Asyst (ASYT) 10-Q 2006 Q2 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 September 30, 2005

OR

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

For the transition period from                    to                    

Commission File number: 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 NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESþ NOo

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

The number of shares of the Registrant’s Common Stock, no par value, outstanding as of November 2, 2005 was 47,935,924.

ASYST TECHNOLOGIES, INC.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets — September 30, 2005 and March 31, 2005		3
Condensed Consolidated Statements of Operations — Three and Six-Month Periods Ended September 30, 2005 and September 30, 2004		4
Condensed Consolidated Statements of Cash Flows — Six-Month Periods Ended September 30, 2005 and September 30, 2004		5
Notes to Condensed Consolidated Financial Statements		6
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.Quantitative and Qualitative Disclosures About Market Risk		41
Item 4.Controls and Procedures		42
PART II. OTHER INFORMATION
Item 1.Legal Proceedings		46
Item 4.Submission of Matters to a Vote of Security Holders		47
Item 6.Exhibits		48
Signatures		49
Exhibit Index
EXHIBIT 10.60
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

Part I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

	September 30,			March 31,
	2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	75,214		$	55,094
Short-term investments		29,194			46,086
Accounts receivable, net of allowances for doubtful accounts of $10,952 and $6,980 at September 30 and March 31, 2005, respectively		195,251			189,943
Inventories		32,733			33,515
Prepaid expenses and other current assets		20,458			33,971
Total current assets		352,850			358,609
Property and equipment, net		15,372			15,458
Goodwill		61,086			64,014
Intangible assets, net		28,836			40,898
Other assets		4,337			4,795
Total assets	$	462,481		$	483,774
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term loans and notes payable	$	39,082		$	20,563
Current portion of long-term debt and capital leases		2,198			2,757
Accounts payable		78,030			83,913
Accounts payable — related parties		22,350			39,242
Accrued and other liabilities		66,597			70,439
Deferred margin		6,826			6,013
Total current liabilities		215,083			222,927
LONG-TERM LIABILITIES
Long-term debt and capital leases, net of current portion		87,740			88,750
Deferred tax liability		4,745			8,548
Other long-term liabilities		8,401			9,771
Total long-term liabilities		100,886			107,069
COMMITMENTS AND CONTINGENCIES (see Note 9)
MINORITY INTEREST		63,920			63,855
SHAREHOLDERS’ EQUITY
Common stock		452,020			450,005
Deferred stock-based compensation		(1,877	)		(1,312	)
Accumulated deficit		(371,371	)		(366,239	)
Accumulated other comprehensive income		3,820			7,469
Total shareholders’ equity		82,592			89,923
Total liabilities, minority interest and shareholders’ equity	$	462,481		$	483,774

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

3

ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
NET SALES	$	124,595		$	168,606		$	242,046		$	308,031
COST OF SALES		81,119			137,758			164,836			250,088
Gross profit		43,476			30,848			77,210			57,943
OPERATING EXPENSES:
Research and development		7,084			9,073			14,151			18,752
Selling, general and administrative		22,196			17,419			41,375			34,269
Amortization of acquired intangible assets		4,714			5,040			9,632			10,092
Restructuring and other charges		—			368			93			587
Total operating expenses		33,994			31,900			65,251			63,700
Income (loss) from operations		9,482			(1,052	)		11,959			(5,757	)
INTEREST AND OTHER INCOME (EXPENSE), NET:
Interest income		569			381			1,092			718
Interest expense		(1,813	)		(1,635	)		(3,412	)		(3,262	)
Other income, net		333			449			850			1,183
Interest and other expense, net		(911	)		(805	)		(1,470	)		(1,361	)
INCOME (LOSS) BEFORE BENEFIT FROM (PROVISION FOR) INCOME TAXES AND MINORITY INTEREST		8,571			(1,857	)		10,489			(7,118	)
BENEFIT FROM (PROVISION FOR) INCOME TAXES		(6,583	)		(67	)		(9,684	)		1,587
MINORITY INTEREST		(3,533	)		93			(5,937	)		1,414
NET LOSS	$	(1,545	)	$	(1,831	)	$	(5,132	)	$	(4,117	)
BASIC AND DILUTED NET LOSS PER SHARE	$	(0.03	)	$	(0.04	)	$	(0.11	)	$	(0.09	)
SHARES USED IN THE PER SHARE CALCULATION — Basic and Diluted		47,963			47,428			47,879			47,304

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

4

ASYST TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

	Six Months Ended
	September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS	$	(5,132	)	$	(4,117	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		13,259			14,203
Minority interest in net loss in consolidated subsidiary		5,937			(1,414	)
Deferred income tax		(619	)		(3,735	)
Stock-based compensation		824			852
Loss (gain) on disposal of fixed assets		(391	)		151
Changes in assets and liabilities:
Accounts receivable		(15,455	)		(71,119	)
Inventories		(469	)		(18,129	)
Prepaid expenses and other assets		12,324			(7,996	)
Accounts payable, accrued and other liabilities and deferred margin		(19,470	)		72,407
Net cash used in operating activities		(9,192	)		(18,897	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments		(116,413	)		(132,026	)
Sales or maturity of investments		133,225			98,874
Release of restricted cash and cash equivalents		—			1,904
Purchases of property and equipment, net		(2,987	)		(3,634	)
Net cash provided by (used in) investing activities		13,825			(34,882	)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from lines of credit, net		21,074			20,141
Payments of short-term loans		—			(2,508	)
Dividends paid to a minority shareholder		(2,613	)		—
Principal payments on long-term debt and capital leases		(2,245	)		—
Proceeds from issuance of common stock		626			2,639
Net cash provided by financing activities		16,842			20,272
Effect of exchange rate changes on cash and cash equivalents		(1,355	)		(1,187	)
DECREASE IN CASH AND CASH EQUIVALENTS		20,120			(34,694	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		55,094			112,907
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	75,214		$	78,213

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

5

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 six month periods ended September 30, 2005 and 2004, and of Cash Flows for the six-month periods ended September 30, 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, or 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., or 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 fiscal quarter. Accordingly, the current fiscal quarter ended on September 30, 2005. The second quarter of fiscal year 2005 ended on September 25, 2004. For convenience of presentation and comparison to current and prior fiscal quarters, we refer throughout this report to a fiscal quarter ended September 30, 2004. However, all references to our fiscal quarter ended September 30, 2004 mean our actual fiscal quarter ended September 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 were 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.

6

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Recent Accounting Pronouncements

     In March 2004, the Financial Accounting Standards Board (“FASB”), approved the consensus reached on the Emerging Issues Task Force (“EITF”), Issue No. 03-1 (“03-1”),The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.EITF 03-1 provides guidance for identifying impaired investments and new disclosure requirements for investments that are deemed to be temporarily impaired. On September 30, 2004, the FASB issued a final staff position (“FSP”), EITF 03-1-1 that delays the effective date for the measurement and recognition guidance included in paragraphs 10 through 20 of EITF 03-1. Quantitative and qualitative disclosures required by EITF 03-1 remain unchanged by the staff position. We do not believe the impact of adoption of the measurement provisions of the EITF will be significant to our overall results of operations or financial position.

     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 No. 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 No. 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 No. 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 No. 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 No. 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 No. 123(R). SFAS No. 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 No. 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 No. 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 No. 154”). SFAS No. 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 No. 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”) FSP Nos. 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 adoption of the provisions of FSP 13-1 is not expected to have a material impact on our financial position or results of operations.

     In November 2005, the FASB issued FASB Staff Position (“FSP”) 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”) 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. 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 adoption of the provisions of FSP 115-1 and 124-1 is not expected to have a material impact on our financial position or results of operations.

     Reclassifications

     Certain prior year amounts in the condensed consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year’s presentation. In particular, we have reclassified cash flow activity relating to

7

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 $15.7 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 (dollars in thousands):

	As Reported						As Reclassified:
	Cash and Cash		Short-Term				Cash and Cash		Short-Term
September 30,	Equivalents		Investments		Total		Equivalents		Investments		Total
2004	$	93,913	$	22,190	$	116,103	$	78,213	$	37,890	$	116,103

     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
Six-months ended September 30,	Sale Securities			Sale Securities		Total			Sale Securities			Sale Securities		Total
2004	$	(18,452	)	$	1,000	$	(17,452	)	$	(132,026	)	$	98,874	$	(33,152	)

     In addition, costs related to field services sales of $1.7 million and $3.7 million for the three and six-months ended September 30, 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 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
September 30, 2005
Auction rate securities	$	12,400	$	—		$	12,400
Corporate debt securities		7,858		(40	)		7,818
Federal agency notes		9,000		(24	)		8,976
	$	29,258	$	(64	)	$	29,194
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

8

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Accounts Receivable, net of allowance for doubtful accounts

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

	September 30,			March 31,
	2005			2005
Trade receivables	$	84,414		$	77,196
Trade receivables-related party		19			100
Unbilled receivables		111,755			110,778
Other		10,015			8,849
Less: Allowance for doubtful accounts		(10,952	)		(6,980	)
Total	$	195,251		$	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-month period ended September 30, 2005, we wrote off $0.2 million 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 September 30, 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. For the six-month period ended September 30, 2005 they sold $8.5 million of accounts receivable without recourse.

Inventories

     Inventories consisted of the following (in thousands):

	September 30,		March 31,
	2005		2005
Raw materials	$	13,373	$	14,040
Work-in-process		17,930		17,905
Finished goods		1,430		1,570
Total	$	32,733	$	33,515

     At September 30, 2005 and March 31, 2005, we had a reserve of $15.4 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 September 30 and March 31, 2005, total inventory held by Solectron was $10.0 million and $14.5 million, respectively. During the three-months ended September 30, 2005, we repurchased $4.1 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 expect to complete a periodic goodwill impairment test in the third quarter of fiscal 2006. During the third quarter of fiscal 2005, we completed an annual goodwill impairment test and concluded that there was no impairment of goodwill and intangible assets.

9

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Goodwill balances and the changes in the carrying amount of goodwill during the six-month period ended September 30, 2005 were as follows (in thousands):

	Fab
	Automation		AMHS			Total
Balance at March 31, 2005	$	3,397	$	60,617		$	64,014
Foreign currency translation		—		(2,928	)		(2,928	)
Balance at September 30, 2005	$	3,397	$	57,689		$	61,086

     Intangible assets

     Intangible assets were as follows (in thousands):

	September 30, 2005						March 31, 2005
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Amortizable intangible assets:
Developed technology	$	60,171	$	39,073	$	21,098	$	62,626	$	34,069	$	28,557
Customer base and other intangible assets		32,731		28,258		4,473		33,767		25,167		8,600
Licenses and patents		6,602		3,337		3,265		6,989		3,248		3,741
Total	$	99,504	$	70,668	$	28,836	$	103,382	$	62,484	$	40,898

     Amortization expense totaled $4.7 million and $5.0 million for the three-month periods ended September 30, 2005 and 2004, respectively. Amortization expense totaled $9.6 million and $10.1 million for the six-month periods ended September 30, 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	$	7,899
2007		12,563
2008		6,956
2009		684
2010		368
2011 and thereafter		366
Total	$	28,836

10

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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						Six-months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Balance at beginning of period	$	12,427		$	9,322		$	13,509		$	8,185
Accruals for warranties issued during the period		2,245			4,527			4,955			7,096
Settlements made (in cash or in kind)		(3,095	)		(1,714	)		(6,535	)		(3,090	)
Foreign currency translation		(203	)		(201	)		(555	)		(257	)
Balance at end of period	$	11,374		$	11,934		$	11,374		$	11,934

     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 object 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 liabilities and other. We had a loss reserve of approximately $0.03 million and $0.2 million at September 30 and March 31, 2005, respectively. The balance at September 30, 2005 relates to one AMHS contract entered into by ASI during fiscal 2004.

11

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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						Six-months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net loss, as reported	$	(1,545	)	$	(1,831	)	$	(5,132	)	$	(4,117	)
Foreign currency translation adjustments		(1,677	)		(2,017	)		(3,727	)		(2,777	)
Unrealized gains (losses) on investments		30			30			78			(70	)
Comprehensive loss	$	(3,192	)	$	(3,818	)	$	(8,781	)	$	(6,964	)

Earnings (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 earnings 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 summarizes securities outstanding which were not included in the calculation of diluted net loss per share reported in the 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				Six-months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Restricted stock options		504		62		469		64
Restricted stock units		37		40		37		20
Stock options		7,140		8,235		7,310		8,439
Convertible notes		5,682		5,682		5,682		5,682
Total		13,363		14,019		13,498		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 losses for the three and six-month periods ended September 30, 2005 and 2004, respectively, would have increased as indicated below (in thousands, except per share amounts):

	Three-months Ended						Six-months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net loss — as reported	$	(1,545	)	$	(1,831	)	$	(5,132	)	$	(4,117	)
Add: employee stock-based compensation expense included in reported net loss, net of tax		289			431			824			756
Less: total employee stock-based compensation expense determined under fair value, net of tax		(1,424	)		(2,486	)		(3,084	)		(5,239	)
Net loss — as adjusted	$	(2,680	)	$	(3,886	)	$	(7,392	)	$	(8,600	)
Basic and diluted net loss per share — As reported	$	(0.03	)	$	(0.04	)	$	(0.11	)	$	(0.09	)
Basic and diluted net loss per share — As adjusted	$	(0.06	)	$	(0.08	)	$	(0.15	)	$	(0.18	)
Shares used in computing As Reported and As Adjusted net loss per share		47,963			47,428			47,879			47,304

12

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 six-month period ended September 30, 2005.

3. RESTRUCTURING CHARGES

     Restructuring accrual and related utilization for the three-month periods ended June 30 and September 30, 2005 were as follows (in thousands):

	Severance and
	Benefits			Excess Facilities			Total
Balance, March 31, 2005	$	67		$	816		$	883
Additional accruals		0			93			93
Non-cash utilization		27			(16	)		11
Amounts paid in cash		0			(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		0			(122	)		(122	)
Foreign currency translation adjustment		(1	)		0			(1	)
Balance, September 30, 2005	$	—		$	415		$	415

     The outstanding accrual balance of $0.4 million at September 30, 2005 consists of future lease obligations on vacated facilities, in excess of estimated future sublease proceeds of approximately $0.3 million, which will be paid over the next three quarters. All remaining accrual balances are expected to be settled in cash.

     Restructuring accrual and related utilization for the three-month periods ended June 30 and September 30, 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		482			(114	)		368
Non-cash utilization		—			73			73
Amounts paid in cash		(461	)		(279	)		(740	)
Foreign currency translation adjustment		(1	)		(7	)		(8	)
Balance, September 30, 2004	$	53		$	1,695		$	1,748

     We incurred restructuring charges of $0.4 million and $0.2 million for the three-month periods ended September 30 and June 30, 2004, respectively, consisting primarily of severance costs resulting from reductions in workforce.

13

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. INCOME TAXES

	Three-Months Ended						Six-Months Ended
(in thousands)	September 30,						September 30,
	2005			2004			2005			2004
Provision for (benefit from) income taxes		($6,583	)		($67	)		($9,684	)	$	1,587

     Income tax provision for the three and six-month periods ended September 30, 2005 was approximately $6.6 million and $9.7 million, respectively.

     Income tax provision for the three-month period ended September 30, 2005 was $6.6 million which included a tax benefit of $1.6 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 $0.9 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.

     We recorded a tax provision of $0.1 million for the quarter ended September 30, 2004, or approximately 3.6 percent of our loss before income taxes and minority interest. The tax provision is primarily due to amortization of deferred tax liabilities recorded in connection with the ASI acquisition of $1.7 million, partially offset by $1.8 million of tax provisions in international subsidiaries, primarily Japan and Taiwan.

5. REPORTABLE SEGMENTS

     We have two reportable product segments: Fab Automation and AMHS. The Fab Automation segment includes interface products, substrate-handling robotics, wafer and reticle carriers, 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 flat panel display 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):

	September 30,		March 31,
(in thousands)	2005		2005
AMHS:
Total Assets	$	301,287	$	312,391
Fab Automation Products:
Total Assets	$	161,194	$	171,383
Consolidated:
Total Assets	$	462,481	$	483,774

	Three-Months Ended						Six-Months Ended
	September 30,						September 30,
(in thousands)	2005			2004			2005			2004
AMHS:
Net Sales	$	85,421		$	99,789		$	162,798		$	167,459
Cost of Sales		56,965			90,768			114,062			153,320
Gross Profit	$	28,456		$	9,021		$	48,736		$	14,139
Income (loss) from operations	$	13,664		$	(896	)	$	21,492		$	(5,798	)
Fixed Assets Additions	$	1,121		$	1,131		$	1,449		$	1,590
Amortization and Depreciation	$	4,371		$	4,161		$	8,850		$	8,676
Fab Automation Products:
Net Sales	$	39,174		$	68,817		$	79,248		$	140,572
Cost of Sales		24,154			46,990			50,774			96,768
Gross Profit	$	15,020		$	21,827		$	28,474		$	43,804
Income (loss) from operations	$	(4,182	)	$	(156	)	$	(9,533	)	$	41
Fixed Assets Additions	$	1,077		$	1,647		$	1,538		$	2,044
Amortization and Depreciation	$	2,056		$	3,022		$	4,251		$	5,382
Consolidated:
Net Sales	$	124,595		$	168,606		$	242,046		$	308,031
Cost of Sales		81,119			137,758			164,836			250,088
Gross Profit	$	43,476		$	30,848		$	77,210		$	57,943
Income (loss) from operations	$	9,482		$	(1,052	)	$	11,959		$	(5,757	)
Fixed Assets Additions	$	2,198		$	2,778		$	2,987		$	3,634
Amortization and Depreciation	$	6,427		$	7,183		$	13,101		$	14,058

14

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

     One customer accounted for 10.8 percent and 15.8 percent and another customer accounted 18.0 percent and 13.0 percent of our net sales for the three and six-month periods ended September 30, 2005, respectively. No other customer accounted for more than 10.0 percent of our net sales for the three and six-month periods ended September 30, 2005.

6. DEBT

     We had $39.0 million and $20.6 million of short-term debt issued by banks in Japan at September 30 and March 31, 2005, respectively. Approximately $6.3 million and $7.6 million at September 30 and March 31, 2005, respectively, is owed by our Japanese subsidiary, AJI, and is guaranteed by Asyst in the United States. The remaining portion, $32.7 million and $13.0 million at September 30 and March 31, 2005, respectively, is owed by ASI, based upon currency exchange rates in effect on September 30 and March 31, 2005, for the respective periods. As of September 30 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):

	September 30,			March 31,
	2005			2005
Convertible subordinated notes	$	86,250		$	86,250
Secured straight bonds		1,929			2,482
Long-term loans		1,080			1,915
Capital leases		679			860
Total long-term debt		89,938			91,507
Less: Current portion of long-term debt and capital leases		(2,198	)		(2,757	)
Long-term debt and capital leases net of current portion	$	87,740		$	88,750

     At September 30, 2005, maturities of all long-term debt and capital leases are as follows (in thousands):

Fiscal Year Ending March 31,
Remaining portion of 2006	$	1,309
2007		1,424
2008		753
2009		86,452
2010 and thereafter		—
	$	89,938

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 September 30, 2005 and 2004, respectively; and $0.2 million during each of the six-month periods ended September 30, 2005 and 2004, respectively.

Secured Straight Bonds

     We had $1.9 million and $2.5 million of secured straight bonds from a bank in Japan at September 30 and March 31, 2005, respectively. The bonds bore interest at rates ranging from 1.4 percent to 2.3 percent as of September 30 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.

15

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Lines of Credit

     At September 30, 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 quarter 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 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 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 current receivables we have outstanding, in addition to the cash balance held at the bank. As of September 30, 2005, there was no amount outstanding under the line of credit, and we were in compliance with the financial covenants.

     At September 30, 2005, ASI had three revolving lines of credit with Japanese banks. These lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $61.9 million at the exchange rate as of September 30, 2005. As of September 30 and March 31, 2005, ASI had outstanding borrowings of 3.7 billion Japanese Yen and 1.4 billion Japanese Yen, or approximately $32.7 million and $13.0 million, respectively, at the exchange rate as of September 30 and March 31, 2005, respectively, that are recorded in short-term debt.

     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 September 30, 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 September 30, 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 $35.4 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. A third line of credit representing 3.0 billion Yen, or approximately $26.6 million, of borrowing capacity is due to expire in November 2005, at which time any amounts outstanding will be due and payable, unless the line of credit is extended. See Note 10, Subsequent Event, for information concerning replacement facilities entered into as of October 31, 2005.

     Our Japanese subsidiary, AJI, maintains revolving lines of credit with five Japanese banks. 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 September 30 and March 31, 2005, respectively, AJI had outstanding borrowings of 0.7 billion Japanese Yen and 0.8 billion Japanese Yen, or approximately $6.3 million and $7.6 million, at exchange rates as of September 30 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.

7. STOCKHOLDERS EQUITY

Employee Stock Option Grants

     Options to purchase 372,500 shares and 534,450 shares of common stock were granted to employees during the three-month periods ended September 30, 2005 and 2004, respectively. Options to purchase 1,127,600 and 1,580,950 shares of common stock were granted to employees for the six-month periods ended September 30, 2005 and 2004, respectively. At September 30, 2005, options to purchase 7,643,693 shares of common stock were outstanding, and 2,027,432 shares of common stock were available for issue under our 2001 and 2003 stock option plans.

16

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Employee Stock Purchase Plan

     As of September 30, 2005, approximately 2.2 million shares had been purchased and approximately 0.25 million shares of common stock were available for issue 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 $3.33 and $3.58 during the three-month period ended September 30, 2005 and 2004, respectively, and $3.20 and $5.19 during the six-month periods ended September 30, 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 the existing valuation models, including Black-Scholes, are not reliable single measures and 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 six-month periods ended September 30, 2005 and 2004, respectively:

	Three-months Ended						Six-months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Risk-free interest rate		4.01	%		3.21	%		3.58	%		3.28	%
Expected term of options (in years)		4.7			4.6			4.7			4.6
Expected volatility		88.2	%		92.5	%		88.2	%		92.0	%
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 September 30, 2005 and 2004 was $3.74 and $1.69, respectively, and for the six-month periods ended September 30, 2005 and 2004 was $3.74 and $3.38, 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						Six-months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Risk-free interest rate		3.31	%		2.08	%		3.31	%		1.83	%
Expected term of options (in years)		0.5			0.5			0.5			0.5
Expected volatility		45.7	%		90.4	%		45.7	%		85.0	%
Expected dividend yield		0	%		0	%		0	%		0	%

Dividends

     During the three-months ended September 30, 2005, ASI paid a dividend of 600 million Japanese Yen, or approximately $5.3 million at exchange rates as of September 30, 2005. Included in this amount, is a payment to ASI’s minority shareholder, Shinko of 294 million Japanese Yen, or approximately $2.6 million at exchange rates as of September 30, 2005.

8. 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 September 30 and March 31, 2005, respectively, significant balances with Shinko and MECS Korea were (in thousands):

	September 30,		March 31,
	2005		2005
Accounts payable due to Shinko	$	22,350	$	39,221
Accrued liabilities due to Shinko		631		450
Accounts receivable from MECS Korea		19		100
Accounts payable due to MECS Korea		—		21

17

ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     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-months ended September 30, 2005 and 2004, sales to and purchases from Shinko and MECS Korea were (in thousands):

	Three-Months Ended September 30,
	2005		2004
Material and service purchases from Shinko	$	17,388	$	8,100
Sales to MECS Korea		105		136

9. COMMITMENTS AND CONTINGENCIES

Lease Commitments

     We lease various facilities under non-cancelable capital and operating leases. At September 30, 2005, the future minimum commitments under these leases are as follows (in thousands):

Fiscal Year Ending March 31,	Capital Lease			Operating Lease		Sublease Income
Remaining portion of 2006	$	137		$	3,158	$	(261	)
2007		246			2,042		(44	)
2008		169			1,636		—
2009		153			73		—
2010 and thereafter		—			85		—
Total		705		$	6,994	$	(305	)
Less: interest		(26	)
Present value of minimum lease payments		679
Less: current portion of capital leases		(234	)
Capital leases, net of current portion	$	445

     Rent expense under our operating leases was approximately $1.5 million and $1.2 million for the three-month periods ended September 30, 2005 and 2004, respectively; and $3.0 million and $2.6 million for the six-month periods ended September 30, 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

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ASYST TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.

     From time to time, we are also involved in other legal actions arising in the ordinary course of business. We have incurred certain costs while defending these matters. There can be no assurance that third party assertions will be resolved without costly litigation, in a manner that is not adverse to our financial position, results of operations or cash flows or without requiring royalty or other payments in the future which may adversely impact gross margins. Litigation is inherently unpredictable, and we cannot predict the outcome of the legal proceedings described above with any certainty. 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. As a result, no losses have been accrued for the legal proceedings described above in our financial statements as of September 30, 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.

10. SUBSEQUENT EVENT

     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 $8.6 million USD at exchange rates as of October 31, 2005. The facilities do not require collateral or guarantees. Each of the banks requires ASI to provide annual financial reports. 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 replace an existing 3.0 billion yen credit facility which expires on November 29, 2005.

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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 ReportForm 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 primarily for the worldwide semiconductor and the flat panel display (“FPD”) industries.

     We principally sell directly to the semiconductor and FPD manufacturing industries. We also sell 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, installed customer base and approximately 250 employees, and acquired the remaining 49.0 percent interest. We acquired 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, semiconductor and flat panel display products.

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

     Our net sales for the six-month period ended September 30, 2005 deceased by 21.4 percent compared to the corresponding period of fiscal 2005. The decrease was primarily due to the net sales of Fab Automation Products for the six-month period ended September 30, 2005, which decreased by 43.6 percent compared to the same period of fiscal 2005. Net sales of our AMHS products, decreased 2.8 percent for the six-month period ended September 30, 2005 compared to the same period of fiscal 2005. AMHS revenues represented 67.2 percent of our total revenue for the six-month period ended September 2005, compared to 54.4 percent for the six-month period ended September 2004.

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For the remainder of fiscal 2006, we believe critical success factors include product quality, customer relationship, 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 six-month periods ended September 30, 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 below in Item 4 of Part I that our disclosure controls and procedures were not effective as of September 30, 2005, together with a summary of these material weaknesses and the status of our remediation efforts.

     See also “Risk Factors” below 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”and“We experienced additional risks and costs as a result of the delayed filing of theForm 10-Q for our fiscal 2005 second quarter and delayed filing of theForm 10-K for fiscal year 2005.”

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 six-month period ended September 30, 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 total for the periods presented below (in thousands):

	Three-Months Ended						Six-Months Ended
	September 30,						September 30,
(in thousands)	2005			2004			2005			2004
AMHS:
Net Sales	$	85,421		$	99,789		$	162,798		$	167,459
Cost of Sales		56,965			90,768			114,062			153,320
Gross Profit	$	28,456		$	9,021		$	48,736		$	14,139
Income (loss) from operations	$	13,664		$	(896	)	$	21,492		$	(5,798	)
Fab Automation Products:
Net Sales	$	39,174		$	68,817		$	79,248		$	140,572
Cost of Sales		24,154			46,990			50,774			96,768
Gross Profit	$	15,020		$	21,827		$	28,474		$	43,804
Income (loss) from operations	$	(4,182	)	$	(156	)	$	(9,533	)	$	41
Consolidated:
Net Sales	$	124,595		$	168,606		$	242,046		$	308,031
Cost of Sales		81,119			137,758			164,836			250,088
Gross Profit	$	43,476		$	30,848		$	77,210		$	57,943
Income (loss) from operations	$	9,482		$	(1,052	)	$	11,959		$	(5,757	)

	Three-Months Ended						Six-Months Ended
	September 30,						September 30,
(in thousands)	2005			2004			2005			2004
AMHS:
Net Sales		68.6	%		59.2	%		67.2	%		54.4	%
Cost of Sales		45.7	%		53.8	%		47.1	%		49.8	%
Gross Profit		22.9	%		5.4	%		20.1	%		4.6	%
Income (loss) from operations		11.0	%		(0.5	)%		8.8	%		(1.9	)%
Fab Automation Products:
Net Sales		31.4	%		40.8	%		32.8	%		45.6	%
Cost of Sales		19.4	%		27.9	%		21.0	%		31.4	%
Gross Profit		12.0	%		12.9	%		11.8	%		14.2	%
Income (loss) from operations		(3.4	)%		(0.1	)%		(3.9	)%		0.0	%
Consolidated:
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of Sales		65.1	%		81.7	%		68.1	%		81.2	%
Gross Profit		34.9	%		18.3	%		31.9	%		18.8	%
Income (loss) from operations		7.6	%		(0.6	)%		4.9	%		(1.9	)%

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Net Sales

Consolidated    The $44.0 million decrease in consolidated net sales for the three-month period ended September 30, 2005, as 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 six-month period ended September 30, 2005, as compared with the same period in fiscal 2005, with a $66.0 million decrease in consolidated sales due to lower volume of 200mm and FPD products sold to semiconductor and flat panel display manufacturers.

AMHS    The $14.4 million decrease in AMHS sales for the three-month period ended September 30, 2005, as 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 $4.7 million decrease in AMHS sales for the six-month period ended September 30, 2005, as 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 $29.6 million decrease in Fab Automation sales for the three-month period ended September 30, 2005, as compared to the same period of the prior year, was primarily due to lower volumes of 200mm and 300mm product sales to semiconductor manufacturers. The $61.3 million decrease in sales for the six-month period ended September 30, 2005, as compared with the same period of the prior year, was primarily due to lower volume of 200mm and 300mm product sales to semiconductor manufacturers.

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

     The following table sets forth the percentage of net sales represented by condensed consolidated statements of operations for the periods indicated (unaudited):

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
NET SALES		100.0	%		100.0	%		100.0	%		100.0	%
COST OF SALES		65.1	%		81.7	%		68.1	%		81.2	%
Gross profit		34.9	%		18.3	%		31.9	%		18.8	%
OPERATING EXPENSES:
Research and development		5.7	%		5.4	%		5.8	%		6.1	%
Selling, general and administrative		17.8	%		10.3	%		17.2	%		11.1	%
Amortization of acquired intangible assets		3.8	%		3.0	%		4.0	%		3.3	%
Restructuring and other charges		0.0	%		0.2	%		0.0	%		0.2	%
Total operating expenses		27.3	%		18.9	%		27.0	%		20.7	%
Income (loss) from operations		7.6	%		(0.6	%)		4.9	%		(1.9	%)

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	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
INTEREST AND OTHER INCOME (EXPENSE), NET:
Interest income		0.5	%		0.2	%		0.5	%		0.2	%
Interest expense		(1.5	%)		(1.0	%)		(1.5	%)		(1.0	%)
Other income, net		0.3	%		0.3	%		0.4	%		0.4	%
Interest and other expense, net		(0.7	%)		(0.5	%)		(0.6	%)		(0.4	%)
INCOME (LOSS) BEFORE BENEFIT FROM (PROVISION FOR)      INCOME TAXES AND MINORITY INTEREST		6.9	%		(1.1	%)		4.3	%		(2.3	%)
BENEFIT FROM (PROVISION FOR) INCOME TAXES		(5.3	%)		(0.1)	%		(4.0	%)		0.5	%
MINORITY INTEREST		(2.8	%)		0.1	%		(2.5	%)		0.5	%
NET LOSS		(1.2	%)		(1.1	%)		(2.2	%)		(1.3	%)

Gross Margin

Consolidated    Gross margin increased to 34.9 percent of sales for the three-month period ended September 30, 2005, compared to 18.3 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 reduced volume of FPD product sales which have lower margins.

For the six-month period ended September 30, 2005, the gross margin increased to 31.9 percent of sales, as compared with 18.8 percent for the same period of the prior year.

     For the three and six-month periods ended September 30, 2005, on a dollar basis, the consolidated gross profit increased by $12.6 million and $19.3 million, respectively over the same periods in the prior fiscal year, even though net sales during the two periods decreased by $44.0 million and $66.0 million, respectively. The increase in gross profits 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 the AMHS increased to 33.3 percent of sales for the three-month period ended September 30, 2005, compared to 9.0 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 sales volume with lower gross margins. Additionally, completion of several projects at lower costs than originally estimated favorably impacted the gross margin.

For the six-month period ended September 30, 2005 and 2004, the gross margin increased to 29.9 percent from 8.4 percent, respectively. The AMHS gross profit, on a dollar basis, increased by $34.6 million on $4.7 million in lower net sales, as 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 an improvement in product mix between 300mm and FPD product volume. Again, the trend for the first six months of fiscal year 2006, as 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 38.3 percent from 31.7 percent of sales for the three-month period ended September 30, 2005, compared to the same period of the prior fiscal year. For the three-month period ended September 30, 2005, the Fab Automation gross profit was lower by $6.8 million, primarily due to the lower 200mm and 300mm sales volume.

     For the six-month period ended September 30, 2005, the gross margin increased to 35.9 percent of sales, compared to 31.2 percent for the same period of the prior year. For the six-month period ended September 30, 2005, the Fab Automation gross profit was lower by $15.3 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, as 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.

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Research and Development

	Three-months Ended									Six-months Ended
(in thousands, except percentage)	September 30,									September 30,
	2005			2004			Change			2005			2004			Change
Research and development	$	7,084		$	9,073			($1,989	)	$	14,151		$	18,752			($4,601	)
Percentage of total net sales		5.7	%		5.4	%					5.8	%		6.1	%

     The research and development expenses decreased to $7.1 million from $9.1 million for the three-month period ended September 30, 2005 and 2004, respectively. For the six-month periods ended September 30, 2005 and 2004, research and development expenses decreased to $14.2 million from $18.8 million, respectively.

     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								Six-months Ended
(in thousands, except percentage)	September 30,								September 30,
	2005			2004			Change		2005			2004			Change
Selling, general and administrative	$	22,196		$	17,419		$	4,777	$	41,375		$	34,269		$	7,106
Percentage of total net sales		17.8	%		10.3	%				17.2	%		11.1	%

     The increase in selling, general and administrative expenses for the three month period ended September 30, 2005, compared with the same period of fiscal 2005, was primarily due to $2.5 million increase in the provision for bad debt and an increase of approximately $1.0 million associated with increases in accounting and compliance costs associated with our review, documentation, and testing of internal control over financial reporting. The increase in selling, general, and administrative expenses for the six-month period ended September 30, 2005, compared with the same period of fiscal 2005 was primarily due to a $4.0 million provision for bad debt, and approximately $2.0 million associated with increases in accounting and compliance costs associated with our review, documentation, and testing of internal control over financial reporting required under SEC rules and accounting standards.

Amortization of Acquired Intangible Assets

	Three-Months Ended									Six-Months Ended
(in thousands, except percentage)	September 30,									September 30,
	2005			2004			Change			2005			2004			Change
Amortization of acquired intangible assets	$	4,714		$	5,040			($326	)	$	9,632		$	10,092			($460	)
Percentage of total net sales		3.8	%		3.0	%					4.0	%		3.3	%

     The decrease in amortization expense for the three and six-month periods ended September 30, 2005, compared with the corresponding periods in the prior fiscal year, was due to exchange rate fluctuations as the majority of our intangible assets are denominated in Japanese Yen.

Restructuring Charges

     The following table summarizes the activities in our restructuring accrual during the three and six-month periods ended September 30, 2005 and 2004:

	Three-Months Ended									Six-Months Ended
(in thousands, except percentage)	September 30,									September 30,
	2005			2004			Change			2005			2004			Change
Restructuring charges		—		$	368			($368	)	$	93		$	587			($494	)
Percentage of total net sales		0.0	%		0.2	%					0.0	%		0.2	%

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     We incurred restructuring charges of $0.1 million during the six-month period ended September 30, 2005 related to changes in estimates for severance and excess facility costs.

     The outstanding accrual amount at September 30, 2005, as noted in the table below consists of future lease obligations on vacated facilities in excess of estimated future sublease proceeds which will be paid over the next three quarters. All remaining accrual balances are expected to be settled in cash.

(in thousands)	Severance and			Excess Facilities			Total
	Benefits
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

Interest Income, Interest Expense and Other Income, Net

	Three-Months Ended							Six-Months Ended
(in thousands)	September 30,							September 30,
	2005		2004		Change			2005		2004		Change
Interest income	$	569	$	381	$	188		$	1,092	$	718	$	374
Interest expense	$	1,813	$	1,635	$	178		$	3,412	$	3,262	$	150
Other income, net	$	333	$	449		($116	)	$	850	$	1,183		($333	)

     Interest income for the three and six-month periods ended September 30, 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 higher primarily due to a higher loan balances on our outstanding debt balances for the three and six-month periods ended September 30, 2005 as compared to the same periods of fiscal 2005.

     Other income, net was lower due to a decrease in royalty income for the three and six-month periods ended September 30, 2005 as compared to the same periods of fiscal 2005.

Income Taxes

	Three-Months Ended									Six-Months Ended
(in thousands, except percentage)	September 30,									September 30,
	2005			2004			Change			2005			2004			Change
Benefit from (provision for) income taxes		($6,583	)		($67	)		($6,516	)		($9,684	)	$	1,587			($11,271	)
Percentage of total net sales		(5.3	%)		(0.1%	)					(4.0	%)		0.5	%

     Income tax provision for the three-month period ended September 30, 2005 was $6.6 million which included a tax benefit of $1.6 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 $0.9 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.

     We recorded a tax provision of $0.1 million for the quarter ended September 30, 2004, or approximately 3.6 percent of our loss before income taxes and minority interest. The tax provision is primarily due to amortization of deferred tax liabilities recorded in connection with the ASI acquisition of $1.7 million, partially offset by $1.8 million of tax provisions in international subsidiaries, primarily Japan and Taiwan.

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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 and cash generated from operations. See also Risk Factor — “We experienced additional risks and costs as a result of the delayed filing of the Form 10-Q for our fiscal year 2005 second quarter and delayed filing of the Form 10-K for fiscal year 2005” — for additional information on our ability to raise funds.

     As of September 30, 2005, we had approximately $104.4 million in cash, cash equivalents and short-term investments, $137.8 million in working capital and $87.7 million in long-term debt and capital leases, net of current portion.

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

	Six-Months Ended
(in thousands)	September 30,
	2005			2004
Net cash used in operating activities	$	(9.2	)	$	(18.9	)
Net cash provided by (used in) investing activities	$	13.8		$	(34.9	)
Net cash provided by financing activities	$	16.8		$	20.3

Cash Flows from Operating Activities

     Net cash of $9.2 million was used to fund our operating activities for the six-month period ended September 30, 2005, due to a net loss of $5.1 million and a $23.1 million increase in working capital, which is comprised of a $15.5 million increase in accounts receivable, a decrease of $19.4 million in accounts payable, accrued and other liabilities and deferred margin, offset by a $12.3 million reduction in prepaid and other assets and various non-cash charges of $19.0 million, including depreciation and amortization and minority interest. Net cash of $18.9 million was used in funding our operating activities for the six-month period ended September 30, 2004, primarily due to a net loss of $4.1 million and $24.8 million increase in working capital, partially offset by non-cash charges of $10.0 million, including depreciation and amortization and deferred income taxes.

     As sales volume has increased at our majority-owned joint venture ASI, our overall days sales outstanding (“DSO”) has increased to 141 days at September 30, 2005 from 119 days at March 31, 2005 and 114 days at September 30, 2004. This increase is due in large part to payment terms extended by ASI, as part of normal business in Japan. Unbilled receivables grew due to the increase in revenues recognized by ASI under the percentage-of-completion method.

     Our inventory turns were 8.5 times on an annualized basis for the six-month period ended September 30, 2005, compared to 11.5 times for the same period of fiscal 2005, due to decreased sales volume, but partially offset by improved efficiencies from our outsourcing transition program.

     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 $13.8 million for the six-month period ended September 30, 2005, due to $16.8 million in net sales of short-term investments and $3.0 million in purchases of property and equipment, primarily fixed assets for research and development and customer demonstration units.

     Net cash of $34.9 million used by investing activities for the six-month period ended September 30, 2004 was primarily a result of investment activities in the amount of $33.2 million related to auction rate securities and other investments, $3.6 million in purchases of property and equipment, partially offset with net cash of $1.9 million from release of restricted cash and cash equivalents.

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Cash Flows from Financing Activities

     Net cash provided by financing activities was $16.8 million for the six-month period ended September 30, 2005, due to $21.1 million in proceeds from our line of credit and $0.6 million in proceeds from the issuance of common stock under our employee stock programs, offset by pay downs against borrowings of $2.2 million and dividends of $2.6 million.

     Net cash provided by financing activities was $20.3 million for the six-month period ended September 30, 2004, including total loan proceeds of $20.1 million from a short-term borrowing and additional long-term debt in our Japanese subsidiary, offset by $2.5 million of loan repayments in the first half of the year and net proceeds from issuance of common stock in the amount of $2.6 million.

     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 September 30, 2005 and 2004, respectively, and $0.2 million during each of the six-month periods ended September 30, 2005 and 2004, respectively.

     At September 30, 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 quarter 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 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 current receivables we have outstanding, in addition to the cash balance held at the bank. As of September 30, 2005, there was no amount outstanding under the line of credit, and we were in compliance with the financial covenants.

     We had $1.9 million and $2.5 million of secured straight bonds from a bank in Japan at September 30 and March 31, 2005, respectively. The bonds bore interest at rates ranging from 1.4 percent to 2.3 percent as of September 30, 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 September 30, 2005, ASI had three revolving lines of credit with Japanese banks. These lines allow aggregate borrowing of up to 7.0 billion Japanese Yen, or approximately $61.9 million at the exchange rate as of September 30, 2005. As of September 30 and March 31, 2005, ASI had outstanding borrowings of 3.7 billion Japanese Yen and 1.4 billion Japanese Yen, or approximately $32.7 million and $13.0 million, respectively, at the exchange rate as of September 30 and March 31, 2005, respectively, that are recorded in short-term debt.

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 September 30, 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 September 30, 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 $35.4 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 $26.6 million, of borrowing capacity was due to expire in November 2005 and has been replaced as described below.

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     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 $8.6 million USD at exchange rates as of October 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 replace an existing 3.0 billion yen credit facility which expires on November 29, 2005.

     Our Japanese subsidiary, AJI, maintains revolving lines of credit with five Japanese banks. 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 September 30 and March 31, 2005, respectively, AJI had outstanding borrowings of 0.7 billion Japanese Yen and 0.8 billion Japanese Yen, or approximately $6.3 million and $7.6 million, at exchange rates as of September 30 and March 31, 2005, respectively, that are recorded as short-term debt.

     Since inception, we have incurred aggregate consolidated net losses of approximately $371.4 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 $104.4 million at September 30, 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 September 30, 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.

     As a result of the late filing of the second quarter Form 10-Q for the fiscal year 2005, we will be ineligible to register our securities on Form S-3 for sale by us or resale by others for one year. The inability to use Form S-3 could adversely affect our ability to raise capital during this period. If we failed to timely file a future periodic report with the SEC and were delisted, it could severely impact our ability to raise future capital and could have an adverse impact on our overall future liquidity. However, we are still eligible to register our securities on Form S-1.

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

Recent Accounting Pronouncements

     In March 2004, the Financial Accounting Standards Board (“FASB”), approved the consensus reached on the Emerging Issues Task Force (“EITF”), Issue No. 03-1 (“03-1”),The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.EITF 03-1 provides guidance for identifying impaired investments and new disclosure requirements for investments that are deemed to be temporarily impaired. On September 30, 2004, the FASB issued a final staff position (“FSP”), EITF 03-1-1 that delays the effective date for the measurement and recognition guidance included in paragraphs 10 through 20 of EITF 03-1. Quantitative and qualitative disclosures required by EITF 03-1 remain unchanged by the staff position. We do not believe the impact of adoption of the measurement provisions of the EITF will be significant to our overall results of operations or financial position.

     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 No. 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 No. 151 on our financial position and results of operations.

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     In December 2004, the FASB issued SFAS No. 153,“Exchange of Nonmonetary Assets — an amendment of APB Opinion No. 29". SFAS No. 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 No. 153 did not have to 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 No. 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 No. 123(R). SFAS No. 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 No. 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 No. 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 No. 154”). SFAS No. 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 No. 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”) FSP Nos. 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 adoption of the provisions of FSP 13-1 is not expected to have a material impact on our financial position or results of operations.

     In November 2005, the FASB issued FASB Staff Position (“FSP”) 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”) 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. 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 adoption of the provisions of FSP 115-1 and 124-1 is not expected to have a material impact on our financial position or results of operations.

Risk Factors

Risks Related to Our Business

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 fiscal quarter ended September 30, 2005, our net loss and accumulated deficit were $1.5 million and $371.4 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 September 30, 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.

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     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.

     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.

     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).

     It is possible that governmental agencies within or outside the U.S. could investigate the matters summarized above and seek legal sanctions against us or some of our employees. We may also become subject to private lawsuits filed against us and/or our management as a result of these matters. Our current and future results of operations may be adversely affected by significant costs related to our investigation of and remedial measures relating to these matters and, if applicable, any governmental investigations or actions or private lawsuits that may arise. In addition, ASI’s operations, and business and customer relations, and, as a consequence, our consolidated results and financial condition could be negatively impacted by management and other changes necessitated by our remediation plan described in Item 4 below.

     We experienced additional risks and costs as a result of the delayed filing of theForm 10-Q for our fiscal year 2005 second quarter and delayed filing of theForm 10-K for fiscal year 2005.

     As a result of the delayed filing of Form 10-Q for our second quarter of fiscal year 2005 described in the Overview portion of Item 7 of the Form 10-K for fiscal year 2005, we experienced additional risks and costs. The related Audit

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Committee investigation was time-consuming, required us to incur significant incremental expenses and diverted management’s attention and resources. Further, the measures to strengthen internal controls being implemented continued to require and will likely require in the future greater management time and company resources to implement and monitor. We incurred approximately $1.7 million in incremental costs associated with the matters underlying the Audit Committee’s investigation in fiscal year 2005.

     In December 2004, we appeared before a NASDAQ Listing Qualifications Panel to discuss our filing delay relating to the Form 10-Q for the second quarter of our fiscal year 2005. On January 11, 2005, the panel approved our request to continue the listing of our common stock on the NASDAQ National Market. While the panel determined that the company then appeared to satisfy NASDAQ’s filing requirement, the panel stated it would continue to monitor us to ensure our compliance with the filing requirements over the long term. The panel also determined to condition Asyst’s continued listing upon our timely filing all periodic reports with the SEC and NASDAQ for all reporting periods ending on or before January 31, 2006. If we fail to make any periodic report filing in accordance with this condition, the panel decision stated that a NASDAQ panel will promptly conduct a hearing with respect to such failure, and our securities may be immediately delisted from The NASDAQ Stock Market. As a result of our delayed filing on December 30, 2004 of the Form 10-Q for fiscal second quarter initially due November 4, 2004, we are ineligible to register our securities on Form S-3 for sale by us or resale by others until we have timely filed all periodic reports under the Securities Exchange Act of 1934 for one year. The inability to use Form S-3 could adversely affect our ability to raise capital or complete acquisitions of other companies during this period. Because we filed the Form 10-K for fiscal year 2005 on June 29, 2005, the report was considered timely under SEC rules. The NASDAQ staff orally informed us that by filing a completed Form 10-K on or before June 29, 2005, a panel hearing under the NASDAQ letter described above would not be held and our common stock would not be delisted as a result of the June 29, 2005 filing date.

     The matters leading to the delay in filing the Form 10-K on its initial due date have created further risks and costs. Although our filing of the Form 10-K on June 29, 2005 has avoided a further delinquency notice from NASDAQ under the panel decision described above, these facts could negatively affect any outcome of a future late filing or other unforeseen listing standard delinquencies under the NASDAQ hearing panel procedures.

     We also incurred since March 31, 2005, approximately $0.4 million of unexpected expenses in connection with our review and analysis of the inter-company reconciliation matter at ASI that delayed our financial close process and the retention of an outside consulting firm (other than our independent registered public accounting firm) to assist with our reporting process for the Form 10-K and related internal control assessment.

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 67.2 percent and 62.1 percent of our net sales for the six-month period ended September 30, 2005 and the fiscal year ended March 31, 2005, respectively, and are 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 acquisition or may not elect to purchase the shares. If we were to determine to purchase such shares, the terms could involve significant debt or use or 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 managing operations in Japan, and our failure to manage effectively ASI in Japan could harm our business.

     Orders for AMHS are relatively large, often exceeding $20.0 million for a given 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 manufacture and installation of these systems at our customers’ manufacturing facilities can take up to six months or longer.

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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. Further, gross margins on our AMHS sales are lower than those for our other products. If we fail to estimate effectively costs and manage these long-term projects, we could have loss contract exposure and additional gross margin pressure. At September 30, 2005, we had a loss contract reserve of $0.03 million related to one AMHS contract entered into by ASI during fiscal year 2005. Our overall financial performance will therefore be affected by the sales mix between AMHS and other products and our ability to manage AMHS projects in a given period.

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.

     In recent years, ASI has begun to sell 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.

     As a relatively new entrant to the FPD equipment market, we do not have the customer relationships 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 severely affected.

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

     The gross margins on our 300mm products currently are not as favorable as 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. 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, assure 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. Semiconductor equipment and materials industry (“SEMI”) standards for 300mm products have enabled more suppliers to enter our markets, thereby increasing competition and creating pricing pressure. While semiconductor manufacturers purchased a majority of 200mm tool automation products, OEMs are purchasing most of the tool automation products for 300mm. 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 become and remain profitable.

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

     We have outsourced the manufacturing of most of our fab automation products. Solectron currently manufactures, under a long-term contract, our products, other than AMHS and our Japanese 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 yield the benefits we expect, and instead could result in increased product costs and 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

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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, availability of raw materials or components to the outsourced vendor, improper product specifications, and 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 most of our products in a timely manner. If our agreement with Solectron terminates, we may be unable to find another suitable outsource manufacturer.

     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 key 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 us 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 September 30, 2005, our long-term debt was $89.9 million, of which $2.2 million represented the current portion of long-term debt recorded under current liabilities, and our short-term debt was $39.0 million, for an aggregate of $128.9 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 September 30, 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 $61.9 million, and of which 3.7 billion Japanese Yen, or approximately $32.7 million was outstanding as of September 30, 2005. We have also guaranteed substantially all of the loans of our Japanese majority-owned subsidiary, AJI, which totaled approximately $6.3 million as of September 30, 2005.

     Our $25.0 million two-year revolving line of credit with a commercial bank was amended during the first quarter 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 current receivables we have outstanding, the amount of aggregate borrowing available to ASI under

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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 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 consumed cash and may continue to 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 and to finance capital expenditures, as well as to fund operations. As a result of our delayed filing on December 30, 2004 of the Form 10-Q for fiscal second quarter initially due November 4, 2004, we are ineligible to register our securities on Form S-3 for sale by us or resale by others until we have timely filed all periodic reports under the Securities Exchange Act of 1934 for one year. The inability to use Form S-3 could adversely affect our ability to raise capital or complete acquisitions of other companies during this period. Additionally, 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.

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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, whether based on limited or expanded sales levels, OEMs will not adopt our portal solutions. We cannot ensure that these tools will be widely accepted in the marketplace, that additional OEMs will 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 may improve 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 OEMs, our prospects will be negatively impacted and we may not be able to achieve 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; and

• our customers are not required to make minimum purchases.

     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 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 cycles to new customers range from six to twelve months 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. 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. 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, could 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 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

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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

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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. For example, in fiscal year 2003, we decided to discontinue operations of our SemiFab and AMP subsidiaries, both of which we had acquired in February 2001, as these subsidiaries were generating significant operating losses and were not considered critical to our long-term strategy. These subsidiaries were sold at the end of fiscal year 2003 at a substantial loss. The dedication of management resources to such integration or divestitures may detract attention from the day-to-day business, and we may need to hire additional management personnel to mange our acquisitions or divestitures successfully.

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;

• 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.

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

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     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.

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 85.0 percent and 80.0 percent for the six-month periods ended September 30, 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. For example, during 1997 and 1998, several Asian regions, including Taiwan and Japan, experienced severe currency fluctuation and economic deflation, which negatively affected our revenues and also negatively affected our ability to collect payments from customers. The economic situation during this period exacerbated a decline in selling prices for our products as our competitors reduced product prices to generate needed cash.

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     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 manufacture 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. Few of our senior management, key technical personnel or key sales personnel are 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.

     Moreover, some of the individuals on our management team have been in their current positions for a relatively short period of time. 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.

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

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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 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 Brooks. 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 such as Brooks, as well as new competition from semiconductor equipment and cleanroom construction 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.

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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 0.42 percent and 0.84 percent, respectively, in the market value of our investment portfolio as of September 30, 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. If the Japanese Yen were to fluctuate by 10.0 percent from the level at September 30, 2005, our results of operations may improve or deteriorate in the range of $3.3 million to $5.9 million. 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 operations or cash flow in the future.

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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 designed to reasonably assure 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 September 30, 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 September 30, 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

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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 intercompany accounts. Specifically, the accounting personnel at ASI did not possess a sufficient understanding of how to reconcile intercompany transactions between ASI and its subsidiaries. This control deficiency resulted in ASI’s failure to reconcile its intercompany 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

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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.

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Changes in Internal Control Over Financial Reporting

     Except as described below under the heading Management’s Remediation Initiatives and Interim Measures, we made no significant changes in our systems and controls during the quarter ended September 30, 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.

     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 U.S. G.A.A.P. commensurate with our financial reporting requirements. These measures will include the following:

• We plan to hire additional qualified accounting personnel in the U.S. and 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.

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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 in the United States of America.

     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.

     These interim measures included the following:

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

• We retained on an interim basis 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 spent several weeks at ASI during the close process for both the first and second quarter of fiscal year 2006 and conducted 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;

• Training and instruction has been provided to ASI accounting staff to enhance their understanding of relevant U.S. accounting principles and regulatory reporting requirements;

• 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.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

     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

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matter before the trial court, seeking monetary damages for defendants’ infringement, equitable relief, and an award of attorneys’ fees.

     From time to time, we are also involved in other legal actions arising in the ordinary course of business. We have incurred certain costs while defending these matters. There can be no assurance that third party assertions will be resolved without costly litigation, in a manner that is not adverse to our financial position, results of operations or cash flows or without requiring royalty or other payments in the future which may adversely impact gross margins. Litigation is inherently unpredictable, and we cannot predict the outcome of the legal proceedings described above with any certainty. 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. As a result, no losses have been accrued for the legal proceedings described above in our financial statements as of September 30, 2005.

Item 4 — Submission of Matters to a Vote of Security Holders

Our annual meeting of shareholders was held on August 23, 2005 for the purpose of: (1) electing directors to serve for the next annual meeting and until their successors are elected; (2) approving amendments to our 2003 Equity Incentive Plan; and (3) ratifying the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2006 fiscal year. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and there was no solicitation in opposition of management’s solicitations. Shareholders passed all proposals. The final vote on the proposals was recorded as follows:

Proposal 1: (there were no broker non-votes on this proposal)

Director	Votes For	Votes Withheld
Stephen S. Schwartz, Ph.D.	37,020,814	2,385,258
Stanley Grubel	37,094,387	2,311,685
Tsuyoshi Kawanishi	34,077,759	5,328,313
Robert A. McNamara	38,270,917	1,135,155
Anthony E Santelli	37,092,237	2,313,835
William Simon	38,267,997	1,138,075
Walter W. Wilson	38,271,425	1,134,647

Proposal 2:

Amendments to our 2003 Equity Incentive Plan were approved to (a) increase the aggregate number of shares of our common stock authorized for issuance under this plan, and available for grant as incentive stock options, from 1,900,000 shares to 3,900,000 shares, and (b) increase the percentage of the total shares authorized that may be granted as restricted stock awards from 20.0 percent to 30.0 percent. The amendment was approved by the following vote:

"For"	"Against"	"Abstain"	Broker Non-Votes
12,489,209	5,886,109	229,090	20,801,664

Proposal 3:

The selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2006 fiscal year was ratified by the following vote:

"For"	"Against"	"Abstain"	Broker Non-Votes
39,309,419	56,464	40,189	-0-

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ITEM 6 — EXHIBITS

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
10.59	2003 Equity Incentive Plan as amended by amendments approved by the Registrant’s shareholders on September 21, 2004 and August 23, 2005.	8-K	000-22430	8/29/2005
10.60	Employment Agreement dated as of August 29, 2005, between the Company and Alan S. Lowe.				X
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

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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: November 9, 2005	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.

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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
10.59	2003 Equity Incentive Plan as amended by amendments approved by the Registrant’s shareholders on September 21, 2004 and August 23, 2005.	8-K	000-22430	8/29/2005
10.60	Employment Agreement dated as of August 29, 2005, between the Company and Alan S. Lowe.				X
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