Quarterly Report

PART I — FINANCIAL INFORMATION

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

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

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AVIZA TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2005

(Unaudited)

1.  Basis of Presentation

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

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

The Company’s current fiscal year will end on September 29, 2006 and includes 52 weeks. The Company closes its fiscal quarters on the last Friday of December, March, June and September.

On December 1, 2005, Aviza, Inc., formerly Aviza Technology, Inc. (“Former Aviza”) completed its consolidation through merger with Trikon Technologies, Inc. (“Trikon”). The merger transaction was effected through the formation of a new company originally named New Athletics, Inc., which issued shares of common stock in exchange for outstanding shares of common stock of Trikon and outstanding shares of common and series A preferred stock of Former Aviza. For accounting purposes, Former Aviza is deemed to have acquired Trikon because, immediately after the merger transaction, former stockholders of Former Aviza owned approximately 56% of the combined company and former stockholders of Trikon owned approximately 44% of the combined company. Each outstanding share of Former Aviza common and series A preferred stock was exchanged for .90043 of a share of New Athletics, Inc. common stock. All common stock and series A preferred stock and per share amounts for Former Aviza in these financial statements have been adjusted to give retroactive effect to this exchange ratio for all periods presented. Shares of series B and B-1 preferred stock of Former Aviza were not exchanged in the merger transaction and, accordingly, the related share and per share amounts have not been adjusted.

In connection with the merger transaction, New Athletics, Inc. changed its name to Aviza Technology, Inc. (“Aviza”), the common stock of which is publicly traded on the NASDAQ National Market under the symbol “AVZA (changed to AVZAQ on June 19, 2009).”

The following table details the impact of the exchange of shares associated with the merger on December 1, 2005:

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Trikon and Former Aviza continue as subsidiaries of the Company.  The financial information presented in this report represents:

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

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

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

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

See Note 5 for additional information related to the merger transaction.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

2 .  Recent Accounting Pronouncements

Effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) establishes accounting for stock-based awards exchanged for employee services.  Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period.  The Company previously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and provided the pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).  The Company adopted the modified prospective application method as provided by SFAS 123(R).  Under this method, SFAS 123R was applied to new awards and to awards modified, repurchased or cancelled after the effective date.  Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered, such as unvested stock options, that are outstanding as of the date of adoption will be recognized as the remaining requisite services are rendered.  The compensation cost relating to unvested awards on October 1, 2005 was based on the grant-date fair value for those awards granted after June 24, 2005, the date of the Company’s initial filing of its Form S-4 registration statement relating to the Trikon merger as discussed in Note 5, and based on the intrinsic values as previously recorded under APB Opinion No. 25 for awards granted prior to that date.

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

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

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3.  Balance Sheet Details

4.  Stock-Based Compensation

Effective October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  SFAS 123(R) establishes accounting for stock-based awards exchanged for employee services.  Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an

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

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

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

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

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

The fair value of the Company’s stock options granted in the quarters ended December 30, 2005 and December 24, 2004 was estimated at the date of grant using the following weighted average assumptions:

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The following table summarizes the Company’s stock option activity under the Plans as of December 30, 2005 and changes during the quarter then ended:

As of December 30, 2005, there was $3.7 million of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures.  The cost is expected to be recognized over a weighted average period of approximately two years.

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

5.  Merger and Other Transactions with Trikon Technologies, Inc.

On December 1, 2005, the stockholders of Trikon approved the merger of Trikon with the Company.  Trikon designs, manufactures and services wafer processing semiconductor manufacturing equipment primarily for front end of line applications.  Its products are used for chemical and physical vapor deposition and for etch applications and are sold to semiconductor manufacturers worldwide.  The Company believes that the addition of Trikon broadens the Company’s product portfolio and its ability to provide a wider suite of solutions for customer applications.  In accordance with the provisions of SFAS No. 141, Aviza is treated as the acquirer for financial reporting purposes.  In the merger transaction, a wholly owned subsidiary of the Company was merged with and into Trikon.  Trikon stockholders received 0.29 of a share of Aviza common stock in exchange for each share of Trikon common stock they owned.  A total of 4,568,946 shares of Aviza common stock were issued in exchange for the outstanding common stock of Trikon as of December 1, 2005.  The common stock issued in the transaction was valued using the average closing price of Trikon’s common stock on November 30, and December 1, 2005.

In connection with the merger transaction, Aviza assumed a warrant issued by Trikon to an investor for the purchase of 101,500 shares of common stock (“investor warrants’) with an exercise price of $21.55 per share. In addition, further warrants for the purchase of 15,225 shares of common stock (“placement agent warrants”) were issued to the placement agent. The warrants expire October 22, 2007. The warrants may be redeemed at the option of Trikon for $0.34 at any time after the first anniversary of the closing date provided that for any 20 trading days in a 30-day trading period the closing market price exceeds $38.79 for the investor warrants, and $40.34 for the placement agent warrants, and the average daily trading volume of Aviza common stock exceeds 43,500 shares.

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

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

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

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

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

In accordance with generally accepted accounting principles, the excess of the fair value of Trikon’s net assets over the consideration given has been allocated as a pro rata reduction of the amounts that would otherwise have been allocated to Trikon’s non-current assets acquired.  The allocation of the excess fair value is as follows (in thousands):

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After allocation of the excess fair market value, the value of the intangibles acquired via the merger is as follows (in thousands):

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

The intangible assets are being amortized over their estimated useful lives.  With the exception of in-process research and development, the useful lives of the intangibles range from ten to fifteen years.  In-process research and development consists of research and development in process at the time of the merger which has not demonstrated its technological feasibility and does not have an alternative future use.

As a result of the merger transaction, Aviza recorded a restructuring liability of $241,000 primarily relating to building closures of $96,000 and employee severance and related payments of $145,000.  These costs were included in determination of the fair value of the net assets acquired in the merger transaction.

The write-ups and write-downs of Trikon’s assets to fair value for financial reporting purposes result in a difference for income tax reporting.  This fair value write-up of inventory and intangibles, as well as the reduction of deferred income, deferred rent and certain accrued liabilities, was not recorded for tax purposes due to the merger transaction being a tax-free transaction.  This will cause Aviza to have less revenue and more expenses for financial statement purposes than for tax purposes with respect to these items.   As a result, Aviza recorded a net current deferred tax liability of $1.6 million relating to these items.  Similarly, the write-down of Trikon’s property, plant, and equipment, as well as the reduction of certain accrued liabilities to fair value for financial reporting purposes results in a difference for income tax reporting. This will cause Aviza to have less depreciation and other expenses for financial statement purposes than for tax purposes with respect to these items.   As a result, Aviza recorded a deferred tax asset of $1.6 million relating to these items.

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

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

On March 14, 2005, the Company entered into a joint development agreement with Trikon related to the development of control software to be used in certain of the Company’s products.  As part of the agreement, the Company paid a $4.0 million license fee and agreed to pay royalties based on sales of the licensed product.  The license has an estimated life of 10 years. In connection with the merger transaction, no royalty payments are made, and the $4.0 million license fee is amortized over the 10-year estimated life of the license.

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