Asyst 10Q 2008 Q1 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 June 30, 2007


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

46897 Bayside Parkway, 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero

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 August 1, 2007 was 49,550,864.

ASYST TECHNOLOGIES, INC.

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets — June 30, 2007 and March 31, 2007		3
Condensed Consolidated Statements of Operations — Three-Month Periods Ended June 30, 2007 and June 30, 2006		4
Condensed Consolidated Statements of Cash Flows — Three-Month Periods Ended June 30, 2007 and June 30, 2006		5
Notes to Condensed Consolidated Financial Statements		6
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.Controls and Procedures		37
PART II. OTHER INFORMATION
Item 1.Legal Proceedings		40
Item 1A.Risk Factors		40
Item 6.Exhibits		49
Signatures		50
Exhibit Index		51
EXHIBIT 10.51
EXHIBIT 10.52
EXHIBIT 10.53
EXHIBIT 10.54
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

Part I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share data)


	June 30,			March 31,
	2007			2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	88,499		$	99,701
Accounts receivable, net		143,434			125,889
Inventories		50,915			51,797
Deferred income taxes		12,598			12,764
Prepaid expenses and other current assets		12,985			15,124

Total current assets		308,431			305,275
Property and equipment, net		24,175			25,138
Goodwill		80,215			83,723
Intangible assets, net		34,537			41,994
Other assets		9,141			9,556

Total assets	$	456,499		$	465,686

LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term loans and notes payable	$	2,521		$	1,453
Current portion of long-term debt and capital leases		55,055			58,949
Accounts payable		77,377			76,365
Accounts payable-related parties		23,671			24,922
Accrued and other liabilities		79,335			83,211
Deferred margin		11,198			10,880

Total current liabilities		249,157			255,780

LONG-TERM LIABILITIES
Long-term debt and capital leases, net of current portion		86,369			86,412
Deferred tax liability		9,998			13,124
Other long-term liabilities		17,061			15,559

Total long-term liabilities		113,428			115,095

COMMITMENTS AND CONTINGENCIES (see Note 15)
MINORITY INTEREST		144			130

SHAREHOLDERS’ EQUITY
Common stock, no par value:
Authorized shares — 300,000,000 Outstanding shares — 49,489,066 and 49,306,925 shares at June 30, 2007 and March 31, 2007, respectively		483,473			481,624
Accumulated deficit		(387,139	)		(385,216	)
Accumulated other comprehensive loss		(2,564	)		(1,727	)

Total shareholders’ equity		93,770			94,681

Total liabilities, minority interest and shareholders’ equity	$	456,499		$	465,686

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

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)


	Three Months Ended
	June 30,
	2007			2006
NET SALES	$	121,620		$	116,981
COST OF SALES		81,457			75,925

Gross profit		40,163			41,056

OPERATING EXPENSES:
Research and development		8,299			8,587
Selling, general and administrative		21,668			21,402
Amortization of acquired intangible assets		5,807			3,324
Restructuring charges		545			1,812

Total operating expenses		36,319			35,125

Income from operations		3,844			5,931

INTEREST AND OTHER INCOME (EXPENSE) NET:
Interest income		584			737
Interest expense		(2,487	)		(1,628	)
Other income (expense), net		(1,848	)		786

Interest and other income (expense), net		(3,751	)		(105	)

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		93			5,826
PROVISION FOR INCOME TAXES		(474	)		(4,322	)
MINORITY INTEREST		(5	)		(2,087	)

NET (LOSS) PRIOR TO CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(386	)		(583	)
Cumulative effect of change in accounting principle		—			103

NET (LOSS)	$	(386	)	$	(480	)


BASIC AND DILUTED NET (LOSS) PER SHARE PRIOR TO CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE	$	(0.01	)	$	(0.01	)
Cumulative effect of change in accounting principle		—			0.00

BASIC AND DILUTED NET (LOSS) PER SHARE	$	(0.01	)	$	(0.01	)

SHARES USED IN THE PER SHARE CALCULATION
- Basic and diluted		49,457			48,600

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

ASYST TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Three Months Ended
	June 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS	$	(386	)	$	(480	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		7,968			5,482
Allowance for doubtful accounts		(27	)		(382	)
Foreign exchange transaction losses		2,896			—
Minority interest in net income in consolidated subsidiary		5			2,087
Loss on disposal of fixed assets		—			56
Stock-based compensation expense		1,619			1,430
Cumulative effect of change in accounting principle		—			(103	)
Amortization of lease incentive payments		(156	)		(156	)
Deferred taxes, net		(2,723	)		(1,015	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(22,103	)		(12,117	)
Inventories, net		(811	)		(9,535	)
Prepaid expenses and other assets		1,778			1,391
Accounts payable, accrued and other liabilities and deferred margin		3,543			(701	)

Net cash (used in) operating activities		(8,397	)		(14,043	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Sales or maturity of investments		—			7,000
Purchases of property and equipment, net		(1,938	)		(1,151	)

Net cash provided by (used in) investing activities		(1,938	)		5,849

CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from lines of credit		1,268			91,480
Payments on lines of credit		(120	)		(80,590	)
Principal payments on long-term debt and capital leases		(1,381	)		(21	)
Proceeds from issuance of common stock		230			261

Net cash provided by (used in) financing activities		(3	)		11,130

Effect of exchange rate changes on cash and cash equivalents		(864	)		551

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(11,202	)		3,487
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		99,701			94,622

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	88,499		$	98,109

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

ASYST TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Asyst Technologies, Inc. and its subsidiaries (“Asyst” or the “Company”) have been prepared in accordance with United States generally accepted accounting principles, consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended March 31, 2007. All significant inter-company accounts and transactions have been eliminated. Minority interest represents the minority shareholders’ proportionate share of the net assets and results of operations of our majority-owned subsidiaries, Asyst Japan, Inc. (“AJI”) and Asyst Shinko, Inc. (“ASI”).

In October 2002, we purchased a 51.0 percent interest in Asyst Shinko, Inc. (“ASI”) with Shinko Electric, Co. Ltd. (“Shinko”) of Japan. On July 14, 2006, we purchased an additional 44.1 percent of the outstanding capital stock of ASI, and as a result, now own 95.1 percent of ASI. At any time, the Company has an option to purchase, or could be required to purchase, the remaining 4.9 percent of ASI beginning from the one year anniversary date of this acquisition.

The unaudited condensed consolidated financial statements should be read in connection with the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). The purpose of SFAS No. 157 is to define fair value, establish a framework for measuring fair value, and enhance disclosures about fair value measurements. The measurement and disclosure requirements are effective for the Company beginning in the first quarter of fiscal year 2009. The Company is currently evaluating the impact that SFAS No. 157 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 is effective for the Company beginning in the first quarter of fiscal year 2009. The Company is currently evaluating the impact that SFAS No. 159 will have on its consolidated financial statements.

3. ACCOUNTING CHANGES

The Company adopted Emerging Issues Task Force Issue No. 06-2, “Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43” (EITF 06-2) on April 1, 2007. EITF 06-2 requires companies to accrue the cost of such compensated absences over the service period. The Company adopted EITF 06-2 through a cumulative-effect adjustment, resulting in an additional liability of $1.1 million and a corresponding reduction to retained earnings of $1.1 million in the first quarter of fiscal year 2008.

The Company also adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109” (FIN 48). See “Note 10: Income Taxes” for further discussion.

4. LIQUIDITY

Since inception, we have incurred aggregate consolidated net losses of approximately $387.0 million, and have incurred net losses during each of the last six years. In recent years, we have funded our operations primarily from cash generated from the issuance of debt and equity securities. Cash and cash equivalents aggregated a total of $88.5 million at June 30, 2007. We expect that ASI will continue to require additional funding to support its working capital requirements over the next twelve months, which may be financed through short-term borrowings or inter-company cash transfers. We believe that our current cash and the availability of additional financing via existing lines of credit will be sufficient to meet our expected cash requirements for the next twelve months.

We have a significant amount of outstanding indebtedness that has increased substantially since the beginning of fiscal year 2007:

•

Under a senior secured credit agreement entered into in June 2006 with Bank of America, N.A., as lender and administrative agent and other lenders, we borrowed an aggregate amount of approximately $82 million to fund the purchase of ASI shares

			from Shinko on July 14, 2006, and had issued a letter of credit in favor of Shinko for approximately $11 million related to the equity option on Shinko’s remaining 4.9 percent ASI share ownership as discussed below. This credit agreement provided a $115 million senior secured credit facility consisting of a $90 million revolving credit facility, including a $20 million sub-limit for letters of credit and $10 million sub-limit for swing-line loans, and a $25 million term loan facility.

			On July 27, 2007, we entered into a new credit agreement with KeyBank National Association acting as lead manager and administrative agent, for a new five-year $137.5 million multi-currency senior secured credit facility. This credit agreement provides for an $85 million term loan facility and a revolving credit facility of $52.5 million. The agreement may be amended to increase the revolving credit facility to $65 million, increasing the total of both facilities to $150 million. This new facility bears variable interest rates based on certain indices, such as Yen LIBOR, US Dollar LIBOR, the Fed Funds Rate, or KeyBank’s Prime Rate, plus applicable margins. We have elected initially to borrow all of this new credit facility in Yen LIBOR and will incur an initial interest rate before tax of approximately 3.30 percent. Our net available borrowing under the new credit agreement is subject to limitations under consolidated senior leverage, consolidated total leverage and consolidated fixed charge financial covenants. As of July 27, 2007, the full $137.5 million was available for borrowing, and we have drawn down approximately $125 million under the facilities (with the remaining $12.5 million in available borrowing used to support two standby letters of credit issued under the credit facilities). See Note 13 (Debt.), and Note 16 (Subsequent Events) for additional detail describing this new credit agreement.

			We used a portion of the proceeds from this new facility to repay in full the approximately $55 million outstanding under the existing credit facility with Bank of America, which we terminated as of July 27, 2007.

	•		We have approximately $86 million outstanding under our 5 3/4 percent convertible subordinated notes privately issued in July 2001. These 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. We are required to pay interest on these convertible notes on January 3 and July 3 of each year. These notes mature on July 3, 2008 and are currently redeemable at our option.

			On July 27, 2007, we provided notice to U.S. Trust Bank, as Trustee, to redeem these subordinated notes in full on or before August 31, 2007. In conjunction with the redemption, we also will pay the note holders interest accrued through the date of redemption and an additional redemption premium payment of approximately 0.82 percent of the outstanding principal amount of the notes. On July 30, 2007, we delivered $87.7 million to U.S. Trust Bank to be held in escrow to defease our redemption payment obligations described above. Of this amount, we used approximately $69.9 million of proceeds from the new credit facilities, and contributed approximately $17.8 million from our available cash.

Due to the cyclical and uncertain nature of cash flows and collections from our customers, the Company (or its subsidiaries) may from time to time incur borrowings which could cause the Company to exceed the permitted total leverage ratios under the credit agreement. Under any such scenario, the Company may pay down the outstanding borrowings from cash to maintain compliance with its financial covenants.

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, continuation or further softening of demand for our products may cause us to fund additional losses in the future. 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 delayed filing of the Form 10-K on October 27, 2006 (as amended by Form 10-K/A filed on November 28, 2006), for our fiscal year ended March 31, 2006 and the Form 10-Q for our first quarter ended June 30, 2006, we are not eligible to register any of our securities on Form S-3 for sale by us or resale by others until we have timely filed all reports required to be filed under the Securities Exchange Act of 1934 during the 12 months, and any portion of a month, immediately preceding the filing of a registration statement on Form S-3. This condition may adversely affect our ability to restructure outstanding indebtedness, to raise capital by other means, or to acquire other companies by using our securities to pay the acquisition price.

5. SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

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. We allocate consideration to multiple element transactions based on relative objective evidence of fair values, which we determine based on prices charged for such items when sold on a stand alone basis. 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. 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 and the transfer of title. Deferred revenue consists primarily of product shipments creating legally enforceable receivables that did not meet our revenue recognition policy. 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 accrued and other liabilities.

We recognize revenue for long-term contracts at ASI in accordance with the American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position (“SOP”) 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 and unbilled receivables 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. Unbilled receivables amount is reclassified to trade receivables once an invoice is issued. We disclose material changes in our financial results that result from changes in estimates.

We account for software revenue in accordance with the AICPA SOP 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, the selling price is fixed or determinable and collectibility is probable.

Comprehensive Income (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 income (loss) items (in thousands):


	Three Months Ended
	June 30,
	2007			2006
Net (loss), as reported	$	(386	)	$	(480	)
Foreign currency translation adjustments		(845	)		709
Change in unrealized gains (losses) on investments		8			(10	)

Comprehensive income (loss)	$	(1,223	)	$	219

Net (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 restricted stock awards, using the treasury stock method. For periods for which there is a net loss, the numbers of shares used in the computation of diluted net income (loss) per share are the same as those used for the computation of basic net income (loss) per share as the inclusion of dilutive securities would be anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):


	Three Months Ended
	June 30,
	2007			2006
Numerator:
Net (loss)	$	(386	)	$	(480	)

Denominator:
Weighted average common shares outstanding, excluding unvested restricted stock units		49,457			48,600

Denominator for basic and diluted calculation		49,457			48,600

Net (loss) per share — basic and diluted	$	(0.01	)	$	(0.01	)

The following table summarizes securities outstanding which were not included in the calculation of diluted net loss per share as to do so would be anti-dilutive (in thousands):


	As of June 30,
	2007		2006
Restricted stock awards and stock units		2,570		223
Stock options		2,887		3,630
Convertible notes		5,682		5,682

		11,139		9,535

6. BALANCE SHEET COMPONENTS

Cash and Cash Equivalents

We consider all highly liquid investments with an original or remaining maturity of three months or less from the date of purchase to be cash equivalents. The carrying value of the cash equivalents approximates their current fair market value.

Cash equivalents, by type, are as follows (in thousands):


			Unrealized
June 30, 2007	Cost		Gains (Losses)		Fair Value
Institutional money market funds	$	29,832	$	75	$	29,907

Total cash equivalents	$	29,832	$	75	$	29,907


			Unrealized
March 31, 2007	Cost		Gains (Losses)		Fair Value
Institutional money market funds	$	23,242	$	67	$	23,309

Total cash equivalents	$	23,242	$	67	$	23,309

Accounts Receivable, net of allowance for doubtful accounts

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


	June 30,			March 31,
	2007			2007
Trade receivables	$	83,091		$	58,781
Trade receivables-related party		3			6
Unbilled receivables		58,066			62,201
Other receivables		6,191			9,057
Less: Allowance for doubtful accounts		(3,917	)		(4,156	)

Total	$	143,434		$	125,889

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 percent based on the aging and characteristics of the 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 June 30, 2007, there were no write-offs of accounts receivable balances. We do not record interest on outstanding and overdue accounts receivable. All of our unbilled receivables are assets of ASI. Payments related to these unbilled receivables are expected to be received within one year from June 30, 2007 and as such the balances are classified within current assets on our condensed consolidated balance sheet.

Our subsidiaries in Japan, AJI and ASI, have agreements with Japanese financial institutions to sell certain trade receivables. For the three-month periods ended June 30, 2007 and 2006, AJI and ASI combined sold approximately $27.8 million and $39.6 million, respectively, of accounts receivable without recourse, and $2.5 million and $2.1 million, respectively, with recourse. At June 30, 2007, the Company had approximately $2.5 million of such borrowings classified as “short-term loans and notes payable” in the condensed consolidated balance sheets, secured by accounts receivable balances, for which the Company did not meet the true sale criteria.

Other receivables include notes receivable from customers in Japan and Korea in settlement of trade accounts receivable balances.

We offer both open accounts and letters of credit to our customer base. Our standard open account terms range from net 30 days to net 90 days; however, customary local industry practices may differ and prevail in certain countries.

Inventories

Inventories consisted of the following (in thousands):


	June 30,		March 31,
	2007		2007
Raw materials	$	14,643	$	15,462
Work-in-process		34,106		36,035
Finished goods		2,166		300

Total	$	50,915	$	51,797

At June 30, 2007 and March 31, 2007, we had a reserve of $11.2 million and $11.4 million, respectively, for estimated excess and obsolete inventory.

The Company outsources all of its Fab Automation Product manufacturing to Solectron Corporation (“Solectron”). As part of the arrangement, Solectron purchases inventory from us and we may be obligated to reacquire inventory purchased by Solectron for our benefit if the inventory is not used over certain specified period of time per the terms of our agreement. No revenue was recorded for the sale of this inventory to Solectron and any inventory buyback in excess of our demand forecast is fully reserved. At June 30, 2007 and March 31, 2007, total inventory held by Solectron was $12.4 million and $14.2 million, respectively, of which $3.4 million and $3.2 million, respectively, were Asyst-owned and included in the balance above. During the three-month periods ended June 30, 2007 and 2006, we repurchased $1.4 and $1.7 million of this inventory, respectively, that was not used by Solectron in manufacturing our products.

Goodwill and Intangible Assets

Goodwill

Goodwill balances and the changes in the carrying amount of goodwill during the three-month period ended June 30, 2007 were as follows (in thousands):


	Fab Automation		AMHS			Total
Balances at March 31, 2007	$	3,397	$	80,326		$	83,723
Foreign currency translation		—		(3,508	)		(3,508	)

Balances at June 30, 2007	$	3,397	$	76,818		$	80,215

Intangible assets

Intangible assets, net were as follows (in thousands):


	June 30, 2007						March 31, 2007
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Amortizable intangible assets:
Developed technology	$	78,143	$	58,166	$	19,977	$	81,174	$	56,818	$	24,356
Customer base and other intangible assets		51,278		38,088		13,190		53,060		36,878		16,182
Licenses and patents		5,296		3,926		1,370		5,299		3,843		1,456

Total	$	134,717	$	100,180	$	34,537	$	139,533	$	97,539	$	41,994

The change in the gross carrying amount of the intangible assets of $4.8 million related to foreign currency translation for the three-month period ended June 30, 2007.

All of the Company’s identified intangible assets are subject to amortization. Total amortization of intangible assets was $5.8 million and $3.3 million for the three-month periods ended June 30, 2007 and 2006, respectively, and was included in operating expense on the condensed consolidated statements of operations.

Expected future intangible amortization expense, based on current balances, for the remainder of fiscal year 2008 and subsequent fiscal years, is as follows (in thousands):


Fiscal Year ending March 31,
Remaining portion of 2008	$	10,710
2009		10,810
2010		6,667
2011		4,719
2012		1,627
2013 and thereafter		4

Total	$	34,537

Accrued and other liabilities

Accrued and other liabilities consisted of the following (in thousands):


	June 30, 2007		March 31, 2007
Income taxes payable	$	9,322	$	8,188
Warranty reserve		11,469		11,982
Employee compensation		16,759		18,429
Customer deposits		13,059		14,086
Payable to Shinko for 4.9% share in ASI		10,542		11,439
Other accrued expenses		18,184		19,087

Total	$	79,335	$	83,211

Warranty Accrual

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


	Three Months Ended
	June 30,
	2007			2006
Beginning Balance	$	11,982		$	7,967
Accruals		3,496			4,340
Settlements		(3,608	)		(4,997	)
Foreign Currency Translation		(401	)		73

Ending Balance	$	11,469		$	7,383

7. ACQUISITION

On July 14, 2006, the Company purchased from Shinko shares representing an additional 44.1 percent of the outstanding capital stock of ASI for a cash purchase price of JPY 11.7 billion (approximately US$102 million at the July 14 exchange rate). This purchase increased our consolidated ownership of ASI to 95.1 percent. We consummated the acquisition to further integrate its Fab Automation and Automated Material Handling Systems (“AMHS”) businesses, allowing us to provide our customers a full range of product offerings.

The fair value of assets acquired and liabilities assumed were recorded in our condensed consolidated balance sheet as of July 14, 2006, the effective date of the acquisition, and the results of operations were included in our condensed consolidated results of operations subsequent to July 14, 2006. We believe the purchase price reasonably reflects the fair value of the business based on estimates of future revenues and earnings.

At any time, subject to the other provisions of the share purchase agreement, either Shinko or AJI may give notice to the other, calling for AJI to purchase from Shinko shares representing the remaining 4.9 percent of outstanding capital stock of ASI for a fixed payment of JPY 1.3 billion (approximately US$10.5 million at the June 30, 2007 exchange rate).

In accordance with EITF 00-4, AJI has accounted for the purchase option on a combined basis with the minority interest as a financing of the purchase of the remaining 4.9 percent minority interest, and as a result has accounted for the transaction as an acquisition of Shinko’s entire 49 percent interest of ASI on July 14, 2006. Accordingly, AJI has recorded a liability, equivalent to the net present value of the JPY 1.3 billion fixed payment for the 4.9 percent remaining interest and the fixed annual dividend payment of JPY 65 million and will accrete the resulting discount to interest expense over the twelve month period ending on the first potential exercise date. The liability, with the amount of $10.5 million at June 30, 2007, has been classified within “accrued and other liabilities” on the consolidated balance sheet.

Under business combination accounting, the total purchase price was allocated to the 49 percent share of ASI’s net tangible and identifiable intangible assets acquired, based on their estimated fair values as of July 14, 2006. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. A summary of the transaction is as follows (in thousands):


Purchase Price:
Total cash consideration	$	102,043
Liability to purchase remaining 4.9 percent interest plus future fixed dividends		11,480
Transaction costs		5,666

Total Purchase Price	$	119,189

Allocation of purchase price to assets acquired and liabilities assumed:
Net tangible assets	$	32,560
In-Process Research & Development		1,519
Acquired identifiable intangible assets:
Developed technology		29,008
Backlog		2,940
Customer relationships		16,464
Trademark		2,499
Deferred tax liabilities		(19,414	)
Goodwill		53,613

Total Purchase Price	$	119,189

Intangible Assets

In performing our purchase price allocation, we considered, among other factors, our intention for future use of acquired assets, analyses of historical financial performance and estimates of future performance of ASI. A portion of the excess of purchase price over fair value of net assets acquired was allocated to identifiable intangible assets. The fair value of intangible assets was determined based on a valuation using an income approach and estimates and assumptions provided by management. The rates utilized to discount net cash flows to their present values were based on discount rates of 20 percent and 24 percent. We amortize developed technology and trademarks over a period of five years, the customer base over a period of three years, and the backlog over one year, using the straight-line method, with a weighted-average life of 4.4 years.

The fair values of identifiable intangible assets are based on estimates of future revenues and earnings to determine a discounted cash flow valuation of identifiable intangible assets that meet the separate recognition criteria of SFAS No. 141. Goodwill of approximately $53.6 million arising from the acquisition was recorded in our AMHS segment and is not deductible for tax purposes.

In-Process Research and Development

We expense in-process research and development (IPR&D) upon acquisition to research and development as it represents incomplete research and development projects that had not reached technological feasibility and had no alternative future use as of the acquisition date. The value assigned to IPR&D of $1.5 million was determined by considering the importance of each project to our overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value based on the percentage of completion of the IPR&D projects.

A portion of the purchase price was allocated to developed product technology and in-process research and development (“IPR&D”). They were identified and valued through an independent analysis of data by a third party appraiser concerning the developmental products, their stage of development, the time and resources needed to complete them, target markets, their expected income generating ability and associated risks. The Income Approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. Discount rates of 20 percent and 24 percent were applied to developed product technology and IPR&D, respectively.

Minority interest was approximately $66 million at March 31, 2006, representing the 49.0 percent minority interest in the fair value of the net assets of ASI at the time of acquisition and proportionate share of net income (loss) and cumulative translation adjustment for the periods subsequent to the acquisition.

As a result of the acquisition on July 14, 2006, there is no remaining minority interest balance relating to ASI. As of June 30, 2007, there was approximately $10.5 million recorded as a liability for the Company’s ability to purchase the remaining 4.9 percent of the outstanding capital stock of ASI.

The following table summarizes the estimated fair values of the net tangible assets acquired and liabilities assumed at the date of acquisition (in thousands):


Cash	$	13,169
Accounts receivable		56,319
Inventories		21,462
Property plant and equipment		4,706
Other assets		1,935
Deferred tax assets, net		4,414
Accounts payable and other current liabilities		(59,587	)
Long-term debt		(6,607	)
Pension and other long-term liabilities		(3,251	)

Net tangible assets acquired	$	32,560

The following unaudited pro forma financial information presents our combined results of operations as if the ASI acquisition had occurred as of the beginning of the periods presented. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the beginning of the periods presented, and should not be taken as representative of our future consolidated results of operations or financial condition. Unaudited pro forma results were as follows (in thousands):


	Three months
	ended
	June 30, 2006
Net sales	$	116,981
Pro forma net (loss) prior to cumulative effect of change in accounting principle		(4,685	)
Cumulative effect of change in accounting principle		103

Pro forma net (loss)	$	(4,582	)

Pro forma basic and diluted net income (loss) per share prior to cumulative effect of change in accounting principle	$	(0.09	)
Cumulative effect of change in accounting principle		0.00

Pro forma basic and diluted net income (loss) per share	$	(0.09	)

Shares used in the per share calculation — Basic and diluted		48,600

8. STOCK-BASED COMPENSATION

The following table summarizes the components of share-based compensation. There was no tax benefit realized by the Company due to the Company’s current loss position (in thousands):


	Three Months		Three Months
	Ended		Ended
	June 30, 2007		June 30, 2006
Stock-based compensation expense by category:
Cost of Sales	$	153	$	129
Research and Development		185		200
Selling , General and Administrative		1,281		1,101

Total stock-based compensation expense	$	1,619	$	1,430

Valuation Assumptions

In connection with the adoption of SFAS No. 123(R), the Company reassessed its valuation technique and related assumptions. The Company estimates the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R), SAB No. 107 and the Company’s prior period pro forma disclosures of net earnings, including stock-based compensation (determined under a fair value method as prescribed by SFAS No. 123). SFAS No. 123(R) requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using the implied volatility of the Company’s stock. The Company determined that implied volatility is more reflective of market conditions and a better indicator of expected volatility than a blended volatility. Prior to the adoption of SFAS No. 123(R), the Company used a combination of historical and

implied volatility in deriving its expected volatility assumption. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions noted in the table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock, and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the grant date.

Stock Options Plans

We have two stock option plans: the 2001 Non-Officer Equity Plan (“2001 Plan”) and the 2003 Equity Incentive Plan (“2003 Plan”). Under all of our stock option plans, options are granted for either six year or ten year periods and become exercisable ratably typically over a vesting period of either three or four years or as determined by the Board of Directors.

Under the 2001 Plan, adopted in January 2001, 2,100,000 shares of common stock are reserved for issuance. The 2001 Plan provides for the grant of only non-qualified stock options to employees (other than officers or directors) and consultants (not including directors). Under the 2001 Plan, options may be granted at prices not less than the fair market value of our common stock at grant date.

Under the 2003 Plan, as most recently amended by our shareholders in December 2006, 4,900,000 shares of common stock are reserved for issuance. The 2003 Plan provides for the grant of non-qualified stock options, incentive stock options and the issuance of restricted stock to employees and certain non-employees. Under the 2003 Plan, options may be granted at prices not less than the fair market value of our common stock at grant date.

The Company has 183,901 shares available for grant as of June 30, 2007 under the 2001 Plan, and 562,404 shares available for grant under the 2003 Plan.

On July 23, 2007, our Board of Directors approved an amendment to increase from 4,900,000 to 5,900,000 the aggregate number of shares of our common stock authorized for issuance under this plan. This amendment will be effective if approved by our shareholders within 12 months of the date of our Board’s approval.

Employee Stock Purchase Plan

Under the 1993 Employee Stock Purchase Plan (the “Plan”), as amended, 3,000,000 shares of common stock are reserved for issuance to eligible employees. The Plan permits employees to purchase common stock through payroll deductions, which may not exceed 15 percent of an employee’s compensation, at a price not less than 85 percent of the fair market value of the stock on specified dates. There were no shares issued during the three-month periods ended June 30, 2007 or 2006. As of June 30, 2007 the number of shares purchased by employees under the Plan totaled 2,550,937.

The fair value of each stock purchase is calculated on the date of purchase using the Black-Scholes model with the following weighted average assumptions used:


	Three Months Ended
	June 30,
	2007			2006
Employee Stock option plans:
Risk-free interest rate		4.5	%		4.70	%
Expected term of options (in years)		3.3			3.3
Expected volatility		54.0	%		67.0	%
Expected dividend yield		0	%		0	%
Employee Stock purchase plan:
Risk-free interest rate		5.1	%		4.92	%
Expected term of options (in years)		0.5			0.5
Expected volatility		47.0	%		69.2	%
Expected dividend yield		0	%		0	%

Stock Option Plans

A summary of stock option activity in our stock option plans as of June 30, 2007, and changes during the three-month period then ended is presented below:


						Weighted-Average
	Total Number			Weighted-Average		Remaining		Aggregate
	of Shares			Exercise Price		Contractual Term		Intrinsic Value
Options outstanding as of March 31, 2007		5,679,084		$	9.66		4.81	$	5,939,882
Granted		—
Exercised		(99,520	)		4.28
Cancelled		(98,353	)		8.44

Options outstanding as of June 30, 2007		5,481,211		$	9.78		4.58	$	6,095,057

Exercisable as of June 30, 2007		4,631,197		$	10.48		4.58	$	4,652,716

There were no options granted during the three-month periods ended June 30, 2007. The weighted-average grant date fair value of options granted during the three-month period ended June 30, 2006 was $8.73. The total intrinsic value of options exercised during the three-month periods ended June 30, 2007 and 2006 was $0.3 million and $0.3 million, respectively. As of June 30, 2007, there was $2.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our stock option plans. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.14 years.

For the three-month periods ended June 30, 2007 and 2006, cash received from option exercises under all share-based payment arrangements, including ESPP’s, was $230,000 and $261,000, respectively. There was no tax benefit realized from stock option exercises. The related cash receipts are included in financing activities in the accompanying Condensed Consolidated Statements of Cash Flows.

Restricted Stock Awards and Restricted Stock Units

Information with respect to non-vested restricted stock units and awards as of June 30, 2007 and activity during the three-months ended is as follows:


				Weighted Average
	Number of			Grant-Date
	Shares			Fair Value
Outstanding at March 31, 2007		1,124,500		$	5.90
Granted		1,772,454		$	7.17
Vested		(149,519	)	$	3.95
Forfeited		(56,253	)	$	5.65

Outstanding at June 30, 2007		2,691,182		$	6.09

As of June 30, 2007, there was $14.1 million of unrecognized compensation costs related to restricted stock units granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.68 years.

Stock Option Awards and Restricted Stock Units with Market and Performance Conditions

The Company has granted stock options and awards with market and performance conditions to executive officers of the Company. These stock option awards and RSUs vest upon the achievement of certain targets and are payable in shares of the Company’s common stock upon vesting, typically with a three-year market target or performance achievement period.

The market condition stock options and awards measure the Company’s relative market performance against that of other companies. The fair value of stock option awards and RSUs containing a market condition is based on the market price of the Company’s stock on the grant date modified to reflect the impact of the market condition including the estimated payout level based on that condition. Compensation cost is not adjusted for subsequent changes in the expected outcome of the market-vesting condition.

The performance stock options and awards measure the Company’s officers relative performance against pre-established targets. The fair value of stock option awards and RSUs containing a performance condition is based on the market price of the Company’s

stock on the grant date. Compensation cost is adjusted for subsequent changes in the expected outcome of the performance-vesting condition until the vesting date.

The Company estimates the valuation of share-based awards using lattice-binomial option-pricing model using Monte Carlo Technique. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Although the fair value of employee stock options is determined in accordance with SFAS No. 123(R) using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

A summary of activity for the awards and options with market conditions as of June 30, 2007 and activity during the three months ended is presented below:


				Weighted
	Number of			Average
	Shares			Grant Date Fair Value
Outstanding at March 31, 2007		317,679		$	2.46
Awards granted		—			—
Awards cancelled		(56,012	)	$	2.60

Balance at June 30, 2007		261,667		$	2.43

As of June 30, 2007, there was $0.3 million of total unrecognized compensation cost related to non-vested awards with market conditions.

A summary of activity for the awards and options with performance conditions as of June 30, 2007 and activity during the three months ended is presented below:


			Weighted
	Number of		Average
	Shares		Grant Date Fair Value
Outstanding at March 31, 2007		—		—
Awards granted		484,358	$	7.18
Awards cancelled		—		—

Balance at June 30, 2007		484,358	$	7.18

As of June 30, 2007, there was $2.8 million of total unrecognized compensation cost related to non-vested awards with performance conditions.

9. PENSION BENEFIT PLANS

The following tables summarize the components of net periodic benefit costs for the Company’s pension plans (in thousands):


	Three Months Ended
	June 30,
	2007			2006
Service cost	$	280		$	265
Interest cost		96			89
Expected return on plan assets		(100	)		(102	)
Amortization of prior service cost		(1	)		(1	)
Amortization of actuarial losses		5			5

Net periodic benefit cost	$	280		$	256

Employer Contributions

We previously disclosed in the consolidated financial statements for the fiscal year ended March 31, 2007, that we expected to contribute $1.8 million to the pension plans in fiscal year 2008. As of June 30, 2007, $0.4 million of contributions have been made. We presently anticipate contributing an additional $1.4 million to the pension plans for a total of $1.8 million in fiscal year 2008.

10. INCOME TAXES


	Three Months Ended
	June 30,
	2007		2006
Provision for income taxes	$	474	$	4,322

The provision for income taxes for the three-month period ended June 30, 2007 was $0.5 million, which included a tax benefit of $2.2 million from the change in deferred tax liabilities resulting from the amortization of intangible assets in connection with the ASI acquisition, offset by a $3.5 million tax provision recorded by ASI and a net tax benefit of $0.8 million recorded primarily by other international subsidiaries. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to tax provisions recorded in ASI and other foreign subsidiaries in excess of the U.S. statutory rate, and U.S. losses not providing current tax benefits.

The provision for income taxes for the three-month period ended June 30, 2006 was $4.3 million, which included a tax benefit of $1.1 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $4.5 million tax provision recorded by ASI and a tax provision of $0.9 million recorded primarily by other international subsidiaries.

Effective April 1, 2007 at the beginning of the first quarter of fiscal year 2008, the Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.

As a result of the implementation of FIN 48, the Company recognized a $0.4 million increase in the liability for unrecognized tax benefits related to tax positions taken in prior periods. This increase was accounted for as an adjustment to retained earnings in accordance with provisions of the statement. Additionally, the Company reclassified $1.3 million from current taxes payable to long-term taxes payable and reclassified $1.4 million from current taxes payable to current deferred taxes. Upon adoption of FIN 48, the Company’s policy is to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes. As of April 1, 2007, the Company had accrued $0.8 million for payment of such interest and penalties. Interest and penalties included in our provision for income taxes were not material in the three-month periods ended June 30, 2007 and 2006.

The Company’s total unrecognized tax benefits as of April 1, 2007 (the date of adoption) and June 30, 2007 was $6.8 million and $7.0 million, respectively, of which none is expected to be paid within the next twelve months. If recognized, these amounts would reduce our provision for income taxes. Although we file U.S. federal, U.S. state and foreign tax returns, our three major tax jurisdictions are the U.S., Japan and Taiwan. Our 2000 through 2007 fiscal years remain subject to examination by the IRS for U.S. federal tax purposes and our 2003 through 2007 fiscal years remain subject to examination in Japan and Taiwan. Currently, we are under examination by the IRS for our fiscal year ended March 31, 2005.

11. RESTRUCTURING CHARGES

Restructuring accruals, comprising charges for severance and benefits and excess facilities and related utilization for the three-month period ended June 30, 2007, were as follows (in thousands):


	Severance and			Excess
	Benefits			Facilities			Total
Balance, March 31, 2007	$	—		$	788		$	788
Additional accruals		545			—			545
Amounts paid in cash		(433	)		(205	)		(638	)

Balance, June 30, 2007	$	112		$	583		$	695

The outstanding accrual amount at June 30, 2007 consists of future lease obligations on vacated facilities which will be paid in the remainder of fiscal year 2008.

We incurred restructuring charges of $0.5 million for the three-month period ended June 30, 2007 consisting of charges for severance costs from a minor reduction in workforce.

Restructuring accruals, comprising charges for excess facilities and related utilization for the three-month period ended June 30, 2006, were as follows (in thousands):


	Excess Facilities
Balance, March 31, 2006	$	105
Additional accruals		1,812
Non-cash utilization		(25	)
Amounts paid in cash		(533	)

Balance, June 30, 2006	$	1,359

We incurred restructuring charges of $1.8 million for the three-month period ended June 30, 2006 consisting of charges for future lease commitments for excess facilities, net of expected sublease income, of $1.4 million, moving costs of $0.2 million and impairment of leasehold improvements in the vacated property of $0.2 million.

The outstanding accrual balance of $1.4 million at June 30, 2006 consists primarily of future lease obligations on vacated facilities, which will be paid over the next seven quarters. All remaining accrual balances are expected to be settled in cash. As of June 30, 2006 there were no accruals outstanding that related to any restructuring events that occurred prior to fiscal year 2007.

12. REPORTABLE SEGMENTS

The Chief Operating Decision Maker (CODM), as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131), is the Company’s President and Chief Executive Officer (CEO). The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes.

The Company reports the financial results of the following operating segments:

	•		AMHS.Products include automated transport and loading systems for semiconductor fabs and flat panel display manufacturers.

	•		Fab Automation.Products include interface products, substrate-handling robotics, wafer and reticle carriers, auto-ID systems, sorters and connectivity software.

The Company has sales and marketing, manufacturing, finance, and administration groups. Expenses of these groups are generally allocated to the operating segments and are included in the operating results reported below.

With the exception of goodwill, the Company does not identify or allocate assets by operating segment, nor does the CODM evaluate operating segments using discrete asset information. Operating segments do not record inter-segment revenue, and, accordingly, there is none to be reported. The Company does not allocate interest and other income, interest expense, or taxes to operating segments. Although the CODM uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the Company as a whole.

Operating segment net sales and operating income (loss) for the three-month periods ended June 30, 2007 and 2006, respectively, were as follows:


	Three Months Ended
	June 30,
	2007		2006
AMHS:
Net sales	$	76,309	$	66,256
Cost of Sales		55,782		46,556

Gross Profit	$	20,527	$	19,700

Income from operations	$	2,892	$	8,144

Fixed assets additions	$	795	$	848

Amortization and Depreciation	$	6,335	$	3,170

Fab Automation Products:
Net sales	$	45,311	$	50,725
Cost of Sales		25,675		29,369

Gross Profit	$	19,636	$	21,356

Income (Loss) from operations	$	952	$	(2,213	)

Fixed assets additions	$	483	$	1,489

Amortization and Depreciation	$	1,633	$	1,838

Consolidated:
Net sales	$	121,620	$	116,981
Cost of Sales		81,457		75,925

Gross Profit	$	40,163	$	41,056

Income from operations	$	3,844	$	5,931

Fixed assets additions	$	1,278	$	2,337

Amortization and Depreciation	$	7,968	$	5,008

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

Significant customer sales for the three-month periods ended June 30, 2007 and 2006, respectively, were as follows:


	Three Months Ended
	June 30,
	2007			2006
Customer A		18.8	%		16.9	%
Customer B		11.8	%	Less than 10%
Customer C		11.5	%		10.9	%

No other customer accounted for more than 10.0 percent of our net sales for the three-month periods ended June 30, 2007 and 2006.

13. DEBT

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


	June 30,			March 31,
	2007			2007
Convertible subordinated notes	$	86,250		$	86,250
Long-term loans		54,903			58,782
Capital leases		271			329

Total long-term debt		141,424			145,361
Less: Current portion of long-term debt and capital leases		(55,055	)		(58,949	)

Long-term debt and capital leases net of current portion	$	86,369		$	86,412

At June 30, 2007, maturities of all long-term debt and capital leases were as follows (in thousands):


Fiscal Year Ending March 31,	Amount
Remaining portion of 2008	$	54,973
2009		86,441
2010		5
2011		5

	$	141,424

Credit Facility

On July 27, 2007, we entered into a new credit agreement with KeyBank National Association acting as lead manager and administrative agent, for a new five-year $137.5 million multi-currency senior secured credit facility. This credit agreement provides for an $85 million term loan facility and a revolving credit facility of $52.5 million. The agreement may be amended to increase the revolving credit facility to $65 million, increasing the total of both facilities to $150 million. This new facility bears variable interest rates based on certain indices, such as Yen LIBOR, US Dollar LIBOR, the Fed Funds Rate, or KeyBank’s Prime Rate, plus applicable margins. The Company has elected initially to borrow all of this new credit facility in Yen LIBOR and will incur an initial interest rate before tax of approximately 3.30 percent. Our net available borrowing under the new credit agreement is subject to limitations under consolidated senior leverage, consolidated total leverage and consolidated fixed charge financial covenants. As of July 27, 2007, the full $137.5 million was available for borrowing, and we have drawn down approximately $125 million under the facilities (with the remaining $12.5 million in available borrowing used to support two standby letters of credit issued under the credit facilities). We expect to amortize approximately $3.6 million of bank fees, costs and related legal and other expenses as additional interest expense over the five-year term of the credit facility.

The new credit facility contains financial and other covenants, including, but not limited to, limitations on liens, mergers, sales of assets, capital expenditures, and indebtedness Additionally, although we have not paid any cash dividends on our common stock in the past and do not anticipate paying any such cash dividends in the foreseeable future, the new credit facility restricts our ability to pay such dividends. In addition, until such time that the term loan facility has been repaid in full, we are required to make mandatory prepayments in an amount equal to 100 percent of the net cash proceeds from specified asset sales (other than sales or other dispositions of inventory in the ordinary course of business), and 50 percent of the net cash proceeds from the issuance of equity securities; otherwise, amounts outstanding under the new credit facility will be due on July 26, 2013. The credit facility is secured by liens on substantially all of our assets, including the assets of certain subsidiaries.

Our failure to pay amounts when due, or our violation of covenants or the occurrence of other events of default set forth in the credit agreement, could result in a default permitting the termination of the credit agreement and/or the acceleration of any loan amounts then outstanding.

We used a portion of the proceeds from this new facility to repay in full the approximately $55 million outstanding under the existing credit facility with Bank of America, which we terminated as of July 27, 2007. In conjunction with this repayment and termination of the credit facility with Bank of America we expect to accelerate the remaining amortization of previously incurred fees, costs and related expenses, and incur related non-cash charges of approximately $2.3 million in our fiscal second quarter ending September 30, 2007.

Convertible Subordinated Notes

On July 3, 2001, we completed the sale of $86.3 million of 53/4 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 $3.2 million are being amortized over 84 months and are being recorded as other income (expense), net. Debt amortization costs totaled $0.1 million during each of the three-month periods ended June 30, 2007 and 2006.

On July 27, 2007, we provided notice to U.S. Trust Bank, as Trustee, to redeem these subordinated notes in full on or before August 31, 2007. In conjunction with the redemption, we also will pay the note holders interest accrued through the date of redemption and an additional redemption premium payment of approximately 0.82 percent of the outstanding principal amount of the notes. On July 30, 2007, we delivered $87.7 million to U.S. Trust Bank to be held in escrow to defease our redemption payment obligations described above. Of this amount, we used approximately $69.9 million of proceeds from the new credit facilities, and contributed approximately $17.8 million from our available cash.

In conjunction with the redemption of our outstanding convertible subordinated notes we expect to accelerate the remaining amortization of previously incurred fees, costs and related expenses (which includes the accrued interest and redemption premium discussed above), and incur related charges of approximately $1.2 million in our fiscal second quarter ending September 30, 2007.

Other Lines of Credit

As of June 30, 2007, we had lines of credit available in Japan for working capital purposes through our ASI and AJI subsidiaries. The total available borrowing capacity as of June 30, 2007 was 4.0 billion Japanese Yen or approximately $32.4 million at the exchange rate as of June 30, 2007. There were no borrowings under these lines as of June 30, 2007. The applicable interest rates for the above-referenced lines are either variable based on the Tokyo Interbank Offered Rate (TIBOR) (currently 0.62 percent), plus margins of 0.30 percent to 1 percent, or fixed at annual interest rates between 1.8 percent and 2.3 percent. We have not provided any guarantees or collateral for the above facilities, but ASI and AJI are generally required to maintain compliance with certain financial covenants. For example, ASI generally is required to maintain 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. Both ASI and AJI were in compliance with these covenants at June 30, 2007.

As of June 30, 2007, AJI had term loans outstanding with one Japanese bank. These loans are repayable monthly until February 2008 and May 2008. The loans carry annual interest rates between 1.8 percent and 2.3 percent, respectively. Substantially all of these loans are guaranteed by the Company in the United States. As of June 30, 2007, AJI had outstanding borrowings of 52.0 million Japanese Yen, or approximately $0.4 million at exchange rates as of June 30, 2007.

As of July 31, 2007, we had a total available borrowing capacity of 5.2 billion Japanese Yen or approximately $43.9 million at the exchange rate as of July 31, 2007. The borrowing capacity was increased during July 2007 by adding an additional line of credit to the available borrowing capacity that was in place as of June 30, 2007. There were no borrowings under these lines as of July 31, 2007.

14. RELATED-PARTY TRANSACTIONS

ASI has certain transactions with its minority shareholder, Shinko. Our subsidiary, AJI, has certain transactions with MECS Korea, in which AJI is a minority shareholder. At June 30, 2007 and March 31, 2007, respectively, significant balances with Shinko and MECS Korea were as follows (in thousands):


	June 30,		March 31,
	2007		2007
Accounts payable and notes payable due to Shinko	$	23,656	$	24,694
Accrued liabilities due to Shinko	$	206	$	304
Accrued liabilities due to Shinko relating to ASI acquisition	$	10,542	$	11,439
Accounts receivable from MECS Korea	$	3	$	6
Accounts payable due to MECS Korea	$	15	$	228
Accrued liabilities due to MECS Korea	$	21	$	13

In addition, the condensed 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-month periods ended June 30, 2007 and 2006, sales to and purchases from Shinko and MECS Korea were as follows (in thousands):


	Three Months Ended
	June 30,
	2007		2006
Material and service purchases from Shinko	$	13,998	$	13,258
Sales to MECS Korea	$	17	$	28
Purchases from MECS Korea	$	47	$	—

15. COMMITMENTS AND CONTINGENCIES

Lease Commitments

We lease various facilities under non-cancelable capital and operating leases. At June 30, 2007, the future minimum commitments under these leases are as follows (in thousands):


Fiscal Year Ending March 31,	Capital Lease			Operating Lease
Remaining portion of 2008	$	161		$	4,123
2009		111			3,251
2010		5			2,620
2011		5			1,813
2012 and thereafter		1			2,763

Total		283		$	14,570

Less: interest		(12	)

Present value of minimum lease payments		271
Less: current portion of capital leases		(152	)

Capital leases, net of current portion	$	119

Rent expense under our operating leases was approximately $1.1 million and $1.2 million for the three-month periods ended June 30, 2007 and 2006, respectively.

Purchase Commitments

At June 30, 2007, total non-cancelable purchase orders or contracts for the purchase of raw materials and other goods and services was $36.8 million.

Legal Contingencies

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.

Following remand, the Company filed a motion for summary judgment that defendants infringe several claims of the ‘421 patent, and defendants filed a cross-motion seeking a determination of non-infringement. On March 31, 2006, the Court entered an order granting in part, and denying in part, the Company’s motion for summary judgment and at the same time denying defendants’ cross motion for summary judgment. The Court found as a matter of law that defendants’ IridNet system infringed the ‘421 Patent under 35 U.S.C. § 271(a), but denied without prejudice that portion of the motion regarding whether defendants’ foreign sales infringed under 35 U.S.C. § 271(f). On January 31, 2007, a federal jury in the United States District Court for the Northern District of California returned a unanimous verdict in our favor, validating our patent in suit and awarding damages of approximately $75 million. However, the verdict was subject to several post-trial motions, including motions by defendents to vacate the jury's verdict in its entirety and for entry of judgment in their favor as a matter of law.

On August 3, 2007, the Court granted defendants’ motion for judgment as a matter of law on the issue of obviousness. The effect of the Court’s judgment is to invalidate our ‘421 patent in suit and dispose of the action in its entirety in favor of defendants. The Court also conditionally granted defendants’ motion for a new trial on the issue of obviousness in the event the Court’s judgment is vacated or reversed on appeal. The Court terminated without prejudice defendants’ other post-trial motions, including motions challenging the award of damages. However, in so doing, the Court noted substantial legal questions with respect to the damages award, in particular that only a portion of our damages may be attributed directly to the patented Smart Traveler System, and stated that the Court’s present inclination would be to grant a new trial or remittitur in the event that the Court’s present judgment is vacated or reversed on appeal. We currently expect to appeal the Court’s judgment.

On August 29, 2005, a suit was filed in the Osaka District Court, Japan, against Shinko and ASI. The suit, filed by Auckland UniServices Limited and Daifuku Corporation (“Plaintiffs”), alleges, among other things, that certain Shinko and ASI products infringe Japanese Patent No. 3304677 (the “ ’677 Patent”). Currently, the court is assessing whether and in what amount damages should be awarded in plaintiffs’ favor and against ASI and Shinko. Specifically, the suit alleges infringement of the ‘677 Patent by elements of identifiable Shinko products and of ASI’s Over-head Shuttle (OHS) and Over-head Hoist Transport (OHT) products, and seeks significant monetary damages against both Shinko and ASI in an amount to be determined. The suit also seeks to enjoin future

sales and shipments of ASI’s OHS, OHT and related products. ASI has asserted various defenses, including non-infringement of the asserted claims under the ‘677 Patent, and intends to continue to defend the matter vigorously. ASI is also consulting with Shinko concerning issues relating to indemnification by Shinko under certain claims in the event damages are awarded representing ASI products during the term of its joint venture with Shinko. However, we cannot predict the outcome of this proceeding and an adverse ruling, including a final judgment awarding significant damages and enjoining sales and shipments of ASI’s OHS, OHT and related products, could have a material adverse effect on our operations and profitability, and could result in a royalty payment or other future obligations that could adversely and significantly impact our future gross margins.

In addition, certain of the current and former directors and officers of the Company have been named as defendants in two consolidated shareholder derivative actions filed in the United States District Court of California, captionedIn re Asyst Technologies, Inc. Derivative Litigation(N.D. Cal.) (the “Federal Action”), and one similar shareholder derivative action filed in California state court, captionedForlenzo v. Schwartz, et al. (Alameda County Superior Court) (the “State Action”). Plaintiffs in the Federal and State Actions allege that certain of the current and former defendant directors and officers backdated stock option grants beginning in 1995. Both Actions assert causes of action for breach of fiduciary duty, unjust enrichment, corporate waste, abuse of control, gross mismanagement, accounting, rescission and violations of Section 25402et. seq.of the California Corporations Code. The Federal Action also alleges that certain of the current and former defendant directors and officers breached their fiduciary duty by allegedly violating Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated there under, Section 14(a) of the Exchange Act and Rule 14a-9 promulgated there under, and Section 20(a) of the Exchange Act. Both Actions seek to recover unspecified monetary damages, disgorgement of profits and benefits, equitable and injunctive relief, and attorneys’ fees and costs. The State Action also seeks the imposition of a constructive trust on all proceeds derived from the exercise of allegedly improper stock option grants. The Company is named as a nominal defendant in both the Federal and State Actions, thus no recovery against the Company is sought. The State Action is currently stayed in favor of the Federal Action.

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 June 30, 2007.

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 its request in such capacity. In this regard, we have received numerous requests for indemnification by current and former officers and directors, with respect to asserted liability under governmental inquiries and shareholder derivative actions alleging that certain of the current and former defendant directors and officers backdated stock option grants beginning in 1995 (as described in the immediately preceding Legal Commitments section. The maximum amount of potential future indemnification is unlimited; however, we have a Director and Officer Insurance Policy that we believe enables us to recover a portion of future amounts paid, subject to conditions and limitations of the polices. As a result of the insurance policy coverage, we believe the fair value of these indemnification agreements is not material.

Our sales agreements indemnify our customers for any 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 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 of an amount we deem to be material.

16. SUBSEQUENT EVENTS

Debt

As detailed in Note 13 Debt, above, and in our press release issued on August 1, 2007 and our disclosures on Form 8-K filed on August 2, 2007, we have restructured certain outstanding indebtedness since the end of our fiscal quarter ended June 30, 2007.

Credit Facility

On July 27, 2007, we entered into a credit agreement with KeyBank National Association acting as lead manager and administrative agent, for a new five-year $137.5 million multi-currency senior secured credit facility. As of July 27, 2007, the full $137.5 million was available for borrowing, and we have drawn down approximately $125 million under the facility.

We used a portion of the proceeds from this new facility to repay in full the approximately $55 million outstanding under our then-existing credit facility with Bank of America, which we terminated as of July 27, 2007.

Convertible Subordinated Notes

On July 27, 2007, we provided notice to U.S. Trust Bank, as Trustee, to redeem in full on or before August 31, 2007 the $86.3 million of 5 3/4 percent convertible subordinated notes that we sold on July 3, 2001. On July 30, 2007, we delivered $87.7 million to U.S. Trust Bank to be held in escrow to defease our redemption payment obligations. Of this amount, we used approximately $69.9 million of proceeds from the new credit facility with KeyBank National Association, and contributed approximately $17.8 million from our available cash.

Commitments and Contingencies

Legal Contingencies

As detailed in Note 15 Commitments and Contingencies, above, 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. On January 31, 2007, a federal jury in the United States District Court for the Northern District of California returned a unanimous verdict in our favor, validating our ‘421 patent in suit and awarding damages of approximately $75 million. However, the verdict was subject to several post-trial motions, including motions by defendants to vacate the jury's verdict in its entirety and for entry of judgment in their favor as a matter of law.

We continue to incur significant expenses in this action, including legal fees and costs. In the event we are successful on appeal, a new trial on all matters would impose further, potentially significant, litigation costs that could be material in any particular period. In addition, a final judgment in favor of defendants could require that we reimburse certain costs and expenses which, though uncertain at this time, could be material in amount.

In addition, the defendants continue to seek in parallel to this action a re-examination by the Patent and Trademark Office of the claims in suit. A re-examination could independently significantly narrow or invalidate our patents in suit, or reduce or preclude damages recoverable by us in this action.

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, as a result of certain factors including but not limited to those discussed in “Risk Factors” in this report and our other Securities and Exchange Commission (“SEC”) filings. 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, “Item 1A 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. Except as may be required by law, we do not intend 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 report 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 filed in our Annual ReportForm 10-K for the year ended March 31, 2007. 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”, “Asyst” and “the Company” refer to Asyst Technologies, Inc. and its subsidiaries.

ASYST, the Asyst logo, Asyst Shinko, AdvanTag, Domain Logix, Fastrack, IsoPort, Spartan 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, SMART-Tag, SMART-Traveler, SMART-Comm, EIB and NexEDA are trademarks of Asyst Technologies, 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.

Overview

We develop, manufacture, sell and support integrated automation systems, primarily for the worldwide semiconductor and FPD manufacturing industries.

We principally sell directly to the semiconductor and FPD manufacturing industries. We also sell to 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.

A substantial portion of our revenues are invoiced in Japanese yen and subject to currency fluctuation rates. 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 (loss)” in our consolidated balance sheets.

On October 16, 2002, we established a joint venture with Shinko, called 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 retained the remaining 49.0 percent interest. On July 14, 2006, the Company purchased from Shinko shares representing an additional 44.1 percent of the outstanding capital stock of ASI for approximately $107.7 million of cash and transaction costs. This purchase increased Asyst’s consolidated ownership of ASI to 95.1 percent. The Company consummated the acquisition to further integrate its Fab Automation and Automated Material Handling Systems (“AMHS”) businesses, allowing it to provide its customers a full range of product offerings.

Our Fab Automation and our Automated Material Handling Systems (AMHS) represent two reportable segments:

	•		The Fab Automation product segment, which consists principally of our interface products, auto-ID systems, substrate-handling robotics, sorters, connectivity software, and continuous flow technology (CFT)

	•		The AMHS segment, which consists principally of our automated transport and loading systems, semiconductor and flat panel display products

We believe critical success factors include manufacturing cost reduction, product quality, customer relationships, and continued demand for our products. 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 fiscal year ended March 31, 2007, may not be indicative of future operating results.

We intend the discussion of our financial condition and results of operations that follow 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 2007 filed on June 12, 2007 that our disclosure controls and procedures and internal control over financial reporting were not effective as of March 31, 2007. 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, 2007, and other related information. Because these material weaknesses remained outstanding as of the end of the fiscal quarter reported in this

Form 10-Q, we have reported in Item 4 of Part I that our disclosure controls and procedures were not effective as of June 30, 2007, together with a summary of these material weaknesses and the status of our remediation efforts.

Critical Accounting Policies and Estimates

Our discussion and analysis the 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 financial 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 three-month period ended June 30, 2007 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, 2007.

Income TaxesEffective April 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109” (FIN 48), in the first quarter of 2007. See “Note 10: Income Taxes” in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion.

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. To date we have concluded recovery is not likely, and as such we have recorded a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would decrease in the period in which we determined that the recovery was probable.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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
	June 30,
	2007		2006
AMHS:
Net sales	$	76,309	$	66,256
Cost of sales		55,782		46,556

Gross profit	$	20,527	$	19,700

Income from operations	$	2,892	$	8,144

Fab Automation Products:
Net sales	$	45,311	$	50,725
Cost of sales		25,675		29,369

Gross profit	$	19,636	$	21,356

Income (Loss) from operations	$	952	$	(2,213	)

Consolidated:
Net sales	$	121,620	$	116,981
Cost of sales		81,457		75,925

Gross profit	$	40,163	$	41,056

Income from operations	$	3,844	$	5,931

The following is a summary of our net sales and income (loss) from operations by segment as a percentage of consolidated net sales for the periods presented below:


	Three Months Ended
	June 30,
	2007			2006
AMHS:
Net sales		62.7	%		56.6	%
Cost of sales		45.8	%		39.8	%

Gross profit		16.9	%		16.8	%

Income from operations		2.4	%		7.0	%

Fab Automation Products:
Net sales		37.3	%		43.4	%
Cost of sales		21.2	%		25.1	%

Gross profit		16.1	%		18.3	%

Income (Loss) from operations		0.8	%		(1.9	)%

Consolidated:
Net sales		100.0	%		100.0	%
Cost of sales		67.0	%		64.9	%

Gross profit		33.0	%		35.1	%

Income from operations		3.2	%		5.1	%

First Quarter of 2008 Compared to First Quarter of 2007

Net Sales

Consolidated

Net sales for the three-months ended June 30, 2007 were $121.6 million, an increase of $4.6 million or 4.0 percent compared to the corresponding period in the prior year. Substantially all of the increase was due to increased shipment volume of our semiconductor and flat panel display AMHS systems, as well as higher Spartan volume. This increase in sales was partially offset by a decline interface products and service volume. The sales in Korea increased by $5.4 million when comparing the three-month period ended June 30, 2007 with the prior year, Europe increased by $3.4 million, other APAC countries increased by $2.8 million, North America and Japan increased by $1.9 million, partially offset by a decline of $8.8 million from Taiwan. The increase in Korea of $5.4 million was attributed to flat panel display volume increases, while the lower Taiwan sales was due to a reduction in prices for semiconductor AMHS projects. Sales to end-users and OEM’s for the three-month period ended June 30, 2007 were 75 percent and 25 percent, respectively.

AMHS

Net sales for the three-months ended June 30, 2007 were $76.3 million, an increase of $10.1 million or 15.2 percent compared to the corresponding period in the prior year. The increase was primarily attributed to a $8.3 million volume increase in semiconductor AMHS projects, a $0.9 million increase in flat panel display, and a $0.8 million increase in service sales for the three-month ended June 30, 2007 as compared to the prior year. The semiconductor AMHS volume increase was attributed to customers in APAC and Japan continuing to invest and expand capacity. The only territory that had a decline in sales for the three-month period ended June

30, 2007 as compared with the prior year was Taiwan. The lower sales in Taiwan was primarily attributed to price erosion on orders accepted during fiscal year 2007. The geographical breakdown for AMHS sales for the three-month period ended June 30, 2007 was 41 percent for Japan, 29 percent for Taiwan, 13 percent for North America, 8 percent for Korea,7 percent for Europe, and other APAC was 2 percent.

Fab Automation

Net sales for the three-months ended June 30, 2007 were $45.3 million, a decrease of $5.4 million or 10.7 percent compared to the corresponding period of the prior year. The decrease was primarily attributed to a $9.9 million decline in volume for interface products, Robotics, auto-ID system and service sales. This $9.9 million decrease sales was partially offset by a $4.5 million increase in Spartan volume to end-users and OEMs. The geographical breakdown for fab automation sales for the three-month period ended June 30, 2007 was 34 percent for North America, 33 percent for Japan, 23 percent for other APAC, 9 percent for Europe, and Korea was 1 percent.

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
	June 30,
	2007			2006
NET SALES		100.0	%		100.0	%
COST OF SALES		67.0	%		64.9	%

Gross profit		33.0	%		35.1	%

OPERATING EXPENSES:
Research and development		6.8	%		7.3	%
Selling, general and administrative		17.8	%		18.4	%
Amortization of acquired intangible assets		4.9	%		2.8	%
Restructuring and other charges		0.4	%		1.5	%

Total operating expenses		29.9	%		30.0	%

Income from operations		3.1	%		5.1	%

INTEREST AND OTHER INCOME, NET:
Interest income		0.5	%		0.6	%
Interest expense		(2.0	)%		(1.4	)%
Other income, net		(1.5	)%		0.7	%

Interest and other expense, net		(3.0	)%		(0.1	)%

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		0.1	%		5.0	%
PROVISION FOR INCOME TAXES		0.4	%		3.7	%
MINORITY INTEREST		(0.0	)%		(1.8	)%

NET LOSS PRIOR TO CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(0.3	)%		(0.5	)%
Cumulative effect of change in accounting principle		—	%		0.0	%
NET LOSS		(0.3	)%		(0.5	)%

Gross Margin

Consolidated

Gross profit for the three-month period ended June 30, 2007 was $40.2 million and was $0.9 million lower than the corresponding period for the prior year. The gross margin percentage for the three-month period ended June 30, 2007 was 33 percent and decreased by 2 percent from the corresponding period of the prior year primarily due to the price erosion associated with several semiconductor AMHS projects.

AMHS

The AMHS gross profit for the three-month period ended June 30, 2007 was $20.5 million with a gross margin of 27 percent, compared to $19.7 million gross profit or 30 percent gross margin for the three-month period ended June 30, 2006. The increase of $0.8 million was due a $10.1 million volume increase in our AMHS sales and the decrease of 3 percent gross margin was due to multiple projects which had completed with favorable cost variances during the prior year, and also lower selling prices in the current fiscal

year for new 300mm semiconductor AMHS projects. The decrease in margins associated with price erosion was primarily attributed to some orders accepted during fiscal year 2007 for semiconductor AMHS projects in Taiwan.

Fab Automation

The Fab Automation gross profit for the three-month period ended June 30, 2007 was $19.6 million with a gross margin of 43 percent compared to $21.4 million gross profit or 42 percent gross margin for the three-month ended June 30, 2006. The decrease of $1.8 million was due to the lower shipment volume. The fab automation gross margin for the three-month period ended June 30, 2007 increased by 1 percent as compared with the same period of the prior year, primarily due to cost reductions related to manufacturing and other indirect cost of goods sold.

Research and Development


	Three Months Ended
	June 30,
(in thousands, except percentage)	2007			2006			Change
Research and development	$	8,299		$	8,587		$	(288	)

Percentage of total net sales		6.8	%		7.3	%

The research and development expense was $8.3 million for the three-month period ended June 30, 2007, which decreased by $0.3 million compared to the same period in fiscal year 2007. The decrease was primarily due to a decrease in AMHS project material expense.

The research and development expenses may 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
	June 30,
(in thousands, except percentage)	2007			2006			Change
Selling, general and administrative	$	21,668		$	21,402		$	266

Percentage of total net sales		17.8	%		18.4	%

The selling, general and administrative expenses were $21.7 million for the three-month period ended June 30, 2007, which increased by $0.3 million compared with the same period of fiscal year 2007. Primary changes were a $0.4 million increase in professional fees and a $0.4 million increase in bad debt expense, offset by a $0.5 million decrease in facilities, bonus, profit sharing and other expense.

Amortization of Acquired Intangibles Assets


	Three Months Ended
	June 30,
(in thousands, except percentage)	2007			2006			Change
Amortization of acquired intangible assets	$	5,807		$	3,324		$	2,483

Percentage of total net sales		4.9	%		2.8	%

The increase in amortization expense for the three-month period ended June 30, 2007 compared with the corresponding period in the prior fiscal year was due to the additional intangibles as part of our acquisition of an additional 44.1 percent interest in ASI in July 2006 as well as 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-month periods ended June 30, 2007 and 2006:


	Three Months Ended
	June 30,
(in thousands, except percentage)	2007			2006			Change
Restructuring charges	$	545		$	1,812		$	(1,267	)

Percentage of total net sales		0.4	%		1.5	%

We incurred restructuring charges of $0.5 million during the three-month period ended June 30, 2007 related to severance as a result of a minor reduction in workforce.

We incurred restructuring charges of $1.8 million during the three-month period ended June 30, 2006 related to excess facility charges in connection with our corporate office relocation.

The outstanding accrual amount at June 30, 2007, 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.


	Severance and			Excess
	Benefits			Facilities			Total
Balance, March 31, 2007	$	—		$	788		$	788
Additional accruals		545			—			545
Amounts paid in cash		(433	)		(205	)		(638	)

Balance, June 30, 2007	$	112		$	583		$	695

Interest Income, Interest Expense and Other Income, Net


	Three Months Ended
	June 30,
(in thousands)	2007			2006		Change
Interest income	$	584		$	737	$	(153	)

Interest expense	$	2,487		$	1,628	$	859

Other income (expense), net	$	(1,848	)	$	786	$	(2,634	)

Interest income for the three-month period ended June 30, 2007 was lower with comparable periods in fiscal year 2007 due to a decrease in short-term investments.

Interest expense was higher primarily due to a higher loan balances on our outstanding debt balances for the three-month period ended June 30, 2007, as compared to the same period of fiscal year 2007, related to the additional ownership of ASI.

Other expense was primarily due to a foreign currency translation charge of $2.9 million for the three-month period ended June 30, 2007.

Income Taxes


	Three Months Ended
	June 30,
(in thousands, except percentage)	2007			2006			Change
Provision for income taxes	$	474		$	4,322		$	(3,848	)

Percentage of total net sales		0.4	%		3.7	%

tax provision recorded by ASI and a net tax benefit of $0.8 million recorded primarily by other international subsidiaries. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to tax provisions recorded at ASI and other foreign subsidiaries in excess of the U.S. statutory rate, and U.S. losses not providing current tax benefits.

Income tax provision for the three-month period ended June 30, 2006 was $4.3 million which included a tax benefit of $1.1 million from the amortization of deferred tax liabilities recorded in connection with the ASI acquisition, offset by a $4.5 million tax provision recorded by ASI and a tax provision of $0.9 million recorded primarily by other international subsidiaries.

Effective April 1, 2007 at the beginning of the first quarter of fiscal year 2008, the Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in income taxes (“FIN48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination.

As a result of the implementation of FIN 48, the Company recognized a $0.4 million increase in the liability for unrecognized tax benefits related to tax positions taken in prior periods. This increase was accounted for as an adjustment to retained earnings in accordance with provisions of the statement. Additionally, the Company reclassified $1.3 million from current taxes payable to long-term taxes payable and reclassed $1.4 million from current taxes payable to current deferred taxes. Upon adoption of FIN 48, the Company’s policy to include interest and penalties related to gross unrecognized tax benefits within our provision for income taxes did not change. As of April 1, 2007, the Company had accrued $0.8 million for payment of such interest and penalties. Interest and penalties included in our provision for income taxes were not material in the three-month periods ended June 30, 2007 and 2006.

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.

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


	Three Months Ended
	June 30,
	2007			2006
Net cash (used in) operating activities	$	(8.4	)	$	(14.0	)
Net cash provided by (used in) investing activities	$	(1.9	)	$	5.8
Net cash provided by (used in) financing activities	$	(0.3	)	$	11.1

Cash Flows from Operating Activities

Net cash used in operating activities in the first quarter of fiscal 2008 was $8.4 million consisting of (in millions):


Net loss	$	(0.4	)
Depreciation and amortization		8.0
Stock-based compensation expense		1.6
Deferred taxes, net		(2.7	)
Other non-cash charges		2.7
Increase in accounts receivable		(22.1	)
Increase in inventories		(0.8	)
Decrease in prepaid expenses and other assets		1.8
Increase in accounts payable, accrued liabilities and deferred margin		3.5

Net cash (used in) operating activities	$	(8.4	)

During the three-month period ended June 30, 2007, the majority of the increases in accounts receivable, inventory and corresponding changes in accounts payable and accrued liabilities are the result of an increase in work in progress on non-percentage

of completion contracts at ASI. These contracts require 100 percent completion before customer acceptance. Upon acceptance these projects will be relieved from inventory.

Net cash of $14.0 million was used by operating activities for the three-month period ended June 30, 2006, primarily due to a net loss of $0.5 million and $20.9 million increase in working capital, which comprises a $12.1 million increase in accounts receivable, an increase of $9.5 million in inventories, a increase of $0.7 million in accounts payable, accrued and other liabilities and deferred margin, a decrease $1.4 million in prepaid and other assets and various non-cash charges of $7.4 million, including depreciation and amortization, stock compensation and minority interest.

As sales volume has increased at ASI for the three-month and twelve-month periods ended June 30, 2007, our overall days sales outstanding (“DSO”) has increased to 107 days at June 30, 2007 from 93 days at March 31, 2007, and decreased from 120 days at June 30, 2006. The increase from March 31, 2007 to June 30, 2007 is due to the accounts receivable balance increasing by $17.5 million due to the timing of customer collections. The decrease from June 30, 2006 to June 30,2007 is due in large part to large collection of A/R at ASI. Unbilled receivables also decreased due to the increase in revenues recognized by ASI under the percentage-of-completion method. The Company periodically engages in factoring programs for receivables as a method of effectively collecting cash on these assets.

Our inventory turns were 6.9 times on an annualized basis for the three-month period ended June 30, 2007, compared to 7.9 times for the same period of fiscal 2007, due to build up inventory for future AMHS projects at ASI and Spartan / Robotics inventory at Fab Automation.

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 used in investing activities was $1.9 million for the three-month period ended June 30, 2007, due to $1.9 million in purchases of property and equipment, primarily fixed assets for research and development and customer demonstration units.

Net cash provided by investing activities was $5.8 million for the three-month period ended June 30, 2006, due to $7.0 million in net sales of short-term investments, partially offset with $1.2 million in purchases of property and equipment, primarily fixed assets for research and development and computer hardware and software.

Cash Flows from Financing Activities

Net cash used in financing activities was $0.0 million for the three-month period ended June 30, 2007, was due to principal reductions on long-term debt of $1.4 million, partially offset with $1.2 million in net proceeds from our line of credits and $0.2 million in proceeds from the issuance of common stock under our employee stock programs.

Net cash provided by financing activities was $11.1 million for the three-month period ended June 30, 2006, due to $91.4 million in proceeds from the ASI line of credit, partially offset by $80.6 million in payments to the line of credit and $0.3 million in proceeds from the issuance of common stock under our employee stock programs.

Credit Facility

margins. The Company has elected initially to borrow all of this new credit facility in Yen LIBOR and will incur an initial interest rate before tax of approximately 3.30 percent. Our net available borrowing under the new credit agreement is subject to limitations under consolidated senior leverage, consolidated total leverage and consolidated fixed charge financial covenants. As of July 27, 2007, the full $137.5 million was available for borrowing, and we have drawn down approximately $125 million under the facilities (with the remaining $12.5 million in available borrowing used to support two standby letters of credit issued under the credit facilities). We expect to amortize approximately $3.6 million of bank fees, costs and related legal and other expenses as additional interest expense over the five-year term of the credit facility.

Convertible Subordinated Notes

On July 3, 2001, we completed the sale of $86.3 million of 5³/4 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 $3.2 million has been amortized over the 84 month term of the notes, and recorded as other income (expense), net. Debt amortization costs totaled $0.1 million during each of the three-month periods ended June 30, 2007 and 2006.

In conjunction with the redemption of our outstanding convertible subordinated notes we expect to accelerate the remaining amortization of previously incurred debt issuance fees, costs and related expenses (as well as the accrued interest and redemption premium discussed above), and incur related charges of approximately $1.2 million in our fiscal second quarter ending September 30, 2007.

Other Debt Financing Arrangements

Acquisition and Related Debt Financing Facility

On July 14, 2006, Asyst and AJI purchased from Shinko shares of ASI representing an additional 44.1 percent of outstanding capital stock of ASI for a cash purchase price of JPY 11.7 billion (approximately US$102 million at the July 14 exchange rate). This purchase increased Asyst’s consolidated ownership of ASI to 95.1 percent. As of the that date, we borrowed an aggregate amount of approximately $81.5 million under the senior credit facility to fund the purchase of shares reported above and for general working capital purposes, and issued a letter of credit in favor of Shinko for approximately $10.9 million related to the equity option on Shinko’s remaining 4.9 percent ASI share ownership.

At any time subject to the other provisions of the agreement, either we or Shinko may give notice to the other, calling for AJI to purchase the remaining 4.9 percent of outstanding capital stock of ASI for a fixed payment of JPY 1.3 billion (approximately US $10.5 million at the June 30, 2007 exchange rate).

In June 2006, we entered into a $115 million senior secured credit facility with Bank of America, N.A. as lender and administrative agent to fund the purchase of ASI shares from Shinko Electric Co., Ltd. on July 14, 2006, and issued a letter of credit in favor of Shinko for approximately $11 million relation to the equity option on Shinko’s remaining 4.9 percent ASI share ownership. As of June 30, 2007, we had approximately $54.5 million outstanding under that credit facility. We have also capitalized approximately $3.5 million of financing costs and will amortize this balance over the life of the facility. We amortized approximately $0.3 million during the three months ended June 30, 2007. On July 14, 2006, we used $81.5 million of this credit facility, plus an additional $20.0 million of available cash, to finance the purchase of an additional 44.1 percent of the ASI shares. At June 30, 2007, the outstanding balance under this credit facility was $54 million, and the amount available to borrow under the facility was $48 million.

In accordance with EITF 00-4, on July 14, 2006, AJI has accounted for the purchase options on a combined basis with the minority interest as a financing of the purchase of the minority interest, and as a result has treated the transaction as an acquisition of the full remaining 49 percent interest of ASI. Accordingly, AJI has recorded a liability, equivalent to the net present value of both the JPY 1.3 billion fixed payment for the 4.9 percent remaining interest and a fixed annual dividend payment of JPY 65 million and will accrete the discount recorded to interest expense over the next twelve months until the first potential exercise date. The liability has been classified within “accrued and other liabilities” on the condensed consolidated balance sheet.

Other Liquidity Considerations

Since inception, we have incurred aggregate consolidated net losses of approximately $387.0 million and have incurred losses during 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 and cash equivalents aggregated $88.5 million at June 30, 2007. 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 for at least the next twelve months.

As a result of the delay in filing of the Form 10-K, as amended on October 27, 2006 and November 28, 2006, for our fiscal year ended March 31, 2006 and the Form 10-Q for our first quarter ended June 30, 2006, we are not eligible to register any of our securities on Form S-3 for sale by us or resale by others until we have timely filed all reports required to be filed under the Securities Exchange Act of 1934 during the 12 months, and any portion of a month, immediately preceding the filing of a registration statement on Form S-3. This condition may adversely affect our ability to restructure outstanding indebtedness, to raise capital by other means, or to acquire other companies by using our securities to pay the acquisition price.

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.

If a holder of our long term or short term indebtedness were in the near future to demand accelerated repayment of all or a substantial portion of our outstanding indebtedness that exceeds the amount of our available liquid assets that could be disbursed without triggering further defaults under other outstanding indebtedness, we would not likely have the resources to pay such accelerated amounts, would be required to seek funds from re-financing or re-structuring transactions for which we have no current basis to believe we would be able to obtain on desired terms or at all, and would face the risk of a bankruptcy filing by us or our creditors. Any accelerated repayment demands that we are able to honor would reduce our available cash balances and likely have a material adverse impact on our operating and financial performance and ability to comply with remaining obligations. If we are able to maintain our current indebtedness as outstanding, the restrictive covenants could impair our ability to expand or pursue our business strategies or obtain additional funding.

In addition, the material weakness and related matters we discuss in 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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been a material change in our exposure to foreign currency risks since March 31, 2007, the end of our preceding fiscal year. Our exposure to interest rate risk has been reduced to zero, as we do not have short term investments for the three-month period ended June 30, 2007.

Interest Rate Risk.Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio, credit facility and lines of credit.

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.

Our credit facility and lines of credit bear interest at variable rates. We manage interest rate risk by limiting the variable rate exposure and continually monitoring the effects of market changes on interest rates.

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 from the level at June 30, 2007, our operating income may improve or deteriorate as noted in the table below (in thousands).


	Strengthening in					No change in			Weakening in
	Japanese Yen of					Japanese Yen			Japanese Yen of
	X percent					exchange rate			X percent
	10%		5%						5%			10%
Net loss for the three months ended June 30, 2007	$	231	$	(94	)	$	(386	)	$	(650	)	$	(891	)

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.

The Company adopted a Foreign Exchange Policy that documented how we intend to comply with the accounting guidance under SFAS No. 133. Under the policy there are guidelines that permit the Company to have hedge accounting treatment under both Fair Value and Cash Flow hedges.The policy approval limits are up to $10 million with approval from our Chief Financial Officer and over $10 million with additional approval from our Chief Executive Officer.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and 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. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and we cannot be certain that any design will succeed in achieving its stated goals under all potential future conditions.

Our management is responsible for establishing and maintaining our 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 June 30, 2007. In light of the 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 assurance that they will meet their defined objectives. Notwithstanding 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. 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.

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 assessment identified the following material weaknesses in our internal control over financial reporting as of March 31, 2007, which remained outstanding as of June 30, 2007:

We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with the Company’s financial reporting requirements. The Company lacked sufficient finance and accounting staff with adequate depth and skill in the application of generally accepted accounting principles with respect to external financial reporting, specifically: (i) the completeness and accuracy of cost estimates related to long-term contracts at our majority-owned subsidiary ASI, and (ii) processes 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, specifically pensions, the financial aspects of related parties, share-based compensation and acquisition-related disclosures. These control deficiencies resulted in audit adjustments to the cash flow statement, statement of shareholders’ equity, the financial aspects of the related party disclosures, pension disclosures, share-based compensation disclosures, and acquisition disclosures in our fiscal 2007 interim or annual consolidated financial statements. Additionally, each of these control deficiencies could result in a misstatement of accounts or disclosures which could cause a material misstatement of annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that each of these control deficiencies constitutes a material weakness.

Management’s Remediation Initiatives

The material weaknesses described above also existed at June 30, 2007. In response to the material weaknesses discussed above, we plan to continue to review and make necessary changes to improve our internal control over financial reporting, including the roles and responsibilities of each functional group within the organization and reporting structure, as well as the appropriate policies and procedures to improve the overall internal control over financial reporting.

We have summarized below the remediation measures that we have implemented or plan to implement in response to the material weaknesses discussed above. In addition to the following summary of remediation measures, we also describe below the interim measures we undertook in an effort to mitigate the possible risks of these material weaknesses prior to or in connection with the preparation of the financial statements included in this Form 10-Q.

1. The Company recruited a new Chief Financial Officer in January 2007 who has since reorganized all financial functions into a single global organization. This common global finance organization is intended to provide a disciplined structure for finance and accounting processes and controls, enable clear and concise access to information and promote the consistent application of policies and procedures in conformity with U.S. generally accepted accounting principles.

2. The Company has also enlisted a new Chief Accounting Officer, and several key staff accounting positions.

3. We plan to further strengthen our controls over the monthly closing and financial reporting processes by hiring sufficient personnel with knowledge, experience and training in the application of U.S. generally accepted accounting principles commensurate with our financial reporting requirements. Specifically, we are currently recruiting for a senior financial executive in

Japan, and other qualified accounting personnel in the U.S. and Japan, in the areas of general accounting, financial reporting and technical accounting.

4. We plan to expand our recently implemented training programs with continuous improvements regarding the application of U.S. generally accepted accounting principles and effectively accumulating and analyzing financial information.

5. We plan to further improve the discipline throughout the organization to achieve greater compliance with policies, procedures and controls that we have previously introduced, and with new policies and procedures that we will implement in the future.

6. We have implemented certain policies and procedures focused on timely and accurate financial reporting and have begun the selection process for implementing an enterprise-wide financial and operating system to assist in the timely analysis and reporting of financial and operating information.

Changes in Internal Control over Financial Reporting

Other than the remedial measures discussed above, which are ongoing, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2007 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 15, “Commitments and Contingencies”, of this document, and should be considered an integral part of Part II, Item 1, “Legal Proceedings”.

ITEM 1A. RISK FACTORS

We have a history of significant losses.

We have a history of significant losses. Our accumulated deficit was $387.0 million at June 30, 2007. We may also experience significant losses in the future.

We face potential risks in connection with our outstanding indebtedness; if we are not able to restructure portions of this debt on a timely basis on desired terms in the future, our ability to discharge our obligations under this indebtedness, liquidity and business may be harmed.

We have a significant amount of outstanding indebtedness that has increased substantially since the end of fiscal year 2007:

	•		Under a senior secured credit agreement entered into in June 2006 with Bank of America, N.A., as lender and administrative agent and other lenders, we borrowed an aggregate amount of approximately $81.5 million to fund the purchase of ASI shares from Shinko on July 14, 2006, as described under “Item 1 — Business, Acquisition and Related Debt Financing Facility” and issued a letter of credit in favor of Shinko for approximately $11 million related to the equity option on Shinko’s remaining 4.9 percent ASI share ownership. This credit agreement provides a $115 million senior secured credit facility consisting of a $90 million revolving credit facility, including a $20 million sub-limit for letters of credit and $10 million sub-limit for swing-line loans, and a $25 million term loan facility. Under the credit agreement all amounts outstanding would be due July 13, 2009, provided that Asyst’s outstanding 5 3/4 percent convertible subordinated notes due July 3, 2008, are redeemed or repurchased, or the maturity of the notes extended, on terms reasonably satisfactory to the administrative agent on or before March 31, 2008; otherwise, amounts outstanding under the credit agreement would be due on March 31, 2008.

	•		On July 27, 2007, we entered into a new credit agreement with KeyBank National Association acting as lead manager and administrative agent, for a new five-year $137.5 million multi-currency senior secured credit facility. This credit agreement provides for an $85 million term loan facility and a revolving credit facility of $52.5 million. The agreement may be amended to increase the revolving credit facility to $65 million, increasing the total of both facilities to $150 million. This new facility bears variable interest rates based on certain indices, such as Yen LIBOR, US Dollar LIBOR, the Fed Funds Rate, or KeyBank’s Prime Rate, plus applicable margins. We have elected initially to borrow all of this new credit facility in Yen LIBOR and will incur an initial interest rate before tax of approximately 3.30 percent. Our net available borrowing under the new credit agreement is subject to limitations under consolidated senior leverage, consolidated total leverage and consolidated fixed charge financial covenants. As of July 27, 2007, the full $137.5 million was available for borrowing, and we have drawn down approximately $125 million under the facilities (with the remaining $12.5 million in available borrowing used to support two standby letters of credit issued under the credit facilities). We used a portion of the proceeds from this new facility to repay in full the approximately $55 million outstanding under the existing credit facility with Bank of America, which we terminated as of July 27, 2007.

	•		We have approximately $86 million outstanding under our 5 3/4 percent convertible subordinated notes privately issued in July 2001. These 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. We are required to pay interest on these convertible notes on January 3 and July 3 of each year. These notes mature July 3, 2008 and are currently redeemable at our option.

			On July 27, 2007, we provided notice to U.S. Trust Bank, as Trustee, to redeem these subordinated notes in full on or before August 31, 2007. In conjunction with the redemption, we also will pay the note holders interest accrued through the date of redemption and an additional redemption premium payment of approximately 0.82 percent of the outstanding principal amount of the notes. On July 30, 2007, we delivered $87.7 million to U.S. Trust Bank to be held in escrow to defease our redemption payment obligations described above. Of this amount, we used approximately $69.9 million of proceeds from the new credit facilities, and contributed approximately $17.8 million from our available cash.

			As of July 31, 2007, we had a total available borrowing capacity of 5.2 billion Japanese Yen or approximately $43.9 million at the exchange rate as of July 31, 2007. The borrowing capacity was increased during July 2007 by adding an additional line of credit to the available borrowing capacity that was in place as of June 30, 2007. There were no borrowings under these lines as of July 31, 2007.

	•		Under the new $137.5 million senior secured credit facility with Key Bank, we maintain a letter of credit in the amount of $750,000 in favor of the landlord under our current headquarters lease in Fremont, California.

	•		We also maintain under the new credit facility with Key Bank a letter of credit in the amount of $11 million in favor of Shinko Electric, Co. Ltd. (Shinko) as part of the purchase agreement between ourselves and Shinko dated July 14, 2006. The letter of credit secures our obligation to purchase the remaining 4.9 percent of equity in ASI from Shinko.

The new senior secured credit agreement with Key Bank contains financial and other covenants, including, but not limited to, limitations on liens, mergers, sales of assets, capital expenditures, and indebtedness as well as the maintenance of a maximum total leverage ratio, maximum senior leverage ratio, and minimum fixed charge coverage ratio, as defined in the agreement. Additionally, although we have not paid any cash dividends on our common stock in the past and do not anticipate paying any such cash dividends in the foreseeable future, the facility restricts our ability to pay such dividends (subject to certain exceptions, including the dividend payments from ASI to Shinko provided under the Share Purchase Agreement described in Item 1 in this report). Our failure to pay amounts when due, or a violation of these covenants or the occurrence of other events of default set forth in the credit agreement, could result in a default permitting the termination of the lenders’ commitments under the credit agreement and/or the acceleration of any loan amounts then outstanding.

We expect to meet the financial covenants under our various borrowing arrangements in the future, however, we cannot give absolute assurance that we will meet these financial covenants, including those contained in the senior secured credit facility. Specifically, we are required to maintain compliance with covenants establishing minimum EBITDA operating performance by the Company as a ratio of our total borrowing available under the senior secured credit facility. Our failure in any fiscal quarter to meet those and other covenant requirements could result in a reduction of our permitted borrowing under the facility, an acceleration of certain repayment obligations, and/or an Event of Default (which, if uncured by us or not waived by the lenders under the terms of the facility, would require the acceleration of all re-payment obligations under the facility).

Alternatively, due to the cyclical and uncertain nature of cash flows and collections from our customers, our borrowing to fund operations or working capital could exceed the permitted total leverage ratios under the credit agreement. Under any such scenario, the Company may be required to pay down the outstanding borrowings from available cash to maintain compliance with our financial covenants. If we are unable to meet any such covenants, we cannot assure the requisite lenders will grant waivers and/or amend the covenants, or that the requisite lenders will not terminate the credit agreement, preclude further borrowings or require us to repay immediately in full any outstanding borrowings.

Under the terms of its bank facilities in Japan, 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, in an “event of default”, in which case the Japanese banks may call the loans outstanding at AJI, requiring immediate repayment, which we have guaranteed.

If a holder of our long term or short term indebtedness were in the near future to demand accelerated repayment due to default of all or a substantial portion of our outstanding indebtedness that exceeds the amount of our available liquid assets that could be disbursed without triggering further defaults under other outstanding indebtedness, we would not likely have the resources to pay such accelerated amounts, would be required to seek funds from re-financing or re-structuring transactions for which we have no current basis to believe we would be able to obtain on desired terms or at all, and would face the risk of a bankruptcy filing by us or our creditors. Any accelerated repayment demands that we are able to honor would reduce our available cash balances and likely have a material adverse impact on our operating and financial performance and ability to comply with remaining obligations. If we are able to maintain our current indebtedness as outstanding, the restrictive covenants could impair our ability to expand or pursue our business strategies or obtain additional funding.

Upon ninety (90) days written notice either we or Shinko can trigger our obligation to purchase the remaining 4.9 percent equity of ASI for a purchase price of 1.3 billion Japanese yen (or approximately $11.4 million at the March 31, 2007 exchange rate). Shinko can accelerate this obligation upon thirty (30) days written notice upon the following circumstances: (a) when AJI’s equity ownership in

ASI falls below 50 percent, (b) when bankruptcy or corporate reorganization proceedings are filed against the Company or AJI; (c) when a merger or corporate reorganization has been approved involving all or substantially all of the Company’s assets; (d) when Shinko’s equity ownership in ASI falls below 4.9 percent; or (e) when the Company has failed to make any payment when due in respect of any loan secured by a pledge of the Company’s right, title and interest in and to the shares of ASI (and the holder of such security interest elects to exercise its rights against AJI in respect of such shares).

We have secured this obligation with a letter of credit. However, an acceleration could impose on us an unforeseen payment obligation, which could impact our liquidity or which payment could be subject to restrictions or covenants, or be subject to third party approvals under our debt facilities. Our inability to purchase the remaining ASI equity held by Shinko, when and as required, could significantly impact our continued control and ownership of ASI.

As a general matter, our operations have, in the past, consumed considerable cash and may do so in the future. We have in the past obtained additional financing to meet our working capital needs or to finance capital expenditures, as well as to fund operations. We may be unable to obtain any required additional financing on terms favorable to us, if at all, or which is not dilutive to our shareholders. If adequate funds are not available on acceptable terms, we may be unable to meet our current or future obligations on a timely basis, fund any desired 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 or convertible 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 new or restructured debt, we may be subject to further limitations on our operations. Any of the foregoing circumstances could adversely affect our business.

We have risk of material losses including attorney fees and expenses in conjunction with ongoing lawsuits.

Certain of our current and former directors and officers of the Company have been named as defendants in two consolidated shareholder derivative actions filed in the United States District Court of California, captionedIn re Asyst Technologies, Inc. Derivative Litigation(N.D. Cal.) (the “Federal Action”), and one similar shareholder derivative action filed in California state court, captionedForlenzo v. Schwartz, et al.(Alameda County Superior Court) (the “State Action”). Both Actions seek to recover unspecified monetary damages, disgorgement of profits and benefits, equitable and injunctive relief, and attorneys’ fees and costs. The State Action also seeks the imposition of a constructive trust on all proceeds derived from the exercise of allegedly improper stock option grants. The Company is named as a nominal defendant in both the Federal and State Actions; thus, no recovery against the Company is sought.

We are not able to predict the future outcome of these legal actions. These matters could result in significant legal expenses, diversion of management’s attention from our business, commencement of formal civil or criminal administrative or litigation actions against Asyst or our current or former employees or directors, significant fines or penalties, indemnity commitments to current and former officers and directors and other material harm to our business.

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 4A of Part I above. If we fail to do so, our business, results of operations or financial condition and the value of our stock could be materially harmed.

Our disclosure controls and procedures and internal control over financial reporting were not effective as of June 30, 2007, due to material weaknesses in internal control over financial reporting that remained outstanding at that date and that is subject to our continuing remediation efforts.

We are devoting now, and will likely need to continue to devote in the near future, significant resources in our efforts to achieve effective internal control. These efforts have been and may continue to be costly. We cannot assure that these efforts will be successful. Until we have fully remediated the material weaknesses referred in Item 4A, we may face additional risks of errors or delays in preparing our consolidated financial statements and associated risks of potential late filings of periodic reports, NASDAQ listing standard violations, risks of correcting previously filed financial statements, increased expenses, and possible private litigation or governmental proceedings arising from such matters.

Our global operations subject us to risks that may negatively affect our results of operations and financial condition.

The majority of our net sales are attributable to sales outside the United States, primarily in Taiwan, Japan, other Asia Pacific and Europe. International sales represented approximately 79 percent and 82 percent of our total net sales for the three month periods ended June 30, 2007 and 2006. We expect that international sales, particularly to Asia, will continue to represent a significant portion of our total revenue in the future. Additionally, we have sales offices and other facilities in many countries, and as a result, we are subject to risks associated with doing business globally, including:

	•		security concerns, such as armed conflict and civil or military unrest, crime, political instability, and terrorist activity;

	•		trade restrictions; compliance with extensive foreign and U.S. export laws;

	•		natural disasters;

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

	•		differing employment practices and labor issues;

	•		local business and cultural factors that differ from our normal standards and practices;

	•		regulatory requirements and prohibitions that differ between jurisdictions;

	•		restrictions on our operations by governments seeking to support local industries, nationalization of our operations, and restrictions on our ability to repatriate earnings; and/or

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

In addition, most of our products and significant amounts of our expenses are paid for in foreign currencies. Our limited hedging programs reduce, but do not entirely eliminate, the impact of currency exchange rate movements. Therefore fluctuations in exchange rates, including those caused by currency controls, could negatively impact our business operating results and financial condition by resulting in lower revenue or increased expenses. Changes in tariff and import regulations may also negatively impact our revenue in those affected countries.

Varying tax rates in different jurisdictions could negatively impact our overall tax rate. The calculation of tax liabilities involves uncertainties in the application of complex global tax regulations. Although we believe our tax estimates are reasonable, we are not able to predict whether or not our interpretations will be challenged at some time in the future or what the outcome might be.

Fluctuations in the demand for and mix of products sold may adversely affect our financial results.

If demand for our products fluctuates, our revenue and gross margin could be adversely affected. Important factors that could cause demand for our products to fluctuate include:

•

competitive pressures from companies that have competing products;

	•		changes in customer product needs;

	•		changes in business and economic conditions, including a downturn in the semiconductor industry;

	•		strategic actions taken by our competitors; and/or

	•		market acceptance of our products.

Our margins vary from product to product. Accordingly, our financial results depend in large part on the mix of products we sell, which can fluctuate widely from year to year. In addition, more recently introduced products tend to have higher associated costs and lower margins because of initial overall development costs and higher start-up costs. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product, and as a result can negatively impact our financial results.

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

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

Outsourced manufacturing could also create disruptions in the availability of our products if the timeliness or quality of products delivered does not meet our requirements or our customers’ expectations. From time to time, we have experienced delays in receiving products from Solectron. Problems with quality or timeliness could be caused by a number of factors including, but not limited to: manufacturing process flow issues, financial viability of an outsourced vendor or its supplier, availability of raw materials or components to the outsourced vendor, improper product specifications, or the learning curve to commence manufacturing at a new outsourced site or of new products. 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 forecasted demand. We may not accurately update these forecasts. Further, Solectron may be unable to meet these commitments and, even if it can, may be unable to react efficiently to rapid fluctuations in demand. In addition, changes in Solectron’s corporate structure of management, including as the result of a recently announced acquisition of Solectron by Flextronics Corporation, could affect the reliability, predictability, consistency and timeliness of service and product delivery we receive from Solectron. It could also result in Solectron making a determination to change or terminate our agreement. If our agreement with Solectron terminates, or if Solectron does not perform its obligations under our agreement, it could take several months to establish alternative manufacturing for these products and we may not be able to fulfill our customers’ orders for some or most of our products in a timely manner. If our agreement with Solectron terminates, we may be unable to find another suitable outsource manufacturer and may be unable to perform the manufacturing of these products ourselves.

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

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

When demand for semiconductor manufacturing equipment is strong, suppliers, both U.S. and international, strain to provide components on a timely basis. We have outsourced the manufacturing of many of our products, and disruption or termination of supply sources to our contract manufacturers could have an 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 and, as a result, could decrease our margins and negatively impact our financial results.

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

We operate in an intensely competitive industry, and our failure to respond quickly to technological developments and introduce new products and features could have an adverse effect on our ability to compete.

We operate in an intensely competitive industry that experiences rapid technological developments, changes in industry standards, changes in customer requirements, and frequent new product introductions and improvements. 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 may not be able to successfully develop and market these new products, the products we invest in and develop may not be well received by customers, and products developed and new technologies offered by others may affect the demand for our products. These types of events could have a variety of negative effects on our competitive position and our financial results, such as reducing our revenue, increasing our costs, lowering our gross margin percentage, and requiring us to recognize impairments of our assets.

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 be diligent in protecting our patent rights, we cannot guarantee that we will be able to file our patents and other intellectual property rights in a timely manner. In addition, we cannot predict whether our patents and other intellectual property rights will be challenged, invalidated or voided, or that the rights granted thereunder will provide us with competitive protections or 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 either to 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 against claimed infringement of the rights of others, or to determine the scope and validity of the patents or intellectual property rights of others. Any litigation could result in substantial cost to us and divert the attention of our management, which by itself could have an adverse material effect

on our financial condition and operating results. Further, adverse determinations in any litigation could result in our loss of intellectual property rights, subject us to significant liabilities to third parties, and require us to seek licenses from third parties, or prevent us from manufacturing or selling our products. Any of these effects could have a negative impact on our financial condition and results of operations.

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

Our results of operations could vary as a result of the methods, estimates, and judgments we use in applying our accounting policies.

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Estimates” in Part I, Item 2 of this report). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations. In particular, the calculation of share-based compensation expense under Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R), requires us to use valuation methodologies (which were not developed for use in valuing employee stock options and restricted stock units) and a number of assumptions, estimates, and conclusions regarding matters such as expected forfeitures, expected volatility of our share price, the expected dividend rate with respect to our common stock, and the exercise behavior of our employees. Furthermore, there are no means, under applicable accounting principles, to compare and adjust our expense if and when we learn about additional information that may affect the estimates that we previously made, with the exception of changes in expected forfeitures of share-based awards. Factors may arise over time that lead us to change our estimates and assumptions with respect to future share-based compensation arrangements, resulting in variability in our share-based compensation expense over time. Changes in forecasted share-based compensation expense could impact our gross margin percentage; research and development expenses; marketing, general and administrative expenses; and our tax rate.

Changes in our effective tax rate may have an adverse effect on our results of operations.

Our future effective tax rates may be adversely affected by a number of factors, including:

	•		the jurisdictions in which profits are determined to be earned and taxed;

	•		the resolution of issues arising from tax audits with various tax authorities;

	•		changes in the valuation of our deferred tax assets and liabilities;

	•		adjustments to estimated taxes upon finalization of various tax returns;

	•		changes in share-based compensation expense;

	•		changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles; and/or

	•		the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.

Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, tax audits or challenges by local jurisdictions of our determinations where revenue and expenses are or have been earned, incurred and subject to tax, could significantly increase our current and future effective tax rates, and/or result in a determination of significant past taxes due (and interest), which could be material and significantly impact our profitability in any particular period.

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.

We have continued to experience unexpected turnover in our finance department, and this has had an adverse impact on our business; In order to compete, we must attract, retain, and motivate key employees Company wide, and our failure to do so could have an adverse effect on our results of operations.

In the past five years, we have had significant turnover in the chief financial officer, controller and other key positions in our headquarters finance department, and in certain key finance positions at ASI in Japan. This turnover and inability to hire and retain personnel with appropriate levels of accounting knowledge, experience, and training contributed to control deficiencies that constituted material weaknesses in internal control over financial reporting as of March 31, 2007 and June 30, 2007. See Item I, Item 4 — Controls and Procedures. If we are not able to attract and retain qualified finance executives and employees at appropriate positions in our consolidated operations, we face a significant risk of further material weaknesses in internal control over financial reporting, and direct and indirect consequences of these weaknesses, including but not limited to delayed filings of our SEC reports, potential defaults under our debt obligations, risk of de-listing from the NASDAQ Global Market, significant operating expenses incurred to hire outside assistance to compensate for the lack of qualified personnel, and litigation and governmental investigations.

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

Our future 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 significantly harmed.

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 and significant demand swings. 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. The combination of these factors may cause our revenue, gross margin, cash flow, and profitability to vary significantly in both the short and long term.

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, lower pricing, and substantially greater financial, technical and personnel resources than those available to us.

Brooks, TDK, and Shinko Electric are our primary competitors in the area of loadports. Our auto identification products face competition from Brooks and Omron. We also compete with several companies in the robotics area, including, but not limited to, Brooks, Rorze and Yasukawa. In the area of AMHS, we face competition primarily from Daifuku and Murata. Our wafer sorters compete primarily with products from Recif, Inc. and Rorze. We also face competition for our software products from Cimetrix and Brooks. In addition, the industry transition to 300mm wafers is likely to draw new competitors to the fab automation and AMHS markets. In the 300mm wafer market, we expect to face intense competition from a number of established automation companies, as well as new competition from semiconductor equipment companies.

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

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

ITEM 6. EXHIBITS

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Ex. No.

File No.

Filing Date

Herewith

3.1

Amended and Restated Articles of Incorporation of the Company.

S-1

3.1

333-66184

7/19/1993

3.2

Bylaws of the Company.

S-1

3.2

333-66184

7/19/1993

3.3

Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed September 24, 1999.

10-Q

3.2

000-22430

10/21/1999

3.4

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

DEF 14A

App.

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

99.2

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

4.2

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

4.3

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

4.4

000-22430

8/14/2001

10.51

Form of Stock Award Notice and Stock Award Agreement for employees (2001 Non-Officer Equity Plan).

10.52*

Form of Stock Award Notice and Stock Award Agreement for employees (2003 Equity Incentive Plan) (for agreements executed on or after July 11, 2007).

10.53*

Form of Restricted Stock Award Agreement for non-employee directors (restricted stock units under the 2003 Equity Incentive Plan) (for agreements executed on or after July 11, 2007).

10.54

Credit Agreement among Asyst Technologies, Inc., Asyst Japan, Inc., Asyst Shinko, Inc., KeyBank National Association, Citibank N.A., Silicon Valley Bank, and KeyBanc Capital Markets dated as of July 27, 2007.

31.1

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

31.2

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

32.1

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


*		Indicates a management contract or compensatory plan or arrangement

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: August 7, 2007	By:	/s/ MICHAEL A. SICURO
		Michael A. Sicuro
		Chief Financial Officer


	By:	/s/ AARON L. TACHIBANA
		Aaron L. Tachibana
		Principal Accounting Officer

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

EXHIBIT INDEX

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Ex. No.

File No.

Filing Date

Herewith

3.1

Amended and Restated Articles of Incorporation of the Company.

S-1

3.1

333-66184

7/19/1993

3.2

Bylaws of the Company.

S-1

3.2

333-66184

7/19/1993

3.3

Certificate of Amendment of the Amended and Restated Articles of Incorporation, filed September 24, 1999.

10-Q

3.2

000-22430

10/21/1999

3.4

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

DEF 14A

App.

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

99.2

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

4.2

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

4.3

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

4.4

000-22430

8/14/2001

10.51

Form of Stock Award Notice and Stock Award Agreement for employees (2001 Non-Officer Equity Plan).

10.52*

Form of Stock Award Notice and Stock Award Agreement for employees (2003 Equity Incentive Plan) (for agreements executed on or after July 11, 2007).

10.53*

Form of Restricted Stock Award Agreement for non-employee directors (restricted stock units under the 2003 Equity Incentive Plan) (for agreements executed on or after July 11, 2007).

10.54

31.1

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

31.2

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

32.1

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


*		Indicates a management contract or compensatory plan or arrangement

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

Asyst (ASYT) Inactive 10-Q2008 Q1 Quarterly report

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