nine month periods ended December 31, 2005 and 2004, respectively, include the results of these acquired entities for the periods subsequent to their respective acquisitions, as applicable. We consolidate fully the financial position and results of operations of ASI and account for the minority interest in the condensed consolidated financial statements.

ASYST, the Asyst logo, domainLogix, Fastrack, Fluorotrack and Versaport are registered trademarks of Asyst Technologies, Inc. or its subsidiaries, in the United States or in other countries. SMIF-Arms, SMIF-Indexer, SMIF-LPI, SMIF-LPO, SMIF-LPT, Plus, Inx, AdvanTag, SMART-Tag, SMART-Traveler, SMART-Comm, IsoPort, and Spartan are trademarks of Asyst Technologies, Inc. or its subsidiaries, in the United States or in other countries. Asyst Shinko is a trademark of Asyst Shinko, Inc. or its subsidiaries, in the United States or in other countries. All other brands, products or service names are or may be trademarks or service marks of, and are used to identify products or services of, their respective owners.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

While the financial information furnished is unaudited, the condensed consolidated financial statements included in this report reflect all adjustments (consisting of normal recurring accruals) which we consider necessary for the fair statement of the results of operations for the interim periods covered, and of our financial condition at the date of the interim balance sheets. Certain information and footnote disclosures included in the financial statements, prepared in accordance with generally accepted accounting principles, have been omitted in these interim statements, as allowed by the Securities and Exchange Commission (“SEC”) rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. All significant intercompany accounts and transactions have been eliminated. Minority shareholders’ interest represents the minority shareholders’ proportionate share of the net assets and results of operations of our majority-owned joint venture, ASI, and our majority-owned subsidiary Asyst Japan, Inc., (“AJI”).

Effective as of February 2005, we changed our fiscal quarter-end date from the last Saturday of the last month of the fiscal quarter to the last day of the third calendar month of the fiscal quarter. Accordingly, the current fiscal quarter ended on December 31, 2005. The third quarter of fiscal year 2005 ended on December 25, 2004. For convenience of presentation and comparison to current and prior fiscal quarters, we refer throughout this report to a fiscal quarter ended December 31, 2004. However, all references to our fiscal quarter ended December 31, 2004 mean our actual fiscal quarter ended December 25, 2004. This presentation is for convenience purposes. The results for interim periods are not necessarily indicative of the results for the entire year. The year-end condensed consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. As such, these condensed consolidated financial statements should be read in connection with our consolidated financial statements for the year ended March 31, 2005 included in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”,) No. 151,Inventory Costs — an Amendment of ARB No. 43, Chapter 4(“SFAS 151”). SFAS 151 amends ARB 43, Chapter 4, to clarify those abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) that should be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are in the process of evaluating the impact of the adoption of the provisions of SFAS 151 on our financial position and results of operations.

In December 2004, the FASB issued SFAS No. 153,Exchange of Nonmonetary Assets — an amendment of APB Opinion No. 29(“SFAS 153”). SFAS 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of the provisions of SFAS 153 did not have a material impact on our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123(R),Share Based Payment(“ SFAS 123(R)”). SFAS 123(R) revises SFAS No. 123,Accounting for Stock-Based Compensationand requires companies to expense the fair value of employee stock options and similar awards, including purchases made under an Employee Stock Purchase Plan. Under a change approved by the SEC in April 2005, the effective date of this requirement for us will be April 1, 2006, the beginning of our next fiscal year that begins after June 15, 2005. In March 2005, the SEC issued SAB 107 which includes interpretive guidance for the initial implementation of SFAS 123(R). SFAS 123(R) applies to all outstanding and unvested share-based payment awards at adoption. We are currently evaluating the impact of the adoption of SFAS 123(R) and have not selected a transition method or valuation model. However, in any event, we believe that the adoption of the provision of SFAS 123(R) will have a significant adverse impact on our results from operations.

In June 2005, the FASB issued SFAS No. 154Accounting Changes and Error Corrections: a Replacement of Accounting Principles Board Opinion No. 20 (“APB 20”) and FASB Statement No 3(“SFAS 154”.) SFAS 154 requires retrospective application for voluntary changes in accounting principle unless it is impracticable to do so. Retrospective application refers to the application of a different accounting principle to previously issued financial statements as if that principle had always been used. SFAS 154’s retrospective-application requirement replaces APB 20’s requirement to recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement defines retrospective application as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This Statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The requirements are effective for accounting changes made in fiscal years beginning after December 15, 2005 and will only impact the consolidated financial statements in periods in which a change in accounting principle is made.

In October 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 13-1,Accounting for Rental Costs Incurred during a Construction Period, (“FSP 13-1”). FSP 13-1 addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. The guidance in FSP 13-1 is effective for the first fiscal period after December 15, 2005 and its adoption is not expected to have a material impact on our financial position or results of operations.

In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,(“FSP 115-1 and 124-1”) which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. FSP 115-1 and 124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in FSP 115-1 and 124-1 amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. The guidance in FSP 115-1 and 124-1 is effective for the first fiscal period after December 15, 2005 and its adoption is not expected to have a material impact on our financial position or results of operations.

Reclassifications

Certain prior period amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current period’s presentation. In particular, we have reclassified cash flow activity relating to certain auction-rate securities, for which interest rates reset in less than three months, but for which the maturity date is longer than three months. In the fourth quarter of fiscal 2005, the Company had determined that it was appropriate to classify its investment in auction-rate securities as short-term investments. These investments were included in cash and cash equivalents in previous fiscal 2005 Form 10-Q filings. This resulted in a reclassification of $27.5 million to reflect these securities as short-term investments rather than as a component of cash and cash equivalents.

The following table summarizes the amounts in Consolidated Balance Sheets as previously reported and as reclassified (in thousands):


	As Reported						As Reclassified:
	Cash and Cash		Short-Term				Cash and Cash		Short-Term
	Equivalents		Investments		Total		Equivalents		Investments		Total
December 31,2004	$	105,499	$	25,596	$	131,095	$	78,049	$	53,046	$	131,095

The following table summarizes the amounts in Consolidated Statements of Cash Flow as previously reported and as reclassified that were a result of the investment activities (dollars in thousands):


	As Reported								As Reclassified:
				Sales /								Sales /
	Purchase of			Maturities of					Purchase of			Maturities of
	Available for			Available for					Available for			Available for
	Sale Securities			Sale Securities		Net			Sale Securities			Sale Securities		Net
Nine months ended December 31, 2004	$	(22,526	)	$	1,500	$	(21,026	)	$	(225,226	)	$	176,750	$	(48,476	)

In addition, costs related to field services sales of $1.5 million and $5.2 million for the three and nine months ended December 31, 2004 were reclassified from operating expenses to cost of sales, as disclosed under “quarterly financial data” in Item 8 of our fiscal year 2005 Form 10-K, filed on June 29, 2005.

The reclassifications did not have an effect on net income (loss) or cash flow from operations for any period presented.

Short-term Investments

Short-term investments by security type are as follows (in thousands):


	Cost		Unrealized Loss			Fair Value
December 31, 2005
Auction rate securities	$	17,475	$	—		$	17,475
Corporate debt securities		6,805		(26	)		6,779
Federal agency notes		3,000		(10	)		2,990

	$	27,280	$	(36	)	$	27,244

March 31, 2005
Auction rate securities	$	19,803	$	—		$	19,803
Corporate debt securities		9,915		(47	)		9,868
Municipal debt securities		501		(1	)		500
International debt securities		1,009		(2	)		1,007
Federal agency notes		15,000		(92	)		14,908

	$	46,228	$	(142	)	$	46,086

Investments with maturities greater than three months, but less than one year are classified as short-term investments. Investments with maturities greater than one year are classified as long-term investments. Our short-term investments consist of money market funds, U.S. government and agency obligations and other debt securities. Auction rate debt securities with interest rates that reset in less than three months but with maturity dates longer than three months, are classified as short-term investments. All such investments have been classified as “available-for-sale” and are carried at fair value. Unrealized gains and losses, net of taxes

reported, are recorded as a component of accumulated other comprehensive income (loss). The cost of debt security is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, interest income, realized gains and losses and declines in value that are considered to be other than temporary, are included in interest and other income (expense), net, in the Consolidated Statements of Operations.

Accounts Receivable, net of allowance for doubtful accounts

Accounts receivable, net of allowance for doubtful accounts were as follows (in thousands):


	December 31,			March 31,
	2005			2005
Trade receivables	$	63,572		$	77,196
Trade receivables-related party		23			100
Unbilled receivables		86,425			110,778
Other receivables		6,664			8,849
Less: Allowance for doubtful accounts		(10,530	)		(6,980	)

Total	$	146,154		$	189,943

We estimate our allowance for doubtful accounts based on a combination of specifically identified amounts and an additional reserve calculated based on the aging of receivables. The additional reserve is provided for the remaining accounts receivable after specific allowances at a range of percentages from 1.25 percent to 50.0 percent based on the aging of receivables. If circumstances change (such as an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us or its payment trends), we may adjust our estimates of the recoverability of amounts due to us. During the three and nine month periods ended December 31, 2005, we wrote off $0.4 million and $0.8 million, respectively of accounts receivable which we determined to be uncollectible and for which we had recorded specific reserves in previous quarters. We do not record interest on outstanding and overdue accounts receivable.

All of our unbilled receivables are from our majority-owned joint venture, ASI. Payments related to these unbilled receivables are expected to be received within one year from December 31, 2005 and as such the balances are classified within current assets on our condensed consolidated balance sheet.

Our Japan subsidiary, AJI and our majority-owned joint venture ASI, have agreements with certain Japanese banking institutions to sell certain of our trade receivables. ASI and AJI sold during the nine month periods ended December 31, 2005 and 2004, an aggregate of $68.6 million and $12.7 million, respectively, of accounts receivable without recourse.

Inventories

Inventories consisted of the following (in thousands):


	December 31,		March 31,
	2005		2005
Raw materials	$	13,580	$	14,040
Work-in-process		23,943		17,905
Finished goods		786		1,570

Total	$	38,309	$	33,515

At December 31, 2005 and March 31, 2005, we had a reserve of $14.2 million and $15.3 million, respectively, for estimated excess and obsolete inventory.

We outsource the majority of our fab automation product manufacturing to Solectron Corporation, (“Solectron”). As part of the arrangement, Solectron purchases inventory on our behalf and we may be obligated to reacquire inventory purchased by Solectron if the inventory is not used over a certain specified period of time per the terms of our agreement. Any inventory buyback in excess of our demand forecast is fully reserved. At December 31 and March 31, 2005, total inventory held by Solectron was $8.2 million and $14.5 million, respectively. During the three months ended December 31, 2005, we repurchased $3.7 million of inventory that was not used by Solectron in manufacturing our products.

Goodwill and Other Intangible Assets, net

Goodwill

In accordance with SFAS No. 142, we have completed our annual goodwill impairment test in December 2005 and 2004 and concluded that there was no impairment of goodwill, in either period.

Goodwill balances and the changes in the carrying amount of goodwill during the nine month period ended December 31, 2005 were as follows (in thousands):


	Fab Automation		AMHS			Total
Balance at March 31, 2005	$	3,397	$	60,617		$	64,014
Foreign currency translation		—		(5,306	)		(5,306	)

Balances at December 31, 2005	$	3,397	$	55,311		$	58,708

Intangible assets

Intangible assets were as follows (in thousands):


	December 31, 2005						March 31, 2005
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Amortizable intangible assets:
Developed technology	$	58,179	$	41,426	$	16,753	$	62,626	$	34,069	$	28,557
Customer base and other intangible assets		31,889		28,696		3,193		33,767		25,167		8,600
Licenses and patents		6,477		3,422		3,055		6,989		3,248		3,741

Total	$	96,545	$	73,544	$	23,001	$	103,382	$	62,484	$	40,898

Amortization expense totaled $3.5 million and $5.1 million for the three month periods ended December 31, 2005 and 2004, respectively. Amortization expense totaled $13.1 million and $15.2 million for the nine month periods ended December 31, 2005 and 2004, respectively.

Expected future intangible amortization expense, based on current balances, for the remainder of fiscal 2006 and subsequent fiscal years, is as follows (in thousands):


Fiscal Year ending March 31,
Remaining portion of 2006	$	3,660
2007		11,941
2008		5,980
2009		688
2010		368
2011 and thereafter		364


Total	$	23,001

Warranty Accrual

We provide for the estimated cost of product warranties at the time revenue is recognized. The following table presents the activity in our warranty accrual (in thousands):


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Beginning Balance	$	11,374		$	11,934		$	13,509		$	8,165
Accruals		877			9,085			5,832			16,180
Settlements		(2,529	)		(6,649	)		(9,064	)		(9,721	)
Foreign Currency Translation		(392	)		589			(947	)		335

Ending Balance	$	9,330		$	14,959		$	9,330		$	14,959

The warranty accrual balance at the end of the period is reflected in accrued and other liabilities.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”). We recognize revenue when persuasive evidence of an arrangement exists, product delivery has occurred or service has been rendered, the seller’s price is fixed or determinable, and collectibility is reasonably assured. Some of our products are large volume consumables that are tested to industry and/or customer acceptance criteria prior to shipment and delivery. Our primary shipping terms are FOB shipping point. Therefore, revenue for these types of products is recognized when title transfers. Certain of our product sales are accounted for as multiple-element arrangements. If we have met defined customer acceptance experience levels with both the customer and the specific type of equipment, we recognize the product revenue at the time of shipment and transfer of title, with the remainder when the other elements, primarily installation, have been completed.Multiple element transactions are primarily comprised of system sales with extended warranty contracts and services bundled into them. We allocate consideration to multiple element transactions based on relative objective evidence of fair values, which we determine based on prices charged for such items when sold on a stand alone basis.Some of our other products are highly customized systems and cannot be completed or adequately tested to customer specifications prior to shipment from the factory. We do not recognize revenue for these products until formal acceptance by the customer. Revenue for spare parts sales is recognized at the time of shipment. Deferred margin consists primarily of product shipments and associated costs for which a legally enforceable receivable has been created but for which the transaction has not yet met our revenue recognition policy in compliance with SAB 104. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is not significant and is included in deferred margin.

We recognize revenue for long-term contracts at ASI in accordance with the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 81-1,“Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”We use the percentage-of-completion method to calculate revenue and related costs of these contracts because they are long-term in nature and estimates of cost to complete and extent of progress toward completion of long-term contracts are available and reasonably dependable. We record revenue each period based on the percentage of completion to date on each contract, measured by costs incurred to date relative to the total estimated costs of each contract. We treat contracts as substantially complete when we receive technical acceptance of our work by the customer. We disclose material changes in our financial results that result from changes in estimates.

We account for software revenue in accordance with the AICPA Statement of Position 97-2,“Software Revenue Recognition.”Revenue for integration software work is recognized on a percentage-of-completion basis. Software license revenue, which is not material to the consolidated financial statements, is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is probable.

Contract Loss Reserve

We routinely evaluate the contractual commitments with our customers and suppliers to determine if a probable loss exists that can be estimated in fulfillment of the contractual commitment. If so, a loss reserve is recorded and included in accrued and other liabilities. We had no loss reserve as of December 31, 2005, but did have a loss reserve of $0.2 million at March 31, 2005. The balance at March 31, 2005 related to four AMHS contracts entered into by ASI, one in fiscal 2005 and three during fiscal 2004.

Comprehensive Loss

Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners, and is to include unrealized gains and losses that have historically been excluded from net income and loss and reflected instead in equity. The following table presents our comprehensive loss items (in thousands):


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Net income (loss), as reported	$	2,979		$	(11,644	)	$	(2,153	)	$	(15,761	)
Foreign currency translation adjustments		(3,461	)		4,144			(7,188	)		1,368
Unrealized gains (losses) on investments		27			(61	)		105			(131	)

Comprehensive loss	$	(455	)	$	(7,561	)	$	(9,236	)	$	(14,524	)

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding, while diluted net income (loss) per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted net income (loss) per share result from the assumed exercise of stock options and warrants, using the treasury stock method. For periods in which there is a net loss, the numbers of shares used in the computation of diluted net income (loss) per share are the same as those used for the computation of basic net income (loss) per share, as the inclusion of dilutive securities would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Basic and diluted net income (loss) per share:
Numerator:
Net income (loss)	$	2,979		$	(11,644	)	$	(2,153	)	$	(15,761	)

Denominator:
Weighted average common shares outstanding		47,945			47,495			47,872			47,291
Add: Weighted average vested but unissued restricted stock		98			58			88			96
Less: Weighted average unvested restricted stock		(24	)		—			(42	)		—

Denominator for basic calculation		48,019			47,553			47,918			47,387

Effect of dilutive securities:
Add: Weighted average common stock options and unvested restricted stock and restricted stock units		770			—			—			—

Denominator for diluted calculation		48,789			47,553			47,918			47,387

Net income (loss) per share, basic	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)

Net income (loss) per share, diluted	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)

The following table summarizes securities outstanding which were not included in the calculation of diluted net income (loss) per share reported in the condensed consolidated statement of operations, nor in the table presented in the Stock-Based Compensation section below, as to do so would be anti-dilutive (in thousands):


	Three months Ended				Nine months Ended
	December 31,				December 31,
	2005		2004		2005		2004
Restricted stock options		—		62		478		64
Restricted stock units		—		40		37		20
Stock options		3,831		8,235		6,958		8,439
Convertible notes		5,682		5,682		5,682		5,682

Total		9,513		14,019		13,155		14,205

Stock-Based Compensation

Had compensation expense for our stock options, employee stock purchase plan and the restricted stock issuances to employees been determined based on the fair value at the grant or issuance date, consistent with the provision of SFAS No. 123 and SFAS No. 148, our net income (loss) for the three and nine month periods ended December 31, 2005 and 2004, would have increased as indicated below (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Net income (loss) — as reported	$	2,979		$	(11,644	)	$	(2,153	)	$	(15,761	)
Add: employee stock-based compensation expense included in reported net income (loss), net of tax		271			205			1,095			961
Less: total employee stock-based compensation expense determined under fair value, net of tax		(1,463	)		(2,868	)		(4,598	)		(8,107	)

As adjusted net income (loss)	$	1,787		$	(14,307	)	$	(5,656	)	$	(22,907	)

Basic net income (loss) per share — As reported	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)

Basic net income (loss) per share — As adjusted	$	0.04		$	(0.30	)	$	(0.12	)	$	(0.48	)

Diluted net income (loss) per share — As reported	$	0.06		$	(0.24	)	$	(0.04	)	$	(0.33	)

Diluted net income (loss) per share — As adjusted	$	0.04		$	(0.30	)	$	(0.12	)	$	(0.48	)

Basic shares used in computing As Reported and As Adjusted net income (loss) per share		48,019			47,553			47,918			47,387

Diluted shares used in computing As Reported and As Adjusted net income (loss) per share		48,789			47,553			47,918			47,387

Defined Benefit Pension Plans

Our majority-owned joint venture, ASI, provides a defined benefit pension plan for its employees. The joint venture deposits funds for this plan with insurance companies, third-party trustees, or into government-managed accounts, and/or accrues for the unfunded portion of the obligation, in each case consistent with the requirements of Japanese law.

The Company expects to make approximately $0.3 million in benefit payments in fiscal 2006, including $0.2 million paid in the nine month period ended December 31, 2005.

3. RESTRUCTURING CHARGES

The restructuring accrual and related utilization for the three month periods ended June 30, September 30 and December 31, 2005 were as follows (in thousands):


	Severance and Benefits			Excess Facilities			Total
Balance, March 31, 2005	$	67		$	816		$	883
Additional accruals		—			93			93
Non-cash utilization		27			(16	)		11
Amounts paid in cash		—			(370	)		(370	)
Foreign currency translation adjustment		(1	)		(1	)		(2	)

Balance, June 30, 2005		93			522			615
Non-cash utilization		(92	)		15			(77	)
Amounts paid in cash		—			(122	)		(122	)
Foreign currency translation adjustment		(1	)		0			(1	)

Balance, September 30, 2005		—			415			415

Reduction in accrual		—			(138	)		(138	)
Non-cash utilization		—			44			44
Amounts paid in cash		—			(78	)		(78	)

Balance, December 31, 2005	$	—		$	243		$	243

We realized a reduction in our restructuring accrual of $138,000 during the three month period ended December 31, 2005, related to a buyout payment on a leased facility, in conjunction with the early termination on a portion of the facility . We realized a reduction in restructuring charges of $45,000 during the nine month period ended December 31, 2005 related to changes in estimates for severance and excess facility costs.

The outstanding accrual balance of $0.2 million at December 31, 2005 consists of future lease obligations on vacated facilities, which will be paid over the next two quarters. All remaining accrual balances are expected to be settled in cash.

The restructuring accrual and related utilization for the three month periods ended June 30, September 30 and December 31, 2004 were as follows (in thousands):


	Severance and Benefits			Excess Facilities			Total
Balance, March 31, 2004	$	64		$	2,190		$	2,254
Additional accruals		6			213			219
Amounts paid in cash		(37	)		(385	)		(422	)
Foreign currency translation adjustment		—			4			4

Balance, June 30, 2004		33			2,022			2,055
Additional accruals		409			(41	)		368
Amounts paid in cash		(388	)		(279	)		(667	)
Foreign currency translation adjustment		(1	)		(7	)		(8	)

Balance, September 30, 2004		53			1,695			1,748

Additional accruals		1,182			(66	)		1,116
Amounts paid in cash		(522	)		(324	)		(846	)
Foreign currency translation adjustment		4			12			16

Balance, December 31, 2004	$	717		$	1,317		$	2,034

We incurred restructuring charges of $1.7 million for the nine month period ended December 31, 2004 consisting primarily of severance costs resulting from reductions in workforce.

4. ASSET IMPAIRMENT CHARGES

In conjunction with the restructuring in December 2004, we removed from service and made available for sale certain land and a building owned by AJI. The building had been underutilized since a prior decision to outsource the manufacturing of our next-generation robotics products, part of an overall strategy to outsource the manufacture of all our Fab Automation segment products. As a result, we recorded an impairment charge of $4.6 million to write the assets down to their estimated fair value, based on a market valuation, less cost to sell. We accounted for these assets as held-for-sale under SFAS 144.

In the three-month period ended December 31, 2005, we re-evaluated the status of the facility and, based on an assessment of our expected future business needs, we reclassified the assets, which had a net book value of $2.1 million, as held-and-used.

5. INCOME TAXES

The benefit from (provision for) income taxes for the three and nine month periods ended December 31, 2005 and 2004 were as follows (in thousands):


	Three Months Ended					Nine months Ended
	December 31,					December 31,
	2005			2004		2005			2004
Benefit from (provision for) income taxes		($6,507	)	$	962		($16,191	)	$	2,549

The provision for income taxes for the three month period ended December 31, 2005 was $6.5 million which included a tax benefit of $1.0 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $7.3 million tax provision recorded by ASI and a tax provision of $0.2 million recorded primarily by other international subsidiaries. The Company’s effective tax rate differs from the US statutory rate primarily due to tax provisions recorded in ASI and other foreign subsidiaries in excess of the US statutory rate, and US losses not providing current tax benefits.

The benefit from income taxes for the three month period ended December 31, 2004 was $1.0 million, primarily due to a tax benefit of $1.7 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $0.5 million tax provision record by ASI and a tax provision of $0.2 million recorded primarily by other international subsidiaries.

The provision for income taxes for the nine month period ended December 31, 2005 was $16.2 million which included a tax benefit of $4.3 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $19.0 million tax provision recorded by ASI and a tax provision of $1.5 million recorded by other international subsidiaries.

The benefit from income taxes for the nine month period ended December 31, 2004 was $2.5 million, primarily due to a tax benefit of $5.0 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $1.7 million tax provision record by ASI and a tax provision of $0.8 million recorded by other international subsidiaries.

6. REPORTABLE SEGMENTS

We have two reportable product segments: Fab Automation and AMHS. The Fab Automation segment includes interface products, substrate-handling robotics, auto-ID systems, sorters and connectivity software and services products. The AMHS segment, which consists principally of the entire ASI operations, includes automated transport and loading systems for semiconductor fabs and FPD manufacturers.

We evaluate performance and allocate resources based on revenues and income (loss) from operations. Income (loss) from operations for each segment includes selling, general and administrative expenses directly attributable to the segment.

Segment information is summarized as follows (in thousands):


	December 31,		March 31,
	2005		2005
AMHS:
Total Assets	$	276,994	$	312,391
Fab Automation Products:
Total Assets	$	163,167	$	171,383

Consolidated:
Total Assets	$	440,161	$	483,774


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
AMHS:
Net sales	$	67,337		$	109,255		$	230,135		$	276,714
Cost of Sales		41,775			98,316			155,837			251,636

Gross Profit	$	25,562		$	10,939		$	74,298		$	25,078

Income (loss) from operations	$	14,520		$	(3,011	)	$	36,013		$	(8,809	)

Fixed Assets Additions	$	1,500		$	220		$	2,949		$	1,962

Amortization and Depreciation	$	3,089		$	4,349		$	11,939		$	13,025

Fab Automation Products:
Net sales	$	39,487		$	52,128		$	118,735		$	192,700
Cost of Sales		23,053			35,498			73,827			132,266

Gross Profit	$	16,434		$	16,630		$	44,908		$	60,434

Loss from operations	$	(3,265	)	$	(11,303	)	$	(12,799	)	$	(11,262	)

Fixed Assets Additions	$	3,395		$	—		$	4,932		$	1,892

Amortization and Depreciation	$	2,178		$	1,925		$	6,429		$	7,307

Consolidated:
Net sales	$	106,824		$	161,383		$	348,870		$	469,414
Cost of Sales		64,828			133,814			229,664			383,902

Gross Profit	$	41,996		$	27,569		$	119,206		$	85,512

Income (loss) from operations	$	11,255		$	(14,314	)	$	23,214		$	(20,071	)

Fixed Assets Additions	$	4,894		$	220		$	7,881		$	3,854

Amortization and Depreciation	$	5,267		$	6,274		$	18,368		$	20,332

Total income (loss) from operations in the above table is equal to consolidated income (loss) from operations for the periods presented. We do not allocate other income (expense), net to individual segments.

The table below represents our significant customers as a percent of our net sales for the three and nine month periods ended December 31, 2005


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	December 31,		December 31,		December 31,		December 31,
	2005		2005		2004		2004
Customer A		13.6%		6.2%		0.0%		0.0%
Customer B		13.0%		7.9%		3.0%		3.3%
Customer C		8.3%		13.6%		11.0%		20.0%
Customer D		1.8%		5.7%		24.0%		8.3%

No other customer accounted for more than 10.0 percent of our net sales for the three and nine month periods ended December 31, 2005.

7. DEBT

We had $19.4 million and $20.6 million of short-term debt issued by banks in Japan outstanding at December 31 and March 31, 2005, respectively. Approximately $5.8 million and $7.6 million at December 31 and March 31, 2005, respectively, is owed by our Japanese subsidiary, AJI, and is guaranteed by Asyst in the United States. The remaining portion, $13.6 million and $13.0 million at December 31 and March 31, 2005, respectively, is owed by ASI, based upon currency exchange rates in effect on December 31 and March 31, 2005, for the respective periods. As of December 31 2005, the interest rates ranged from 1.1 percent to 3.0 percent.

Long-term debt and capital leases consisted of the following (in thousands):


	December 31,			March 31,
	2005			2005
Convertible subordinated notes	$	86,250		$	86,250
Secured straight bonds		1,683			2,482
Long-term loans		679			1,915
Capital leases		586			860

Total long-term debt		89,198			91,507
Less: Current portion of long-term debt and capital leases		(1,776	)		(2,757	)

Long-term debt and capital leases net of current portion	$	87,422		$	88,750

At December 31, 2005, maturities of all long-term debt and capital leases are as follows (in thousands):


Fiscal Year Ending March 31,
Remaining portion of 2006	$	667
2007		1,366
2008		722
2009		86,443
2010 and thereafter		—

	$	89,198

Convertible Subordinated Notes

On July 3, 2001, we completed the sale of $86.3 million of 5 3/4 percent convertible subordinated notes that resulted in aggregate proceeds of $82.9 million to us, net of issuance costs. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share, which is equal to a conversion rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature on July 3, 2008, pay interest on January 3 and July 3 of each year and are redeemable at our option. Debt issuance costs of $2.9 million, net of amortization, are being amortized over 84 months and are being charged to other income (expense). Debt amortization costs totaled $0.1 million during each of the three month periods ended December 31, 2005 and 2004, respectively; and $0.3 million during each of the nine month periods ended December 31, 2005 and 2004, respectively.

Secured Straight Bonds

We had $1.7 million and $2.5 million of secured straight bonds from a bank in Japan at December 31 and March 31, 2005, respectively. The bonds bore interest at rates ranging from 1.4 percent to 3.0 percent as of December 31 and March 31, 2005, and mature in fiscal year 2008. Certain of our assets in Japan have been pledged as security for short-term debt and secured straight bonds.

Lines of Credit

At December 31, 2005, we have a two-year revolving line of credit with a commercial bank, with a current maturity date of July 31, 2007. We amended the line of credit during the first and third quarters of fiscal year 2006. As amended, the maximum borrowing available under the line is $40.0 million; however, only $25.0 million of borrowing is available to us as long as ASI maintains $65.0 million of aggregate available borrowing under its lines of credit in Japan. The line of credit requires compliance with certain financial covenants, including a quarterly net income/loss target, calculated on an after-tax basis (excluding depreciation, amortization and other non-cash items), and a requirement that we maintain during the term of the line of credit a minimum cash and cash equivalents balance of $40.0 million held in the U.S., at least $20.0 million of which must be maintained with the bank. The specific amount of borrowing available under the line of credit at any time, however, may change based on the amount of letters of credit and current receivables we have outstanding, the amount of aggregate borrowing by ASI and the cash balance held at the bank. As of December 31, 2005, there was no amount outstanding under the line of credit, but the maximum borrowing has been reduced by $0.8 million with the issuance of a letter of credit during November 2005. We were in compliance with all financial covenants and had available $24.3 million as of December 31, 2005.

At December 31, 2005, ASI had five revolving lines of credit with Japanese banks. These lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $59.4 million at the exchange rate as of December 31, 2005. As of December 31 and March 31, 2005, ASI had outstanding borrowings of 1.6 billion Japanese Yen and 1.4 billion Japanese Yen, or approximately $13.6 million and $13.0 million, respectively, at the exchange rate as of December 31 and March 31, 2005, respectively, which are recorded in short-term debt. As of December 31, 2005, the amount available under these lines of credit was 5.4 billion Japanese Yen or approximately $45.8 million at the exchange rate as of December 31, 2005.

ASI’s lines of credit carry original terms of six months to one year, at variable interest rates based on the Tokyo Interbank Offered Rate, or TIBOR, which was 0.06 percent at December 31, 2005, plus margins of 1.00 to 1.25 percent. Under the terms of certain of these lines of credit, ASI generally is required to maintain compliance with certain financial covenants, including requirements to report an annual net profit on a statutory basis and to maintain at least 80.0 percent of the equity reported as of its prior fiscal year-end.

ASI was in compliance with these covenants at December 31, 2005. None of these lines requires collateral and none of these lines requires guarantees from us or our subsidiaries in the event of default by ASI. In June 2005, we amended two of these lines of credit representing 4.0 billion Yen, or approximately $33.9 million, of borrowing capacity to extend the expiry dates to June 30, 2006, at which time all amounts outstanding under these lines of credit will be due and payable, unless the lines of credit are extended.

Our Japanese subsidiary, AJI, maintains five revolving lines of credit with various Japanese banks, none of which contain financial covenants. The lines carry annual interest rates of 1.4 to 2.0 percent and substantially all of these lines are guaranteed by us in the United States. As of December 31 and March 31, 2005, respectively, AJI had outstanding borrowings of 0.7 billion Japanese Yen and 0.8 billion Japanese Yen, or approximately $5.8 million and $7.6 million, at exchange rates as of December 31 and March 31, 2005, respectively, that are recorded as short-term debt.

We have guaranteed certain lease payments with respect to equipment and real estate of AJI, our Japanese subsidiary.

8. SHAREHOLDERS’ EQUITY

Employee Stock Option Grants

Options to purchase 86,750 shares and 27,500 shares of common stock were granted to employees during the three month periods ended December 31, 2005 and 2004, respectively. Options to purchase 1,650,850 and 1,608,450 shares of common stock were granted to employees during the nine month periods ended December 31, 2005 and 2004, respectively. At December 31, 2005, options to purchase 7,436,720 shares of common stock were outstanding, and 2,133,318 shares of common stock were available for issuance under our 2001 and 2003 stock option plans.

Employee Stock Purchase Plan

As of December 31, 2005, approximately 2.2 million shares had been purchased and approximately 226,000 shares of common stock were available for issuance under the Employee Stock Purchase Plan.

Fair Value Disclosures

Information regarding net income (loss) and net income (loss) per share, as adjusted, is required by SFAS No. 123, which also requires that the information be determined as if we had accounted for our employee stock options granted under the fair value method. The fair value for these options was estimated using the Black-Scholes option pricing model. The per share weighted average estimated fair value for employee stock options granted was $2.42 and $3.15 during the three month periods ended December 31, 2005 and 2004, respectively, and $3.14 and $5.16 during the nine month periods ended December 31, 2005 and 2004, respectively. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no restrictions and are fully transferable and negotiable in a freely traded market. Black-Scholes does not consider the employment, transfer or vesting restrictions that are inherent in our employee options. The usage of an option valuation model, as required by SFAS No. 123, includes highly subjective assumptions based on long-term predictions, including the expected stock price volatility and average life of each option grant. Because our employee options have characteristics significantly different from those of freely traded options, and because changes in the subjective input assumptions can materially affect our estimate of the fair value of those options, it is our opinion that none of the existing valuation models, including Black-Scholes, are exact measurement formulas and therefore may misstate the fair value of our employee options.

The following weighted average assumptions are included in the estimated fair value calculations for employee stock option grants in the three and nine month periods ended December 31, 2005 and 2004, respectively:


	Three months Ended						Nine months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Risk-free interest rate		4.38	%		3.27	%		3.81	%		3.30	%
Expected term of options (in years)		4.7			4.6			4.7			4.4
Expected volatility		88.1	%		91.5	%		88.3	%		91.8	%
Expected dividend yield		0	%		0	%		0	%		0	%

Using Black-Scholes, the per share weighted average estimated fair value of rights to purchase our stock issued under our Employee Stock Purchase Plan during the three month periods ended December 31, 2005 and 2004 was $1.56 and $1.51, respectively, and for the nine month periods ended December 31, 2005 and 2004 was $1.38 and $2.43, respectively,

The following weighted average assumptions are included in the estimated grant date fair value calculations for rights to purchase stock under the Employee Stock Purchase Plan:


	Three months Ended						Nine months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Risk-free interest rate		4.29	%		2.31	%		3.81	%		2.08	%
Expected term of options (in years)		0.5			0.5			0.5			0.5
Expected volatility		52.3	%		82.8	%		48.6	%		83.9	%
Expected dividend yield		0	%		0	%		0	%		0	%

9. RELATED PARTY TRANSACTIONS

Our majority-owned joint venture, ASI, has certain transactions with its minority shareholder, Shinko. Our majority-owned subsidiary, AJI, has certain transactions with MECS Korea, in which AJI is a minority shareholder. At December 31 and March 31, 2005, respectively, significant balances with Shinko and MECS Korea were (in thousands):


	December 31,		March 31,
	2005
Amounts due to Shinko	$	21,650	$	39,221
Accounts receivable from MECS Korea		23		100
Amounts due to MECS Korea		6		21

In addition, the consolidated financial statements reflect that ASI purchased various products, administrative and IT services from Shinko. AJI also purchased IT services from MECS Korea. During the three and nine months ended December 31, 2005, material and service purchases from Shinko totalled approximately $15.8 million and $44.4 million, respectively. During the three and nine months ended December 31, 2005, purchases from MECS Korea totalled approximately $65,000 and $293,000, respectively.

10. COMMITMENTS AND CONTINGENCIES

Lease Commitments

We lease various facilities under non-cancelable capital and operating leases. At December 31, 2005, the future minimum commitments under these leases are as follows (in thousands):


Fiscal Year Ending March 31,	Capital Lease			Operating Lease
Remaining portion of 2006	$	65		$	1,593
2007		234			2,164
2008		162			2,807
2009		146			1,392
2010 and thereafter		—			5,667

Total		607		$	13,623

Less: interest		(21	)

Present value of minimum lease payments		586
Less: current portion of capital leases		(229	)

Capital leases, net of current portion	$	357

We entered into a lease agreement on November 29, 2005 for our new corporate headquarters. The total seven year lease rental cost is approximately $7.8 million. Under the terms of the lease agreement, we are eligible for a Tenant Incentive Allowance (“TIA”) of approximately $4.6 million to be used to pay for leasehold improvements. We have recorded $4.6 million as a deferred liability for the TIA in Q3 FY06. This is being amortized as a reduction to rent expense over the term of the lease in accordance with FASB Technical Bulletin 88-1, but not shown as a decrease to future minimum lease payment commitments, in the above table.

Rent expense under our operating leases was approximately $1.6 million and $1.5 million for the three month periods ended December 31, 2005 and 2004, respectively; and $4.5 million and $4.1 million for the nine month periods ended December 31, 2005 and 2004, respectively.

Legal Commitments

On October 28, 1996, we filed suit in the United States District Court for the Northern District of California against Empak, Inc., Emtrak, Inc., Jenoptik AG, and Jenoptik Infab, Inc., alleging, among other things, that certain products of these defendants infringe our United States Patents Nos. 5,097,421 (“the ‘421 patent”) and 4,974,166 (“the ‘166 patent”). Defendants filed answers and counterclaims asserting various defenses, and the issues subsequently were narrowed by the parties’ respective dismissals of various claims, and the dismissal of defendant Empak pursuant to a settlement agreement. The remaining patent infringement claims against the remaining parties proceeded to summary judgment, which was entered against us on June 8, 1999. We thereafter took an appeal to the United States Court of Appeals for the Federal Circuit. On October 10, 2001, the Federal Circuit issued a written opinion, Asyst Technologies, Inc. v. Empak, 268 F.3d 1365 (Fed. Cir. 2001), reversing in part and affirming in part the decision of the trial court to narrow the factual basis for a potential finding of infringement, and remanding the matter to the trial court for further proceedings. The case was subsequently narrowed to the ‘421 patent, and we sought monetary damages for defendants’ infringement, equitable relief, and an award of attorneys’ fees. On October 9, 2003, the court: (i) granted defendants’ motion for summary judgment to the effect that the defendants had not infringed our patent claims at issue and (ii) directed that judgment be entered for defendants. We thereafter took a second appeal to the United States Court of Appeals for the Federal Circuit. On March 22, 2005, the Federal Circuit issued a second written opinion, Asyst Technologies, Inc. v. Empak, 402 F.3d 1188 (Fed. Cir. 2005), reversing in part and affirming in part the decision of the trial court to narrow the factual basis for a potential finding of infringement, and remanding the matter to the trial court for further proceedings. We intend to continue to prosecute the matter before the trial court, seeking monetary damages for defendants’ infringement, equitable relief, and an award of attorneys’ fees.

On August 29, 2005, a suit was filed in the Osaka District Court, Japan, against Shinko Electric Co., Ltd. (“Shinko”) and Asyst Shinko, Inc. (“ASI”). The suit, filed by Auckland UniServices Limited and Daifuku Corporation (“Plaintiffs”), alleges, among other things, that certain Shinko and ASI products infringe Japanese Patent No. 3304677 (the “’677 Patent”), and seeks monetary damages against both Shinko and ASI in an amount to be determined. The suit alleges infringement of the ‘677 Patent by elements of identified Shinko products and of ASI’s Over-head Shuttle and Over-head Hoist Transport products. ASI has asserted various defenses, including non-infringement of the asserted claims under the ‘677 Patent, and intends to defend the matter vigorously. ASI is also consulting with Shinko concerning issues relating to a mutual defense of the claims, as well as potential indemnity by Shinko.

From time to time, we are also involved in other legal actions arising in the ordinary course of business. Litigation is inherently unpredictable, and we cannot predict the outcome of the legal proceedings described above with any certainty. Should there be an adverse judgment against us, it may have a material adverse impact on our financial statements. Because of uncertainties related to both the amount and range of losses in the event of an unfavorable outcome in the lawsuit listed above or in certain other pending proceedings for which loss estimates have not been recorded, we are unable to make a reasonable estimate of the losses that could result from these matters and hence have recorded no accrual in our financial statements as of December 31, 2005.

Indemnifications

We, as permitted under California law and in accordance with our Bylaws, indemnify our officers, directors and members of our senior management for certain events or occurrences, subject to certain limits, while they were serving at our request in such capacity. The maximum amount of potential future indemnification is unlimited; however, we have a Director and Officer Insurance Policy that enables us to recover a portion of certain future amounts paid (if paid, and subject to the terms of the policy). As a result of the insurance policy coverage, we believe the fair value of these indemnification agreements is not likely to be material. Our sales agreements indemnify our customers for certain expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of these indemnification agreements are generally perpetual any time after execution of the sales

agreement. The maximum amount of potential future indemnification is unlimited. However, to date, we have not paid any claims or been required to defend any lawsuits with respect to any claim.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements

Except for the historical information contained herein, the following discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including those set forth in this section as well as those under the caption, “Risk Factors.” Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document and in our Annual Report onForm 10-K might not occur. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes as of March 31, 2005 and 2004, and for each of the three years in the period ended March 31, 2005 as filed in our Annual Report onForm 10-K for the year ended March 31, 2005. Certain prior period amounts have been reclassified to conform to current period presentation.

Unless expressly stated or the context otherwise requires, the terms “we”, “our”, “us”, “ATI” and “Asyst” refer to Asyst Technologies, Inc. and its subsidiaries.

Overview

We develop, manufacture, sell and support integrated automation systems and software primarily for the worldwide semiconductor and the flat panel display (“FPD”) industries.

We principally sell directly to the semiconductor and FPD manufacturing industries and to other original equipment manufacturers (“OEMs”) that make production equipment for sale to semiconductor manufacturers. Our strategy is to offer integrated automation systems that enable semiconductor and FPD manufacturers to increase their manufacturing productivity and yield and to protect their investment in fragile materials during the manufacturing process.

Our functional currency is the U.S. dollar, except for our Japanese operations and their subsidiaries where our functional currency is the Japanese Yen. The assets and liabilities of these Japanese operations and their subsidiaries are generally translated using period-end exchange rates. Translation adjustments are reflected as a component of “Accumulated other comprehensive income” in our condensed consolidated balance sheets.

On October 16, 2002, we established a joint venture with Shinko Electric Co. Ltd (“Shinko”) called Asyst Shinko, Inc (“ASI”). The joint venture develops, manufactures, sells and supports AMHS with principal operations in Tokyo and Ise, Japan. Under terms of the joint venture agreement, we acquired 51.0 percent of the joint venture for approximately $67.5 million of cash and transaction costs. Shinko contributed its entire AMHS business, including intellectual property and other assets and its installed customer base and approximately 250 employees, and acquired the remaining 49.0 percent interest. We established our majority ownership in ASI to enhance our presence in the 300mm AMHS and flat panel display markets.

We have two reportable segments:

The AMHS segment, which consists principally of the entire ASI operations, includes automated transport and loading systems for semiconductor and flat panel display manufacturers.

The Fab Automation segment includes interface products, substrate-handling robotics, auto-ID systems, sorters and connectivity software and service products.

Our net sales for the nine month period ended December 31, 2005 decreased by $120.5 million, or 25.7 percent, compared to the corresponding period of fiscal 2005. Net sales of Fab Automation Products for the nine month period ended December 31, 2005 decreased by $74.0 million, or 38.4 percent, compared to the same period of fiscal 2005. Net sales of our AMHS products decreased $46.6 million, or 16.8 percent, for the nine month period ended December 31, 2005, compared to the same period of fiscal 2005. AMHS net sales represented 66.0 percent of our total net sales for the nine month period ended December 2005, compared to 58.9 percent for the nine month period ended December 2004.

For the remainder of fiscal 2006, we believe critical success factors include product quality and performance, customer relationships, and demand. Demand for our products can change significantly from period to period as a result of numerous factors, including but not limited to, changes in: (1) global economic conditions; (2) fluctuations in the semiconductor equipment market; (3) changes in customer buying patterns due to technological advancement and/or capacity requirements; (4) the relative competitiveness of our products; and (5) our ability to manage successfully the outsourcing of our manufacturing activities to meet our customers’ demands for our products and services. For this and other reasons, our results of operations for the three and nine month periods ended December 31, 2005 may not be indicative of future operating results.

The discussion of our financial condition and results of operations that follows is intended to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.

Status of Material Weaknesses

We concluded in Item 9A of our Form 10-K for fiscal year 2005 filed on June 29, 2005, that our disclosure controls and procedures and internal control over financial reporting were not effective as of March 31, 2005. Item 9A provided a summary of material weaknesses outstanding as of that date that we identified in management’s assessment of internal control as of March 31, 2005, and other related information. Because these material weaknesses remained outstanding as of the end of the fiscal quarter reported in this Form 10-Q, we have reported in Item 4 of Part I that our disclosure controls and procedures were not effective as of December 31, 2005, together with a summary of these material weaknesses and the status of our remediation efforts.

See also “Risk Factors” in this Item 2 —“If we continue to fail to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our stock price and investor confidence in our company could be materially and adversely affected.”

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect our consolidated financials statements. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of long-lived assets, asset impairments, restructuring charges, goodwill and intangible assets, income taxes, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes there have been no significant changes during the nine month period ended December 31, 2005 to the items that we disclosed as our critical accounting policies and estimates in Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

Results of Operations

The following is a summary of our net sales and income (loss) from operations by segment and consolidated totals for the periods presented (in thousands, except percentages):


	Three Months Ended											Nine Months Ended
				December 31,											December 31,
	2005						2004					2005						2004
AMHS:
Net sales		67,337			100.0	%		109,255		100.0	%		230,135			100.0	%		276,714		100.0	%
Cost of Sales		41,775			62.0	%		98,316		90.0	%		155,837			67.7	%		251,636		90.9	%

Gross Profit		25,562			38.0	%		10,939		10.0	%		74,298			32.3	%		25,078		9.1	%

Income (loss) from operations	$	14,520			21.6	%	$	(3,011	)	(2.8	)%	$	36,013			15.6	%	$	(8,809	)	(3.2	)%

Fab Automation Products:
Net sales		39,487			100.0	%		52,128		100.0	%		118,735			100.0	%		192,700		100.0	%
Cost of Sales		23,053			58.4	%		35,498		68.1	%		73,827			62.2	%		132,266		68.6	%

Gross Profit		16,434			41.6	%		16,630		31.9	%		44,908			37.8	%		60,434		31.4	%

Loss from operations	$	(3,265	)		(8.3	)%	$	(11,303	)	(21.7	)%	$	(12,799	)		(10.8	)%	$	(11,262	)	(5.8	)%

Consolidated:
Net sales		106,824			100.0	%		161,383		100.0	%		348,870			100.0	%		469,414		100.0	%
Cost of Sales		64,828			60.7	%		133,814		82.9	%		229,664			65.8	%		383,902		81.8	%

Gross Profit		41,996			39.3	%		27,569		17.1	%		119,206			34.2	%		85,512		18.2	%

Income (loss) from operations	$	11,255			10.5	%	$	(14,314	)	(8.9	)%	$	23,214			6.7	%	$	(20,071	)	(4.3	)%

The following table show segment information expressed as a percentage of consolidated net sales:


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
AMHS:
Net Sales		63.0	%		67.7	%		66.0	%		58.9	%
Cost of Sales		39.1	%		60.9	%		44.7	%		53.6	%

Gross Profit		23.9	%		6.8	%		21.3	%		5.3	%

Income (loss) from operations		13.6	%		(1.9	)%		10.3	%		(1.9	)%

Fab Automation Products:
Net Sales		37.0	%		32.3	%		34.0	%		41.1	%
Cost of Sales		21.6	%		22.0	%		21.1	%		28.2	%

Gross Profit		15.4	%		10.3	%		12.9	%		12.9	%

Loss from operations		(3.1	)%		(7.0	)%		(3.6	)%		(2.4	)%

Consolidated:
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of Sales		60.7	%		82.9	%		65.8	%		81.8	%

Gross Profit		39.3	%		17.1	%		34.2	%		18.2	%

Income (loss) from operations		10.5	%		(8.9	)%		6.7	%		(4.3	)%

Net Sales

Consolidated The $54.6 million decrease in consolidated net sales for the three month period ended December 31, 2005, compared to the same period in fiscal 2005, was due to lower volume of 200mm and FPD products sold to semiconductor and flat panel display manufacturers, predominantly in Asia. Selling price erosion was not a primary contributor to the decrease in net sales for the period. This was also true for the nine month period ended December 31, 2005, with a $120.5 million decrease in consolidated sales, compared with the same period in fiscal 2005, due to lower volume of 200mm and FPD products sold to semiconductor and flat panel display manufacturers.

AMHS The $41.9 million decrease in AMHS sales for the three month period ended December 31, 2005, compared to the same period of the prior year, was due to lower volume of FPD product sales partially offset by higher volume of 300mm product sales to semiconductor manufacturers. The $46.6 million decrease in AMHS sales for the nine month period ended December 31, 2005, compared with the same period of the prior year, was primarily due to lower volume of FPD product sales partially offset by higher volume of 300mm product sales to semiconductor manufacturers.

Fab Automation The $12.6 million decrease in Fab Automation sales for the three month period ended December 31, 2005, compared to the same period of the prior year, was primarily due to a decrease of $7.0 million in sales of products in our 300mm and portal product lines to OEM’s, together with a net decrease of $3.7 million in our CSG product group sales and $1.9 million in our robotics group sales. The $74.0 million decrease in sales for the nine month period ended December 31, 2005, compared with the same period of the prior year, was

primarily due a decrease of $58.7 million in our 200mm and 300mm product sales to semiconductor manufacturers and OEM’s, a decrease of $15.6 million in our CSG product group sales and a decrease of $10.1 million in other product group sales partially offset with a $10.4 million increase in sales of our Spartan line of sorter products.

Comparison of Expenses, Gross Margin, Interest & Other, and Income Taxes

The following table sets forth the major components of our condensed consolidated statement of operations expressed as a percentage of net sales for the periods indicated:


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
NET SALES		100.0	%		100.0	%		100.0	%		100.0	%
COST OF SALES		60.7	%		82.9	%		65.8	%		81.8	%

Gross profit		39.3	%		17.1	%		34.2	%		18.2	%


OPERATING EXPENSES:
Research and development		5.9	%		5.3	%		5.9	%		5.8	%
Selling, general and administrative		19.7	%		13.9	%		17.8	%		12.1	%
Amortization of acquired intangible assets		3.3	%		3.2	%		3.8	%		3.2	%
Restructuring and other charges		(0.1	)%		3.6	%		(0.0	)%		1.4	%

Total operating expenses		28.8	%		26.0	%		27.5	%		22.5	%

Income (loss) from operations		10.5	%		(8.9	)%		6.7	%		(4.3	)%


INTEREST AND OTHER INCOME (EXPENSE),NET:
Interest income		0.7	%		0.3	%		0.5	%		0.3	%
Interest expense		(1.6	)%		(1.0	)%		(1.5	)%		(1.1	)%
Other income, net		3.2	%		0.9	%		1.2	%		0.6	%

Interest and other income (expense), net		2.3	%		0.2	%		0.2	%		(0.2	)%

Income (loss) before benefit from (provision for) income taxes and minority interest		12.8	%		(8.7	)%		6.9	%		(4.5	)%

BENEFIT FROM (PROVISION FOR) INCOME
TAXES		(6.1	)%		0.6	%		(4.6	)%		0.5	%
MINORITY INTEREST		(3.9	)%		0.9	%		(2.9	)%		0.6	%

NET INCOME (LOSS)		2.8	%		(7.2	)%		(0.6	)%		(3.4	)%

Gross Margin

Consolidated Gross margin increased to 39.3 percent of sales for the three month period ended December 31, 2005, compared to 17.1 percent of sales for the same period of the prior fiscal year. The increase was a result of an improvement in product mix coupled with lower product costs for both AMHS and Fab Automation product sales, as well as the completion of several ASI projects at costs lower than originally estimated, which favorably impacted the gross margin.

For the nine month period ended December 31, 2005, the gross margin increased to 34.2 percent of sales, compared with 18.2 percent for the same period of the prior year, through better inventory control and product cost reductions, offset with slightly higher manufacturing expenses.

For the three and nine month periods ended December 31, 2005, on a dollar basis, the consolidated gross profit increased by $14.4 million and $33.7 million, respectively, compared to the same periods in the prior fiscal year, even though net sales during the two periods decreased by $54.6 million and $120.5 million, respectively. The increase in gross profit in the periods mentioned was due to lower

product costs, improved fixed manufacturing expenses, lower excess and obsolete inventory reserves requirements and better supply chain management, as compared to the same periods of the prior fiscal year.

AMHS The gross margin for AMHS increased to 38.0 percent of net sales for the three month period ended December 31, 2005, compared to 10.0 percent for the same period of the prior year. The increase was primarily due to lower product and project costs, as well as lower volume of FPD products which have lower gross margins. Additionally, completion of several projects at costs lower than originally estimated favorably impacted the gross margin.

For the nine month period ended December 31, 2005, the gross margin increased to 32.3 percent, from 9.1 percent in the prior year period. The AMHS gross profit, on a dollar basis, increased by $49.2 million, despite a decrease of $46.6 million in net sales, compared with the same period of the prior year. The increase in gross profit was primarily due to lower product and project costs associated with 300mm product sales to semiconductor manufacturers and also a change in product mix between 300mm and FPD products. Again, the trend for the first nine months of fiscal year 2006, compared to the prior year, has been reduced product and project costs and also lower volumes of FPD net sales, which have lower gross margins.

Fab Automation The gross margin for Fab Automation increased to 41.6 percent from 31.9 percent of sales for the three month period ended December 31, 2005, compared to the same period of the prior fiscal year. For the three month period ended December 31, 2005, the Fab Automation gross profit was lower by $0.2 million, due to lower 200mm and 300mm sales volume.

For the nine month period ended December 31, 2005, the gross margin increased to 37.8 percent from 31.4 percent of sales in the prior year period. For the nine month period ended December 31, 2005, the Fab Automation gross profit was lower by $15.5 million on a dollar basis primarily due to the lower 200mm and 300mm sales volume, as compared with the same period of the prior year.

The increases in gross margin as a percentage of net sales in both periods were due to lower product costs, lower fixed manufacturing expenses, lower excess and obsolete inventory reserves required, and lower loss contract reserves, compared to the same period of the prior year.

Our gross margins are sensitive to the mix between our Fab Automation Products and AMHS segments. Our Fab Automation Products currently carry higher gross margins than our AMHS products. In addition, within our AMHS segment we often work on large, long-term construction-type projects for both semiconductor and FPD customers. If our costs on these projects are higher than expected, we generally cannot pass on these higher costs to our customers, which has negatively impacted our gross margins in the past. Our gross margins will continue to be affected by future changes in product mix and net sales volumes, as well as by market competition.

Research and Development


	Three Months Ended									Nine Months Ended
	December 31,									December 31,
(in thousands, except percentage)	2005			2004			Change			2005			2004			Change
Research and development	$	6,310		$	8,485			($2,175	)	$	20,461		$	27,237			($6,776	)

Percentage of total net sales		5.9	%		5.3	%		(25.6	)%		5.9	%		5.8	%		(24.9	)%

The research and development expense decrease during the three month period ended December 31, 2005 of $2.2 million, compared to the corresponding period ended December 31, 2004 was primarily due to the effects of the restructuring and associated reduction in workforce that occurred in December 2004 with payroll costs being reduced by $0.7 million, depreciation lower by $0.5 million, software and prototype materials lower $0.5 million and other expenses lower by $0.5 million.

For the nine month period ended December 31, 2005, compared to the corresponding period in the prior year, the primary reductions in expenses were in software and prototype materials of $3.0 million and payroll expenses of $2.6 million with addition savings in depreciation of $1.0 million and other expenses of $0.2 million. Again, the driving force in the reduced expenses was the restructuring and associated reduction in workforce that occur in December 2004.

Our research and development expenses vary as a percentage of net sales because we do not manage these expenditures strictly to variations in our level of net sales. Rather, we establish annual budgets that management believes are necessary for enhancements to our current products and for developing new products and product lines.

Selling, General and Administrative


	Three Months Ended									Nine Months Ended
(in thousands, except percentage)	December 31,									December 31,
	2005			2004			Change			2005			2004			Change
Selling, general and administrative	$	21,075		$	22,551			($1,476	)	$	62,450		$	56,820		$	5,630

Percentage of total net sales		19.7	%		13.9	%		(6.5	)%		17.8	%		12.1	%		9.9	%

The decrease in selling, general and administrative (“SG&A”) expenses for the three month period ended December 31, 2005, compared with the same period of fiscal 2005, was due to reductions in the allowance for doubtful accounts of $1.8 million, and payroll costs of $0.3 million. These savings were partially offset by an increase of $0.6 million in other general expenses.

The increase in SG&A expenses for the nine month period ended December 31, 2005, compared with the same period of fiscal 2005 was due to increases of $2.6 million in general expenses, $1.4 million in the allowance for doubtful accounts and $1.6 million in bonus and profit sharing.

Amortization of Acquired Intangible Assets


	Three Months Ended									Nine Months Ended
(in thousands, except percentage)	December 31,									December 31,
	2005			2004			Change			2005			2004			Change
Amortization of acquired intangible assets	$	3,494		$	5,086			($1,592	)	$	13,126		$	15,178			($2,052	)

Percentage of total net sales		3.3	%		3.2	%		(31.3	)%		3.8	%		3.2	%		(13.5	)%

The decrease in amortization expense for the three and nine month periods ended December 31, 2005, compared with the corresponding periods in the prior fiscal year, was due to an asset having been fully amortized in the third quarter of fiscal 2006, and the weakening of the yen exchange rate, as the majority of our intangible assets are denominated in Japanese Yen.

Restructuring Charges (Credits)

The following table summarizes the activities in our restructuring accrual during the three and nine month periods ended December 31, 2005 and 2004:


	Three Months Ended									Nine Months Ended
(in thousands, except percentages)	December 31,									December 31,
	2005			2004			Change			2005			2004			Change
Restructuring charges (credits)		($138	)	$	1,116			($1,254	)		($45	)	$	1,703			($1,748	)

Percentage of total net sales		(0.1	)%		0.7	%		(112.4	)%		0.0	%		0.4	%		(102.7	)%

We realized a reduction in our restructuring accrual of $138,000 during the three month period ended December 31, 2005, related to a buyout payment on a leased facility, in conjunction with the early termination on a portion of the facility. We realized a reduction in restructuring charges of $45,000 during the nine month period ended December 31, 2005 as a result of changes in estimates for severance and excess facility costs.

We incurred restructuring charges of $1.1 million for the three month period ended December 31, 2004, consisting primarily of severance costs resulting from a reduction in workforce in our Fab Automation reporting segment. In conjunction with this restructuring, we removed from service and made available for sale certain land and a building owned by AJI. The building had been underutilized since a prior decision to outsource the manufacturing of our next-generation robotics products, part of an overall strategy to outsource the manufacture of all our Fab Automation segment products. As a result, we recorded an impairment charge of $4.6 million to write the assets down to their estimated fair value, based on a market valuation, less cost to sell.

The outstanding accrual amount of $0.2 million at December 31, 2005, consists of future lease obligations on vacated facilities which will be paid over the next two quarters. All remaining accrual balances are expected to be settled in cash.

The restructuring accrual and related utilization for the three month periods ended June 30, September 30 and December 31, 2005 were as follows (in thousands):


	Severance and Benefits			Excess Facilities			Total
Balance, March 31, 2005	$	67		$	816		$	883
Additional accruals		—			93			93
Non-cash utilization		27			(16	)		11
Amounts paid in cash		—			(370	)		(370	)
Foreign currency translation adjustment		(1	)		(1	)		(2	)

Balance, June 30, 2005		93			522			615
Non-cash utilization		(92	)		15			(77	)
Amounts paid in cash		—			(122	)		(122	)
Foreign currency translation adjustment		(1	)		—			(1	)

Balance, September 30, 2005		—			415			415

Additional accruals		—			(138	)		(138	)
Non-cash utilization		—			44			44
Amounts paid in cash		—			(78	)		(78	)

Balance, December 31, 2005	$	—		$	243		$	243

Asset Impairment Charges

Interest and other Income (Expense), Net


	Three Months Ended									Nine Months Ended
(in thousands)	December 31,									December 31,
	2005			2004			Change			2005			2004			Change
Interest income	$	706		$	479		$	227		$	1,798		$	1,197		$	601

Interest expense	($	1,714	)	($	1,691	)	($	23	)	($	5,126	)	($	4,953	)	($	173	)

Other income, net	$	3,417		$	1,509		$	1,908		$	4,267		$	2,692		$	1,575

Interest income for the three and nine month periods ended December 31, 2005 was higher than the comparable periods in fiscal 2005 due largely to higher average interest rates on cash and investment balances.

Interest expense was relatively flat due to loan balances on our outstanding debt being consistent for the three and nine month periods ended December 31, 2005 as compared to the same periods of fiscal 2005.

Other income, net increased due to non-recurring royalty income of approximately $2.0 million becoming due to us upon achievement of certain contractual milestones from our royalty partner on our licensed products for the three and nine month periods ended December 31, 2005 as compared to the same periods of fiscal 2005.

Income Taxes


	Three Months Ended									Nine Months Ended
(in thousands, except percentage)	December 31,									December 31,
	2005			2004			Change			2005			2004			Change
Benefit from (provision for) income taxes		($6,507	)	$	962			($7,469	)		($16,191	)	$	2,549			($18,740	)

Percentage of total net sales		(6.1	)%		0.6	%					(4.6	)%		0.5	%

Provision for income taxes for the three month period ended December 31, 2005 was $6.5 million which included a tax benefit of $1.0 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $7.3 million tax provision recorded by ASI and a tax provision of $0.2 million recorded primarily by other international subsidiaries. The Company’s effective tax rate differs from the US statutory rate primarily due to tax provisions recorded in ASI and other foreign subsidiaries in excess of the US statutory rate, and US losses not providing current tax benefits.

Benefit from income taxes for the three-month period ended December 31, 2004 was $1.0 million, primarily due to a tax benefit of $1.7 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $0.5 million tax provision record by ASI and a tax provision of $0.2 million recorded primarily by other international subsidiaries.

Liquidity and Capital Resources

Since inception, we have funded our operations primarily through the private sale of equity securities and public stock offerings, customer pre-payments, bank borrowings, long-term debt, convertible debt and cash generated from operations.

As of December 31, 2005, we had approximately $128.4 million in cash, cash equivalents and short-term investments, $143.0 million in working capital and $87.4 million in long-term debt and capital leases, net of current portion and approximately $19.4 million in short-term borrowings.

The table below, for the periods indicated, provides selected condensed consolidated cash flow information (in thousands):


	Nine Months Ended
	December 31,
	2005			2004
Net cash provided by (used in) operating activities	$	43.0		$	(4.3	)

Net cash provided by (used in) investing activities	$	13.4		$	(50.4	)

Net cash provided by (used in) financing activities	$	(6.5	)	$	18.7

Cash Flows from Operating Activities

Net cash provided by operating activities of $43.0 million during the nine months ended December 31, 2005, consisted of (in millions):


Net loss	$	(2.2	)
Non-cash charges		33.3
Decrease in accounts receivable		25.7
Increase in inventories		(7.5	)
Decrease in prepaid expenses and other assets		10.4
Decrease in accounts payable, accrued liabilities and deferred margin		(16.7	)

Net cash provided by operating activities	$	43.0

Significant changes in assets and liabilities during the nine months ended December 31, 2005 included accounts receivable, which decreased due to increased cash collections at ASI, including receipts from the factoring of certain receivable balances in Japan, primarily during the Company’s third fiscal quarter of 2005; prepaid expenses and other assets, which decreased primarily due to a refund of VAT taxes at ASI from the Japanese government; and accounts payable to related parties, which decreased at ASI by $17.6 million as described in Note 9, “Related Party Transactions.”

As net sales has decreased at our majority-owned joint venture ASI, our overall days sales outstanding (“DSO”) has increased to 124 days as of December 31, 2005 from 119 days at March 31, 2005 and 118 days at December 31, 2004. This increase is due in large part to payment terms offered by ASI, as part of normal business in Japan. Unbilled receivables decreased due to the increase in cash collections on these receivables in the nine month period ended December 31, 2005 .

Our inventory turns were 6.0 times on an annualized basis based on our inventory level on December 31, 2005, compared to 11.5 times as of December 31, 2004, due to decreased cost of sales, but partially offset by improved efficiencies from the outsourcing of the manufacturing of our Fab automation products.

We expect that cash used in or provided by operating activities may fluctuate in future periods as a result of a number of factors including fluctuations in our operating results, collections of accounts receivable, timing of payments, and inventory levels.

Cash Flows from Investing Activities

Net cash provided by investing activities was $13.4 million for the nine month period ended December 31, 2005, due to $18.7 million in net sales of short-term investments, partially offset with $5.3 million in purchases of property and equipment, primarily fixed assets for research and development and computer hardware and software

Net cash of $50.4 million used by investing activities for the nine month period ended December 31, 2004 was primarily a result of net purchases in the amount of $48.5 million of auction rate securities and other short-term investments and $1.9 million from the release of restricted cash and cash equivalents, partially offset with the $3.9 million in purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $6.4 million for the nine month period ended December 31, 2005, due to a dividend payment to ASI’s minority shareholder of $5.9 million, plus principal reductions on long-term debt of $3.0 million, partially offset with $1.8 million in proceeds from our line of credit and $0.7 million in proceeds from the issuance of common stock under our employee stock programs.

Net cash provided by financing activities was $18.7 million for the nine month period ended December 31, 2004, including total loan proceeds of $19.4 million from short-term borrowing and additional long-term debt in our Japanese subsidiary and net proceeds from issuance of common stock in the amount of $3.0 million, offset by $3.7 million of loan repayments in the during the first nine months of the fiscal year

On July 3, 2001, we completed the sale of $86.3 million of 5 3/4 percent convertible subordinated notes that resulted in aggregate proceeds of $82.9 million to us, net of issuance costs. The notes are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share, which is equal to a conversion rate of 65.8718 shares per $1,000 principal amount of notes. The notes mature on July 3, 2008, pay interest on January 3 and July 3 of each year, and are redeemable at our option. Debt issuance costs of $2.9 million, net of amortization, are being amortized over 84 months and are being charged to other income (expense), net. Debt amortization costs totaled $0.1 million during each of the three month periods ended December 31, 2005 and 2004, respectively, and $0.2 million during each of the nine month periods ended December 31, 2005 and 2004, respectively.

At December 31, 2005, we have a two year revolving line of credit with a commercial bank, with a current maturity date of July 31, 2007. We amended the line of credit during the first and third quarters of fiscal year 2006. As amended, the maximum borrowing available under the amended line is $40.0 million; however, only $25.0 million of borrowing is available to us as long as ASI maintains $65.0 million of aggregate available borrowing under its lines of credit in Japan. The line of credit requires compliance with certain financial covenants, including a quarterly net income/loss target, calculated on an after-tax basis (excluding depreciation, amortization and other non-cash items), and a requirement that we maintain during the term of the line of credit a minimum cash and cash equivalents balance of $40.0 million in the U.S., at least $20.0 million of which must be maintained with the bank. The specific amount of borrowing available under the line of credit at any time, however, may change based on the amount of letter of credit and current receivables we have outstanding, the amount of aggregate borrowing of ASI and the cash balance held at the bank. As of December 31, 2005, there was no amount outstanding under the line of credit, but the maximum borrowing has been reduced by $0.8 million with the issuance of a letter of credit during November 2005. We were in compliance with all financial covenants and had available $24.3 million as of December 31, 2005.

We had $1.7 million and $2.5 million of secured straight bonds from a bank in Japan at December 31 and March 31, 2005, respectively. The bonds bore interest at rates ranging from 1.4 percent to 2.3 percent as of December 31, 2005, and mature in fiscal year 2008. Certain of our assets in Japan have been pledged as security for short-term debt and secured straight bonds.

At December 31, 2005, ASI had five revolving lines of credit with Japanese banks. These lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $59.4 million at the exchange rate as of December 31, 2005. As of December 31 and March 31, 2005, ASI had outstanding borrowings of 1.6 billion Japanese Yen and 1.4 billion Japanese Yen, or approximately $13.6 million and $13.0 million, respectively, at the exchange rate as of December 31 and March 31, 2005, respectively that are recorded in short-term debt. As of December 31, 2005, the amount available under these lines of credit was 5.4 billion Japanese Yen or approximately $45.8 million at the exchange rate as of December 31, 2005.

ASI’s lines of credit carry original terms of six months to one year, at variable interest rates based on the Tokyo Interbank Offered Rate (“TIBOR”), which was 0.06 percent at December 31, 2005, plus margins of 1.00 to 1.25 percent. Under the terms of these lines of credit, ASI generally is required to maintain compliance with certain financial covenants, including requirements to report an annual net profit on a statutory basis and to maintain at least 80.0 percent of the equity reported as of its prior fiscal year-end. ASI was in compliance with these covenants at December 31, 2005. None of these lines requires collateral or guarantees from us or our subsidiaries in the event of default by ASI. In June 2005, we amended two of these lines of credit representing 4.0 billion Yen, or approximately $33.9 million, of borrowing capacity to extend the expiration dates to June 30, 2006, at which time all amounts outstanding under these lines of credit will be due and payable, unless the lines of credit are extended. A third line of credit representing 3.0 billion Yen, or approximately $25.5 million, of borrowing capacity expired in November 2005 and was replaced as described below.

On October 31, 2005, ASI, our 51 percent-owned joint venture company in Japan, established credit facilities with three Japanese banks. Each of the three facilities allows borrowing of up to 1 billion Japanese Yen, or approximately $8.5 million USD at exchange rates as of December 31, 2005. The facilities do not require collateral or guarantees from the company. These three facilities carry variable interest rates of TIBOR (the Tokyo Interbank Offered Rate, currently 0.06%) plus a premium ranging from 0.80 percent to 1.0 percent and expire between July 31 and October 26, 2006. These three facilities replaced an existing 3.0 billion yen credit facility which expired in November 2005.

Our Japanese subsidiary, AJI, maintains five revolving lines of credit with various Japanese banks, none of which contain financial covenants. The lines carry annual interest rates of 1.4 to 2.0 percent and substantially all of these lines are guaranteed by us in the United States. As of December 31 and March 31, 2005, respectively, AJI had outstanding borrowings of 0.7 billion Japanese Yen and 0.8 billion Japanese Yen, or approximately $5.9 million and $7.6 million, at exchange rates as of December 31 and March 31, 2005, respectively, that are recorded as short-term debt.

Since inception, we have incurred aggregate consolidated net losses of approximately $368.4 million and have incurred losses during four of the last five fiscal years. In recent years, we have funded our operations primarily from cash generated from the issuance of debt or equity securities. Cash, cash equivalents and short-term investments aggregated $128.4 million at December 31, 2005. We believe that our current cash position and the availability of additional financing via existing lines of credit will be sufficient to meet our expected cash requirements through December 31, 2006.

The cyclical nature of the semiconductor industry makes it very difficult for us to predict future liquidity requirements with certainty. Any upturn in the semiconductor industry may result in short-term uses of cash in operations as cash may be used to finance additional working capital requirements such as accounts receivable and inventories. Alternatively, further softening of demand for

our products may cause us to fund additional operational losses. At some point in the future we may require additional funds to support our working capital and operating expense requirements or for other purposes. We may seek to raise these additional funds through public or private debt or equity financings, or the sale of assets. These financings may not be available to us on a timely basis if at all, or, if available, on terms acceptable to us or not dilutive to our shareholders. If we fail to obtain acceptable additional financing, we may be required to reduce planned expenditures or forego investments, which could reduce our revenues, increase our losses, and harm our business.

The material weaknesses and related matters we discuss in Item 4 of Part I of this report may have an adverse impact on our ability to obtain future capital from equity or debt.

Recent Accounting Pronouncements

In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) 151,“Inventory Costs — an Amendment of ARB No. 43, Chapter 4”. SFAS 151 amends ARB 43, Chapter 4, to clarify those abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) that should be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are in the process of evaluating the impact of the adoption of the provisions of SFAS 151 on our financial position and results of operations.

In December 2004, the FASB issued SFAS 153,“Exchange of Nonmonetary Assets — an amendment of APB Opinion No. 29”(“SFAS 153”). SFAS 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of the provisions of SFAS 153 did not have a material impact on our financial position or results of operations.

In December 2004, the FASB issued SFAS 123(R),Share Based Payment(“SFAS 123(R)”).SFAS 123(R) revises SFAS 123,Accounting for Stock-Based Compensationand requires companies to expense the fair value of employee stock options and similar awards, including purchases made under an Employee Stock Purchase Plan. Under a change approved by the SEC in April 2005, the effective date of this requirement for us will be April 1, 2006, the beginning of our next fiscal year that begins after June 15, 2005. In March 2005, the SEC issued SAB 107 which includes interpretive guidance for the initial implementation of SFAS 123(R). SFAS 123(R) applies to all outstanding and unvested share-based payment awards at adoption. We are currently evaluating the impact of the adoption of SFAS 123(R) and have not selected a transition method or valuation model. However, in any event, we believe that the adoption of the provision of SFAS 123(R) will have a significant adverse impact on our results from operations.

In June 2005, the FASB issued SFAS 154Accounting Changes and Error Corrections: a Replacement of Accounting Principles Board Opinion No. 20 (“APB 20”) and FASB Statement No 3(“SFAS 154”). SFAS 154 requires retrospective application for voluntary changes in accounting principle unless it is impracticable to do so. Retrospective application refers to the application of a different accounting principle to previously issued financial statements as if that principle had always been used. SFAS 154’s retrospective-application requirement replaces APB 20’s requirement to recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement defines retrospective application as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. This Statement also redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The requirements are effective for accounting changes made in fiscal years beginning after December 15, 2005 and will only impact the consolidated financial statements in periods in which a change in accounting principle is made.

In October 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 13-1,Accounting for Rental Costs Incurred during a Construction Period, (“FSP 13-1”) addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. The guidance in FSP 13-1 is effective with the first fiscal period after December 15, 2005 and this adoption is not expected to have a material impact on our financial position or results of operations.

considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP 115-1 and 124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in FSP 115-1 and 124-1 amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, and No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. The guidance in FSP 115-1 and 124-1 is effective with the first fiscal period after December 15, 2005 and this adoption is not expected to have a material impact on our financial position or results of operations.

Risk Factors

We have a history of significant losses.

We have a history of significant losses. In the last five fiscal years, we were profitable in only fiscal year 2001. For the nine month period ended December 31, 2005, our net loss and accumulated deficit was $2.2 million and $368.4 million, respectively, compared to a net loss of $17.5 million and accumulated deficit of $366.2 million for the fiscal year ended March 31, 2005. We may also continue to experience significant losses in the future.

If we continue to fail to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting on a consolidated basis, our stock price and investor confidence in our company could be materially and adversely affected.

We are required to maintain both disclosure controls and procedures and internal control over financial reporting that are effective for the purposes described in Item 4 of Part I below. If we fail to do so, our business, results of operations or financial condition and the value of our stock could be materially harmed. Item 4 of Part I reports our conclusion that our disclosure controls and procedures were not effective as of December 31, 2005, due to material weaknesses in internal control over financial reporting that remained outstanding at that date and that are subject to our continuing remediation efforts, as further summarized in Item 4. The information below should be read in conjunction with that additional information.

Additional information concerning the matters discussed under this risk factor was set forth in Note 2 to the Consolidated Financial Statements, the “Overview” portion of Item 7 and Item 9A of the Form 10-K for the fiscal year 2005 filed on June 29, 2005. The Form 10-K was our first annual report that required management’s assessment of internal control over financial reporting. We concluded in Item 9A of the Form 10-K that our internal control over financial reporting and disclosure controls and procedures were not effective as of March 31, 2005, the end of our 2005 fiscal year due to the material weaknesses described in Item 9A that are also summarized in Item 4 of Part I of this report.

We were unable to file the Form 10-Q on time for our second quarter of fiscal year 2005 due to our inability to complete the financial closing process at ASI on a timely basis, primarily relating to ASI’s inability to provide timely reconciliation and reporting of inventory and cost information and a customer dispute which arose from internal information alleging that an improper payment was offered by an ASI employee to a customer employee.

In the process of closing ASI’s books, we identified material accounting errors in ASI’s results for the first quarter of fiscal year 2005, which led to our determination to restate those results in a Form 10-Q/A filed on December 30, 2004, the same date that we filed the Form 10-Q for our second quarter of fiscal year 2005. Additionally, the company made adjustments to the results for the first quarter of fiscal year 2005 reported for ATI, our base business, to reflect the deferral of certain new product-related revenue that had been recognized in the quarter and to reduce amortization of deferred stock-based compensation.

The late filing of the second quarter Form 10-Q also led to a NASDAQ hearing in December 2004 to determine whether our common stock would remain listed and a hearing decision in January 2006 that continued the listing of our stock subject to, among other listing requirements, our timely filing of all periodic reports for reporting periods ending on or before January 31, 2006. With the timely filing of this Form 10-Q, we have satisfied the latter requirement of the hearing decision and remain subject to the general NASDAQ listing standard that requires timely filing of periodic reports with the SEC.

We were unable to file the Form 10-K for fiscal year 2005 on its initial due date of June 14, 2005, due to our then ongoing evaluation of the reconciliation of certain inter-company transactions at ASI. As a result, we were not able to finalize our consolidated financial statements for the fiscal year 2005 by the due date for the Form 10-K. We also stated that filing of the Form 10-K was delayed because management had not then completed its assessment of internal control over financial reporting.

We filed the Form 10-K on June 29, 2005, which was deemed timely under SEC rules and the NASDAQ decision referred to above.

Due to internal control deficiencies related to the above circumstances and other factors, we concluded in Item 9A of the Form 10-K that material weaknesses existed as of March 31, 2005, and therefore that our disclosure controls and procedures and internal control over financial reporting were not effective as of that date. Our independent registered public accounting firm also concluded in its attestation report that our internal control over financial reporting was not effective as of March 31, 2005, which was included in the audit opinion set forth in Item 8 of the Form 10-K.

The material weaknesses referred to above relating both to ASI and our consolidated operations create risks that in the future we may not be able to make timely filings of reports we must file with the SEC and that we may have to restate previously reported results. We are devoting now and will likely need to continue to devote significant resources in the near future to increasing the number and qualifications of our finance and accounting staff in Japan and the United States and otherwise carrying out the remedial measures described in Item 4 below. We cannot assure that these efforts will be successful or will be completed in time to achieve effective controls and procedures, or to avoid future filing delays, unexpected and material expenses, or other adverse consequences.

In addition, while we hold majority ownership of ASI, certain operational decisions require the approval and support of our joint venture partner Shinko and the future success of ASI depends in significant part on the strength of our relationship with Shinko, our ability to coordinate with Shinko changes and improvements in ASI’s operating and business process, and Shinko’s willingness to support changes and improvements (including changes which may impact benefits to Shinko as an existing and significant supplier of component parts to ASI).

Notwithstanding our timely filing of periodic reports in the past 12 months and substantial progress in remediating the material weaknesses, until we have fully remediated the material weaknesses referred to above, we may face additional risks of errors or delays in preparing our consolidated financial statements and associated risks of potential late filings of periodic reports, NASDAQ listing standard violations, increased expenses, and possible private litigation or governmental proceedings arising from such matters.

If we fail to manage effectively our ASI joint venture, our sales of Automated Material Handling Systems could be adversely affected and the sales mix between AMHS and our other products could affect our overall financial performance.

Net sales of AMHS accounted for approximately 66.0 percent and 62.1 percent of our net sales for the nine month period ended December 31, 2005 and the fiscal year ended March 31, 2005, respectively, and is expected to be an important component of our future sales. Substantially all of our AMHS sales are through our majority-owned joint venture subsidiary, ASI, of which we acquired 51.0 percent in the third quarter of fiscal year 2003. While we hold majority ownership of ASI, certain operational decisions require the approval and support of our joint venture partner Shinko and the future success of ASI depends in significant part on the strength of our relationship with Shinko and ability to coordinate improvements in ASI’s operating and business process with Shinko. Other than a right of first refusal if Shinko is proposing to sell some or its entire stake in ASI, or in certain instances constituting a material default by Shinko, we have no mechanism to compel a sale to us of the 49.0 percent of ASI that is currently owned by Shinko. Even if Shinko were to offer to sell its stake in ASI to us, or the shares were otherwise available to us for purchase by right of first refusal, we may not have sufficient funds available to facilitate such an acquisition or may elect not to purchase the shares. If we were to determine to purchase such shares, the terms could involve significant debt or use of our common stock, which could have a material impact on our future earnings and or be highly dilutive to our shareholders. Further, if we were to determine to sell our stake in ASI to Shinko (or a third party), we may not recognize proceeds from the sale equal to our original investment. In addition, we have limited experience in managing operations in Japan, and our failure to effectively manage ASI in Japan could harm our business.

Orders for AMHS are relatively large, often exceeding $20.0 million for a given project or for an extension of a project. Because of the size of these orders, our revenues are often concentrated among a small number of customers in any fiscal period. Additionally, the manufacturing and the installation of these systems at our customers’ facilities can take up to six months or longer.

Accordingly, we recognize revenue and costs for AMHS based on percentage-of-completion analysis because the contracts are long-term in nature. Payments under these contracts often occur well after we incur our manufacturing costs. For example, terms for some of our Japanese AMHS customers typically require payment to be made six months after customer acceptance and in some cases longer. The consequence of the AMHS payment cycle is that significant demands can be placed on our working capital, prior to our receipt of customer payments. Our overall financial performance will therefore be affected by the sales mix between AMHS and other products and our ability to effectively manage AMHS projects in a given period.

We conduct our business under various types of contractual arrangements. These include fixed-price contracts, in which contract prices are established in part on cost and scheduling estimates. These estimates are based on a number of assumptions, including assumptions about future economic conditions, prices and availability of labor, equipment and materials, and other cost factors. These estimates are inherently difficult to make accurately and while we use our best judgment to estimate total costs, such estimates could be higher or lower than actual project costs, and could result in gross margins and profitability that are higher or lower than we estimate. If an estimate for a project proves inaccurate, or if circumstances change, cost overruns may occur, and we could experience reduced gross margins and profits for that project. Similarly, actual costs may be less than estimated, which could result in increased gross margins and profits for that project. Favorable or unfavorable changes to gross margins and profits in one quarter as a result of our inability to estimate our costs accurately are not necessarily indicative of future trends with respect to our gross margins or profits.

If we are unable to increase our sales of AMHS to FPD manufacturers, or if the FPD industry enters a cyclical downturn, our growth prospects could be negatively affected.

ASI sells AMHS to FPD manufacturers. While we believe sales to the FPD industry represents a significant opportunity for growth, the size of this market opportunity depends in large part on capital expenditures by FPD manufacturers. The market for FPD products is highly cyclical and has experienced periods of oversupply, resulting in unpredictable demand for manufacturing and automation equipment. If the FPD market enters into a cyclical downturn, demand for AMHS by the FPD market may be significantly reduced, impacting our growth prospects, sales and gross margins in this market.

As a relatively new entrant to the FPD equipment market, we do not have the customer relationships some of our competitors have. Similarly, our relative inexperience in the FPD industry may cause us to misjudge important trends and dynamics in this market. If we are unable to anticipate future customer needs in the FPD market, our growth prospects may be adversely affected.

Our gross margins on 300mm products may be lower than on 200mm products, which could adversely affect our ability to remain profitable.

The gross margins on our 300mm products while improving currently are not as favorable as those on our 200mm products. This is primarily because we face increased competition in these product lines, and we sell a greater percentage of our 300mm products to OEMs rather than directly to semiconductor manufacturers as we have historically done with our 200mm products. Manufacturing costs are generally higher in the early stages of new product introduction and typically decrease as demand increases, due to better economies of scale and efficiencies developed in the manufacturing processes. We cannot, however, be assured that we will see such economies of scale and efficiencies in our future manufacturing of 300mm products, which will be supplied primarily by contract manufacturers for our fab automation products. Semiconductor equipment and materials industry (“SEMI”) standards for 300mm products have enabled more suppliers to enter our markets, thereby increasing competition and creating further pricing pressures. While semiconductor manufacturers purchased a majority of 200mm tool automation products, OEMs are purchasing the majority of the tool automation products for 300mm from our fab automation products. Sales to OEMs typically have lower gross margins.

These factors may prevent us from achieving or maintaining similar relative pricing and gross margin performance on 300mm products as we have achieved on 200mm products, and could adversely affect our ability to remain profitable.

Most of our Fab Automation Product manufacturing is outsourced and we rely on a single contract manufacturer for much of this manufacturing, which could disrupt the availability of our Fab Automation Products and adversely affect our gross margins.

We have outsourced the manufacturing of nearly all of our Fab automation products. Solectron currently manufactures, under a long-term contract, our products, other than AMHS and our robotics products. ASI also subcontracts a significant portion of its AMHS manufacturing to third parties. In the future, we may increase our dependence on contract manufacturers. Outsourcing may not continue to yield the benefits we expect, and instead could result in increased product costs, inability to meet customer demand or product delivery delays.

Outsourced manufacturing could create disruptions in the availability of our products if the timeliness or quality of products delivered does not meet our requirements or our customers’ expectations. From time to time, we have experienced delays in receiving products from Solectron. Problems with quality or timeliness could be caused by a number of factors including, but not limited to: manufacturing process flow issues, financial viability of an outsourced vendor or its supplier, availability of raw materials or components to the outsourced vendor, improper product specifications, or the learning curve to commence manufacturing at a new outsourced site. Our contract with Solectron contains minimum purchase commitments which, if not met, could result in increased costs, which would adversely affect our gross margins. We must also provide Solectron with forecasts and targets based on actual and

anticipated demand, which we may not be able to do effectively or efficiently. If Solectron purchases inventory based on our forecasts, and that inventory is not used, we must repurchase the unused inventory, which would adversely affect both our cash flows and gross margins. If product supply is adversely affected because of problems in outsourcing, we may lose sales and profits.

Our outsourcing agreement with Solectron includes commitments from Solectron to adjust, up or down, manufacturing volume based on updates to our forecast demand. Solectron may be unable to meet these commitments however and, even if it can, may be unable to react efficiently to rapid fluctuations in demand. If our agreement with Solectron terminates, or if Solectron does not perform its obligations under our agreement, it could take several months to establish alternative manufacturing for these products and we may not be able to fulfill our customers’ orders for some or most of our products in a timely manner. If our agreement with Solectron terminates, we may be unable to find another suitable outsource manufacturer and may be unable to perform the manufacturing of these products ourselves.

Any delays in meeting customer demand or quality problems resulting from product manufactured at an outsourced location such as Solectron could result in lost or reduced future sales to customers and could have a material negative impact on our net sales, gross profits and results of operations.

Shortages of components necessary for product assembly by Solectron or us can delay shipments to our customers and can lead to increased costs, which may negatively impact our financial results.

When demand for semiconductor manufacturing equipment is strong, suppliers, both U.S. and international, strain to provide components on a timely basis. We have outsourced the manufacturing of many of our products, and disruption or termination of supply sources to our contract manufacturers or we could have a serious adverse effect on our operations. Many of the components and subassemblies used in our products are obtained from a limited group of suppliers, or in some cases may come from a single supplier. A prolonged inability to obtain some components could have an adverse effect on our operating results and could result in damage to our customer relationships. Shortages of components may also result in price increases for components and, as a result, could decrease our margins and negatively impact our financial results.

We may have additional tax liabilities that could be materially higher than we expect.

The calculation of tax liabilities involves uncertainties in the application of complex global tax regulations. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on estimates of whether, and the extent to which, additional taxes will be due. We may be audited in the future by tax authorities in the United States and foreign jurisdictions to determine whether or not we owe additional taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from what is reflected in our historical tax provision and accruals. The actual outcome of audits of our tax returns and related litigation, if any, could have a material adverse effect on our financial condition and results of operations. If our previous estimate of tax liabilities proves to be less than the ultimate assessment, a charge to expense would result.

We have significant existing debts; the restrictive covenants under some of our debt agreements may limit our ability to expand or pursue our business strategy; if we are forced to prepay some or all of this indebtedness our financial position would be severely and adversely affected.

We have a significant amount of outstanding indebtedness. At December 31, 2005, our long-term debt was $89.2 million, of which $1.8 million represented the current portion of long-term debt recorded under current liabilities, and our short-term debt was $19.4 million, for an aggregate of $108.6 million. This includes $86.3 million of 5 3/4 percent convertible subordinated notes outstanding which are convertible, at the option of the holder, at any time on or prior to maturity into shares of our common stock at a conversion price of $15.18 per share. We are required to pay interest on these convertible notes on January 3 and July 3 of each year. These convertible notes mature July 3, 2008 and are redeemable at our option after July 3, 2004.

As of December 31, 2005, ASI has three revolving lines of credit with Japanese banks under which it may borrow up to 7.0 billion Japanese Yen, or approximately $59.4 million, and of which 1.6 billion Japanese Yen, or approximately $13.6 million was outstanding

as of December 31, 2005. We have guaranteed substantially all of the loans of our Japanese majority-owned subsidiary, AJI, which totaled approximately $8.8 million as of December 31, 2005.

Our $25.0 million two-year revolving line of credit with a commercial bank was amended during the first and third quarters of fiscal year 2006 to increase the total borrowing available to a maximum of $40.0 million, (subject to certain conditions). The line of credit requires compliance with certain financial covenants, including a quarterly net income/loss target, calculated on an after-tax basis (excluding depreciation, amortization and other non-cash items), and a requirement that we maintain during the term $40.0 million of cash and cash equivalents held in the U.S., at least $20.0 million of which is to be maintained with the bank. The specific amount of the line of credit available at any time, however, may change based on the amount of letters of credit and current receivables we have outstanding, the amount of aggregate borrowing available to ASI under its lines of credit in Japan, and the balance of our cash and cash equivalents maintained at the bank. The covenants contained in our line of credit with the bank also restrict our ability to take certain actions, including our ability to:

•

incur additional indebtedness;

•

pay dividends and make distributions in respect of our capital stock;

•

redeem capital stock;

•

make investments or other restricted payments;

•

engage in transactions with shareholders and affiliates;

•

create liens;

•

sell or otherwise dispose of assets;

•

make payments on our debt, other than in the ordinary course; and

•

engage in mergers and acquisitions.

While we have experienced improvements in our financial results for fiscal year 2006, we cannot be assured that we will meet the financial covenants contained in our line of credit with the bank in subsequent quarters. Specifically, we may be unable to meet the minimum net income covenant or the minimum liquidity covenant in future quarters. If we are unable to meet any covenants, we cannot assume the bank will grant waivers and amend the covenants, or that the bank will not terminate the line of credit, preclude further borrowings or require us to repay any outstanding borrowings.

Under the terms of its bank facilities, ASI must generate operating profits on a statutory basis and must maintain a minimum level of equity. Additionally, under the terms of its bank facilities, AJI’s loans may be called upon an event of default, the Japanese banks may call the loans outstanding at AJI, requiring immediate repayment, which we have guaranteed.

As long as our indebtedness remains outstanding, the restrictive covenants could impair our ability to expand or pursue our business strategies or obtain additional funding. Forced prepayment of some or all of our indebtedness would reduce our available cash balances and have an adverse impact on our operating and financial performance.

We may need additional financing in the future to meet our capital needs; if we do need to secure financing, it may not be available on favorable terms.

We raised capital of $98.9 million by issuing 6.9 million shares of our common stock in a public offering in November 2003; however, our operations have, in the past consumed cash and may do so in the future. As a consequence, in the future we may be required to seek additional financing to meet our working capital needs or to finance capital expenditures, as well as to fund operations. We may be unable to obtain any required additional financing on terms favorable to us, if at all, or which is not dilutive to our shareholders. If adequate funds are not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance products, respond to competitive pressures or take advantage of acquisition opportunities, any of which could have a material adverse effect on our business. If we raise additional funds through the issuance of equity securities, our shareholders may experience dilution of their ownership interest, and the newly-issued securities may have rights superior to those of our common

stock. If we raise additional funds by issuing debt, we may be subject to limitations on our operations. This strain on our capital resources could adversely affect our business.

If our fully integrated tool front-end solutions are not widely accepted, our growth prospects could be negatively affected.

The decision by OEMs to adopt our tool front-end or portal solutions for a large product line involves significant organizational, technological and financial commitments by the OEMs. OEMs expect the portal solutions to meet stringent design, reliability and delivery specifications. If we fail to satisfy these expectations, OEMs will not adopt our portal solutions. We cannot ensure that these tools will be widely accepted in the marketplace, that additional OEMs will continue to adopt them, or that our products will command pricing sufficient to achieve and maintain profitability. We have invested significant time and expense in the development of Spartan, our next generation portal offering specifically designed for the 300mm market. While we believe Spartan has improved our competitive position and gross margins in the 300mm industry, if the market acceptance of Spartan is less than our forecast, or if the timing of this acceptance is delayed, our financial performance could be impacted. Further, because Spartan is early in its production life, its manufacturing costs may be higher (and resulting margins may be lower) than those of existing or legacy products. Notwithstanding our portal solutions, OEMs may purchase components to assemble or invest in the development of their own comparable portals. If our solutions are not adopted by more OEMs, our prospects will be negatively impacted and we may not be able to maintain profitability.

Because we do not have long-term contracts with our customers, our customers may cease purchasing our products at any time.

We do not have long-term contracts with our customers, and our sales are typically made pursuant to individual purchase orders. Accordingly:

	•		our customers can cease purchasing our products at any time, without penalty;

	•		our customers are free to purchase products from our competitors;

	•		we are exposed to competitive price pressure on each order;

	•		our customers are not required to make minimum purchases; and

	•		our customers may reschedule or cancel existing orders, and we may not be able to recover the costs we have incurred to manufacture that product from the customer.

Customer orders are often received with extremely short lead times. If we are unable to fulfill these orders in a timely manner, we could lose sales and customers.

We depend on large purchases from a few significant customers, and any loss, cancellation, reduction or delay in purchases by, or failure to collect receivables from these customers could harm our business.

The markets in which we sell our products comprise a relatively small number of OEMs and semiconductor manufacturers and FPD manufacturers. Large orders from a relatively small number of customers account for a significant portion of our revenue and make our relationship with each customer critical to our business. The sales cycle to a new customer can last up to twelve months or more from initial inquiry to placement of an order, depending on the complexity of the project. These extended sales cycles make the timing of customer orders uneven and difficult to predict. With reference to sales to fab customers, a significant portion of the net sales in any quarter is typically derived from a small number of long-term, multi-million dollar customer projects involving upgrades of existing facilities or the construction of new facilities. In the case of sales to OEMs, these orders, either large or small in size are typically received with very short lead times. If we are not able to meet these short customer delivery requirements, we could potentially lose the order. Our customers normally provide forecasts of their demand and in many cases, the company will incur costs to be able to fulfill customers’ forecasted demand, however there can be no assurances that the customers’ forecast will be accurate and it may not lead to a subsequent order. Generally, our customers may cancel or reschedule shipments with limited or no penalty.

Our customers’ demand for our products is largely driven by the timing of new Fab construction and the upgrading of existing fabs initiated by those customers. As such, when we complete projects for a customer, business from that customer will decline substantially unless it undertakes additional projects incorporating our products. The high cost of building a Fab is causing increasing numbers of semiconductor manufacturers to outsource the manufacturing of their semiconductors to foundries. This trend toward

foundry outsourcing, combined with increasing consolidation within the semiconductor industry, has and may continue to decrease the number of our potential customers and increase our dependency on our remaining customers. We may not be able to retain our largest customers or attract additional customers, and our OEM customers may not be successful in selling the OEM equipment in which our systems are embedded. Our success will depend on our continued ability to develop and manage relationships with significant fab and OEM customers. In addition, our customers have in the past sought price concessions from us and may continue to do so in the future, particularly during downturns in the semiconductor market. Further, our current and prospective customers have exerted pressure on us to shorten delivery times and to customize and improve the capabilities of our products, thus increasing our manufacturing costs. In addition, some of our customers may in the future shift their purchases of products from us to our competitors. Failure to respond adequately to such pressures could result in a loss of customers or orders and the inability to develop successful relationships with new customers, which would have a negative impact on our business.

If we are unable to collect a receivable from a large customer, our financial results will be negatively affected. In addition, since each customer represents a significant percentage of net sales, the timing of the completion of an order and the promptness of customer payment can lead to a fluctuation in our quarterly results.

If we are unable to develop and introduce new products and technologies in a timely manner, our business could be negatively affected.

Semiconductor equipment and processes are subject to rapid technological changes. The development of more complex semiconductors has driven the need for new facilities, equipment and processes to produce these devices at an acceptable cost. We believe that our future success will depend in part upon our ability to continue to enhance our existing products to meet customer needs and to develop and introduce new products in a timely manner. We often require long lead times for development of our products, which requires us to expend significant management effort and to incur material development costs and other expenses. During development periods we may not realize corresponding revenue in the same period, or at all. We may not succeed with our product development efforts and we may not respond effectively to technological change, which could have a negative impact on our financial condition and results of operations. The impact could include charges to operating expense, cost overruns on large projects or the loss of future revenue opportunities.

We may be unable to protect our intellectual property rights and we may become involved in litigation concerning the intellectual property rights of others.

We rely on a combination of patent, trade secret and copyright protection to establish and protect our intellectual property. While we intend to take reasonable steps to protect our patent rights, the filing process is time-consuming and we cannot assure you that we will be able to file timely our patents and other intellectual property rights. In addition, we cannot assure you our patents and other intellectual property rights will not be challenged, invalidated or avoided, or that the rights granted there under will provide us with competitive advantages. We also rely on trade secrets that we seek to protect, in part, through confidentiality agreements with employees, consultants and other parties. These agreements may be breached, we may not have adequate remedies for any breach, or our trade secrets may otherwise become known to, or independently developed by, others. In addition, enforcement of our rights could impose significant expense and result in an uncertain or non-cost-effective determination or confirmation of our rights.

Intellectual property rights are uncertain and involve complex legal and factual questions. We may infringe the intellectual property rights of others, which could result in significant liability for us. If we do infringe the intellectual property rights of others, we could be forced to either seek a license to intellectual property rights of others or to alter our products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical, could detract from the value of our products, or could delay our ability to meet customer demands or opportunities.

There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Litigation may be necessary to enforce our patents, to protect our trade secrets or know-how, to defend us against claimed infringement of the rights of others, or to determine the scope and validity of the patents or intellectual property rights of others. Any litigation could result in substantial cost to us and divert the attention of our management, which by itself could have an adverse material effect on our financial condition and operating results. Further, adverse determinations in any litigation could result in our loss of intellectual property rights, subject us to significant liabilities to third parties, and require us to seek licenses from third parties, or prevent us from manufacturing or selling our products. Any of these effects could have a negative impact on our financial condition and results of operations.

The intellectual property laws in Asia do not protect our intellectual property rights to the same extent as do the laws of the United States. It may be necessary for us to participate in proceedings to determine the validity of our or our competitors’, intellectual property rights in Asia, which could result in substantial cost and divert our efforts and attention from other aspects of our business. If we are unable to defend our intellectual property rights in Asia, our future business, operating results and financial condition could be adversely affected.

We may not be able to integrate efficiently the operations of our acquisitions, and may incur substantial losses in the divestiture of assets or operations.

We have made and may continue to make additional acquisitions of or significant investments in, businesses that offer complementary products, services, technologies or market access. If we are to realize the anticipated benefits of past and future acquisitions or investments, the operations of these companies must be integrated and combined efficiently with our own. The process of integrating supply and distribution channels, computer and accounting systems, and other aspects of operations, while managing a larger entity, will continue to present a significant challenge to our management. In addition, it is not certain that we will be able to incorporate different financial and reporting controls, processes, systems and technologies into our existing business environment. The difficulties of integration may increase because of the necessity of combining personnel with varied business backgrounds and combining different corporate cultures and objectives. We may incur substantial costs associated with these activities and we may suffer other material adverse effects from these integration efforts which could materially reduce our earnings, even over the long-term. We may not succeed with the integration process and we may not fully realize the anticipated benefits of the business combinations, or we could decide to divest or discontinue existing or recently acquired assets or operations

As our quarterly and yearly operating results are subject to variability, comparisons between periods may not be meaningful; this variability in our results could cause our stock price to decline.

Our revenues and operating results can fluctuate substantially from quarter to quarter and year to year, depending on factors such as:

	•		general trends in the overall economy, electronics industry and semiconductor and FPD manufacturing industries;

	•		fluctuations in the semiconductor and FPD equipment markets;

	•		changes in customer buying patterns;

	•		the degree of competition we face;

	•		pricing pressures causing lower gross margins or lost orders;

	•		the size, timing and product mix of customer orders;

	•		lost sales due to any failure in the outsourcing of our manufacturing;

	•		the availability of key components;

	•		the timing of product shipment and acceptance, which are factors in determining when we recognize revenue; and

	•		the timely introduction and acceptance of new products.

These and other factors increase the risk of unplanned fluctuations in our net sales. A shortfall in net sales in a quarter or a fiscal year as a result of these and other factors could negatively impact our operating results for that period. Given these factors, we expect quarter-to-quarter and year-to-year performance to fluctuate for the foreseeable future. As a result, period-to-period comparisons of our performance may not be meaningful, and you should not rely on them as an indication of our future performance. In one or more future periods, our operating results may be below the expectations of public market analysts and investors, which may cause our stock price to decline.

We face significant economic and regulatory risks because a majority of our net sales are derived from outside the United States.

A significant portion of our net sales is attributable to sales outside the United States, primarily in Taiwan, Japan, China, Korea, Singapore and Europe. International sales were 83.0 percent and 79.0 percent for the nine month periods ended December 31, 2005 and 2004, respectively. We expect that international sales, particularly to Asia, will continue to represent a significant portion of our total revenue in the future. Concentration in sales to customers outside the United States increases our exposure to various risks, including:

	•		exposure to currency fluctuations;

	•		the imposition of governmental controls;

	•		the laws of certain foreign countries may not protect our intellectual property to the same extent as do the laws of the United States;

	•		the need to comply with a wide variety of foreign and U.S. export laws;

	•		political and economic instability;

	•		terrorism and anti-American sentiment;

	•		trade restrictions;

	•		slowing economic growth and availability of investment capital and credit;

	•		changes in tariffs and taxes;

	•		longer product acceptance and payment cycles;

	•		the greater difficulty in administering business overseas; and

	•		inability to enforce payment obligations or recourse to legal protections accorded creditors to the same extent within the U.S.

Any kind of economic instability in parts of Asia where we do business can have a severe negative impact on our operating results, due to the large concentration of our sales activities in this region

Although we invoice a majority of our international sales in United States dollars, we invoice our sales in Japan in Japanese yen. Future changes in the exchange rate of the U.S. dollar to the Japanese yen may adversely affect our future results of operations. We do not currently engage in active currency hedging transactions, but we may do so in the future. Nonetheless, as we expand our international operations, we may allow payment in additional foreign currencies and our exposure to losses due to foreign currency transactions may increase. Moreover, the costs of doing business abroad may increase as a result of adverse exchange rate fluctuations. For example, if the United States dollar declined in value relative to a local currency, we could be required to pay more for our expenditures in that market, including salaries, commissions, local operations and marketing expenses, each of which is paid in local currency. In addition, we may lose customers if exchange rate fluctuations, currency devaluations or economic crises increase the local currency price of our products and manufacturing costs or reduce our customers’ ability to purchase our products.

Asian and European courts might not enforce judgments rendered in the United States. There is doubt as to the enforceability in Asia and Europe of judgments obtained in any federal or state court in the United States in civil and commercial matters. The United States does not currently have a treaty with many Asian and European countries providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of a fixed debt or sum of money rendered by any federal or state court in the United States would not automatically be enforceable in many European and Asian countries.

Our current and planned operations may strain our resources and increase our operating expenses.

We may expand our operations through both internal growth and acquisitions. We expect this expansion will strain our systems and operational and financial controls. In addition, we may incur higher operating costs and be required to increase substantially our working capital to fund operations as a result of such an expansion. In addition, during an expansion, we may incur significantly

increased up-front costs of sale and product development well in advance of receiving revenue for such product sales. To manage our growth effectively, we must continue to improve and expand our systems and controls. If we fail to do so, our growth will be limited and our liquidity and ability to fund our operations could be significantly strained. Our officers have limited experience in managing large or rapidly growing businesses.

Further, consideration for future acquisitions could be in the form of cash, common stock, rights to purchase stock, debt or a combination thereof. Dilution to existing shareholders, and to earnings per share, may result if shares of our common stock, other rights to purchase common stock or debt are issued in connection with any future acquisitions.

If we lose any of our key personnel or are unable to attract, train or retain qualified personnel, our business would be harmed.

Our success depends, in large part, on the continued contributions of our senior management and other key personnel, many of whom are highly skilled and would be difficult to replace. None of our senior management, key technical personnel or key sales personnel is bound by written employment contracts to remain with us for a specified period. In addition, we do not currently maintain key person life insurance covering our key personnel. The loss of any of our senior management or key personnel could harm our business.

Our success also depends on our ability to attract, train and retain highly skilled managerial, engineering, sales, marketing, legal and finance personnel, and on the abilities of new personnel to function effectively, both individually and as a group. Competition for qualified senior employees can be intense. If we fail to do this, our business could be harmed.

Our future success will depend to a significant extent on the ability of our management team to work effectively together. There can be no assurance that our management team will be able to integrate and work together effectively.

Our operations are vulnerable to interruption or loss due to earthquakes and other events beyond our control, which would adversely affect our business.

We conduct a significant portion of our activities including manufacturing, administration and data processing at facilities located in the State of California, Japan and other seismically active areas that have experienced major earthquakes in the past, as well as other natural disasters. We do not carry any earthquake insurance for our operations in the United States and only limited coverage for our operations in Japan. Such coverage may not be adequate or continue to be available at commercially reasonable rates and terms. In the event of a major earthquake or other disaster affecting our facilities, it could significantly disrupt our operations, delay or prevent product manufacture and shipment for the time required to repair, rebuild or replace our outsourced manufacturing facilities, which could be lengthy, and result in large expenses to repair or replace the facilities. In addition, our facilities, particularly in the State of California, may be subject to a shortage of available electrical power and other energy supplies. Such shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. In addition, our products are typically shipped from a limited number of ports, and any natural disaster, strike or other event blocking shipment from such ports could delay or prevent shipments and harm our business. In addition, we do not have a business continuity plan in place. Any business interruption would adversely affect our operations.

When we account for employee stock options using the fair value method, it will significantly impact our results from operations.

On December 16, 2004, the FASB issued SFAS 123(R) on accounting for share-based payments (“SBP”) that requires companies to expense the fair value of employee stock options and similar awards, including purchases made under an Employee Stock Purchase Plan. Under a change approved by the SEC in April 2005, the effective date of this requirement for us will be April 1, 2006, the beginning of our next fiscal year that begins after June 15, 2005. SFAS 123(R) applies to all outstanding and unvested SBP awards at adoption. We are currently evaluating the impact of the adoption of SFAS 123(R) and have not selected a transition method or valuation model. As such, we are unable to estimate the expected effect on our financial statements, but believe that it will have a significant adverse impact on our results from operations.

Risks Related to our Industry

The semiconductor manufacturing equipment industry is highly cyclical and is affected by recurring downturns in the semiconductor industry, and these cycles can harm our operating results.

Our business largely depends upon the capital expenditures of semiconductor manufacturers. Semiconductor manufacturers are dependent on the then-current and anticipated market demand for semiconductors. The semiconductor industry is cyclical and has historically experienced periodic downturns. These periodic downturns, whether the result of general economic changes or decreases in demand for semiconductors, are difficult to predict and often have a severe adverse effect on the semiconductor industry’s demand for semiconductor manufacturing equipment. Sales of equipment to semiconductor manufacturers may be significantly more cyclical than sales of semiconductors, as the large capital expenditures required for building new fabs or facilitating existing fabs is often delayed until semiconductor manufacturers are confident about increases in future demand. If demand for semiconductor equipment remains depressed for an extended period, it will seriously harm our business.

As a result of substantial cost reductions in response to the decrease in net sales and uncertainty over the timing and extent of any industry recovery, we may be unable to make the investments in marketing, research and development, and engineering that are necessary to maintain our competitive position, which could seriously harm our long-term business prospects.

We believe that the cyclical nature of the semiconductor and semiconductor manufacturing equipment industries will continue, leading to periodic industry downturns, which may seriously harm our business and financial position.

We may not effectively compete in a highly competitive semiconductor manufacturing equipment industry.

The markets for our products are highly competitive and subject to rapid technological change. We currently face direct competition with respect to all of our products. A number of competitors may have greater name recognition, more extensive engineering, research & development, manufacturing, and marketing capabilities, access to lower cost components or manufacturing, and substantially greater financial, technical and personnel resources than those available to us.

Brooks Automation, Inc. (“Brooks”) and TDK Corporation of Japan are our primary competitors in the area of loadports. Our SMART-Traveler System products face competition from Brooks and Omron. We also compete with several companies in the robotics area, including, but not limited to, Brooks, Rorze Corporation (“Rorze”) and Yasukawa-Super Mecatronics Division. In the area of AMHS, we face competition primarily from Daifuku Co., Ltd. and Murata Co., Ltd. Our wafer sorters compete primarily with products from Recif, Inc. and Rorze. We also face competition for our software products from Cimetrix and Brooks. In addition, the industry transition to 300mm wafers is likely to draw new competitors to the fab automation and AMHS markets. In the 300mm wafer market, we expect to face intense competition from a number of established automation companies, as well as new competition from semiconductor equipment companies.

We expect that our competitors will continue to develop new products in direct competition with our systems, improve the design and performance of their products and introduce new products with enhanced performance characteristics, and existing products at lower costs. To remain competitive, we need to continue to improve and expand our product line, which will require us to maintain a high level of investment in research and development. Ultimately, we may not be able to make the technological advances and investments necessary to remain competitive.

Companies in the semiconductor capital equipment industry face continued pressure to reduce costs. Pricing actions by our competitors may require us to make significant price reductions to avoid losing orders.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been a material change in our exposure to interest rate and foreign currency risks since March 31, 2005, the end of our preceding fiscal year.

Interest Rate Risk.Our exposure to market risk for changes in interest rates related primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio consists of short-term fixed income securities and by policy we limit the amount of credit exposure to any one issuer. As stated in our investment policy, we ensure the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in safe and high-credit quality securities and by constantly positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer, guarantor or depository. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. These securities, like all fixed income instruments, carry a degree of interest rate risk. Fixed rate securities have their fair market value adversely affected due to rise in interest rates. As a result of the relatively short duration of our portfolio, an immediate hypothetical parallel shift to the yield curve of plus 50 basis points (BPS), and 100 BPS would result in a reduction of 0.03 percent and 0.07 percent, respectively, in the market value of our investment

portfolio as of December 31, 2005. We also have the ability to keep our fixed income investments fairly liquid. Therefore, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates on our securities portfolio.

Foreign Currency Exchange Risk. We engage in international operations and transact business in various foreign countries. The primary source of foreign currency cash flows is Japan and to a lesser extent China, Taiwan, Singapore and Europe. Although we operate and sell products in various global markets, substantially all sales are denominated in U.S. dollars, except in Japan, thereby reducing our foreign currency risk. To date, the foreign currency transactions and exposure to exchange rate volatility have not been significant. Although we do not anticipate any significant fluctuations, there can be no assurance that foreign currency exchange risk will not have a material impact on our financial position, results of operating income or cash flow in the future.

The following table presents our net income (loss) for the nine-months ended December 31, 2005 assuming a hypothetical strengthening or weakening of the Japanese Yen by 5.0 percent and 10.0 percent, respectively, compared to the average rate used during the nine-months ended December 31, 2005 (in thousands):


	Strengthening in								Weakening in
	Japanese Yen of								Japanese Yen of
	X Percent					No Change in			X Percent
						Japanese Yen
	10%		5%			Exchange Rate			5%			10%
Net income (loss) for the nine-months ended December 31, 2005	$	956	$	(680	)	$	(2,153	)	$	(3,485	)	$	(4,696	)

ITEM 4 — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

SEC rules define “disclosure controls and procedures” as controls and procedures that are designed to ensure that information required to be disclosed by public companies in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also defined to include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We have endeavored to design our disclosure controls and procedures and internal control over financial reporting to provide reasonable assurances that their objectives will be met. However, a system of internal control over financial reporting, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that its objectives will be met. All control systems are subject to inherent limitations, such as lapses in judgment and breakdowns resulting from human failures. Because of these limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

Our management is responsible for establishing and maintaining effective disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer participated with our management in evaluating the effectiveness of our disclosure controls and procedures as of December 31, 2005. In light of the discussion of material weaknesses set forth below, these officers have concluded that our disclosure controls and procedures were not effective as of that date to provide reasonable assurances that they will meet their defined objectives. To address the material weaknesses described below, we performed additional analyses and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Status of Material Weaknesses

SEC rules define “internal control over financial reporting” as a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our Form 10-K for fiscal year 2005 filed on June 29, 2005, was our first annual report in which our management was required to provide its assessment of internal control over financial reporting together with an attestation report from our independent registered public accounting firm on management’s assessment. The material weaknesses summarized below were outstanding as of the March 31, 2005, end of our 2005 fiscal year. As a result, our management concluded in the Form 10-K that our internal control over financial reporting and disclosure controls and procedures were not effective as of March 31, 2005. The attestation report of the independent

registered accounting firm on management’s assessment was included in its report which appears at the end of the financial statements in Item 8 of the Form 10-K.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management’s internal control assessment in the Form 10-K identified the following material weaknesses in our internal control over financial reporting as of March 31, 2005, which remained outstanding as of December 31, 2005:

1. We did not maintain an effective control environment based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Specifically, the financial reporting organizational structure was not adequate to support the size, complexity or activities of the Company. In addition, certain key finance positions were staffed with individuals who did not possess the appropriate skills, training or experience to meet the objectives of their job descriptions. This control deficiency indicated that we did not maintain an effective control environment and it contributed to the material weaknesses described in Items 2 and 3 below. This control deficiency also contributed to the restatement of our interim consolidated financial statements for the first quarter of fiscal 2005 and the audit adjustments to our fiscal 2005 interim and annual consolidated financial statements, as described in Items 2 and 3 below. Additionally, this control deficiency could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

2. We did not maintain effective controls over the financial accounting and reporting processes at our majority-owned joint venture in Japan, ASI. Specifically:

a) ASI did not maintain effective controls over the timely and accurate reconciliation and review of its inter-company accounts. Specifically, the accounting personnel at ASI did not possess a sufficient understanding of how to reconcile inter-company transactions between ASI and its subsidiaries. This control deficiency resulted in ASI’s failure to reconcile its inter-company accounts on a timely basis. This control deficiency also resulted in adjustments to revenue, cost of sales, accounts receivable and inventory in our fiscal 2005 consolidated annual financial statements. Additionally, this control deficiency could result in a misstatement of account balances that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

b) ASI did not maintain effective controls over the identification and reporting of related party transactions. Specifically, ASI’s controls over its related party transactions were ineffective in identifying all significant related party transactions between ASI and its minority joint venture partner on a timely basis in order for such transactions to be appropriately reflected in our interim and annual consolidated financial statements. This control deficiency resulted in audit adjustments to the disclosures in our fiscal 2005 annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of related party transactions and account balances that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

c) ASI did not maintain effective controls over the timely preparation, review and approval of account reconciliations for significant financial statement accounts. Specifically, ASI did not maintain effective controls over significant account reconciliations for inventory, accruals, other assets and suspense accounts. This control deficiency resulted in audit adjustments to our fiscal 2005 interim consolidated financial statements. Additionally, this control deficiency could result in a misstatement of inventory, accruals, other assets and suspense accounts that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

d) We did not maintain effective controls over the timely review and approval of ASI financial information included in our consolidated financial statements. Specifically, our review of ASI’s financial results, including the review of manual post-close journal entries, both at ASI and Corporate, were not sufficient to detect errors in ASI’s interim and annual financial information. This control deficiency resulted in adjustments to our fiscal 2005 annual consolidated financial statements. Additionally, this control deficiency could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

3. As described in Item 1 above, we did not maintain a sufficient complement of financial accounting and reporting personnel with a level of accounting knowledge, experience and training in the application of GAAP commensurate with our financial reporting requirements. This material weakness contributed to the following control deficiencies at our operations, including ASI, where specifically indicated. These control deficiencies either individually or in combination with other control deficiencies are considered material weaknesses:

a) We did not maintain effective controls over the accounting for revenue. Specifically, our controls over revenue were not adequate to ensure that all revenue transactions were completely and accurately recorded in our interim and annual consolidated financial statements. In particular, the following revenue control deficiencies are, in combination, considered a material weakness: (i) failure to properly apply percentage of completion accounting at ASI; (ii) failure to properly account for non-standard contractual terms and conditions; (iii) failure to properly consider and account for the impact of shipping terms on the transfer of title; (iv) failure to properly amortize deferred revenue for post-delivery maintenance and service obligations; and (v) failure to maintain adequate shipping cut-off. These control deficiencies resulted in the restatement of our interim consolidated financial statements for the first quarter of fiscal 2005 and audit adjustments to revenue and deferred revenue in our fiscal 2005 interim and annual consolidated financial statements. Additionally, these control deficiencies could result in a misstatement of revenue and deferred revenue that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies in aggregate constitute a material weakness.

b) We did not maintain effective controls over inventory and the related cost of sales accounts at ASI and our operations in the United States. Specifically, our controls over the accuracy of the allocation of inventory variances and the valuation of inventory reserves were not effective. This control deficiency resulted in audit adjustments to inventory and the related cost of sales accounts in our fiscal 2005 interim consolidated financial statements. Additionally, this control deficiency could result in a misstatement of inventory and the related cost of sales accounts that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

c) We did not maintain effective controls over the accounting for accrued expenses. Specifically, our controls over cut-off for operating expenses were insufficient to ensure bonuses, consulting fees and other operating expenses were completely and accurately recorded in the proper period. This control deficiency resulted in audit adjustments to accrued expenses and the related operating expenses in our fiscal 2005 interim and annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of accrued expenses and the related operating expenses that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

d) We did not maintain effective controls over the accounting for awards made under our various stock compensation plans. Specifically, modifications to stock compensation arrangements and non-routine stock compensation arrangements were not timely communicated to the appropriate accounting personnel responsible for recording the financial consequences of such modifications in our consolidated financial statements. This control deficiency resulted in the restatement of our interim consolidated financial statements for the first quarter of fiscal 2005 and audit adjustments to our fiscal 2005 consolidated interim and annual financial statements. Additionally, these control deficiencies could result in a misstatement of deferred stock-based compensation expense and the related stock-based compensation expense that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

e) We did not maintain effective controls over our income tax provision and the related balance sheet accounts. Specifically, we failed to properly allocate the release of our deferred tax asset valuation allowance between the statement of operations and intangible assets. This control deficiency resulted in audit adjustments to our fiscal 2005 annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of the provision for income taxes and the related balance sheet accounts that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

f) We did not maintain effective controls over the preparation of our interim and annual consolidated financial statements. Specifically, we did not maintain effective controls over the process for identifying and accumulating certain required supporting information to ensure the completeness and accuracy of our interim and annual consolidated financial statements and the related

disclosures. This control deficiency resulted in audit adjustments to the disclosures in our fiscal 2005 interim and annual consolidated financial statements. Additionally, this control deficiency could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Changes in Internal Control Over Financial Reporting

Except as described below under the heading Management’s Remediation Initiatives and Interim Measures, we made no change in our systems and controls during the quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. Additionally, as discussed above, management has identified certain material weaknesses in our internal control over financial reporting. As described in “Management’s Remediation Initiatives and Interim Measures” below, management is taking steps to strengthen our internal control over financial reporting.

Management’s Remediation Initiatives and Interim Measures

In response to the material weaknesses discussed above, we plan to continue to review and make necessary changes to the overall design of our control environment, including the roles and responsibilities of each functional group within the organization and reporting structure, as well as policies and procedures to improve the overall internal control over financial reporting.

We summarize below the remediation measures that we are implementing or plan to implement in response to the material weaknesses discussed above. Following the summary of remediation measures, we also describe interim measures we undertook in an effort to mitigate the possible risks of these material weaknesses in connection with the preparation of the financial statements included in this Form 10-Q. Although we believe we have addressed many aspects of the material weaknesses, until our management formally assesses internal control over financial reporting and obtains our auditor attestation report on that assessment in our next Form 10-K, we are not able to conclude definitively that any specific material weakness is fully remediated.

1. General plan for hiring and training of personnel.We will endeavor to hire and retain sufficient personnel with knowledge, experience and training in the application of GAAP commensurate with our financial reporting requirements. These measures will include the following:

	•		We have hired additional qualified accounting personnel in the U.S. and we plan to hire additional qualified accounting personnel in Japan, in the areas of general accounting, compliance reporting, internal audit and tax; and

	•		We plan to implement an enhanced formal training process for financial staff in an effort to ensure that personnel have the necessary competency, training and supervision for their assigned level of responsibility and the nature and complexity of our business.

2. Accurate Preparation and Review of Financial Statements, Reconciliations, and Journal Entries.We intend to implement overall improvements throughout our consolidated financial reporting process in an effort to ensure accurate and more timely preparation and review of our financial statements. These plans include new procedures to ensure that non-routine transactions are identified and escalated to senior financial management during the close process to help ensure proper accounting treatment. Specific measures also include:

	•		training and improved monitoring of financial staff;

	•		implementing new month-end closing procedures with improved reconciliation and controls over standardized checklists to help ensure such procedures are consistently and effectively applied throughout the organization; and

	•		implementing procedures to more effectively accumulate and analyze financial information.

3. General plan for documenting and enhancing internal controls at ASI.Our planned remediation measures include improved documentation of key controls at ASI and implementation of controls to better assure timely account analysis, reconciliation, review and approval of significant accounts.

Interim Measures

To help mitigate certain of the material weaknesses discussed above in connection with the consolidated financial statements included in this Form 10-Q, Asyst performed the additional analyses, procedures and reviews described below to ensure that our consolidated financial statements were prepared in accordance with GAAP.

These interim measures included the following:

	•		We hired a chief financial officer in June 2005 for our majority-owned joint venture ASI and in July 2005 a controller for our corporate headquarters in California;

	•		We continue to utilize outside consultants with relevant international tax experience, working under the supervision and direction of our management, to assist with the fiscal 2006 interim reporting process;

	•		Corporate finance staff continues to spend time at ASI during the close process of the first three quarters of fiscal year 2006 and assisted the newly-hired ASI chief financial officer in conducting a detailed review of the reporting process at ASI and performed additional analyses and reconciliations in an effort to ensure the accuracy of financial reporting;

	•		Corporate finance personnel, along with the ASI chief financial officer, continue to provide training and instruction to ASI accounting staff to enhance their understanding of relevant U.S. accounting principles and regulatory reporting requirements. The ASI chief financial officer has developed policies and procedures and has conducted financial training sessions with members of ASI’s accounting staff;

	•		New corporate accounting policies are being implemented at ASI and will be reviewed on a regular basis for compliance; and

	•		We conducted a detailed and extensive review of the following matters: revenue recognition, income taxes, stock and stock option transactions, account reconciliations and journal entries.

Based in part on these additional efforts, our Chief Executive Officer and Chief Financial Officer have included their certifications as exhibits to this Form 10-Q to the effect that, among other statements made in the certifications and based on their knowledge, the consolidated financial statements included in this Form 10-Q fairly present in all material respects Asyst’s financial condition, results of operations and cash flows for the periods presented and this Form 10-Q does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

ITEM 6 — EXHIBITS

Incorporated by Reference

Exhibit

Filed

Number

Exhibit Description

Form

File No.

Filing Date

Herewith

3.1

Amended and Restated Articles of Incorporation of the Company.

S-1

333-66184

7/19/1993

3.2

Bylaws of the Company.

S-1

333-66184

7/19/1993

3.3

Certificate of Amendment of the Amended and Restated Articles

10-Q

000-22430

10/21/1999

of Incorporation, filed September 24, 1999.

3.4

Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed October 5, 2000.

DEF 14A

000-22430

7/31/2000

4.1

Rights Agreement among the Company and Bank of Boston, N.A.,

8-K

000-22430

6/29/1998

as Rights Agent, dated June 25, 1998.

4.2

Common Stock Purchase Agreement between the Company and

8-K

000-22430

6/18/1999.

various purchasers, dated as of May 26, 1999.

4.3

Indenture dated as of July 3, 2001 between the Company, State

10-Q

000-22430

8/14/2001

Street Bank and Trust Company of California, N.A., as

trustee, including therein the forms of the notes.

4.4

Registration Rights Agreement dated as of July 3, 2001

10-Q

000-22430

8/14/2001

between the Company and Merrill Lynch & Co., Merrill Lynch,

Pierce, Fenner & Smith, Incorporated, and ABN Amro Rothschild

LLC.

4.5

Amendment to Rights Agreement among the Company and Bank of

10-K

000-22430

6/28/2002

Boston, N.A. as Rights Agent, dated November 30, 2001.

10.61

Amendment No. 2 to Amended and Restated Loan and Security

Agreement between the Company and Comerica Bank dated as of

November 21, 2005.

10.62

Industrial Space Lease (Single Tenant Net) between the

Company and JER Bayside, LLC dated November 29, 2005.

10.63

First Amendment dated December 16, 2005, to Change-in-Control

8-K

000-22430

12/16/2005

Agreement dated October 20, 2003, between the Company and

Stephen S. Schwartz

31.1

Certification of the Chief Executive Officer required by Rule

13a-14(a) (pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002).

31.2

Certification of the Chief Financial Officer required by Rule

13a-14(a) (pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002).

32.1

Combined Certifications of the Chief Executive Officer and

Chief Financial Officer required by Rule 13a-14(b) (pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ASYST TECHNOLOGIES, INC.

Date: February 6, 2006	By:	/s/ Robert J. Nikl

		Robert J. Nikl
		Senior Vice President and
		Chief Financial Officer

Signing on behalf of the Registrant as a duly authorized officer and as the principal accounting and financial officer.

EXHIBIT INDEX


Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	File No.	Filing Date	Herewith
3.1	Amended and Restated Articles of Incorporation of the Company.	S-1	333-66184	7/19/1993

3.2	Bylaws of the Company.	S-1	333-66184	7/19/1993

3.3	Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed September 24, 1999.	10-Q	000-22430	10/21/1999

3.4	Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed October 5, 2000.	DEF 14A	000-22430	7/31/2000

4.1	Rights Agreement among the Company and Bank of Boston, N.A., as Rights Agent, dated June 25, 1998.	8-K	000-22430	6/29/1998

4.2	Common Stock Purchase Agreement between the Company and various purchasers, dated as of May 26, 1999.	8-K	000-22430	6/18/1999

4.3	Indenture dated as of July 3, 2001 between the Company, State Street Bank and Trust Company of California, N.A., as trustee, including therein the forms of the notes.	10-Q	000-22430	8/14/2001

4.4	Registration Rights Agreement dated as of July 3, 2001 between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, and ABN Amro Rothschild LLC.	10-Q	000-22430	8/14/2001

4.5	Amendment to Rights Agreement among the Company and Bank of Boston, N.A. as Rights Agent, dated November 30, 2001.	10-K	000-22430	6/28/2002

10.61	Amendment No. 2 to Amended and Restated Loan and Security Agreement between the Company and Comerica Bank dated as of November 21, 2005.				X

10.62	Industrial Space Lease (Single Tenant Net) between the Company and JER Bayside, LLC dated November 29, 2005.				X

10.63	First Amendment dated December 16, 2005, to Change-in-Control Agreement dated October 20, 2003, between the Company and Stephen S. Schwartz	8-K	000-22430	12/16/2005

31.1	Certification of the Chief Executive Officer required by Rule 13a-14(a) (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).				X

31.2	Certification of the Chief Financial Officer required by Rule 13a-14(a) (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).				X

32.1	Combined Certifications of the Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).				X

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Good

Asyst (ASYT) Inactive 10-Q2006 Q3 Quarterly report

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