##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended April 3, 2005                                                     
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number 000-26911


THERMA-WAVE, INC.


(Exact Name of Registrant as Specified in Its Charter)


|                                                                                   |  |                                            
|---------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware                                                                           |  | 94-3000561                                 
|(State or Other Jurisdiction of
    Incorporation or Organization)                 |  | (I.R.S. Employer
    Identification Number)
|                                                                                  
|1250 Reliance Way
     Fremont, California(Address of Principal Executive Offices) |  | 94539(Zip Code)                            

(Registrants Telephone Number, Including Area Code)


(510) 668-2200


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, par value $0.01 per share


(Title of Class)


þ o


o


þ o
















---










THERMA-WAVE, INC.


FORM 10-K


TABLE OF CONTENTS


|              |  |                                                                                                                             |    |      |    | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                             |    | Page |   
|              |  |                                                                                                                             |    |      |   
|PART I.      
|Item 1.       |  | Business                                                                                                                    |    |      | 3  | 
|Item 2.       |  | Properties                                                                                                                  |    |      | 12 | 
|Item 3.       |  | Legal Proceedings                                                                                                           |    |      | 13 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                                     |    |      | 13 | 
|PART II.     
|Item 5.       |  | Market for the Registrants Common
    Equity and Related Stockholder Matters and Issuer Purchases of
    Equity Securities |    |      | 13 | 
|Item 6.       |  | Selected Financial Data                                                                                                     |    |      | 15 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                   |    |      | 16 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risks                                                             |    |      | 48 | 
|Item 8.       |  | Financial Statements and Supplemental
    Data                                                                              |    |      | 50 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                    |    |      | 85 | 
|Item 9A.      |  | Controls and Procedures                                                                                                     |    |      | 85 | 
|Item 9B.      |  | Other Information                                                                                                           |    |      | 88 | 
|PART III.    
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                      |    |      | 89 | 
|Item 11.      |  | Executive Compensation                                                                                                      |    |      | 89 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                          |    |      | 89 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                          |    |      | 89 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                                      |    |      | 89 | 
|PART IV.     
|Item 15.      |  | Exhibits and Consolidated Financial
    Statement Schedules                                                                 |    |      | 91 | 
|Signatures    |  |                                                                                                                             | 94 |     
|EXHIBIT 10.4 
|EXHIBIT 10.8 
|EXHIBIT 10.12
|EXHIBIT 10.21
|EXHIBIT 10.36
|EXHIBIT 10.37
|EXHIBIT 10.38
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



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##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business

This annual report on Form 10-K contains forward-looking
statements that involve risks and uncertainties, as well as
assumptions that, if they do not fully materialize or prove
incorrect, could cause our business and results of operations to
differ materially from those expressed or implied by such
forward-looking statements. Such forward-looking statements
include, without limitation, any statements concerning the
conditions in the semiconductor and semiconductor capital
equipment industries, our operations, economic performance and
financial condition, including in particular statements relating
to our business, growth strategy, improved gross margins and
product development efforts, statements related to benefits to
be derived from our agreement with Hermes-Epitek Corporation,
statements related to ongoing and future restructurings aimed at
reducing the companys overall cost structure, statements
related to returning the company to profitability and statements
of belief and statements of assumptions underlying any of the
foregoing. The words will, may,
should, expects, plans,
anticipates, believes,
estimates, predicts,
intends, potential,
continue, or the negative of such terms, or other
comparable terminology generally identify forward-looking
statements.


These forward-looking statements are based largely on our
current expectations and are subject to a number of risks and
uncertainties, including, without limitation, those identified
under the section titled Risk Factors, and elsewhere
in this annual report and other risks and uncertainties
indicated from time to time in our filings with the SEC. Actual
results could differ materially from these forward-looking
statements. All forward-looking statements included in this
annual report are based on information available to us as of the
date hereof, and we assume no obligation to update these
forward-looking statements.


Overview


tm




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ion Implantation  implanting ions, usually
    boron, phosphorus or arsenic, into selected areas of the silicon
    wafer to alter its electrical properties. Ion implantation may
    be performed typically ten to 24 times in the manufacture
    of ICs. For example, ion implantation creates the positively-
    and negatively-doped regions used to create each of the millions
    of transistors on each integrated circuit. It is also used to
    adjust the voltage (threshold voltage) at which the transistors
    will turn on. Our Therma-Probe product is a standard
    metrology tool for these ion implantation processes.                                                                                                    
|
| |  | Dielectric Film Deposition and Etching 
    depositing and selectively removing layers of dielectric films
    on the silicon wafer to provide electrical insulation for each
    layer of the semiconductor IC. Film deposition is typically done
    by Chemical Vapor Deposition (CVD), and film removal is
    typically done by plasma etching. Our Opti- Probe product is
    typically used as a standard, in-line metrology tool for film
    thickness measurement in these processes. Our Opti-Probe CD and
    RT/ CD, or Real-Time Critical Dimensions, and Integra integrated
    metrology products, provide rapid, non-destructive wafer-state
    information for control of the Critical Dimensions (CDs) of the
    etch processes.
|
| |  | Conductor Film Deposition and Etching 
    depositing and selectively removing layers of metal,
    polysilicon, and metal barrier films used to interconnect the
    transistors within a semiconductor device. Film deposition is
    typically done by Physical Vapor Deposition
    (PVD) electrochemical deposition (ECG), or CVD. Film
    removal is typically done by plasma etching or chemical
    mechanical planarization. Our Opti-Probe is a standard metrology
    tool for non-opaque conductor films. Our Opti-                                                                                                                                                                                                                     

3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Probe CD and RT/ CD, and Integra integrated metrology products
    provide rapid, non-destructive wafer-state information for
    control of the CDs of the etch processes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Chemical Mechanical Planarization, or CMP 
    leveling the top surface of the wafer after each
    layer of device features is added. The leveling is done by
    mechanical polishing in a chemical solution, and is required to
    maintain flatness of the wafer throughout the sequence of
    hundreds of process steps. Our Opti-Probe is a standard, in-line
    metrology tool for film thickness measurement in these processes.                                                                                                                                                                                                                                                                
|
| |  | Wafer Patterning  using photolithographic
    techniques to create the fine (sub-micron) structures that
    define the integrated circuit. The wafer patterning is typically
    done by stepper exposure systems and the photoresist
    developing and removal is done by coater/developer
    track systems and asher/strip systems.
    Our Opti-Probe is typically used as a standard, in-line
    metrology tool for film thickness and reflectivity measurements
    in these processes. Our Opti-Probe CD and RT/ CD, and Integra
    integrated metrology products provide rapid, non-destructive
    wafer-state information for control of the CDs during the wafer
    patterning process.



Industry Background






| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | successive decreases in feature line width, for example, from
    150 nanometers (nm) to 130 nm, from 130 nm to 110 nm, and
    from 110 nm to 90 nm;
|
| |  | as many as 500 process steps; and                                                                                                                    
|
| |  | an increase in the number of metal or interconnect
    layers.                                                                                     





Therma-Wave Metrology Solutions




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|                               |                                     |                    |  |    |      |   |  |      |     |   |  |    |     |  
|------------------------------ | ----------------------------------- | ------------------ |  | -- | ---- | - |  | ---- | --- | - |  | -- | --- | -
|                               |                                     | Percentage of Net  | 
|                               |                                     | Revenues           | 
|                               |                                     |                    | 
|                               |                                     | Fiscal Years Ended | 
|                               |                                     | March 31,          | 
|                               |                                     |                    | 
|                               |                                     | 2005               |  |    | 2004 |   |  | 2003 |    
|                               |                                     |                    |  |    |      |   |  |      |    
|Net Revenues by Product Family |                                     |                    |  |    |      |   |  |      |     |   |  |   
|                               | Opti-Probe, including Opti-Probe CD |                    |  | 47 | %    |   |  | 44   | %   |   |  | 41 | %  
|                               | Therma-Probe                        |                    |  | 22 | %    |   |  | 8    | %   |   |  | 11 | %  
|                               | Integra and Other                   |                    |  | 6  | %    |   |  | 13   | %   |   |  | 6  | %  
|                               | Service and parts                   |                    |  | 25 | %    |   |  | 28   | %   |   |  | 42 | %  
|                               | License                             |                    |  |   | %    |   |  | 7    | %   |   |  |   | %  
|                               |                                     |                    |  |    |      |   |  |      |    
|                               |                                     | Total              |  |    | 100  | % |  |      | 100 | % |  |    | 100 | %
|                               |                                     |                    |  |    |      |   |  |      |    

Therma-Probe Product Family






| |                      
| | ---------------------
| | Ion Implant Metrology





| |                                 
| | --------------------------------
| | Ultra-Shallow Junction Metrology



5



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Opti-Probe Product Family




Thin-Film Metrology








Opti-Probe CD and RT/ CD Products




| |                        
| | -----------------------
| | New Market Requirements





6



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Integrated Metrology Products




| |                    
| | -------------------
| | Market Requirements





| |                                                                
| | ---------------------------------------------------------------
| | Benefits of Integrated Metrology & Advanced
    Process Control





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Integra Product Family






| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | Integra CCD-i  a second-generation reflectometer unit
    for high throughput thin-film, and
|
| |  | CMP and OCD applications based on the CD-i product.                                          



Employees




Sales and Marketing








8



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|                                           |                                            |                    |  |    |      |   |  |      |    |   |  |    |    |  
|------------------------------------------ | ------------------------------------------ | ------------------ |  | -- | ---- | - |  | ---- | -- | - |  | -- | -- | -
|                                           |                                            | Percentage of Net  | 
|                                           |                                            | Revenues           | 
|                                           |                                            |                    | 
|                                           |                                            | Fiscal Years Ended | 
|                                           |                                            | March 31,          | 
|                                           |                                            |                    | 
|                                           |                                            | 2005               |  |    | 2004 |   |  | 2003 |   
|                                           |                                            |                    |  |    |      |   |  |      |   
|Customers Over Ten Percent of Net Revenues |                                            |                    |  |    |      |   |  |      |    |   |  |   
|                                           | Taiwan Semiconductor Manufacturing Company |                    |  | 15 | %    |   |  | 16   | %  |   |  |   | % 
|                                           | Intel Corporation                          |                    |  | 12 | %    |   |  | 14   | %  |   |  | 13 | % 
|                                           | Samsung                                    |                    |  | 10 | %    |   |  |     | %  |   |  |   | % 
|                                           | Tokyo Electron, Ltd.                       |                    |  |   | %    |   |  | 12   | %  |   |  |   | % 
|                                           | Raytec Corp.(1)                            |                    |  |   | %    |   |  | 10   | %  |   |  |   | % 
|                                           |                                            |                    |  |    |      |   |  |      |   
|                                           |                                            | Total              |  |    | 37   | % |  |      | 52 | % |  |    | 13 | %
|                                           |                                            |                    |  |    |      |   |  |      |   






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Raytec Corp. was formally a subsidiary of Seki Technotron, our
    distributor for Japan.



|                    |               |                   |  |    |      |   |  |    |     |  
|------------------- | ------------- | ----------------- |  | -- | ---- | - |  | -- | --- | -
|                    |               | Fiscal Year Ended | 
|                    |               | March 31,         | 
|                    |               |                   | 
|                    |               | 2005              |  |    | 2004 |  
|                    |               |                   |  |    |      |  
|Revenues by Country |               |                   |  |    |      |   |  |   
|                    | United States |                   |  | 29 | %    |   |  | 28 | %  
|                    | Taiwan        |                   |  | 21 | %    |   |  | 23 | %  
|                    | Korea         |                   |  | 14 | %    |   |  | 5  | %  
|                    | Japan         |                   |  | 13 | %    |   |  | 22 | %  
|                    | Europe        |                   |  | 11 | %    |   |  | 14 | %  
|                    | China         |                   |  | 6  | %    |   |  | 5  | %  
|                    | Singapore     |                   |  | 6  | %    |   |  | 3  | %  
|                    |               |                   |  |    |      |  
|                    |               | Total             |  |    | 100  | % |  |    | 100 | %
|                    |               |                   |  |    |      |  



9



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Research and Development and Engineering








10



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Manufacturing










Competition






11



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Patents and Proprietary Rights












Available Information


www.sec.gov







|        |           
|------- | ----------
|Item 2. | Properties



12



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                           |                  |                       |  |   |      |  |  |   |      | 
|-------------------------- | ---------------- | --------------------- |  | - | ---- |  |  | - | ---- | 
|                           |                  | High                  |  |   | Low  | 
|                           |                  |                       |  |   |      | 
|Common Stock Price Ranges: |                  |                       |  |   |      |  |  |  
|                           | Fiscal Year 2004 |                       |  |   |      |  |  |   |     
|                           |                  | First Fiscal Quarter  |  | $ | 2.59 |  |  | $ | 0.43 | 
|                           |                  | Second Fiscal Quarter |  | $ | 3.73 |  |  | $ | 1.59 | 
|                           |                  | Third Fiscal Quarter  |  | $ | 6.78 |  |  | $ | 3.36 | 
|                           |                  | Fourth Fiscal Quarter |  | $ | 6.26 |  |  | $ | 3.45 | 
|                           | Fiscal Year 2005 |                       |  |   |      |  |  |   |     
|                           |                  | First Fiscal Quarter  |  | $ | 4.78 |  |  | $ | 3.05 | 
|                           |                  | Second Fiscal Quarter |  | $ | 4.93 |  |  | $ | 3.06 | 
|                           |                  | Third Fiscal Quarter  |  | $ | 3.75 |  |  | $ | 2.99 | 
|                           |                  | Fourth Fiscal Quarter |  | $ | 3.48 |  |  | $ | 1.67 | 



13



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Shares Authorized for Issuance Under Equity Compensation
Plans




|              |                                                    |                                 |       |  |                  |  |  |                  |      |  |  |  |           |           | 
|------------- | -------------------------------------------------- | ------------------------------- | ----- |  | ---------------- |  |  | ---------------- | ---- |  |  |  | --------- | --------- | 
|              |                                                    | Number of Shares                |       |  | Weighted         |  |  |                 
|              |                                                    | to be Issued                    |       |  | Average Exercise |  |  | Number of Shares |     
|              |                                                    | Upon Exercise of                |       |  | Price of         |  |  | Remaining        |     
|              |                                                    | Outstanding                     |       |  | Outstanding      |  |  | Available for    |     
|              |                                                    | Stock Options(1)                |       |  | Stock Options(1) |  |  | Future Issuance  |     
|              |                                                    |                                 |       |  |                  |  |  |                  |     
|Plan Category |                                                    |                                 |       |  |                  |  |  |                  |      |  |  | 
|              | Equity compensation plans approved by stockholders |                                 |       |  |                  |  |  |                  |      |  |  |  |          
|              |                                                    | Stock option plans              |       |  | 6,171,596        |  |  | $                | 3.66 |  |  |  | 1,847,788 | (2)      
|              |                                                    | Employee Stock Purchase Plan(1) |       |  |                  |  |  |                  |      |  |  |  | 429,852   |          
|              |                                                    |                                 |       |  |                  |  |  |                  |     
|              |                                                    |                                 | Total |  |                  |  |  |                  |      |  |  |  |           | 2,277,640 | 
|              |                                                    |                                 |       |  |                  |  |  |                  |     






|    |                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of securities to be issued upon the exercise of
    outstanding options and the weighted average exercise price of
    outstanding options under our 2000 Employee Stock Purchase Plan
    cannot be determined prior to the actual purchase dates under
    the plan.
|   
|(2) | The number of shares available for issuance under our 2000
    Equity Incentive Plan increases each year by one percent of the
    total shares of our outstanding common stock pursuant to the
    terms of the plan.                                                           

14



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |         |        |        | 
|----------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------ | ------ | ------ | ------ | - | ------- | ------ | ------ | ------- | -------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                              |                                                                                 | Fiscal Years Ended March 31,                                                    |                         
|                              |                                                                                 |                                                                                 |                         
|                              |                                                                                 | 2005                                                                            |                          |        | 2004   |        |   | 2003(2) |        |        | 2002(2) |          |        | 2001(1) |  
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              |                                                                                 | (In thousands, except per share data)                                           |                         
|Statement of Operations Data: |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |        
|                              | Net revenues                                                                    |                                                                                 | $                        | 81,261 |        |        | $ | 65,309  |        |        | $       | 49,220   |        |         | $ | 81,937  |        |        | $ | 198,199 |       
|                              | Cost of revenues                                                                |                                                                                 |                          | 44,620 |        |        |   | 38,500  |        |        |         | 55,061   |        |         |   | 65,414  |        |        |   | 101,421 |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Gross profit (loss)                                                             |                                                                                 |                          | 36,641 |        |        |   | 26,809  |        |        |         | (5,841   | )      |         |   | 16,523  |        |        |   | 96,778  |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Operating expenses:                                                             |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |         |       
|                              |                                                                                 | Research and development                                                        |                          |        | 17,559 |        |   |         | 18,710 |        |         |          | 29,230 |         |   |         | 29,122 |        |   |         | 33,881 |       
|                              |                                                                                 | Selling, general and administrative                                             |                          |        | 25,450 |        |   |         | 22,958 |        |         |          | 26,071 |         |   |         | 21,713 |        |   |         | 28,239 |       
|                              |                                                                                 | In-process research and development                                             |                          |        |       |        |   |         |       |        |         |          |       |         |   |         | 16,340 |        |   |         |       |       
|                              |                                                                                 | Impairment of goodwill and other intangible assets(3)                           |                          |        |       |        |   |         |       |        |         |          | 67,408 |         |   |         |       |        |   |         |       |       
|                              |                                                                                 | Restructuring, severance and other                                              |                          |        | 347    |        |   |         | 1,938  |        |         |          | 4,293  |         |   |         | 1,470  |        |   |         | 1,700  |       
|                              |                                                                                 | Stock-based compensation expense (benefit)                                      |                          |        | (179   | )      |   |         | 1,150  |        |         |          | 1,684  |         |   |         | 536    |        |   |         |       |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              |                                                                                 |                                                                                 | Total operating expenses |        |        | 43,177 |   |         |        | 44,756 |         |          |        | 128,686 |   |         |        | 69,181 |   |         |        | 63,820 | 
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Operating income (loss)                                                         |                                                                                 |                          | (6,536 | )      |        |   | (17,947 | )      |        |         | (134,527 | )      |         |   | (52,658 | )      |        |   | 32,958  |       
|                              | Other income (expense), net                                                     |                                                                                 |                          | 177    |        |        |   | (146    | )      |        |         | 923      |        |         |   | 2,342   |        |        |   | 1,196   |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Income (loss) before provision (benefit) of income taxes                        |                                                                                 |                          | (6,359 | )      |        |   | (18,093 | )      |        |         | (133,604 | )      |         |   | (50,316 | )      |        |   | 34,154  |       
|                              | Provision (benefit) for income taxes                                            |                                                                                 |                          | 462    |        |        |   |        |        |        |         |         |        |         |   | (1,120  | )      |        |   | 2,025   |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Income (loss) before cumulative effect of change in accounting
    principle    |                                                                                 |                          | (6,821 | )      |        |   | (18,093 | )      |        |         | (133,604 | )      |         |   | (49,196 | )      |        |   | 32,129  |       
|                              | Cumulative effect of change in accounting principle, net of
    income taxes(1) |                                                                                 |                          |       |        |        |   |        |        |        |         |         |        |         |   |        |        |        |   | (6,287  | )     
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Net income (loss)                                                               |                                                                                 |                          | (6,821 | )      |        |   | (18,093 | )      |        |         | (133,604 | )      |         |   | (49,196 | )      |        |   | 25,842  |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Net income (loss) available to common stockholders                              |                                                                                 | $                        | (6,821 | )      |        | $ | (18,093 | )      |        | $       | (133,604 | )      |         | $ | (49,196 | )      |        | $ | 25,842  |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Basic net income (loss) per share:                                              |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |         |       
|                              |                                                                                 | Income (loss) before cumulative effect of change in accounting
    principle    |                          | $      | (0.19  | )      |   | $       | (0.56  | )      |         | $        | (4.69  | )       |   | $       | (1.98  | )      |   | $       | 1.37   |       
|                              |                                                                                 | Cumulative effect of change in accounting principle, net of
    income taxes(1) |                          |        |       |        |   |         |       |        |         |          |       |         |   |         |       |        |   |         | (0.27  | )     
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Basic net income (loss) per share                                               |                                                                                 | $                        | (0.19  | )      |        | $ | (0.56   | )      |        | $       | (4.69    | )      |         | $ | (1.98   | )      |        | $ | 1.10    |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Diluted net income (loss) per share:                                            |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |         |       
|                              |                                                                                 | Income (loss) before cumulative effect of change in accounting
    principle    |                          | $      | (0.19  | )      |   | $       | (0.56  | )      |         | $        | (4.69  | )       |   | $       | (1.98  | )      |   | $       | 1.27   |       
|                              |                                                                                 | Cumulative effect of change in accounting principle, net of
    income taxes(1) |                          |        |       |        |   |         |       |        |         |          |       |         |   |         |       |        |   |         | (0.25  | )     
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Diluted net income (loss) per share                                             |                                                                                 | $                        | (0.19  | )      |        | $ | (0.56   | )      |        | $       | (4.69    | )      |         | $ | (1.98   | )      |        | $ | 1.02    |       
|                              |                                                                                 |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |  
|                              | Weighted average common shares outstanding:                                     |                                                                                 |                          |        |        |        |   |         |        |        |         |          |        |         |   |         |        |        |   |         |       
|                              |                                                                                 | Basic                                                                           |                          |        | 35,912 |        |   |         | 32,387 |        |         |          | 28,500 |         |   |         | 24,894 |        |   |         | 23,444 |       
|                              |                                                                                 | Diluted                                                                         |                          |        | 35,912 |        |   |         | 32,387 |        |         |          | 28,500 |         |   |         | 24,894 |        |   |         | 25,277 |       

15



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|                      |                                                                                         |                              |   |        |      |  |   |         |   |  |         |         |   |         |   |         |   |  |   |         |  
|--------------------- | --------------------------------------------------------------------------------------- | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | ------- | ------- | - | ------- | - | ------- | - |  | - | ------- | -
|                      |                                                                                         | Fiscal Years Ended March 31, |  
|                      |                                                                                         |                              |  
|                      |                                                                                         | 2005                         |   |        | 2004 |  |   | 2003(2) |   |  | 2002(2) |         |   | 2001(1) |  
|                      |                                                                                         |                              |   |        |      |  |   |         |   |  |         |         |   |         |  
|Other Financial Data: |                                                                                         |                              |   |        |      |  |   |         |   |  |         |         |   |         |   |         |   |  |   |        
|                      | Cash provided by (used in) operating activities                                         |                              | $ | (9,694 | )    |  | $ | (2,884  | ) |  | $       | (42,550 | ) |         | $ | (17,289 | ) |  | $ | 9,600   |  
|                      | Cash provided by (used in) investing activities                                         |                              |   | (1,605 | )    |  |   | (677    | ) |  |         | 10,165  |   |         |   | 4,039   |   |  |   | (32,316 | )
|                      | Cash provided by (used in) financing activities and effect of
    exchange rate on cash |                              |   | 819    |      |  |   | 13,765  |   |  |         | (404    | ) |         |   | 4,009   |   |  |   | 3,241   |  
|                      | Capital expenditures, included in cash used in investing
    activities                 |                              |   | 1,106  |      |  |   | 254     |   |  |         | 1,464   |   |         |   | 4,364   |   |  |   | 11,988  |  

|                    |                           |           |   |        |      |  |   |         |  |  |         |        |  |         |   |         |  |  |   |         | 
|------------------- | ------------------------- | --------- | - | ------ | ---- |  | - | ------- |  |  | ------- | ------ |  | ------- | - | ------- |  |  | - | ------- | 
|                    |                           | March 31, |  
|                    |                           |           |  
|                    |                           | 2005      |   |        | 2004 |  |   | 2003(2) |  |  | 2002(2) |        |  | 2001(1) |  
|                    |                           |           |   |        |      |  |   |         |  |  |         |        |  |         |  
|Balance Sheet Data: |                           |           |   |        |      |  |   |         |  |  |         |        |  |         |   |         |  |  |   |        
|                    | Cash and cash equivalents |           | $ | 13,419 |      |  | $ | 23,899  |  |  | $       | 13,695 |  |         | $ | 59,059  |  |  | $ | 75,575  | 
|                    | Working capital           |           |   | 22,832 |      |  |   | 28,785  |  |  |         | 24,452 |  |         |   | 82,036  |  |  |   | 110,872 | 
|                    | Total assets              |           |   | 67,573 |      |  |   | 64,282  |  |  |         | 66,760 |  |         |   | 200,623 |  |  |   | 190,168 | 
|                    | Long-term debt            |           |   |       |      |  |   |        |  |  |         |       |  |         |   | 16      |  |  |   | 16      | 
|                    | Stockholders equity      |           |   | 25,963 |      |  |   | 32,264  |  |  |         | 36,338 |  |         |   | 167,499 |  |  |   | 129,082 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective April 1, 2000, we changed our method of
    accounting for revenue recognition in accordance with Securities
    and Exchange Staff Accounting Bulletin Number 101
    (SAB 101). In December 2003, the Securities Exchange
    Commission issued Staff Accounting Bulletin Number 104
    (SAB 104), which supercedes SAB 101. We are in
    compliance with SAB 104.                                                                                                                                                                                                                                                 
|   
|(2) | The consolidated financial statements for the years ended
    March 31, 2003 and 2002 were restated as a result of an
    investigation and revenue recognition review conducted by our
    Audit Committee with the assistance of outside legal counsel and
    independent forensic accountants.                                                                                                                                                                                                                                                                                                                               
|   
|(3) | During fiscal year ended March 31, 2003, we conducted
    impairment reviews of goodwill and other intangible assets in
    accordance with Statement of Financial Accounting Standards
    No. 142, Goodwill and Other Intangible Assets,
    (SFAS 142) and Statement of Financial Accounting Standards
    No. 144, Accounting for the Impairment or Disposal of
    Long-Lived Assets, (SFAS 144). As a result of the
    reviews, we wrote off $65.9 million for goodwill,
    $0.6 million for developed technology, $0.2 million
    for a development contract and $0.8 million for trade name
    intangible assets.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

General






16



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Therma-Probe Product Family.


Opti-Probe Product Family.


Opti-Probe CD Product Family.


Integra Product Family.








17



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| |           
| | ----------
| | Our Market





| |         
| | --------
| | Overview







18



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|             |                                    |                      |     |    |      |  |     |      |   |  |     |    |  
|------------ | ---------------------------------- | -------------------- | --- | -- | ---- |  | --- | ---- | - |  | --- | -- | -
|             |                                    | Percentage of System |    
|             |                                    | Orders               |    
|             |                                    |                      |    
|             |                                    | Fiscal Years Ended   |    
|             |                                    | March 31,            |    
|             |                                    |                      |    
|             |                                    | 2005                 |     |    | 2004 |  |     | 2003 |  
|             |                                    |                      |     |    |      |  |     |      |  
|Markets      |                                    |                      |     |    |      |  |     |      |   |  |     |   
|             | Asia, excluding Japan              |                      |     | 39 | %    |  |     | 56   | % |  |     | 54 | %
|             | Japan (inclusive of the IM orders) |                      |     | 19 | %    |  |     | 19   | % |  |     | 12 | %
|             | Europe                             |                      |     | 25 | %    |  |     | 12   | % |  |     | 4  | %
|             | United States                      |                      |     | 17 | %    |  |     | 13   | % |  |     | 30 | %
|             |                                    |                      |     |    |      |  |     |      |  
|Total orders |                                    |                      | 100 | %  |      |  | 100 | %    |   |  | 100 | % 
|             |                                    |                      |     |    |      |  |     |      |  



| |             
| | ------------
| | Net Revenues





| |              
| | -------------
| | Gross Margins





19



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| |                   
| | ------------------
| | Operating Expenses







| |              
| | -------------
| | Balance Sheet







20



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| |        
| | -------
| | Summary





| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total new orders increased by 24% to $85.8 million,                                                                                                                      
|
| |  | Total net revenue increased by 24% to $81.3 million,                                                                                                                     
|
| |  | Total deferred revenue increased 98% to $17.2 million,                                                                                                                   
|
| |  | Gross margin improved to 45% compared to 41% in fiscal 2004,                                                                                                             
|
| |  | Operating expenses decreased by 4% year-over-year, and                                                                                                                   
|
| |  | Net loss was reduced by 62% to $6.8 million, or ($0.19) per
    diluted share, compared to a net loss of $18.1 million, or
    ($0.56) per diluted share, in fiscal 2004,
|
| |  | See also page 34 for discussion of liquidity and going concern.                                                                                                          





| |        
| | -------
| | Outlook





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Critical Accounting Policies and Estimates








| |                    
| | -------------------
| | Revenue Recognition



22



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System Revenues.






Service and Parts Revenues.




| |          
| | ---------
| | Inventory





| |                                                            
| | -----------------------------------------------------------
| | Allowances for Doubtful Accounts Receivable and
    Returns



23



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| |                                              
| | ---------------------------------------------
| | Valuation of Long-Lived and Intangible Assets





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | significant under-performance relative to expected historical or
    projected future operating results;             
|
| |  | significant changes in the manner of our use of the acquired
    assets or the strategy for our overall business; and
|
| |  | significant negative industry or economic trends.                                                                    









| |             
| | ------------
| | Income Taxes





| |         
| | --------
| | Warranty



24



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Results of Operations




|                                       |                                                    |                                   |       |      |      |  |       |      |      |   |        |       |       | 
|-------------------------------------- | -------------------------------------------------- | --------------------------------- | ----- | ---- | ---- |  | ----- | ---- | ---- | - | ------ | ----- | ----- | 
|                                       |                                                    | Fiscal Year                       |      
|                                       |                                                    |                                   |      
|                                       |                                                    | 2005                              |       |      | 2004 |  |       | 2003 |     
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Results of Operations                  |                                                    |                                   |       |      |      |  |       |      |      |   |        |      
|Net revenues                           |                                                    |                                   | 100.0 | %    |      |  | 100.0 | %    |      |   | 100.0  | %    
|Cost of revenues                       |                                                    |                                   | 54.9  |      |      |  | 59.0  |      |      |   | 111.9  |      
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Gross profit (loss)                    |                                                    |                                   | 45.1  |      |      |  | 41.0  |      |      |   | (11.9  | )    
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Operating expenses:                    |                                                    |                                   |       |      |      |  |       |      |      |   |        |      
|                                       | Research and development                           |                                   |       | 21.6 |      |  |       | 28.5 |      |   |        | 59.4  |      
|                                       | Selling, general and administrative                |                                   |       | 31.3 |      |  |       | 35.2 |      |   |        | 53.0  |      
|                                       | Impairment of goodwill and other intangible assets |                                   |       |      |      |  |       |     |      |   |        | 136.9 |      
|                                       | Restructuring, severance and other                 |                                   |       | 0.4  |      |  |       | 3.0  |      |   |        | 8.7   |      
|                                       | Stock-based compensation expense (benefit)         |                                   |       | (0.2 | )    |  |       | 1.8  |      |   |        | 3.4   |      
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|                                       |                                                    | Total operating expenses          |       |      | 53.1 |  |       |      | 68.5 |   |        |       | 261.4 | 
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Operating loss:                        |                                                    |                                   | (8.0  | )    |      |  | (27.5 | )    |      |   | (273.3 | )    
|Other income (expense), net:           |                                                    |                                   |       |      |      |  |       |      |      |   |        |      
|                                       | Interest expense                                   |                                   |       |     |      |  |       | (0.1 | )    |   |        | (0.3  | )    
|                                       | Interest income                                    |                                   |       | 0.2  |      |  |       | 0.2  |      |   |        | 1.9   |      
|                                       | Other income (expense), net                        |                                   |       |     |      |  |       | (0.3 | )    |   |        | 0.3   |      
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|                                       |                                                    | Total other income (expense), net |       |      | 0.2  |  |       |      | (0.2 | ) |        |       | 1.9   | 
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Loss before provision for income taxes |                                                    |                                   | (7.8  | )    |      |  | (27.7 | )    |      |   | (271.4 | )    
|Provision for income taxes             |                                                    |                                   | (0.6  | )    |      |  |      |      |      |   |       |      
|                                       |                                                    |                                   |       |      |      |  |       |      |     
|Net loss                               |                                                    |                                   | (8.4  | )%   |      |  | (27.7 | )%   |      |   | (271.4 | )%   
|                                       |                                                    |                                   |       |      |      |  |       |      |     



|                                                                    |                                                                            |          |  |   |          |  |  |        |  |  |      |     |  |          |   |     |  |  |  |   |  
|------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------- |  | - | -------- |  |  | ------ |  |  | ---- | --- |  | -------- | - | --- |  |  |  | - | -
|                                                                    |                                                                            | Net      |  |   | % of Net |  |  | Gross  |  |  | Net  |     |  | % of Net |  
|                                                                    |                                                                            | Revenues |  |   | Revenues |  |  | Profit |  |  | Loss |     |  | Revenues |  
|                                                                    |                                                                            |          |  |   |          |  |  |        |  |  |      |     |  |          |  
|Major Changes Fiscal 2005 Compared to Fiscal 2004 (in
    millions) |                                                                            |          |  |   |          |  |  |        |  |  |      |     |  |          |   |     |  |  |  |  
|                                                                    | Decrease in the sale of inventory that had been previously
    written-off |          |  |  |          |  |  |       |  |  | $    | 3.4 |  |          | $ | 3.4 |  |  |  | 4 | %
|                                                                    | Decrease in stock-based compensation                                       |          |  |  |          |  |  |       |  |  |      | 0.3 |  |          |   | 1.6 |  |  |  | 2 | %



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|                                                                    |                                                                                                  |          |   |     |          |  |  |        |   |  |      |      |  |          |   |      |  |  |  |     |  
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------- | - | --- | -------- |  |  | ------ | - |  | ---- | ---- |  | -------- | - | ---- |  |  |  | --- | -
|                                                                    |                                                                                                  | Net      |   |     | % of Net |  |  | Gross  |   |  | Net  |      |  | % of Net |  
|                                                                    |                                                                                                  | Revenues |   |     | Revenues |  |  | Profit |   |  | Loss |      |  | Revenues |  
|                                                                    |                                                                                                  |          |   |     |          |  |  |        |   |  |      |      |  |          |  
|Major Changes Fiscal 2004 Compared to Fiscal 2003 (in
    millions) |                                                                                                  |          |   |     |          |  |  |        |   |  |      |      |  |          |   |      |  |  |  |    
|                                                                    | The conclusion of a development contract                                                         |          | $ | 4.7 |          |  |  | 7      | % |  | $    | 3.7  |  |          | $ | 3.7  |  |  |  | 6   | %
|                                                                    | Lower operating expenses due to the fiscal 2003 impairment of
    goodwill and other intangibles |          |   |    |          |  |  |       |   |  |      | 67.4 |  |          |   | 67.4 |  |  |  | 137 | %
|                                                                    | Increase in the sale of inventory that had been previously
    written-off                       |          |   |    |          |  |  |       |   |  |      | 9.6  |  |          |   | 9.6  |  |  |  | 15  | %
|                                                                    | Increase in provision for excess and obsolescence                                                |          |   |    |          |  |  |       |   |  |      | 4.4  |  |          |   | 4.4  |  |  |  | 7   | %

Fiscal Year Ended March 31, 2005 Compared to Fiscal Year
Ended March 31, 2004


Net Revenues.




|             |                    |                    |  |    |      |   |  |      |     |   |  |    |     |  
|------------ | ------------------ | ------------------ |  | -- | ---- | - |  | ---- | --- | - |  | -- | --- | -
|             |                    | Fiscal Year Ended  | 
|             |                    | March 31,          | 
|             |                    |                    | 
|             |                    | 2005               |  |    | 2004 |   |  | 2003 |    
|             |                    |                    |  |    |      |   |  |      |    
|Net Revenues |                    |                    |  |    |      |   |  |      |     |   |  |   
|             | Products (Systems) |                    |  | 75 | %    |   |  | 72   | %   |   |  | 58 | %  
|             | Services and parts |                    |  | 25 | %    |   |  | 28   | %   |   |  | 42 | %  
|             |                    |                    |  |    |      |   |  |      |    
|             |                    | Total net revenues |  |    | 100  | % |  |      | 100 | % |  |    | 100 | %
|             |                    |                    |  |    |      |   |  |      |    





26



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Gross Profit.


|                                                           |                                                     |              |   |        |       | 
|---------------------------------------------------------- | --------------------------------------------------- | ------------ | - | ------ | ----- | 
|                                                           |                                                     | Gross Profit |  
|                                                           |                                                     | Improvement  |  
|                                                           |                                                     |              |  
|Key contributors to gross profit improvement
    ($000s): |                                                     |              |   |       
|                                                           | Increased systems revenues                          |              | $ | 11,475 |      
|                                                           | Decreased service and parts revenues                |              |   | 1,369  |      
|                                                           | Decreased sales of inventory previously written-off |              |   | (3,400 | )    
|                                                           | Decreased stock-based compensation expense          |              |   | 288    |      
|                                                           | Other                                               |              |   | 100    |      
|                                                           |                                                     |              |  
|                                                           |                                                     | Total        |   | $      | 9,832 | 
|                                                           |                                                     |              |  





|                                                                                              |  |                    |       |  |      |   |        | 
|--------------------------------------------------------------------------------------------- |  | ------------------ | ----- |  | ---- | - | ------ | 
|                                                                                              |  | Fiscal Years Ended |      
|                                                                                              |  | March 31,          |      
|                                                                                              |  |                    |      
|                                                                                              |  | 2005               |       |  | 2004 |  
|                                                                                              |  |                    |       |  |      |  
|                                                                                              |  | (In thousands)     |      
|Inventory provision for excess and obsolescence                                               |  | $                  | 5,089 |  |      | $ | 5,200  | 
|Benefit from the sales of inventory that had been previously
    written-off and obsolescence |  |                    | 7,183 |  |      |   | 10,563 | 





Research and Development, or R&D, Expense.


27



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Selling, General and Administrative, or SG&A,
Expense.


Impairment of Goodwill and Other Intangible Assets.


Restructuring, Severance and Other.


|                                            |                             |              |   |     |           |  |   |         |              |  |      |      |   |  |   |     | 
|------------------------------------------- | --------------------------- | ------------ | - | --- | --------- |  | - | ------- | ------------ |  | ---- | ---- | - |  | - | --- | 
|                                            |                             | Liability as |   |     |           |  |   |         | Liability as | 
|                                            |                             | of March 31, |   |     |           |  |   |         | of March 31, | 
|                                            |                             | 2004         |   |     | Provision |  |   | Payment |              |  | 2005 |     
|                                            |                             |              |   |     |           |  |   |         |              |  |      |     
|Restructuring, severance and other ($000s): |                             |              |   |     |           |  |   |         |              |  |      |      |   |  |   |    
|                                            | Consolidation of facilities |              | $ | 220 |           |  | $ | 347     |              |  | $    | (389 | ) |  | $ | 178 | 









28



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Stock-Based Compensation.












| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | the new options issued in the exchange which were outstanding
    since September 10, 2003;                
|
| |  | options eligible for exchange that were not exchanged (about 1%
    of eligible options); and              
|
| |  | options issued to eligible participants within the six months
    prior to or following September 10, 2003.



29



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|                                                                    |                                      |                  |   |       |    |  |   |        |   |  |    |      |   |           |   |      |   |  |   |      |  
|------------------------------------------------------------------- | ------------------------------------ | ---------------- | - | ----- | -- |  | - | ------ | - |  | -- | ---- | - | --------- | - | ---- | - |  | - | ---- | -
|                                                                    |                                      | Fiscal Year 2005 |  
|                                                                    |                                      |                  |  
|                                                                    |                                      | Q1               |   |       | Q2 |  |   | Q3     |   |  | Q4 |      |   | Full Year |  
|                                                                    |                                      |                  |   |       |    |  |   |        |   |  |    |      |   |           |  
|Variable accounting charge (benefit) by fiscal quarter
    ($000s) |                                      |                  |   |       |    |  |   |        |   |  |    |      |   |           |   |      |   |  |   |     
|                                                                    | Days outstanding                     |                  |   | 91    |    |  |   | 91     |   |  |    | 91   |   |           |   | 98   |   |  |   | 371  |  
|                                                                    | Ending stock price                   |                  | $ | 4.78  |    |  | $ | 3.33   |   |  | $  | 3.24 |   |           | $ | 1.67 |   |  | $ | 1.67 |  
|                                                                    | Variable accounting charge (benefit) |                  | $ | 1,475 |    |  | $ | (1,174 | ) |  | $  | (22  | ) |           | $ | (821 | ) |  | $ | (542 | )

|                                                                    |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |   |      |   |  |   |      | 
|------------------------------------------------------------------- | ------------------------------------ | ---------------- | - | ---- | -- |  | - | ---- |  |  | -- | ---- |  | --------- | - | ---- | - |  | - | ---- | 
|                                                                    |                                      | Fiscal Year 2004 |  
|                                                                    |                                      |                  |  
|                                                                    |                                      | Q1               |   |      | Q2 |  |   | Q3   |  |  | Q4 |      |  | Full Year |  
|                                                                    |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |  
|Variable accounting charge (benefit) by fiscal quarter
    ($000s) |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |   |      |   |  |   |     
|                                                                    | Days outstanding                     |                  |   |     |    |  |   | 18   |  |  |    | 90   |  |           |   | 90   |   |  |   | 198  | 
|                                                                    | Ending stock price                   |                  | $ | 2.20 |    |  | $ | 3.48 |  |  | $  | 5.37 |  |           | $ | 3.67 |   |  | $ | 3.67 | 
|                                                                    | Variable accounting charge (benefit) |                  | $ |     |    |  | $ | 61   |  |  | $  | 889  |  |           | $ | (213 | ) |  | $ | 737  | 



Other Income (Expense).


Net Loss.


Fiscal Year Ended March 31, 2004 Compared to Fiscal Year
Ended March 31, 2003


Net Revenues.


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|             |                   |                    |  |    |      |   |  |      |     |   |  |    |     |  
|------------ | ----------------- | ------------------ |  | -- | ---- | - |  | ---- | --- | - |  | -- | --- | -
|             |                   | Fiscal Year Ended  | 
|             |                   | March 31,          | 
|             |                   |                    | 
|             |                   | 2005               |  |    | 2004 |   |  | 2003 |    
|             |                   |                    |  |    |      |   |  |      |    
|Net Revenues |                   |                    |  |    |      |   |  |      |     |   |  |   
|             | Products          |                    |  | 75 | %    |   |  | 72   | %   |   |  | 58 | %  
|             | Service and parts |                    |  | 25 | %    |   |  | 28   | %   |   |  | 42 | %  
|             |                   |                    |  |    |      |   |  |      |    
|             |                   | Total net revenues |  |    | 100  | % |  |      | 100 | % |  |    | 100 | %
|             |                   |                    |  |    |      |   |  |      |    







Gross Profit (Loss).


|                                                           |                                                    |              |   |       |        | 
|---------------------------------------------------------- | -------------------------------------------------- | ------------ | - | ----- | ------ | 
|                                                           |                                                    | Gross Profit |  
|                                                           |                                                    | Improvement  |  
|                                                           |                                                    |              |  
|Key contributors to gross profit improvement
    ($000s): |                                                    |              |   |      
|                                                           | Increased systems revenues                         |              | $ | 7,647 |       
|                                                           | Increased sale of inventory previously written-off |              |   | 9,563 |       
|                                                           | Decrease in new inventory provision                |              |   | 4,400 |       
|                                                           | Overhead spending reductions                       |              |   | 6,118 |       
|                                                           | Termination of a development contract              |              |   | 3,675 |       
|                                                           | Favorable resolution of accrued tax exposure       |              |   | 1,247 |       
|                                                           |                                                    |              |  
|                                                           |                                                    | Total        |   | $     | 32,650 | 
|                                                           |                                                    |              |  





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Research and Development, or R&D, Expense.


Selling, General and Administrative, or SG&A,
Expense.


Impairment of Goodwill and Other Intangible Assets.




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Restructuring, Severance and Other.


|                                            |                                   |              |   |     |           |  |   |          |              |  |      |        |        |   |   |     |     | 
|------------------------------------------- | --------------------------------- | ------------ | - | --- | --------- |  | - | -------- | ------------ |  | ---- | ------ | ------ | - | - | --- | --- | 
|                                            |                                   | Liability as |   |     |           |  |   |          | Liability as | 
|                                            |                                   | of March 31, |   |     |           |  |   |          | of March 31, | 
|                                            |                                   | 2003         |   |     | Provision |  |   | Payments |              |  | 2004 |       
|                                            |                                   |              |   |     |           |  |   |          |              |  |      |       
|Restructuring, severance and other ($000s): |                                   |              |   |     |           |  |   |          |              |  |      |        |        |   |   |    
|                                            | Severance and workforce reduction |              | $ | 558 |           |  | $ | 1,772    |              |  | $    | (2,330 | )      |   | $ |    |    
|                                            | Consolidation of facilities       |              |   | 662 |           |  |   | 82       |              |  |      | (524   | )      |   |   | 220 |    
|                                            | Other costs                       |              |   | 134 |           |  |   | 84       |              |  |      | (218   | )      |   |   |    |    
|                                            |                                   |              |   |     |           |  |   |          |              |  |      |       
|                                            |                                   | Total        |   | $   | 1,354     |  |   | $        | 1,938        |  |      | $      | (3,072 | ) |   | $   | 220 | 
|                                            |                                   |              |   |     |           |  |   |          |              |  |      |       



Stock-Based Compensation.










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| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | the new options issued in the exchange which were outstanding
    since September 10, 2003                 
|
| |  | options eligible for exchange that were not exchanged (about 1%
    of eligible options)                   
|
| |  | options issued to eligible participants within the six months
    prior to or following September 10, 2003.





|                                                                    |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |   |      |   |  |   |      | 
|------------------------------------------------------------------- | ------------------------------------ | ---------------- | - | ---- | -- |  | - | ---- |  |  | -- | ---- |  | --------- | - | ---- | - |  | - | ---- | 
|                                                                    |                                      | Fiscal Year 2004 |  
|                                                                    |                                      |                  |  
|                                                                    |                                      | Q1               |   |      | Q2 |  |   | Q3   |  |  | Q4 |      |  | Full Year |  
|                                                                    |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |  
|Variable accounting charge (benefit) by fiscal quarter
    ($000s) |                                      |                  |   |      |    |  |   |      |  |  |    |      |  |           |   |      |   |  |   |     
|                                                                    | Days outstanding                     |                  |   |     |    |  |   | 18   |  |  |    | 90   |  |           |   | 90   |   |  |   | 198  | 
|                                                                    | Ending stock price                   |                  | $ | 2.20 |    |  | $ | 3.48 |  |  | $  | 5.37 |  |           | $ | 3.67 |   |  | $ | 3.67 | 
|                                                                    | Variable accounting charge (benefit) |                  | $ |     |    |  | $ | 61   |  |  | $  | 889  |  |           | $ | (213 | ) |  | $ | 737  | 



Other Income (Expense).


Net Loss.


Liquidity and Capital Resources




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Factors Affecting Future Results






36



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Managements Discussion and Analysis of Financial
Condition and Results of Operations


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| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a substantial portion of our cash flow from operations, if any,
    would be required to be dedicated to the repayment of
    indebtedness and would not be available for other purposes;                                                                                                              
|
| |  | our future ability to obtain additional debt financing for
    working capital, capital expenditures, acquisitions or other
    purposes may be limited; and                                                                                                                                           
|
| |  | our level of indebtedness has in the past, and could in the
    future, limit our flexibility in reacting to changes in the
    industry, general economic conditions and our ability to
    withstand a prolonged downturn in the semiconductor and/or
    semiconductor capital equipment industries.











| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | when the semiconductor industry will recover; or                                                                 
|
| |  | whether the recovery will result in increased demand for our
    capital equipment by the semiconductor industry.

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| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer demand, which is influenced by economic conditions in
    the semiconductor industry, demand for products that use
    semiconductors, market acceptance of our products and those of
    our customers, seasonality, changes in product mix, and the
    timing, cancellation or delay of customer orders and shipments;
|
| |  | competition, such as competitive pressures on prices of our
    products, the introduction or announcement of new products by us
    or our competitors and discounts that may be granted to
    customers;                                                                                                                       
|
| |  | fluctuations in the availability and cost of components,
    subassemblies and production capacity;                                                                                                                                                                                                                               
|
| |  | expenses incurred in connection with litigation;                                                                                                                                                                                                                                                                                  
|
| |  | product development costs, such as increased research,
    development, engineering and marketing expenses associated with
    new products or product enhancements, and the effect of
    transitioning to new or enhanced products; and                                                                                         
|
| |  | levels of fixed expenses relative to revenue levels, including
    research and development costs associated with product
    development.                                                                                                                                                                                        









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. As of April 3, 2005, the Company did not maintain
    effective controls over intercompany accounts. Specifically, the
    Company did not have effective controls to ensure that
    intercompany account balances were reconciled timely and
    properly eliminated in consolidation in accordance with
    generally accepted accounting principles. This control
    deficiency did not result in an adjustment to the consolidated
    financial statements. However, this control deficiency could
    result in a misstatement of accounts and disclosures that would
    result in a material misstatement to annual or interim financial
    statements that would not be prevented or detected. Accordingly,
    management has determined that this control deficiency
    constitutes a material weakness.
|
| | 2. As of April 3, 2005, the Company did not maintain
    effective controls over the documentation, review and approval
    of journal entries to allocate certain customer service and
    support costs between cost of revenues and selling, general and
    administrative expense. This control deficiency did not result
    in an adjustment to the consolidated financial statements.
    However, this control deficiency could result in a misstatement
    of the previously noted statement of operations accounts,
    that would result in a material                                                                                                                                                                                                                                                      

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| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | misstatement to annual or interim financial statements that
    would not be prevented or detected. Accordingly, management has
    determined that this control deficiency constitutes a material
    weakness.

















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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | unexpected changes in regulatory requirements;                                                       
|
| |  | tariffs and other market barriers;                                                                   
|
| |  | political and economic instability;                                                                  
|
| |  | potentially adverse tax consequences;                                                                
|
| |  | outbreaks of hostilities;                                                                            
|
| |  | difficulties in accounts receivable collection;                                                      
|
| |  | extended payment terms;                                                                              
|
| |  | difficulties in managing foreign sales representatives; and                                          
|
| |  | difficulties in managing staffing and other elements of foreign
    subsidiary and branch operations.











| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | the difficulty of incorporating new operations, technology and
    personnel into one company;
|
| |  | the potential disruption of our ongoing business;                                             
|
| |  | the additional expense associated with amortization of acquired
    intangible assets;        
|
| |  | the maintenance of uniform standards, controls, procedures and
    policies; and              
|
| |  | the impairment of relationships with employees and customers.                                 



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| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | a classified board of directors;                                                                                                      
|
| |  | a prohibition on stockholder action through written consents;                                                                         
|
| |  | a requirement that special meetings of stockholders be called
    only by our chief executive officer or the board of directors;      
|
| |  | advance notice requirements for stockholder proposals and
    nominations;                                                            
|
| |  | limitations on the ability of stockholders to amend, alter or
    repeal the by-laws; and                                             
|
| |  | the authority of the board to issue, without stockholder
    approval, preferred stock with such terms as the board may
    determine.



Recently Issued Accounting Pronouncements








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Off-Balance Sheet Commitments




|                                |                             |                        |   |           |        |  |     |       |       |     |       |       |           |         |   |       |       |  |   |       |       | 
|------------------------------- | --------------------------- | ---------------------- | - | --------- | ------ |  | --- | ----- | ----- | --- | ----- | ----- | --------- | ------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                |                             | Payments Due by Period |  
|                                |                             |                        |  
|                                |                             |                        |   | Less Than |        |  | 1-3 |       |       | 3-5 |       |       | More than |        
|                                |                             | Total                  |   |           | 1 Year |  |     | Years |       |     | Years |       |           | 5 Years |  
|                                |                             |                        |   |           |        |  |     |       |       |     |       |       |           |         |  
|Contractual obligations (000s) |                             |                        |   |           |        |  |     |       |       |     |       |       |           |         |   |       |       |  |   |      
|                                | Operating lease obligations |                        | $ | 9,358     |        |  | $   | 2,089 |       |     | $     | 3,760 |           |         | $ | 2,497 |       |  | $ | 1,012 |      
|                                | Purchase obligations        |                        |   | 7,008     |        |  |     | 6,407 |       |     |       | 601   |           |         |   |      |       |  |   |      |      
|                                | Minimum royalty payments    |                        |   | 80        |        |  |     | 40    |       |     |       | 40    |           |         |   |      |       |  |   |      |      
|                                | Cancellation fees           |                        |   | 102       |        |  |     | 102   |       |     |       |      |           |         |   |      |       |  |   |      |      
|                                |                             |                        |   |           |        |  |     |       |       |     |       |       |           |         |  
|                                |                             | Total                  |   | $         | 16,548 |  |     | $     | 8,638 |     |       | $     | 4,401     |         |   | $     | 2,497 |  |   | $     | 1,012 | 
|                                |                             |                        |   |           |        |  |     |       |       |     |       |       |           |         |  

Operating Leases.


Purchase Commitment and Cancellation Fees.


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Minimum Royalty Payments.










| |                  
| | -----------------
| | Credit Facilities







47



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| |          
| | ---------
| | Inflation








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk



Market Risk Related to Interest Rates and Foreign Currency




Interest Rate Risk






Foreign Currency Exchange Risks






48



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|                                                                                              |                                        |       |   |       |    |         |   |           |   |  |       |       |   |  |   |        |  
|--------------------------------------------------------------------------------------------- | -------------------------------------- | ----- | - | ----- | -- | ------- | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                                                                              |                                        |       |   |       |    | Other   |   |           |  
|                                                                                              |                                        |       |   |       |    | Foreign |   |           |  
|                                                                                              |                                        | Japan |   |       | UK |         |   | Locations |   |  | Total |      
|                                                                                              |                                        |       |   |       |    |         |   |           |   |  |       |      
|Assets, costs and expenses subject to foreign currency Risk
    as of March 31, 2005 ($000s) |                                        |       |   |       |    |         |   |           |   |  |       |       |   |  |   |       
|                                                                                              | Net assets                             |       | $ | 3,976 |    |         | $ | 667       |   |  | $     | (121  | ) |  | $ | 4,522  |  
|                                                                                              | Costs and expenses                     |       |   | 3,875 |    |         |   | 2,514     |   |  |       | 6,865 |   |  |   | 13,254 |  
|                                                                                              | Percentage of total costs and expenses |       |   | 4     | %  |         |   | 3         | % |  |       | 8     | % |  |   | 15     | %

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|        |                                           
|------- | ------------------------------------------
|Item 8. | Financial Statements and Supplemental Data

|                                                                                                      |  |      |    | 
|----------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                      |  | Page |   
|                                                                                                      |  |      |   
|Report of Independent Registered Public Accounting Firm                                               |  |      | 51 | 
|Consolidated Balance Sheets as of March 31, 2005 and 2004                                             |  |      | 53 | 
|Consolidated Statements of Operations for the years ended
    March 31, 2005, 2004 and 2003           |  |      | 54 | 
|Consolidated Statements of Stockholders Equity for the
    years ended March 31, 2005, 2004 and 2003 |  |      | 55 | 
|Consolidated Statements of Cash Flows for the years ended
    March 31, 2005, 2004 and 2003           |  |      | 57 | 
|Notes to Consolidated Financial Statements                                                            |  |      | 58 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Consolidated financial statements






Internal control over financial reporting


Internal Control  Integrated
Framework






51



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. As of April 3, 2005, the Company did not maintain
    effective controls over intercompany accounts. Specifically, the
    Company did not have effective controls to ensure that
    intercompany account balances were reconciled timely and
    properly eliminated in consolidation in accordance with
    generally accepted accounting principles. This control
    deficiency did not result in an adjustment to the consolidated
    financial statements. However, this control deficiency could
    result in a misstatement of accounts and disclosures that would
    result in a material misstatement to annual or interim financial
    statements that would not be prevented or detected. Accordingly,
    management has determined that this control deficiency
    constitutes a material weakness.
|
| | 2. As of April 3, 2005, the Company did not maintain
    effective controls over the documentation, review and approval
    of journal entries to allocate certain customer service and
    support costs between cost of revenues and selling, general and
    administrative expense. This control deficiency did not result
    in an adjustment to the consolidated financial statements.
    However, this control deficiency could result in a misstatement
    of the previously noted statement of operations accounts,
    that would result in a material misstatement to annual or
    interim financial statements that would not be prevented or
    detected. Accordingly, management has determined that this
    control deficiency constitutes a material weakness.                                     



Internal
Control  Integrated Framework Internal
Control  Integrated Framework .








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THERMA-WAVE, INC.


CONSOLIDATED BALANCE SHEETS


|                                       |                                                                                                                                                                                                 |                                            |       |          |        |  |       |          |        | 
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -------- | ------ |  | ----- | -------- | ------ | 
|                                       |                                                                                                                                                                                                 | March 31,                                  |      
|                                       |                                                                                                                                                                                                 |                                            |      
|                                       |                                                                                                                                                                                                 | 2005                                       |       |          | 2004   | 
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | (In thousands, except share                |      
|                                       |                                                                                                                                                                                                 | and per share data)                        |      
|ASSETS                                
|Current assets:                        |                                                                                                                                                                                                 |                                            |       |          |        |  |       |         
|                                       | Cash and cash equivalents                                                                                                                                                                       |                                            | $     | 13,419   |        |  | $     | 23,899   |       
|                                       | Accounts receivable, net of allowances for doubtful accounts and
    returns of $715 and $907 at March 31, 2005 and 2004,
    respectively                                                      |                                            |       | 15,678   |        |  |       | 14,772   |       
|                                       | Inventories                                                                                                                                                                                     |                                            |       | 30,870   |        |  |       | 17,169   |       
|                                       | Other current assets                                                                                                                                                                            |                                            |       | 2,680    |        |  |       | 2,075    |       
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total current assets                       |       |          | 62,647 |  |       |          | 57,915 | 
|Property and equipment, net            |                                                                                                                                                                                                 |                                            | 2,976 |          |        |  | 4,564 |         
|Intangibles and other assets, net      |                                                                                                                                                                                                 |                                            | 1,950 |          |        |  | 1,803 |         
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total assets                               |       | $        | 67,573 |  |       | $        | 64,282 | 
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                                                                                                 |                                            |       |          |        |  |       |         
|                                       | Accounts payable                                                                                                                                                                                |                                            | $     | 8,227    |        |  | $     | 7,420    |       
|                                       | Accrued liabilities                                                                                                                                                                             |                                            |       | 15,784   |        |  |       | 14,823   |       
|                                       | Deferred revenues                                                                                                                                                                               |                                            |       | 15,804   |        |  |       | 6,887    |       
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total current liabilities                  |       |          | 39,815 |  |       |          | 29,130 | 
|Non-current deferred revenues          |                                                                                                                                                                                                 |                                            | 1,425 |          |        |  | 1,815 |         
|Other long-term liabilities            |                                                                                                                                                                                                 |                                            | 370   |          |        |  | 1,073 |         
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total liabilities                          |       |          | 41,610 |  |       |          | 32,018 | 
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|Commitments and contingencies (Note 6) |                                                                                                                                                                                                 |                                            |       |          |        |  |       |         
|Stockholders equity:                  |                                                                                                                                                                                                 |                                            |       |          |        |  |       |         
|                                       | Common stock, $0.01 par value; 75,000,000 shares
    authorized; 36,318,565 shares issued and outstanding at
    March 31, 2005; 35,498,025 shares issued and
    outstanding at March 31, 2004 |                                            |       | 363      |        |  |       | 355      |       
|                                       | Additional paid-in capital                                                                                                                                                                      |                                            |       | 334,352  |        |  |       | 335,012  |       
|                                       | Notes receivable from stockholders                                                                                                                                                              |                                            |       | (174     | )      |  |       | (174     | )     
|                                       | Accumulated other comprehensive loss                                                                                                                                                            |                                            |       | (659     | )      |  |       | (735     | )     
|                                       | Deferred stock-based compensation                                                                                                                                                               |                                            |       | (76      | )      |  |       | (1,172   | )     
|                                       | Accumulated deficit                                                                                                                                                                             |                                            |       | (307,843 | )      |  |       | (301,022 | )     
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total stockholders equity                 |       |          | 25,963 |  |       |          | 32,264 | 
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 
|                                       |                                                                                                                                                                                                 | Total liabilities and stockholders equity |       | $        | 67,573 |  |       | $        | 64,282 | 
|                                       |                                                                                                                                                                                                 |                                            |       |          |        | 



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THERMA-WAVE, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |        |         | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------------------------- | ------ | ------ | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | 
|                                                                                                    |                                                                                                              | Fiscal Years Ended March 31,          |       
|                                                                                                    |                                                                                                              |                                       |       
|                                                                                                    |                                                                                                              | 2005                                  |        |        | 2004   |   |         | 2003   |       
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|                                                                                                    |                                                                                                              | (In thousands, except per share data) |       
|Net revenues                                                                                        |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Product                                                                                                      |                                       | $      | 60,930 |        |   | $       | 46,938 |        |   | $        | 28,515 |        
|                                                                                                    | Service and parts                                                                                            |                                       |        | 20,331 |        |   |         | 18,371 |        |   |          | 20,705 |        
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|                                                                                                    |                                                                                                              | Total net revenues                    |        |        | 81,261 |   |         |        | 65,309 |   |          |        | 49,220  | 
|Cost of revenues (including stock-based compensation expense
    (benefit) of $(120), $168 and $33) |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Product                                                                                                      |                                       |        | 30,174 |        |   |         | 24,645 |        |   |          | 36,084 |        
|                                                                                                    | Service and parts                                                                                            |                                       |        | 14,446 |        |   |         | 13,855 |        |   |          | 18,977 |        
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|                                                                                                    |                                                                                                              | Total cost of revenues                |        |        | 44,620 |   |         |        | 38,500 |   |          |        | 55,061  | 
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Gross profit (loss)                                                                                 |                                                                                                              |                                       | 36,641 |        |        |   | 26,809  |        |        |   | (5,841   | )     
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Operating expenses:                                                                                 |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Research and development (excluding stock-based compensation
    expense (benefit) of $(233), $706 and $967) |                                       |        | 17,559 |        |   |         | 18,710 |        |   |          | 29,230 |        
|                                                                                                    | Selling, general and administrative (excluding stock-based
    compensation expense of $54, $444 and $717)   |                                       |        | 25,450 |        |   |         | 22,958 |        |   |          | 26,071 |        
|                                                                                                    | Impairment of goodwill and other intangible assets                                                           |                                       |        |       |        |   |         |       |        |   |          | 67,408 |        
|                                                                                                    | Restructuring, severance and other                                                                           |                                       |        | 347    |        |   |         | 1,938  |        |   |          | 4,293  |        
|                                                                                                    | Stock-based compensation expense (benefit)                                                                   |                                       |        | (179   | )      |   |         | 1,150  |        |   |          | 1,684  |        
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|                                                                                                    |                                                                                                              | Total operating expenses              |        |        | 43,177 |   |         |        | 44,756 |   |          |        | 128,686 | 
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Operating loss                                                                                      |                                                                                                              |                                       | (6,536 | )      |        |   | (17,947 | )      |        |   | (134,527 | )     
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Other income (expense):                                                                             |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Interest expense                                                                                             |                                       |        | (28    | )      |   |         | (76    | )      |   |          | (161   | )      
|                                                                                                    | Interest income                                                                                              |                                       |        | 205    |        |   |         | 160    |        |   |          | 946    |        
|                                                                                                    | Other, net                                                                                                   |                                       |        |       |        |   |         | (230   | )      |   |          | 138    |        
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|                                                                                                    |                                                                                                              | Total other income (expense), net     |        |        | 177    |   |         |        | (146   | ) |          |        | 923     | 
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Loss before provision for income taxes                                                              |                                                                                                              |                                       | (6,359 | )      |        |   | (18,093 | )      |        |   | (133,604 | )     
|Provision for income taxes                                                                          |                                                                                                              |                                       | 462    |        |        |   |        |        |        |   |         |       
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Net loss                                                                                            |                                                                                                              | $                                     | (6,821 | )      |        | $ | (18,093 | )      |        | $ | (133,604 | )     
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Net loss per share:                                                                                 |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Basic and Diluted                                                                                            |                                       | $      | (0.19  | )      |   | $       | (0.56  | )      |   | $        | (4.69  | )      
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       
|Weighted average common shares outstanding:                                                         |                                                                                                              |                                       |        |        |        |   |         |        |        |   |          |       
|                                                                                                    | Basic and Diluted                                                                                            |                                       |        | 35,912 |        |   |         | 32,387 |        |   |          | 28,500 |        
|                                                                                                    |                                                                                                              |                                       |        |        |        |   |         |        |       



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THERMA-WAVE, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        |  |   |          |   |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- |  | ---------- | - | --- | -------------- |  | - | ----------- | - |  | ------------- | -------- | - | ------------ | - | ---- | ----------- |  | - | ------------ | - | ------------- | ------- | ------ | - | ----- | - | ------ | ------ |  | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                                     |  |                                       |            |  |            |   |     | Notes          |  |   | Accumulated |   |  |               |          |   |              |   |      |            
|                                                                                                                     |  | Common Stock                          |            |  | Additional |   |     | Treasury Stock |  |   | Receivable  |   |  | Other         |          |   | Deferred     |   |      |             |  |   |              |  
|                                                                                                                     |  |                                       |            |  | Paid-In    |   |     |                |  |   | from        |   |  | Comprehensive |          |   | Stock        |   |      | Accumulated |  |   |              |   | Comprehensive |        
|                                                                                                                     |  | Shares                                |            |  | Amount     |   |     | Capital        |  |   | Shares      |   |  | Amount        |          |   | Stockholders |   |      | Loss        |  |   | Compensation |   |               | Deficit |        |   | Total |   |        | (Loss) | 
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|                                                                                                                     |  | (In thousands, except per share data) |           
|Balance at March 31, 2002                                                                                            |  |                                       | 29,090,118 |  |            | $ | 291 |                |  | $ | 321,466     |   |  |               |         |   |              | $ |     |             |  | $ | (200         | ) |               | $       | (1,790 | ) |       | $ | (2,943 | )      |  | $ | (149,325 | ) |  | $ | 167,499  |   |  |   |          |  
|Net loss                                                                                                             |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   | (133,604 | ) |  |   | (133,604 | ) |  | $ | (133,604 | )
|Currency translation adjustments, net of tax                                                                         |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         | 456    |   |       |   |       |        |  |   |         |   |  |   | 456      |   |  |   | 456      |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Comprehensive loss                                                                                                   |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   |         |   |  | $ | (133,148 | )
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Receipts from stockholders                                                                                           |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   | 4            |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 4        |   |  |   |          |  
|Repurchase of common stock                                                                                           |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               | (447,500 | ) |              |   | (938 | )           |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | (938     | ) |  |   |          |  
|Issuance of common stock under ESPP                                                                                  |  |                                       | 205,706    |  |            |   | 2   |                |  |   | 455         |   |  |               | 147,314  |   |              |   | 411  |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 868      |   |  |   |          |  
|Issuance of common stock under stock option plans                                                                    |  |                                       | 24,246     |  |            |   |    |                |  |   | 136         |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 136      |   |  |   |          |  
|Issuance of treasury stock for payment of consulting services                                                        |  |                                       |           |  |            |   |    |                |  |   | (40         | ) |  |               | 30,675   |   |              |   | 90   |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 50       |   |  |   |          |  
|Issuance of common stock for the exercise of warrants                                                                |  |                                       | 39,956     |  |            |   |    |                |  |   | 150         |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 150      |   |  |   |          |  
|Adjustment to deferred stock-based compensation due to reduction
    in work force                                   |  |                                       |           |  |            |   |    |                |  |   | (119        | ) |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | 119    |        |  |   |         |   |  |   |         |   |  |   |          |  
|Amortization of deferred stock-based compensation                                                                    |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | 1,717  |        |  |   |         |   |  |   | 1,717    |   |  |   |          |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Balance at March 31, 2003                                                                                            |  |                                       | 29,360,026 |  |            | $ | 293 |                |  | $ | 322,048     |   |  |               | (269,511 | ) |              | $ | (437 | )           |  | $ | (196         | ) |               | $       | (1,334 | ) |       | $ | (1,107 | )      |  | $ | (282,929 | ) |  | $ | 36,338   |   |  |   |          |  
|Net loss                                                                                                             |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   | (18,093  | ) |  |   | (18,093  | ) |  | $ | (18,093  | )
|Currency translation adjustments, net of tax                                                                         |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         | 599    |   |       |   |       |        |  |   |         |   |  |   | 599      |   |  |   | 599      |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Comprehensive loss                                                                                                   |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   |         |   |  | $ | (17,494  | )
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Receipts from stockholders                                                                                           |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   | 22           |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 22       |   |  |   |          |  
|Issuance of common stock under private offering                                                                      |  |                                       | 5,800,000  |  |            |   | 58  |                |  |   | 11,670      |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 11,728   |   |  |   |          |  
|Issuance of common stock under ESPP                                                                                  |  |                                       | 244,098    |  |            |   | 3   |                |  |   | (223        | ) |  |               | 266,854  |   |              |   | 434  |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 214      |   |  |   |          |  
|Issuance of common stock under stock option plans                                                                    |  |                                       | 93,901     |  |            |   | 1   |                |  |   | 134         |   |  |               | 2,657    |   |              |   | 3    |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   | 138      |   |  |   |          |  
|Issuance of common stock for the exercise of warrants                                                                |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   |       |        |  |   |         |   |  |   |         |   |  |   |          |  
|Adjustment to deferred stock-based compensation due to reduction
    in work force                                   |  |                                       |           |  |            |   |    |                |  |   | (260        | ) |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | 260    |        |  |   |         |   |  |   |         |   |  |   |          |  
|Deferred stock- based compensation expense resulting from the
    variable accounting treatment for stock options    |  |                                       |           |  |            |   |    |                |  |   | 1,643       |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | (1,643 | )      |  |   |         |   |  |   |         |   |  |   |          |  
|Amortization of deferred stock-based compensation related to the
    variable accounting treatment for stock options |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | 737    |        |  |   |         |   |  |   | 737      |   |  |   |          |  
|Amortization of deferred stock-based compensation related to
    Sensys acquisition                                  |  |                                       |           |  |            |   |    |                |  |   |            |   |  |               |         |   |              |   |     |             |  |   |             |   |               |         |       |   |       |   | 581    |        |  |   |         |   |  |   | 581      |   |  |   |          |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |   |             |   |  |               |          |   |              |   |      |             |  |   |              |   |               |         |        |   |       |   |        |        | 
|Balance at March 31, 2004                                                                                            |  |                                       | 35,498,025 |  |            | $ | 355 |                |  | $ | 335,012     |   |  |               |         |   |              | $ |     |             |  | $ | (174         | ) |               | $       | (735   | ) |       | $ | (1,172 | )      |  | $ | (301,022 | ) |  | $ | 32,264   |   |  |   |          |  

55



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##### Table of Contents





THERMA-WAVE, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)


|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |   |  |   |          |   |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- |  | ---------- | - | --- | -------------- |  | ---------- | ----------- | - | ------------- | ------ | - | ------------ |  | - | ----------- |  |  | ------------ | ---- | ------------- | ------- | - | ---- | ----- |  | - | ------ | - |  | - | -------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                                     |  |                                       |            |  |            |   |     | Notes          |  |            | Accumulated |   |               |        |   |              |  |   |             | 
|                                                                                                                     |  | Common Stock                          |            |  | Additional |   |     | Treasury Stock |  | Receivable |             |   | Other         |        |   | Deferred     |  |   |             |  |  |              |     
|                                                                                                                     |  |                                       |            |  | Paid-In    |   |     |                |  | from       |             |   | Comprehensive |        |   | Stock        |  |   | Accumulated |  |  |              |      | Comprehensive |        
|                                                                                                                     |  | Shares                                |            |  | Amount     |   |     | Capital        |  |            | Shares      |   |               | Amount |   | Stockholders |  |   | Loss        |  |  | Compensation |      |               | Deficit |   |      | Total |  |   | (Loss) |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |  
|                                                                                                                     |  | (In thousands, except per share data) |           
|Net loss                                                                                                             |  |                                       |           |  |            |   |    |                |  |            |            |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   | (6,821   | ) |  |   | (6,821 | ) |  | $ | (6,821 | )
|Currency translation adjustments, net of tax                                                                         |  |                                       |           |  |            |   |    |                |  |            |            |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   | 76   |       |  |   |       |   |  |   |         |   |  |   | 76     |   |  |   | 76     |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |   | 
|Comprehensive loss                                                                                                   |  |                                       |           |  |            |   |    |                |  |            |            |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   |         |   |  |   |       |   |  | $ | (6,745 | )
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |   | 
|Issuance of common stock under private offering                                                                      |  |                                       |           |  |            |   |    |                |  |            | (6          | ) |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   |         |   |  |   | (6     | ) |  |   |        |  
|Issuance of common stock under ESPP                                                                                  |  |                                       | 640,764    |  |            |   | 6   |                |  |            | 506         |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   |         |   |  |   | 512    |   |  |   |        |  
|Issuance of common stock under stock option plans                                                                    |  |                                       | 176,437    |  |            |   | 2   |                |  |            | 223         |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   |         |   |  |   | 225    |   |  |   |        |  
|Issuance of common stock for the exercise of warrants                                                                |  |                                       | 3,339      |  |            |   |    |                |  |            | 12          |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   |       |   |  |   |         |   |  |   | 12     |   |  |   |        |  
|Adjustment to deferred stock-based compensation due to reduction
    in work force                                   |  |                                       |           |  |            |   |    |                |  |            | (1,412      | ) |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   | 1,412  |   |  |   |         |   |  |   |       |   |  |   |        |  
|Deferred stock- based compensation expense resulting from the
    variable accounting treatment for stock options    |  |                                       |           |  |            |   |    |                |  |            | 185         |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   | (185   | ) |  |   |         |   |  |   |       |   |  |   |        |  
|Amortization of deferred stock-based compensation related to the
    variable accounting treatment for stock options |  |                                       |           |  |            |   |    |                |  |            |            |   |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   | (542   | ) |  |   |         |   |  |   | (542   | ) |  |   |        |  
|Amortization of deferred stock-based compensation related to
    Sensys acquisition                                  |  |                                       |           |  |            |   |    |                |  |            | (168        | ) |               |        |  |              |  |   |            |  |  |              |     |               |         |   |     |       |  |   | 411    |   |  |   |         |   |  |   | 243    |   |  |   |        |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |   | 
|Balance at March 31, 2005                                                                                            |  |                                       | 36,318,565 |  |            | $ | 363 |                |  | $          | 334,352     |   |               |        |  |              |  | $ |            |  |  | $            | (174 | )             |         | $ | (659 | )     |  | $ | (76    | ) |  | $ | (307,843 | ) |  | $ | 25,963 |   |  |   |        |  
|                                                                                                                     |  |                                       |            |  |            |   |     |                |  |            |             |   |               |        |   |              |  |   |             |  |  |              |      |               |         |   |      |       |  |   |        |   | 



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THERMA-WAVE, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |        |         |  
|------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | -
|                                                                                |                                                                                  | Fiscal Years Ended March 31,                        |        
|                                                                                |                                                                                  |                                                     |        
|                                                                                |                                                                                  | 2005                                                |         |         | 2004   |   |         | 2003   |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|                                                                                |                                                                                  | (In thousands)                                      |        
|Operating activities:                                                           |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|Net loss                                                                        |                                                                                  | $                                                   | (6,821  | )       |        | $ | (18,093 | )      |        | $ | (133,604 | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|                                                                                | Depreciation and amortization of property and equipment                          |                                                     |         | 2,679   |        |   |         | 4,221  |        |   |          | 5,913  |        
|                                                                                | Amortization of intangible assets                                                |                                                     |         | 758     |        |   |         | 2,548  |        |   |          | 1,497  |        
|                                                                                | Stock-based compensation expense (benefit)                                       |                                                     |         | (299    | )      |   |         | 1,318  |        |   |          | 1,717  |        
|                                                                                | Impairment of goodwill and other intangible assets                               |                                                     |         |        |        |   |         |       |        |   |          | 67,409 |        
|                                                                                | Provision (credit) for doubtful accounts receivable and
    returns              |                                                     |         | (192    | )      |   |         | (646   | )      |   |          | (471   | )      
|                                                                                | Provision for excess and obsolete inventories                                    |                                                     |         | 5,089   |        |   |         | 5,200  |        |   |          | 9,605  |        
|                                                                                | Loss on disposal of property and equipment                                       |                                                     |         | 15      |        |   |         | 473    |        |   |          | 588    |        
|                                                                                | Loss on abandonment of leased facilities                                         |                                                     |         |        |        |   |         |       |        |   |          | 651    |        
|                                                                                | Loss on sale of an investment                                                    |                                                     |         |        |        |   |         | 125    |        |   |          |       |        
|                                                                                | Issuance of treasury stock in connection with payment of
    consulting services |                                                     |         |        |        |   |         |       |        |   |          | 50     |        
|Changes in operating assets and liabilities:                                    |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|                                                                                | Accounts receivable                                                              |                                                     |         | (714    | )      |   |         | (304   | )      |   |          | 2,284  |        
|                                                                                | Inventories                                                                      |                                                     |         | (18,790 | )      |   |         | (223   | )      |   |          | 2,926  |        
|                                                                                | Other assets                                                                     |                                                     |         | (1,011  | )      |   |         | 901    |        |   |          | 2,222  |        
|                                                                                | Accounts payable                                                                 |                                                     |         | 807     |        |   |         | 5,272  |        |   |          | (4,149 | )      
|                                                                                | Accrued and other liabilities                                                    |                                                     |         | 258     |        |   |         | (1,240 | )      |   |          | (833   | )      
|                                                                                | Deferred revenues                                                                |                                                     |         | 8,527   |        |   |         | (2,436 | )      |   |          | 1,645  |        
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|                                                                                |                                                                                  | Net cash used in operating activities               |         |         | (9,694 | ) |         |        | (2,884 | ) |          |        | (42,550 | )
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Investing activities:                                                           |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|                                                                                | Purchases of property and equipment                                              |                                                     |         | (1,106  | )      |   |         | (254   | )      |   |          | (1,464 | )      
|                                                                                | Sales of short-term investments                                                  |                                                     |         |        |        |   |         |       |        |   |          | 12,575 |        
|                                                                                | Proceeds from sale of an investment                                              |                                                     |         |        |        |   |         | 375    |        |   |          |       |        
|                                                                                | Purchase of patents                                                              |                                                     |         | (499    | )      |   |         | (798   | )      |   |          | (946   | )      
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|                                                                                |                                                                                  | Net cash provided by (used in) investing activities |         |         | (1,605 | ) |         |        | (677   | ) |          |        | 10,165  |  
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Financing activities:                                                           |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|                                                                                | Restricted cash                                                                  |                                                     |         |        |        |   |         | 1,064  |        |   |          | (1,064 | )      
|                                                                                | Proceeds from issuance of common stock                                           |                                                     |         | 743     |        |   |         | 12,080 |        |   |          | 1,154  |        
|                                                                                | Proceeds from note receivable from stockholders                                  |                                                     |         |        |        |   |         | 22     |        |   |          | 4      |        
|                                                                                | Purchase of treasury stock                                                       |                                                     |         |        |        |   |         |       |        |   |          | (938   | )      
|                                                                                | Repayment of long-term debt                                                      |                                                     |         |        |        |   |         |       |        |   |          | (16    | )      
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|                                                                                |                                                                                  | Net cash provided by (used in) financing activities |         |         | 743    |   |         |        | 13,166 |   |          |        | (860    | )
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Effect of exchange rates on cash                                                |                                                                                  |                                                     | 76      |         |        |   | 599     |        |        |   | 456      |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Net increase (decrease) in cash and cash equivalents                            |                                                                                  |                                                     | (10,480 | )       |        |   | 10,204  |        |        |   | (32,789  | )     
|Cash and cash equivalents at beginning of year                                  |                                                                                  |                                                     | 23,899  |         |        |   | 13,695  |        |        |   | 46,484   |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Cash and cash equivalents at end of year                                        |                                                                                  | $                                                   | 13,419  |         |        | $ | 23,899  |        |        | $ | 13,695   |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Supplementary disclosures:                                                      |                                                                                  |                                                     |         |         |        |   |         |        |        |   |          |       
|Cash paid for interest                                                          |                                                                                  | $                                                   | 10      |         |        | $ | 4       |        |        | $ | 75       |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       
|Cash paid for income taxes                                                      |                                                                                  | $                                                   | 360     |         |        | $ | 9       |        |        | $ | 124      |       
|                                                                                |                                                                                  |                                                     |         |         |        |   |         |        |       



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies



| |                        
| | -----------------------
| | Description of Business







| |                      
| | ---------------------
| | Basis of Presentation





| |                    
| | -------------------
| | Revenue Recognition









| |   |                                                      
| | - | -----------------------------------------------------
| |  | Persuasive evidence of an arrangement exists,        
|
| |  | Delivery has occurred or services have been rendered,
|
| |  | Our price to the buyer is fixed or determinable, and 
|
| |  | Collectability is reasonably assured.                



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










Persuasive evidence of an arrangement exists:


Delivery has occurred or services have been rendered:


The sellers price to the buyer is fixed or
determinable:


Collectability is reasonably assured:






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. Systems are also sold through resellers. We account
    separately for the services provided by the resellers, including
    sales services and any post-shipment services that the resellers
    may be contractually obligated to provide per the terms of the
    specific sales contract.                                                                                                                                                                                                                                                                                    
|
| | b. We offer a standard product warranty of one year,
    normally, beginning on the date of customer final acceptance.
    Additional periods of warranty are sometimes included in the
    price of the system sale or sold separately. When service
    coverage outside the one-year warranty is included in the price
    of the system sale, we defer the fair market value of that
    service coverage as a liability for deferred service contract
    revenues, and recognize those revenues ratably over the service
    delivery time periods applicable to the contract.

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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. Revenues are not recognized for shipments of systems
    under trial and evaluation agreements.                                                                                                                                                                    
|
| | d. Payment terms usually are net 30 to net 60 days. In
    rare circumstances, we agree to extended payments terms greater
    than 60 days. In those instances, generally involving
    foreign sales, revenue recognition is deferred until payment is
    received.





Service and Parts Revenues.






| |                                                            
| | -----------------------------------------------------------
| | Allowances for Doubtful Accounts Receivable and
    Returns





| |          
| | ---------
| | Liquidity



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                              
| | ---------------------------------------------
| | Concentration of Credit Risk/ Major Customers



|                                           |                                            |                    |  |    |      |   |  |      |    |   |  |    |    |  
|------------------------------------------ | ------------------------------------------ | ------------------ |  | -- | ---- | - |  | ---- | -- | - |  | -- | -- | -
|                                           |                                            | Percentage of      | 
|                                           |                                            | Net Revenues       | 
|                                           |                                            |                    | 
|                                           |                                            | Fiscal Years Ended | 
|                                           |                                            | March 31,          | 
|                                           |                                            |                    | 
|                                           |                                            | 2005               |  |    | 2004 |   |  | 2003 |   
|                                           |                                            |                    |  |    |      |   |  |      |   
|Customers Over Ten Percent of Net Revenues |                                            |                    |  |    |      |   |  |      |    |   |  |   
|                                           | Taiwan Semiconductor Manufacturing Company |                    |  | 15 | %    |   |  | 16   | %  |   |  |   | % 
|                                           | Intel Corporation                          |                    |  | 12 | %    |   |  | 14   | %  |   |  | 13 | % 
|                                           | Samsung                                    |                    |  | 10 | %    |   |  |     | %  |   |  |   | % 
|                                           | Tokyo Electron, Ltd.                       |                    |  |   | %    |   |  | 12   | %  |   |  |   | % 
|                                           | Raytec Corp.(1)                            |                    |  |   | %    |   |  | 10   | %  |   |  |   | % 
|                                           |                                            |                    |  |    |      |   |  |      |   
|                                           |                                            | Total              |  |    | 37   | % |  |      | 52 | % |  |    | 13 | %
|                                           |                                            |                    |  |    |      |   |  |      |   






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Raytec Corp. was formally a subsidiary of Seki Technotron, our
    distributor for Japan.







| |                 
| | ----------------
| | Use of Estimates





| |                                               
| | ----------------------------------------------
| | Foreign Currency Translations and Transactions



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |            
| | -----------
| | Inventories





| |                       
| | ----------------------
| | Property and Equipment





| |                                            
| | -------------------------------------------
| | Goodwill, Intangibles and Other Assets, Net





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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Long-Lived Assets





| |                                     
| | ------------------------------------
| | Deferred Executive Compensation Plan





| |                                  
| | ---------------------------------
| | Research and Development Expenses





| |                  
| | -----------------
| | Reclassifications





| |                         
| | ------------------------
| | Stock-Based Compensation



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                                                                                                                                     |                                       |   |         |      |  |   |         |   |  |   |          |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                      |                                                                                                                                     | Fiscal Years Ended March 31,          |  
|                                      |                                                                                                                                     |                                       |  
|                                      |                                                                                                                                     | 2005                                  |   |         | 2004 |  |   | 2003    |  
|                                      |                                                                                                                                     |                                       |   |         |      |  |   |         |  
|                                      |                                                                                                                                     | (In thousands, except per share data) |  
|Pro forma Net Loss Under SFAS No. 123 |                                                                                                                                     |                                       |   |         |      |  |   |         |   |  |   |         
|Net loss (in thousands)               |                                                                                                                                     |                                       |   |         |      |  |   |         |   |  |   |         
|                                      | As reported                                                                                                                         |                                       | $ | (6,821  | )    |  | $ | (18,093 | ) |  | $ | (133,604 | )
|                                      | Add: Stock-based employee compensation expense (benefit)
    included in the determination of net loss, net of tax, as
    reported |                                       |   | (299    | )    |  |   | 1,318   |   |  |   | 1,717    |  
|                                      | Deduct: Stock-based employee compensation expense as determined
    using the fair value method                                     |                                       |   | (4,009  | )    |  |   | (4,459  | ) |  |   | (6,233   | )
|                                      |                                                                                                                                     |                                       |   |         |      |  |   |         |  
|                                      | Pro forma net loss                                                                                                                  |                                       | $ | (11,129 | )    |  | $ | (21,234 | ) |  | $ | (138,120 | )
|                                      |                                                                                                                                     |                                       |   |         |      |  |   |         |  
|Basic and diluted loss per share      |                                                                                                                                     |                                       |   |         |      |  |   |         |   |  |   |         
|                                      | As reported                                                                                                                         |                                       | $ | (0.19   | )    |  | $ | (0.56   | ) |  | $ | (4.69    | )
|                                      | Pro forma                                                                                                                           |                                       | $ | (0.31   | )    |  | $ | (0.66   | ) |  | $ | (4.85    | )



| |             
| | ------------
| | Income Taxes





| |                  
| | -----------------
| | Advertising Costs





| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards







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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                         
|-- | ------------------------
|2. | Balance Sheet Components

|             |                                 |                   |   |        |        |  |   |       |        | 
|------------ | ------------------------------- | ----------------- | - | ------ | ------ |  | - | ----- | ------ | 
|             |                                 | March 31,         |  
|             |                                 |                   |  
|             |                                 | 2005              |   |        | 2004   | 
|             |                                 |                   |   |        |        | 
|             |                                 | (In thousands)    |  
|Inventories: |                                 |                   |   |        |        |  |   |      
|             | Purchased materials             |                   | $ | 11,339 |        |  | $ | 6,066 |       
|             | Systems in process              |                   |   | 9,700  |        |  |   | 8,158 |       
|             | Finished systems                |                   |   | 4,537  |        |  |   | 1,981 |       
|             | Inventory at customer locations |                   |   | 5,294  |        |  |   | 964   |       
|             |                                 |                   |   |        |        | 
|             |                                 | Total inventories |   | $      | 30,870 |  |   | $     | 17,169 | 
|             |                                 |                   |   |        |        | 

|                        |                                |                                           |                                   |        |         |       |   |        |         |       | 
|----------------------- | ------------------------------ | ----------------------------------------- | --------------------------------- | ------ | ------- | ----- | - | ------ | ------- | ----- | 
|                        |                                | March 31,                                 |                                  
|                        |                                |                                           |                                  
|                        |                                | 2005                                      |                                   |        | 2004    |      
|                        |                                |                                           |                                   |        |         |      
|                        |                                | (In thousands)                            |                                  
|Property and equipment: |                                |                                           |                                   |        |         |       |   |       
|                        | Laboratory and test equipment  |                                           | $                                 | 4,659  |         |       | $ | 6,014  |        
|                        | Office furniture and equipment |                                           |                                   | 10,802 |         |       |   | 10,100 |        
|                        | Machinery and equipment        |                                           |                                   | 709    |         |       |   | 819    |        
|                        | Leasehold improvements         |                                           |                                   | 8,649  |         |       |   | 8,612  |        
|                        |                                |                                           |                                   |        |         |      
|                        |                                | Total property and equipment              |                                   |        | 24,819  |       |   |        | 25,545  |      
|                        |                                | Accumulated depreciation and amortization |                                   |        | (21,843 | )     |   |        | (20,981 | )    
|                        |                                |                                           |                                   |        |         |      
|                        |                                |                                           | Total property and equipment, net |        | $       | 2,976 |   |        | $       | 4,564 | 
|                        |                                |                                           |                                   |        |         |      



|                     |                                           |                           |   |       |        |  |   |       |        | 
|-------------------- | ----------------------------------------- | ------------------------- | - | ----- | ------ |  | - | ----- | ------ | 
|                     |                                           | March 31,                 |  
|                     |                                           |                           |  
|                     |                                           | 2005                      |   |       | 2004   | 
|                     |                                           |                           |   |       |        | 
|                     |                                           | (In thousands)            |  
|Accrued liabilities: |                                           |                           |   |       |        |  |   |      
|                     | Accrued compensation and related expenses |                           | $ | 3,352 |        |  | $ | 2,368 |       
|                     | Accrued warranty costs                    |                           |   | 1,656 |        |  |   | 1,731 |       
|                     | Commissions payable                       |                           |   | 1,830 |        |  |   | 893   |       
|                     | Income taxes payable                      |                           |   | 4,972 |        |  |   | 4,870 |       
|                     | Restructuring liabilities                 |                           |   | 178   |        |  |   | 220   |       
|                     | Other accrued liabilities                 |                           |   | 3,796 |        |  |   | 4,741 |       
|                     |                                           |                           |   |       |        | 
|                     |                                           | Total accrued liabilities |   | $     | 15,784 |  |   | $     | 14,823 | 
|                     |                                           |                           |   |       |        | 



|   |                   
|-- | ------------------
|3. | Net Loss Per Share



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                          |          |                              |        |        |      |  |        |         |   |  |        |          |  
|------------------------------------------------------------------------- | -------- | ---------------------------- | ------ | ------ | ---- |  | ------ | ------- | - |  | ------ | -------- | -
|                                                                          |          | Fiscal Years Ended March 31, |       
|                                                                          |          |                              |       
|                                                                          |          | 2005                         |        |        | 2004 |  |        | 2003    |  
|                                                                          |          |                              |        |        |      |  |        |         |  
|                                                                          |          | (In thousands)               |       
|Numerator:                                                                |          |                              |        |        |      |  |        |         |   |  |        |         
|                                                                          | Net loss |                              | $      | (6,821 | )    |  | $      | (18,093 | ) |  | $      | (133,604 | )
|                                                                          |          |                              |        |        |      |  |        |         |  
|Denominator:                                                              |          |                              |        |        |      |  |        |         |   |  |        |         
|Weighted shares outstanding used for basic and diluted loss per
    share |          |                              | 35,912 |        |      |  | 32,387 |         |   |  | 28,500 |         
|                                                                          |          |                              |        |        |      |  |        |         |  



|                            |  |                |       |  |      |  |       |      |  |  |       | 
|--------------------------- |  | -------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                            |  | March 31,      |      
|                            |  |                |      
|                            |  | 2005           |       |  | 2004 |  |       | 2003 | 
|                            |  |                |       |  |      |  |       |      | 
|                            |  | (In thousands) |      
|Common stock held in escrow |  |                |      |  |      |  |      |      |  |  | 541   | 
|Stock options               |  |                | 6,172 |  |      |  | 5,532 |      |  |  | 5,756 | 
|Warrants                    |  |                | 47    |  |      |  | 79    |      |  |  | 79    | 





|   |                       
|-- | ----------------------
|4. | Financing Arrangements





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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |             
|-- | ------------
|5. | Income Taxes



|                                                                                        |          |                              |   |        |        |   |   |         |         |   |   |          |          |  
|--------------------------------------------------------------------------------------- | -------- | ---------------------------- | - | ------ | ------ | - | - | ------- | ------- | - | - | -------- | -------- | -
|                                                                                        |          | Fiscal Years Ended March 31, |  
|                                                                                        |          |                              |  
|                                                                                        |          | 2005                         |   |        | 2004   |   |   | 2003    |        
|                                                                                        |          |                              |   |        |        |   |   |         |        
|                                                                                        |          | (In thousands)               |  
|Domestic and foreign components of income (loss) before
    provision for income taxes: |          |                              |   |        |        |   |   |         |         |   |   |         
|                                                                                        | Domestic |                              | $ | (6,474 | )      |   | $ | (16,999 | )       |   | $ | (133,142 | )       
|                                                                                        | Foreign  |                              |   | 115    |        |   |   | (1,094  | )       |   |   | (462     | )       
|                                                                                        |          |                              |   |        |        |   |   |         |        
|                                                                                        |          | Total                        |   | $      | (6,359 | ) |   | $       | (18,093 | ) |   | $        | (133,604 | )
|                                                                                        |          |                              |   |        |        |   |   |         |        



|                                              |          |                              |               |   |      |     |      |   |   |   |  |   |   |   | 
|--------------------------------------------- | -------- | ---------------------------- | ------------- | - | ---- | --- | ---- | - | - | - |  | - | - | - | 
|                                              |          | Fiscal Years Ended March 31,
|                                              |          |                             
|                                              |          | 2005                         |               |   | 2004 |     | 2003
|                                              |          |                              |               |   |      |     |     
|                                              |          | (In thousands)              
|Components of the provision for income taxes: |          |                              |               |   |      |     |      |   |   |   |  |  
|                                              | Current: |                              |               |   |      |     |      |   |   |   |  |   |  
|                                              |          | Federal                      |               | $ |     |     |      | $ |  |   |  | $ |  |  
|                                              |          | State                        |               |   | 11   |     |      |   |  |   |  |   |  |  
|                                              |          | Foreign                      |               |   | 451  |     |      |   |  |   |  |   |  |  
|                                              |          |                              |               |   |      |     |      |   |  
|                                              |          |                              | Total current |   | $    | 462 |      |   | $ |  |  |   | $ |  | 
|                                              |          |                              |               |   |      |     |      |   |  



|                                                                           |                                     |                              |  |       |      |    |  |       |   |   |  |       |   |  
|-------------------------------------------------------------------------- | ----------------------------------- | ---------------------------- |  | ----- | ---- | -- |  | ----- | - | - |  | ----- | - | -
|                                                                           |                                     | Fiscal Years Ended March 31, | 
|                                                                           |                                     |                              | 
|                                                                           |                                     | 2005                         |  |       | 2004 |    |  | 2003  |  
|                                                                           |                                     |                              |  |       |      |    |  |       |  
|Reconciliation of US federal statutory rate to the effective
    tax rate: |                                     |                              |  |       |      |    |  |       |   |   |  |      
|                                                                           | Provision at federal statutory rate |                              |  | 35    | %    |    |  | 35.0  | % |   |  | 35.0  | %
|                                                                           | State taxes, net of Federal benefit |                              |  | 2.8   |      |    |  | 2.8   |   |   |  | 2.8   |  
|                                                                           | Change in valuation allowance       |                              |  | (40.2 | )    |    |  | (30.7 | ) |   |  | (19.5 | )
|                                                                           | Non-deductible expenses             |                              |  | (1.0  | )    |    |  | (3.0  | ) |   |  | (18.1 | )
|                                                                           | Other                               |                              |  | (3.9  | )    |    |  | (4.1  | ) |   |  | (0.2  | )
|                                                                           |                                     |                              |  |       |      |    |  |       |  
|                                                                           |                                     | Total                        |  |       | (7.3 | )% |  |       |  | % |  |       |  | %
|                                                                           |                                     |                              |  |       |      |    |  |       |  

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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                      |                                                 |                                 |   |         |        |  |   |         |        | 
|------------------------------------- | -------------------- | ----------------------------------------------- | ------------------------------- | - | ------- | ------ |  | - | ------- | ------ | 
|                                      |                      | Fiscal Years Ended March 31,                    |                                
|                                      |                      |                                                 |                                
|                                      |                      | 2005                                            |                                 |   | 2004    |       
|                                      |                      |                                                 |                                 |   |         |       
|                                      |                      | (In thousands)                                  |                                
|Tax effects of temporary differences: |                      |                                                 |                                 |   |         |        |  |  
|                                      | Deferred tax assets: |                                                 |                                 |   |         |        |  |   |        
|                                      |                      | Accrued costs and expenses                      |                                 | $ | 14,681  |        |  | $ | 14,875  |       
|                                      |                      | Depreciation and amortization                   |                                 |   | 2,810   |        |  |   | 2,337   |       
|                                      |                      | Other                                           |                                 |   | 1,042   |        |  |   | 743     |       
|                                      |                      | Net operating loss and tax credit carryforwards |                                 |   | 36,197  |        |  |   | 34,653  |       
|                                      |                      |                                                 |                                 |   |         |       
|                                      |                      |                                                 | Total gross deferred tax assets |   |         | 54,730 |  |   |         | 52,607 | 
|                                      |                      | Less: valuation allowance                       |                                 |   | (54,730 | )      |  |   | (52,607 | )     
|                                      |                      |                                                 |                                 |   |         |       
|                                      |                      |                                                 | Total deferred tax assets       |   | $       |       |  |   | $       |       | 
|                                      |                      |                                                 |                                 |   |         |       











|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |                             |                |   |       |      |  |   |       |  |  |      |       |  |      |   |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|----------------------- | --------------------------- | -------------- | - | ----- | ---- |  | - | ----- |  |  | ---- | ----- |  | ---- | - | ----- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                        |                             | 2006           |   |       | 2007 |  |   | 2008  |  |  | 2009 |       |  | 2010 |   |       | Thereafter |  |   | Total | 
|                        |                             |                |   |       |      |  |   |       |  |  |      |       |  |      |   |       |            |  |   |       | 
|                        |                             | (In thousands) |  
|Contractual obligations |                             |                |   |       |      |  |   |       |  |  |      |       |  |      |   |       |            |  |   |       |  |  |   |       |  |  |   |      
|                        | By Fiscal Year March 31:    |                |   |       |      |  |   |       |  |  |      |       |  |      |   |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|                        | Operating lease obligations |                | $ | 2,089 |      |  | $ | 1,986 |  |  | $    | 1,774 |  |      | $ | 1,297 |            |  | $ | 1,200 |  |  | $ | 1,012 |  |  | $ | 9,358 | 
|                        |                             |                |   |       |      |  |   |       |  |  |      |       |  |      |   |       |            |  |   |       | 

Operating Leases.










| |                
| | ---------------
| | Indemnification



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Legal Proceedings





|   |                                         
|-- | ----------------------------------------
|7. | Restructuring, Severance and Other Costs



|                                                 |                             |                |   |     |           |  |   |          |              |  |      |      |   |  |   |     | 
|------------------------------------------------ | --------------------------- | -------------- | - | --- | --------- |  | - | -------- | ------------ |  | ---- | ---- | - |  | - | --- | 
|                                                 |                             | Liability as   |   |     |           |  |   |          | Liability as | 
|                                                 |                             | of March 31,   |   |     |           |  |   |          | of March 31, | 
|                                                 |                             | 2004           |   |     | Provision |  |   | Payments |              |  | 2005 |     
|                                                 |                             |                |   |     |           |  |   |          |              |  |      |     
|                                                 |                             | (In thousands) |  
|Restructuring severance and other costs incurred |                             |                |   |     |           |  |   |          |              |  |      |      |   |  |   |    
|                                                 | Consolidation of facilities |                | $ | 220 |           |  | $ | 347      |              |  | $    | (389 | ) |  | $ | 178 | 
|                                                 |                             |                |   |     |           |  |   |          |              |  |      |     

|                                                 |                                   |                |   |     |           |  |   |          |              |  |      |        |        |   |   |     |     | 
|------------------------------------------------ | --------------------------------- | -------------- | - | --- | --------- |  | - | -------- | ------------ |  | ---- | ------ | ------ | - | - | --- | --- | 
|                                                 |                                   | Liability as   |   |     |           |  |   |          | Liability as | 
|                                                 |                                   | of March 31,   |   |     |           |  |   |          | of March 31, | 
|                                                 |                                   | 2003           |   |     | Provision |  |   | Payments |              |  | 2004 |       
|                                                 |                                   |                |   |     |           |  |   |          |              |  |      |       
|                                                 |                                   | (In thousands) |  
|Restructuring severance and other costs incurred |                                   |                |   |     |           |  |   |          |              |  |      |        |        |   |   |    
|                                                 | Severance and workforce reduction |                | $ | 558 |           |  | $ | 1,772    |              |  | $    | (2,330 | )      |   | $ |    |    
|                                                 | Consolidation of facilities       |                |   | 662 |           |  |   | 82       |              |  |      | (524   | )      |   |   | 220 |    
|                                                 | Other costs                       |                |   | 134 |           |  |   | 84       |              |  |      | (218   | )      |   |   |    |    
|                                                 |                                   |                |   |     |           |  |   |          |              |  |      |       
|                                                 |                                   | Total          |   | $   | 1,354     |  |   | $        | 1,938        |  |      | $      | (3,072 | ) |   | $   | 220 | 
|                                                 |                                   |                |   |     |           |  |   |          |              |  |      |       





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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                  
| | ---------------------------------
| | Severance and Workforce Reduction





| |                                   
| | ----------------------------------
| | Consolidation of Excess Facilities





| |            
| | -----------
| | Other costs





|   |                 
|-- | ----------------
|8. | Warranty Accrual



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                 |                                                         |                |   |                |               |  |                |              |  |  |         |        |   |  |   |       | 
|---------------- | ------------------------------------------------------- | -------------- | - | -------------- | ------------- |  | -------------- | ------------ |  |  | ------- | ------ | - |  | - | ----- | 
|                 |                                                         |                |   | Provisions for |               |  |                |              | 
|                 |                                                         |                |   | Warranties     |               |  | Settlements of |              |  | 
|                 |                                                         | Beginning      |   |                | Issued During |  |                | Pre-Existing |  |  | Ending  |       
|                 |                                                         | Balance        |   |                | the Period    |  |                | Warranties   |  |  | Balance |       
|                 |                                                         |                |   |                |               |  |                |              |  |  |         |       
|                 |                                                         | (In thousands) |  
|Warranty Accrual |                                                         |                |   |                |               |  |                |              |  |  |         |        |   |  |   |      
|                 | Fiscal year as of and for the year ended March 31, 2005 |                | $ | 1,731          |               |  | $              | 1,629        |  |  | $       | (1,704 | ) |  | $ | 1,656 | 
|                 |                                                         |                |   |                |               |  |                |              |  |  |         |       
|                 | Fiscal year as of and for the year ended March 31, 2004 |                | $ | 983            |               |  | $              | 2,417        |  |  | $       | (1,669 | ) |  | $ | 1,731 | 
|                 |                                                         |                |   |                |               |  |                |              |  |  |         |       



|   |                  
|-- | -----------------
|9. | Stock Repurchases





|    |                                     
|--- | ------------------------------------
|10. | Goodwill and Other Intangible Assets





|                             |                      |                        |   |                |              |  |     |          |        |          |   |   |              |     |   |          |       |  |   |      |        |   |   |       |       | 
|---------------------------- | -------------------- | ---------------------- | - | -------------- | ------------ |  | --- | -------- | ------ | -------- | - | - | ------------ | --- | - | -------- | ----- |  | - | ---- | ------ | - | - | ----- | ----- | 
|                             |                      | March 31, 2004         |   | March 31, 2003 |             
|                             |                      |                        |   |                |             
|                             |                      | Gross                  |   |                |              |  | Net |          | Gross  |          |   |   |              | Net |  
|                             |                      | Carrying               |   |                | Accumulated  |  |     | Carrying |        | Carrying |   |   | Accumulated  |     |   | Carrying |      
|                             |                      | Amount                 |   |                | Amortization |  |     | Amount   |        | Amount   |   |   | Amortization |     |   | Amount   |      
|                             |                      |                        |   |                |              |  |     |          |        |          |   |   |              |     |   |          |      
|                             |                      | (In thousands)         |   | (In thousands) |             
|Intangible assets components |                      |                        |   |                |              |  |     |          |        |          |   |   |              |     |   |          |       |  |   |      |        |   |   |      
|                             | Developed technology |                        | $ | 314            |              |  | $   | (314     | )      |          | $ |  |              |     | $ | 314      |       |  | $ | (314 | )      |   | $ |      |      
|                             | Development contract |                        |   | 2,415          |              |  |     | (2,415   | )      |          |   |  |              |     |   | 2,415    |       |  |   | (604 | )      |   |   | 1,811 |      
|                             | Trade name           |                        |   | 197            |              |  |     | (197     | )      |          |   |  |              |     |   | 197      |       |  |   | (197 | )      |   |   |      |      
|                             |                      |                        |   |                |              |  |     |          |        |          |   |   |              |     |   |          |       | 
|                             |                      | Intangible assets, net |   | $              | 2,926        |  |     | $        | (2,926 | )        |   | $ |             |     |   | $        | 2,926 |  |   | $    | (1,115 | ) |   | $     | 1,811 | 
|                             |                      |                        |   |                |              |  |     |          |        |          |   |   |              |     |   |          |       | 



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















|    |                                         
|--- | ----------------------------------------
|11. | Stock Options, Common Stock and Warrants



| |                         
| | ------------------------
| | Stock-Based Compensation

Stock Options.






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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                      |                           |               |  |           |             |   |          |                |            |   |   |       |       | 
|--------------------- | ------------------------- | ------------- |  | --------- | ----------- | - | -------- | -------------- | ---------- | - | - | ----- | ----- | 
|                      |                           | Stock Options | 
|                      |                           |               | 
|                      |                           | Options       |  |           |             |   | Weighted |               
|                      |                           | Available for |  |           | Number of   |   |          | Average        |           
|                      |                           | Future        |  |           | Options     |   |          | Exercise Price |           
|                      |                           | Issuance      |  |           | Outstanding |   |          | per Option     |           
|                      |                           |               |  |           |             |   |          |                |           
|Stock Option Activity |                           |               |  |           |             |   |          |                |            |   |   |      
|                      | Balance at March 31, 2002 |               |  | 1,356,416 |             |   |          | 5,016,093      |            |   | $ | 11.46 |      
|                      |                           | Authorization |  |           | 292,107     |   |          |                |           |   |   |       |      | 
|                      |                           | Granted       |  |           | (1,790,828  | ) |          |                | 1,790,828  |   |   |       | 1.39  | 
|                      |                           | Exercised     |  |           |            |   |          |                | (24,246    | ) |   |       | 5.42  | 
|                      |                           | Cancelled     |  |           | 1,026,318   |   |          |                | (1,026,318 | ) |   |       | 11.82 | 
|                      |                           |               |  |           |             |   |          |                |           
|                      | Balance at March 31, 2003 |               |  | 884,013   |             |   |          | 5,756,357      |            |   | $ | 8.27  |      
|                      |                           | Authorization |  |           | 1,293,755   |   |          |                |           |   |   |       |      | 
|                      |                           | Granted       |  |           | (3,174,844  | ) |          |                | 3,174,844  |   |   |       | 2.45  | 
|                      |                           | Exercised     |  |           |            |   |          |                | (96,558    | ) |   |       | 1.44  | 
|                      |                           | Cancelled     |  |           | 3,302,576   |   |          |                | (3,302,576 | ) |   |       | 10.35 | 
|                      |                           |               |  |           |             |   |          |                |           
|                      | Balance at March 31, 2004 |               |  | 2,305,500 |             |   |          | 5,532,067      |            |   | $ | 3.81  |      
|                      |                           | Authorization |  |           | 358,254     |   |          |                |           |   |   |       |      | 
|                      |                           | Granted       |  |           | (1,513,870  | ) |          |                | 1,513,870  |   |   |       | 3.55  | 
|                      |                           | Exercised     |  |           |            |   |          |                | (176,437   | ) |   |       | 1.27  | 
|                      |                           | Cancelled     |  |           | 697,904     |   |          |                | (697,904   | ) |   |       | 5.24  | 
|                      |                           |               |  |           |             |   |          |                |           
|                      | Balance at March 31, 2005 |               |  | 1,847,788 |             |   |          | 6,171,596      |            |   | $ | 3.66  |      
|                      |                           |               |  |           |             |   |          |                |           

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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                    |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           |  |         |           |  |   |       |      | 
|--------------------------------------------------- | --------------- | ------------------------------- |  | ----------------- | ------------- |  | -------- | --------- | --------- |  | --------- | -------- | ---- | --------- |  | ------- | --------- |  | - | ----- | ---- | 
|                                                    |                 |                                 |  | Total Exercisable |              
|                                                    |                 | Total Stock Options Outstanding |  |                   | Stock Options | 
|                                                    |                 |                                 |  |                   |               | 
|                                                    |                 | Weighted                        |  |                   |               |  | Weighted |           |           |  |           | Weighted |     
|                                                    |                 | Average                         |  |                   |               |  | Average  |           |           |  |           | Average  |     
|                                                    |                 | Remaining                       |  |                   |               |  | Exercise |           |           |  |           | Exercise |     
|                                                    |                 | Contractual                     |  |                   | Stock Options |  |          | Price per |           |  | Number of |          |      | Price per | 
|                                                    |                 | Life (Years)                    |  |                   | Outstanding   |  |          | Option    |           |  | Options   |          |      | Option    | 
|                                                    |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           | 
|Summary of Outstanding Options as of March 31, 2005 |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           |  |         |           |  |   |      
|Range of exercise prices:                           |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           |  |         |           |  |   |      
|                                                    | $ 0.42 - $ 0.42 |                                 |  | 7.94              |               |  |          | 400,000   |           |  | $         | 0.42     |      |           |  | 200,000 |           |  | $ | 0.42  |     
|                                                    | $ 0.47 - $ 0.47 |                                 |  | 8.05              |               |  |          | 636,913   |           |  |           | 0.47     |      |           |  | 326,350 |           |  |   | 0.47  |     
|                                                    | $ 0.60 - $ 0.66 |                                 |  | 7.82              |               |  |          | 541,709   |           |  |           | 0.66     |      |           |  | 271,591 |           |  |   | 0.66  |     
|                                                    | $ 0.82 - $ 1.37 |                                 |  | 3.12              |               |  |          | 88,089    |           |  |           | 1.17     |      |           |  | 88,089  |           |  |   | 1.17  |     
|                                                    | $ 1.64 - $ 2.35 |                                 |  | 7.66              |               |  |          | 423,886   |           |  |           | 2.05     |      |           |  | 234,355 |           |  |   | 1.94  |     
|                                                    | $ 2.38 - $ 2.38 |                                 |  | 2.44              |               |  |          | 860,850   |           |  |           | 2.38     |      |           |  | 860,850 |           |  |   | 2.38  |     
|                                                    | $ 2.48 - $ 3.51 |                                 |  | 8.85              |               |  |          | 855,462   |           |  |           | 3.02     |      |           |  | 200,758 |           |  |   | 2.67  |     
|                                                    | $ 3.66 - $ 3.90 |                                 |  | 9.32              |               |  |          | 926,520   |           |  |           | 3.73     |      |           |  |        |           |  |   |      |     
|                                                    | $ 4.00 - $ 4.70 |                                 |  | 7.78              |               |  |          | 498,466   |           |  |           | 4.19     |      |           |  | 229,232 |           |  |   | 4.16  |     
|                                                    | $ 6.37 - $ 8.93 |                                 |  | 5.39              |               |  |          | 362,629   |           |  |           | 7.61     |      |           |  | 252,071 |           |  |   | 8.14  |     
|                                                    | $10.68 -  15.89 |                                 |  | 3.25              |               |  |          | 510,757   |           |  |           | 12.36    |      |           |  | 476,076 |           |  |   | 12.34 |     
|                                                    | $18.25 - $27.50 |                                 |  | 5.23              |               |  |          | 66,315    |           |  |           | 23.21    |      |           |  | 66,315  |           |  |   | 23.21 |     
|                                                    |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           | 
|                                                    |                 | Total                           |  |                   | 6.84          |  |          |           | 6,171,596 |  |           | $        | 3.66 |           |  |         | 3,205,687 |  |   | $     | 4.36 | 
|                                                    |                 |                                 |  |                   |               |  |          |           |           |  |           |          |      |           | 



|                                                       |                         |                    |  |     |      |  |  |      |   |  |  |     |  
|------------------------------------------------------ | ----------------------- | ------------------ |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                                                       |                         | Fiscal Years Ended | 
|                                                       |                         | March 31,          | 
|                                                       |                         |                    | 
|                                                       |                         | 2005               |  |     | 2004 |  |  | 2003 |  
|                                                       |                         |                    |  |     |      |  |  |      |  
|Assumptions for Estimating Fair Value of Option Grants |                         |                    |  |     |      |  |  |      |   |  |  |    
|                                                       | Risk-free interest rate |                    |  | 3.1 | %    |  |  | 4.0  | % |  |  | 3.6 | %
|                                                       | Expected dividend yield |                    |  |    |      |  |  |     |   |  |  |    |  
|                                                       | Expected volatility     |                    |  | 86  | %    |  |  | 118  | % |  |  | 116 | %
|                                                       | Expected life in years  |                    |  | 4.5 |      |  |  | 3.9  |   |  |  | 4.5 |  



Employee Stock Purchase Plan.


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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                  |                         |                    |  |     |      |  |  |      |   |  |  |     |  
|----------------------------------------------------------------- | ----------------------- | ------------------ |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                                                                  |                         | Fiscal Years Ended | 
|                                                                  |                         | March 31,          | 
|                                                                  |                         |                    | 
|                                                                  |                         | 2005               |  |     | 2004 |  |  | 2003 |  
|                                                                  |                         |                    |  |     |      |  |  |      |  
|Assumptions for Estimating Fair Value of ESPP Purchase
    Rights |                         |                    |  |     |      |  |  |      |   |  |  |    
|                                                                  | Risk-free interest rate |                    |  | 1.7 | %    |  |  | 0.9  | % |  |  | 1.8 | %
|                                                                  | Expected dividend yield |                    |  |    |      |  |  |     |   |  |  |    |  
|                                                                  | Expected volatility     |                    |  | 63  | %    |  |  | 125  | % |  |  | 136 | %
|                                                                  | Expected life in years  |                    |  | 1.2 |      |  |  | 1.3  |   |  |  | 1.0 |  

Stock-Based Compensation.








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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Warrants.


Director Stock Option Agreement.




|    |                           
|--- | --------------------------
|12. | Related Party Transactions











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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                 
|--- | ----------------
|13. | Retirement Plans







|    |                    
|--- | -------------------
|14. | Segment Information







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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |                                     |                    |  |    |      |   |  |      |     |   |  |    |     |  
|------------------------------ | ----------------------------------- | ------------------ |  | -- | ---- | - |  | ---- | --- | - |  | -- | --- | -
|                               |                                     | Percentage of      | 
|                               |                                     | Net Revenues       | 
|                               |                                     |                    | 
|                               |                                     | Fiscal Years Ended | 
|                               |                                     | March 31,          | 
|                               |                                     |                    | 
|                               |                                     | 2005               |  |    | 2004 |   |  | 2003 |    
|                               |                                     |                    |  |    |      |   |  |      |    
|Net Revenues by Product Family |                                     |                    |  |    |      |   |  |      |     |   |  |   
|                               | Opti-Probe, including Opti-Probe CD |                    |  | 47 | %    |   |  | 44   | %   |   |  | 41 | %  
|                               | Therma-Probe                        |                    |  | 22 | %    |   |  | 8    | %   |   |  | 11 | %  
|                               | Integra and Other                   |                    |  | 6  | %    |   |  | 13   | %   |   |  | 6  | %  
|                               | Service and parts                   |                    |  | 25 | %    |   |  | 28   | %   |   |  | 42 | %  
|                               | License                             |                    |  |   | %    |   |  | 7    | %   |   |  |   | %  
|                               |                                     |                    |  |    |      |   |  |      |    
|                               |                                     | Total              |  |    | 100  | % |  |      | 100 | % |  |    | 100 | %
|                               |                                     |                    |  |    |      |   |  |      |    





|                    |               |                   |  |    |      |   |  |    |     |  
|------------------- | ------------- | ----------------- |  | -- | ---- | - |  | -- | --- | -
|                    |               | Fiscal Year Ended | 
|                    |               | March 31,         | 
|                    |               |                   | 
|                    |               | 2005              |  |    | 2004 |  
|                    |               |                   |  |    |      |  
|Revenues by Country |               |                   |  |    |      |   |  |   
|                    | United States |                   |  | 29 | %    |   |  | 28 | %  
|                    | Taiwan        |                   |  | 21 | %    |   |  | 23 | %  
|                    | Korea         |                   |  | 14 | %    |   |  | 5  | %  
|                    | Japan         |                   |  | 13 | %    |   |  | 22 | %  
|                    | Europe        |                   |  | 11 | %    |   |  | 14 | %  
|                    | China         |                   |  | 6  | %    |   |  | 5  | %  
|                    | Singapore     |                   |  | 6  | %    |   |  | 3  | %  
|                    |               |                   |  |    |      |  
|                    |               | Total             |  |    | 100  | % |  |    | 100 | %
|                    |               |                   |  |    |      |  



81



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |                                            |                    |  |    |      |   |  |      |    |   |  |    |    |  
|------------------------------------------ | ------------------------------------------ | ------------------ |  | -- | ---- | - |  | ---- | -- | - |  | -- | -- | -
|                                           |                                            | Percentage of Net  | 
|                                           |                                            | Revenues           | 
|                                           |                                            |                    | 
|                                           |                                            | Fiscal Years Ended | 
|                                           |                                            | March 31,          | 
|                                           |                                            |                    | 
|                                           |                                            | 2005               |  |    | 2004 |   |  | 2003 |   
|                                           |                                            |                    |  |    |      |   |  |      |   
|Customers Over Ten Percent of Net Revenues |                                            |                    |  |    |      |   |  |      |    |   |  |   
|                                           | Taiwan Semiconductor Manufacturing Company |                    |  | 15 | %    |   |  | 16   | %  |   |  |   | % 
|                                           | Intel Corporation                          |                    |  | 12 | %    |   |  | 14   | %  |   |  | 13 | % 
|                                           | Samsung                                    |                    |  | 10 | %    |   |  |     | %  |   |  |   | % 
|                                           | Tokyo Electron, Ltd.                       |                    |  |   | %    |   |  | 12   | %  |   |  |   | % 
|                                           | Raytec Corp.(1)                            |                    |  |   | %    |   |  | 10   | %  |   |  |   | % 
|                                           |                                            |                    |  |    |      |   |  |      |   
|                                           |                                            | Total              |  |    | 37   | % |  |      | 52 | % |  |    | 13 | %
|                                           |                                            |                    |  |    |      |   |  |      |   






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Raytec Corp. was formally a subsidiary of Seki Technotron, our
    distributor for Japan.

82



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |       |  |   |         |         |   |   |          |        | 
|---------------------------------- | -------------------------------- | ------------------------------------ | ------------------ | - | -------- | ------ |  | ------- | ----- | ----- | --------- | - | ----- | ------------ |  | - | ------------ | ----- |  | - | ------- | ------- | - | - | -------- | ------ | 
|                                   |                                  |                                      |                    |   |          |        |  | Other   |       |       |           |   |      
|                                   |                                  |                                      |                    |   |          |        |  | Foreign |       |       |           |   |      
|                                   |                                  | U.S.                                 |                    |   | Japan    |        |  | UK      |       |       | Locations |   |       | Eliminations |  |   | Consolidated |      
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|Segment Information (in thousands) |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |       |  |   |         |         |   |  
|                                   | Fiscal Year Ended March 31, 2003 |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |       |  |   |         |         |   |   |         
|                                   |                                  | Sales to unaffiliated customers      |                    | $ | 41,039   |        |  | $       | 2,181 |       |           | $ | 2,220 |              |  | $ | 3,780        |       |  | $ |        |         |   | $ | 49,220   |       
|                                   |                                  | Transfers between geographic regions |                    |   | (1,460   | )      |  |         | 986   |       |           |   | 800   |              |  |   | 1,588        |       |  |   | (1,914  | )       |   |   |         |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total net revenues |   | $        | 39,579 |  |         | $     | 3,167 |           |   | $     | 3,020        |  |   | $            | 5,368 |  |   | $       | (1,914  | ) |   | $        | 49,220 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Operating income (loss)              |                    | $ | (134,042 | )      |  | $       | (116  | )     |           | $ | (955  | )            |  | $ | (21          | )     |  | $ | 607     |         |   | $ | (134,527 | )     
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Long-lived assets                    |                    | $ | 8,585    |        |  | $       | 66    |       |           | $ | 44    |              |  | $ | 2,748        |       |  | $ | (17     | )       |   | $ | 11,426   |       
|                                   |                                  | All other identifiable assets        |                    |   | 72,948   |        |  |         | 2,570 |       |           |   | 1,430 |              |  |   | 519          |       |  |   | (21,190 | )       |   |   | 56,277   |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total assets       |   | $        | 81,533 |  |         | $     | 2,636 |           |   | $     | 1,474        |  |   | $            | 3,267 |  |   | $       | (21,207 | ) |   | $        | 67,703 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   | Fiscal Year Ended March 31, 2004 |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |       |  |   |         |         |   |   |         
|                                   |                                  | Sales to unaffiliated customers      |                    | $ | 57,778   |        |  | $       | 2,355 |       |           | $ | 1,787 |              |  | $ | 3,389        |       |  | $ |        |         |   | $ | 65,309   |       
|                                   |                                  | Transfers between geographic regions |                    |   | (574     | )      |  |         | 556   |       |           |   | 655   |              |  |   | 1,585        |       |  |   | (2,222  | )       |   |   |         |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total net revenues |   | $        | 57,204 |  |         | $     | 2,911 |           |   | $     | 2,442        |  |   | $            | 4,974 |  |   | $       | (2,222  | ) |   | $        | 65,309 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Operating income (loss)              |                    | $ | (16,776  | )      |  | $       | (218  | )     |           | $ | 381   |              |  | $ | (388         | )     |  | $ | (946    | )       |   | $ | (17,947  | )     
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Long-lived assets                    |                    | $ | 4,296    |        |  | $       | 61    |       |           | $ |      |              |  | $ | 229          |       |  | $ | (22     | )       |   | $ | 4,564    |       
|                                   |                                  | All other identifiable assets        |                    |   | 62,693   |        |  |         | 2,555 |       |           |   | 629   |              |  |   | 2,884        |       |  |   | (9,043  | )       |   |   | 59,718   |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total assets       |   | $        | 66,989 |  |         | $     | 2,616 |           |   | $     | 629          |  |   | $            | 3,113 |  |   | $       | (9,065  | ) |   | $        | 64,282 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   | Fiscal Year Ended March 31, 2005 |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |       |  |   |         |         |   |   |         
|                                   |                                  | Sales to unaffiliated customers      |                    | $ | 71,401   |        |  | $       | 3,250 |       |           | $ | 2,012 |              |  | $ | 4,598        |       |  | $ |        |         |   | $ | 81,261   |       
|                                   |                                  | Transfers between geographic regions |                    |   | (858     | )      |  |         | 256   |       |           |   | 354   |              |  |   | 1,710        |       |  |   | (1,462  | )       |   |   |         |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total net revenues |   | $        | 70,543 |  |         | $     | 3,506 |           |   | $     | 2,366        |  |   | $            | 6,308 |  |   | $       | (1,462  | ) |   | $        | 81,261 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Operating income (loss)              |                    | $ | (6,631   | )      |  | $       | (361  | )     |           | $ | (16   | )            |  | $ | (22          | )     |  | $ | 494     |         |   | $ | (6,536   | )     
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  | Long-lived assets                    |                    | $ | 2,692    |        |  | $       | 103   |       |           | $ | 27    |              |  | $ | 171          |       |  | $ | (17     | )       |   | $ | 2,976    |       
|                                   |                                  | All other identifiable assets        |                    |   | 67,386   |        |  |         | 3,037 |       |           |   | 983   |              |  |   | 3,369        |       |  |   | (10,178 | )       |   |   | 64,597   |       
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      
|                                   |                                  |                                      | Total assets       |   | $        | 70,078 |  |         | $     | 3,140 |           |   | $     | 1,010        |  |   | $            | 3,540 |  |   | $       | (10,195 | ) |   | $        | 67,573 | 
|                                   |                                  |                                      |                    |   |          |        |  |         |       |       |           |   |       |              |  |   |              |      



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THERMA-WAVE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                      
|--- | -----------------------------------------------------
|15. | Accounts Receivable Valuation and Qualifying Accounts

|                           |                                                      |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |   |       | 
|-------------------------- | ---------------------------------------------------- | ------------------------------------------------------- |  | - | --------- |  | ---------- | ----------- | --- | ---------- | ------------- | - | ----- |  |  | - | ----- | 
|                           |                                                      | Balance at                                              |  |   |           |  | Deductions |             |     |           
|                           |                                                      | Beginning                                               |  |   |           |  | Including  |             |     | Balance at |              
|Description                |                                                      | of Period                                               |  |   | Additions |  |            | Write-Offs |     |            | End of Period |  
|                           |                                                      |                                                         |  |   |           |  |            |             |     |            |               |  
|                           |                                                      | (In thousands)                                          | 
|Year ended March 31, 2005: |                                                      |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |  
|                           | Reserves and allowances deducted from asset accounts |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |   |      
|                           |                                                      | Allowances for doubtful accounts receivable and returns |  | $ | 907       |  |            | $           | 509 |            |               | $ | 701   |  |  | $ | 715   | 
|Year ended March 31, 2004: |                                                      |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |  
|                           | Reserves and allowances deducted from asset accounts |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |   |      
|                           |                                                      | Allowances for doubtful accounts receivable and returns |  | $ | 1,553     |  |            | $           | 658 |            |               | $ | 1,304 |  |  | $ | 907   | 
|Year ended March 31, 2003: |                                                      |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |  
|                           | Reserves and allowances deducted from asset accounts |                                                         |  |   |           |  |            |             |     |            |               |   |       |  |  |   |      
|                           |                                                      | Allowances for doubtful accounts receivable and returns |  | $ | 2,024     |  |            | $           | 222 |            |               | $ | 693   |  |  | $ | 1,553 | 

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Supplementary Data: Selected Consolidated Quarterly
Data




THERMA-WAVE, INC.


QUARTERLY FINANCIAL DATA (UNAUDITED)


|                             |         |                                      |        |       |                  |   |        |      |  |   |        |       |   |      |        |       |    |   |        |       |   |   |        |       |   |    |        |       |      |   |        |       |   |   |        |       |   |   |         |       |  
|---------------------------- | ------- | ------------------------------------ | ------ | ----- | ---------------- | - | ------ | ---- |  | - | ------ | ----- | - | ---- | ------ | ----- | -- | - | ------ | ----- | - | - | ------ | ----- | - | -- | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | - | - | ------- | ----- | -
|                             |         | Fiscal Year 2005                     |        |       | Fiscal Year 2004 |  
|                             |         |                                      |        |       |                  |  
|                             |         | Q1                                   |        |       | Q2               |   |        | Q3   |  |   | Q4     |       |   | Year |        |       | Q1 |   |        | Q2    |   |   | Q3     |       |   | Q4 |        |       | Year |  
|                             |         |                                      |        |       |                  |   |        |      |  |   |        |       |   |      |        |       |    |   |        |       |   |   |        |       |   |    |        |       |      |  
|                             |         | (In thousands except per share data) |       
|Net revenues                 |         | $                                    | 21,151 |       |                  | $ | 22,602 |      |  | $ | 21,470 |       |   | $    | 16,038 |       |    | $ | 81,261 |       |   | $ | 11,903 |       |   | $  | 14,066 |       |      | $ | 19,866 |       |   | $ | 19,474 |       |   | $ | 65,309  |      
|Gross profit (loss)          |         | $                                    | 10,720 |       |                  | $ | 10,772 |      |  | $ | 9,102  |       |   | $    | 6,047  |       |    | $ | 36,641 |       |   | $ | 2,832  |       |   | $  | 5,567  |       |      | $ | 9,962  |       |   | $ | 8,448  |       |   | $ | 26,809  |      
|Operating profit (loss)      |         | $                                    | (1,221 | )     |                  | $ | 1,293  |      |  | $ | (1,754 | )     |   | $    | (4,854 | )     |    | $ | (6,536 | )     |   | $ | (9,339 | )     |   | $  | (5,782 | )     |      | $ | (1,027 | )     |   | $ | (1,799 | )     |   | $ | (17,947 | )    
|Net income (loss)            |         | $                                    | (1,169 | )     |                  | $ | 1,317  |      |  | $ | (1,911 | )     |   | $    | (5,058 | )     |    | $ | (6,821 | )     |   | $ | (9,534 | )     |   | $  | (5,728 | )     |      | $ | (1,031 | )     |   | $ | (1,800 | )     |   | $ | (18,093 | )    
|Net income (loss) per share: |         |                                      |        |       |                  |   |        |      |  |   |        |       |   |      |        |       |    |   |        |       |   |   |        |       |   |    |        |       |      |   |        |       |   |   |        |       |   |   |         |      
|                             | Basic   |                                      | $      | (0.03 | )                |   | $      | 0.04 |  |   | $      | (0.05 | ) |      | $      | (0.14 | )  |   | $      | (0.19 | ) |   | $      | (0.33 | ) |    | $      | (0.19 | )    |   | $      | (0.03 | ) |   | $      | (0.05 | ) |   | $       | (0.56 | )
|                             | Diluted |                                      | $      | (0.03 | )                |   | $      | 0.03 |  |   | $      | (0.05 | ) |      | $      | (0.14 | )  |   | $      | (0.19 | ) |   | $      | (0.33 | ) |    | $      | (0.19 | )    |   | $      | (0.03 | ) |   | $      | (0.05 | ) |   | $       | (0.56 | )






|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants and
    Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures






85



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Managements Report on Internal Control over Financial
Reporting


















86



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Remediation of Material Weaknesses




| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Corrective Actions for Material Weaknesses Identified
    During the Fourth Quarter of 2005





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implementing additional monitoring controls used in conjunction
    with the performance of intercompany account reconciliations and
    independent internal reviews of all key account reconciliations,
    including inventory transactions with consolidated entities and
    support for allocations of customer service and support costs
    between cost of revenue and selling general and administrative
    expense;
|
| |  | Hiring new senior accounting personnel and recruiting additional
    experienced accounting and finance staff, including an
    experienced corporate controller;                                                                                                                                                                                                                                                              
|
| |  | Enhancing our training programs for accounting staff as well as
    our overall supervision of finance personnel; and                                                                                                                                                                                                                                                                                                          
|
| |  | Implementing procedures to ensure all intercompany accounts are
    reconciled on a quarterly basis and to ensure that sufficient
    support is maintained on a timely basis for all accounting
    entries.                                                                                                                                                                                                                  





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Corrective Actions for Material Weakness Identified During
    the Third Quarter of 2005





| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Insufficient documentation to support revenue recognition
    decisions including timely receipt of final acceptances, support
    for customer change orders and receipt of final signed contracts
    and;
|
| |  | Lack of timely communication between business unit and finance
    personnel related to sales order status and the impact of
    changes in key contract terms on revenue recognition.                      





| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hired an experienced contracts manager with responsibility to
    oversee sales contract documentation;                                                                                                          
|
| |  | Established an executive revenue recognition review team with
    responsibility for ensuring that communication and documentation
    requirements in support of revenue recognition determinations
    are met;
|
| |  | Established a revenue review team within the finance department
    that documents the basis for revenue recognition decisions and
    including timely review of all supporting documentation;                  
|
| |  | Established a process that verifies completeness of receipt of
    all signed Final Acceptance Certificates; and                                                                                                 
|
| |  | Trained our sales and service staff regarding their role in
    ensuring the revenue recognition criteria of SAB 104 have
    been met for our transactions.                                                     



87



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Changes in Internal Control over Financial Reporting









|         |                  
|-------- | -----------------
|Item 9B. | Other Information











88



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PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



www.thermawave.com









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services





|                                                                                  |                    |       |   |         |         |  |   |         |         | 
|--------------------------------------------------------------------------------- | ------------------ | ----- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                  |                    | 2005  |   |         | 2004    | 
|                                                                                  |                    |       |   |         |         | 
|Category of Fees Billed or to be Billed by the Companys
    Principal Accountant |                    |       |   |         |         |  |   |        
|                                                                                  | Audit fees         |       | $ | 919,039 |         |  | $ | 440,034 |        
|                                                                                  | Audit-related fees |       |   |        |         |  |   | 365,000 |        
|                                                                                  | Tax fees           |       |   |        |         |  |   | 7,391   |        
|                                                                                  | All other fees     |       |   |        |         |  |   |        |        
|                                                                                  |                    |       |   |         |         | 
|                                                                                  |                    | Total |   | $       | 919,039 |  |   | $       | 812,425 | 
|                                                                                  |                    |       |   |         |         | 

89



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Audit fees.


Audit-related fees.


Tax fees.






90



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PART IV







|         |                                                            
|-------- | -----------------------------------------------------------
|Item 15. | Exhibits and Consolidated Financial Statement
    Schedules

The following documents are filed as part of this report:




| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | 1. Consolidated Financial Statements  See
    Item 8. Financial Statements and Supplementary
    Data
|
| | 2. Exhibits:                                                                                            

|        |    |             |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Restated Certificate of Incorporation of Therma-Wave, Inc.
    (Incorporated herein by reference to the Exhibit 3.1 to
    Therma-Waves annual report on Form 10-K for the
    period ended April 2, 2000.)                                                                        
|       
|        | 3  | .2          |  | Certificate of Amendment to Restated Certificate of
    Incorporation of Therma-Wave, Inc. (Incorporated herein by
    reference to Exhibit 3.1 in Therma-Waves quarterly
    report on Form 10-Q for the period ended September 29,
    2002.)                                    
|       
|        | 3  | .3          |  | Amended and Restated By-Laws of Therma-Wave. (Incorporated
    herein by reference to Exhibit 3.2 in Therma-Waves
    annual report on Form 10-K for the period ended
    April 1, 2001.)                                                                                          
|       
|        | 4  | .1          |  | Form of certificate representing shares of Common Stock.
    (Incorporated herein by reference to Exhibit 4.6 to
    Therma-Waves Registration Statement on Form S-1
    (Registration No 333-76019).)                                                                             
|       
|        | 4  | .2          |  | Registration Rights Agreement, dated as of September 15,
    2003, by and among Therma-Wave, Inc. and the holders named
    therein. (Incorporated herein by reference to Exhibit 4.6
    to Therma-Waves Registration Statement on Form S-1
    (Registration No. 333-110162).)   
|       
|        | 10 | .1          |  | Loan and Security Agreement, dated June 13, 2003, by and
    between Therma-Wave, Inc. and Silicon Valley Bank. (Incorporated
    herein by reference to Exhibit 10.2 in Therma-Waves
    annual report for the year ended March 30, 2003.)                                        
|       
|        | 10 | .2          |  | Loan Modification Agreement, dated as of July 24, 2003 by
    and between Therma-Wave, Inc. and Silicon Valley Bank.
    (Incorporated herein by reference to Exhibit 10.38 to
    Therma-Waves quarterly report for the period ended
    June 29, 2003.)                          
|       
|        | 10 | .3          |  | Loan Modification Agreement, dated as of May 4, 2004, by
    and between Therma-Wave, Inc. and Silicon Valley Bank.
    (Incorporated herein by reference to Exhibit 10.16 to
    Therma-Waves annual report on Form 10-K for the
    period ended March 28, 2004.)                
|       
|        | 10 | .4          |  | Loan Modification Agreement, dated as of January 31, 2005,
    by and between Therma-Wave, Inc. and Silicon Valley Bank.                                                                                                                                                            
|        | 10 | .5          |  | Amended and Restated Loan and Security Agreement, dated
    June 10, 2005, by and between Therma-Wave, Inc. and Silicon
    Valley Bank. (Incorporated herein by reference to
    Exhibit 10.1 to Therma-Waves current report on
    Form 8-K dated June 16, 2005.)                
|       
|        | 10 | .6          |  | Streamline Facility Agreement, dated June 10, 2005, by and
    between Therma-Wave, Inc. and Silicon Valley Bank. (Incorporated
    herein by reference to Exhibit 10.1 to Therma-Waves
    current report on Form 8-K dated June 16, 2005.)                                       
|       
|        | 10 | .7          |  | Borrower Agreement, dated as of June 4, 2004, by and
    between Therma-Wave, Inc. and the Export-Import Bank of the
    United States. (Incorporated herein by reference to
    Exhibit 10.31 to Therma-Waves annual report on
    Form 10-K for the period ended March 28, 2004.)
|       
|        | 10 | .8*         |  | Exclusive Representation Agreement, dated as of April 19,
    2005, by and between Therma-Wave, Inc. and Hermes-Epitek
    Corporation.                                                                                                                                             
|       
|        | 10 | .9          |  | Lease Agreement, dated as of May 26, 1995, by and between
    Therma-Wave and Sobrato Interests. (Incorporated herein by
    reference to Exhibit 10.14 to Therma-Waves
    Registration Statement on Form S-4 (Registration
    No. 0333-29871)                                   
|       
|        | 10 | .10         |  | Lease between Minos Management, Inc. as Landlord, and
    Therma-Wave as Tenant, dated May 31, 2000. (Incorporated
    herein by reference to Exhibit 10.32 to Therma-Waves
    annual report on Form 10-K for the period ended
    April 2, 2000.)                                

91



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                        
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .11         |  | Agreement between Therma-Wave, Inc. and KLA-Tencor Corporation
    effective as of July 1, 2004. (Incorporated by reference to
    Form 8-K filed August 27, 2004.)                                                                                                    
|       
|        | 10 | .12#        |  | Form of Indemnification Agreement with directors and executive
    officers.                                                                                                                                                                                           
|        | 10 | .13#        |  | Therma-Wave Executive Deferred Compensation Plan, effective
    January 1, 2000. (Incorporated herein by reference to
    Exhibit 10.31 to Therma-Waves annual report on
    Form 10-K for the period ended April 2, 2000.)                                           
|       
|        | 10 | .14#        |  | 1997 Stock Purchase and Option Plan. (Incorporated herein by
    reference to Exhibit 10.20 to Therma-Waves
    Registration Statement on Form S-4 (Registration
    No. 333-29871).)                                                                                 
|       
|        | 10 | .15#        |  | 1997 Employee Stock Purchase and Option Plan. (Incorporated
    herein by reference to Exhibit 10.30 to Therma-Waves
    Registration Statement on Form S-1 (Registration No
    333-76019).)                                                                         
|       
|        | 10 | .16#        |  | 1997 Special Employee Stock Purchase and Option Plan.
    (Incorporated herein by reference to Exhibit 10.31 to
    Therma-Waves Registration Statement on Form S-1
    (Registration No. 333-76019).)                                                                
|       
|        | 10 | .17#        |  | 2000 Equity Incentive Plan. (Incorporated herein by reference to
    Exhibit 10.22 to Therma-Waves annual report on
    Form 10-K for the period ended March 31, 2000.)                                                                                               
|       
|        | 10 | .18#        |  | Amendment No. 1 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.2 in
    Therma-Waves Registration Statement on Form S-8
    (Registration No. 333-83282).)                                                      
|       
|        | 10 | .19#        |  | Amendment No. 2 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.1 in
    Therma-Waves current report on Form 8-K filed
    August 27, 2004.)                                                                     
|       
|        | 10 | .20#        |  | Amendment No. 3 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.2 in
    Therma-Waves Registration Statement on Form S-8
    (Registration No. 333-83282).)                                                      
|       
|        | 10 | .21#        |  | Amendment No. 4 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan.                                                                                                                                                                                                   
|       
|        | 10 | .22#        |  | Form of Stock Option Agreement under the 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 10.1 to
    Therma-Waves current report on Form 8-K filed
    May 11, 2005.)                                                                    
|       
|        | 10 | .23#        |  | Form of Amendment No. 1 to Stock Option Agreement for
    directors under the 2000 Equity Incentive Plan. (Incorporated
    herein by reference to Exhibit 99.3 in Therma-Waves
    current report on Form 8-K filed August 27, 2004.)                                
|       
|        | 10 | .24#        |  | Form of Director Stock Option Agreement adopted
    November 24, 2004. (Incorporated herein by reference to
    Exhibit 10.1 to Therma-Waves quarterly report for the
    quarter ended December 26, 2004.)                                                           
|       
|        | 10 | .25#        |  | Amended and Restated 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26 in
    Therma-Waves annual report on Form 10-K for the
    period ended March 31, 2000.)                                                               
|       
|        | 10 | .26#        |  | Amendment No. 1 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26.1 to
    Therma-Waves quarterly report on Form 10-Q for the
    period ended July 1, 2001.)                                                          
|       
|        | 10 | .27#        |  | Amendment No. 2 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26.2 to
    Therma-Waves amended quarterly report on Form 10-Q/ A
    for the period ended September 29, 2002.)                                         
|       
|        | 10 | .28#        |  | Amendment No. 3 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.29 in
    Therma-Waves annual report for the year ended
    March 30, 2003.)                                                                            
|       
|        | 10 | .29#        |  | Offer Letter, Board Services, dated as of March 12, 2003,
    from Therma-Wave, Inc. to Papken S. Der Torossian. (Incorporated
    herein by reference to Exhibit 10.45 in Therma-Waves
    quarterly report on Form 10-Q for the period ended
    December 29, 2002.)
|       
|        | 10 | .30#        |  | Employment Agreement dated as of February 5, 2003, by and
    between Therma-Wave, Inc. and Boris Lipkin. (Incorporated herein
    by reference to Exhibit 10.43 in Therma-Waves
    quarterly report on Form 10-Q for the period ended
    December 29, 2002.)       

92



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .31#        |  | Amendment No. 1 to Employment Agreement, dated as of
    August 21, 2003, between Boris Lipkin and Therma-Wave, Inc.
    (Incorporated herein by reference to Exhibit 10.39 to
    Therma-Waves quarterly report for the period ended
    September 28, 2003.)         
|       
|        | 10 | .32#        |  | Amendment No. 2, dated as of March 25, 2004 to the
    Employment Agreement by and between Therma-Wave and Boris
    Lipkin. (Incorporated herein by reference to Exhibit 10.9
    to Therma-Waves annual report on Form 10-K for the
    period ended March 28, 2004.)
|       
|        | 10 | .33#        |  | Employment Agreement, dated as of August 10, 1998, by and
    between Therma-Wave and L. Ray Christie. (Incorporated herein by
    reference to Exhibit 10.27 to Therma-Waves
    Registration Statement on Form S-1 (Registration
    No. 333-76019).)                
|       
|        | 10 | .34#        |  | Amendment No. 1 to Employment Agreement, dated as of
    August 21, 2003, between L. Ray Christie and Therma-Wave,
    Inc. (Incorporated herein by reference to Exhibit 10.40 to
    Therma-Waves quarterly report for the period ended
    September 28, 2003.)      
|       
|        | 10 | .35#        |  | Executive Stock Agreement, dated as of May 16, 1997, by and
    between Therma-Wave, Inc. and Jon L. Opsal. (Incorporated
    herein by reference to Exhibit 10.9 to Therma-Waves
    registration statement on Form S-4 (Registration
    No. 333-29871).)            
|       
|        | 10 | .36#        |  | Summary of Compensation for Outside Directors                                                                                                                                                                                                                           
|       
|        | 10 | .37#        |  | Summary of Compensation Arrangements with Certain Executives                                                                                                                                                                                                            
|       
|        | 10 | .38#        |  | Employment Agreement with Joseph Passarello dated April 8,
    2005.                                                                                                                                                                                                    
|       
|        | 14 | .1          |  | Code of Ethics applicable to all employees. (Incorporated herein
    by reference to Exhibit 14.1 to Therma-Waves annual
    report on Form 10-K for the period ended March 28,
    2004.)                                                                             
|       
|        | 21 | .1          |  | Subsidiaries of Therma-Wave. (Incorporated herein by reference
    to Exhibit 21.1 to Therma-Waves annual report on
    Form 10-K for the period ended March 30, 2003.)                                                                                                
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                               
|       
|        | 31 | .1          |  | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|       
|        | 31 | .2          |  | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|       
|        | 32 | .1          |  | Certification of the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|       
|        | 32 | .2          |  | Certification of the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             






|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|* | Confidential treatment has been requested for certain portions
    of this exhibit.
| 
|# | Denotes management contract or compensatory plan.                                  

93



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##### Table of Contents






SIGNATURES






| |                  
| | -----------------
| | Therma-Wave, Inc.



| |     |                 
| | --- | ----------------
| | By: | /s/ Boris Lipkin

| |                                                
| | -----------------------------------------------
| |                                                
| | Boris Lipkin                                   
| | President, Chief Executive Officer and Director



POWER OF ATTORNEY






|                                                           |  |                                                                                                        |  |               |  | 
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------- |  | 
|Signature                                                  |  | Title                                                                                                  |  | Date         
|                                                           |  |                                                                                                        |  |              
|                                                          
|/s/ Papken S. Der
    TorossianPapken
    S. Der Torossian |  | Chairman of the Board                                                                                  |  | June 27, 2005
|                                                          
|/s/ Boris LipkinBoris
    Lipkin                           |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)                      |  | June 27, 2005
|                                                          
|/s/ L. Ray ChristieL.
    Ray Christie                     |  | Vice President, Chief Financial Officer and Secretary (Principal
    Financial and Accounting Officer) |  | June 27, 2005
|                                                          
|/s/ David AspnesDavid
    Aspnes                           |  | Director                                                                                               |  | June 27, 2005
|                                                          
|/s/ G. Leonard BakerG.
    Leonard Baker                   |  | Director                                                                                               |  | June 27, 2005
|                                                          
|/s/ John DErricoJohn
    DErrico                         |  | Director                                                                                               |  | June 27, 2005

94



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##### Table of Contents



|                                             |  |          |  |               |  | 
|-------------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                                    |  | Title    |  | Date         
|                                             |  |          |  |              
|                                            
|/s/ Peter R. HanleyPeter
    R. Hanley       |  | Director |  | June 27, 2005
|                                            
|/s/ Nam Pyo SuhNam
    Pyo Suh               |  | Director |  | June 27, 2005
|                                            
|/s/ Lawrence TomlinsonLawrence
    Tomlinson |  | Director |  | June 27, 2005

95



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##### Table of Contents



EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Restated Certificate of Incorporation of Therma-Wave, Inc.
    (Incorporated herein by reference to the Exhibit 3.1 to
    Therma-Waves annual report on Form 10-K for the
    period ended April 2, 2000.)                                                                        
|       
|        | 3  | .2          |  | Certificate of Amendment to Restated Certificate of
    Incorporation of Therma-Wave, Inc. (Incorporated herein by
    reference to Exhibit 3.1 in Therma-Waves quarterly
    report on Form 10-Q for the period ended September 29,
    2002.)                                    
|       
|        | 3  | .3          |  | Amended and Restated By-Laws of Therma-Wave. (Incorporated
    herein by reference to Exhibit 3.2 in Therma-Waves
    annual report on Form 10-K for the period ended
    April 1, 2001.)                                                                                          
|       
|        | 4  | .1          |  | Form of certificate representing shares of Common Stock.
    (Incorporated herein by reference to Exhibit 4.6 to
    Therma-Waves Registration Statement on Form S-1
    (Registration No 333-76019).)                                                                             
|       
|        | 4  | .2          |  | Registration Rights Agreement, dated as of September 15,
    2003, by and among Therma-Wave, Inc. and the holders named
    therein. (Incorporated herein by reference to Exhibit 4.6
    to Therma-Waves Registration Statement on Form S-1
    (Registration No. 333-110162).)   
|       
|        | 10 | .1          |  | Loan and Security Agreement, dated June 13, 2003, by and
    between Therma-Wave, Inc. and Silicon Valley Bank. (Incorporated
    herein by reference to Exhibit 10.2 in Therma-Waves
    annual report for the year ended March 30, 2003.)                                        
|       
|        | 10 | .2          |  | Loan Modification Agreement, dated as of July 24, 2003 by
    and between Therma-Wave, Inc. and Silicon Valley Bank.
    (Incorporated herein by reference to Exhibit 10.38 to
    Therma-Waves quarterly report for the period ended
    June 29, 2003.)                          
|       
|        | 10 | .3          |  | Loan Modification Agreement, dated as of May 4, 2004, by
    and between Therma-Wave, Inc. and Silicon Valley Bank.
    (Incorporated herein by reference to Exhibit 10.16 to
    Therma-Waves annual report on Form 10-K for the
    period ended March 28, 2004.)                
|       
|        | 10 | .4          |  | Loan Modification Agreement, dated as of January 31, 2005,
    by and between Therma-Wave, Inc. and Silicon Valley Bank.                                                                                                                                                            
|        | 10 | .5          |  | Amended and Restated Loan and Security Agreement, dated
    June 10, 2005, by and between Therma-Wave, Inc. and Silicon
    Valley Bank (Incorporated herein by reference to
    Exhibit 10.1 to Therma-Waves current report on
    Form 8-K dated June 16, 2005.)                 
|       
|        | 10 | .6          |  | Streamline Facility Agreement, dated June 10, 2005, by and
    between Therma-Wave, Inc. and Silicon Valley Bank. (Incorporated
    herein by reference to Exhibit 10.1 to Therma-Waves
    current report on Form 8-K dated June 16, 2005.)                                       
|       
|        | 10 | .7          |  | Borrower Agreement, dated as of June 4, 2004, by and
    between Therma-Wave, Inc. and the Export-Import Bank of the
    United States. (Incorporated herein by reference to
    Exhibit 10.31 to Therma-Waves annual report on
    Form 10-K for the period ended March 28, 2004.)
|       
|        | 10 | .8*         |  | Exclusive Representation Agreement, dated as of April 19,
    2005, by and between Therma-Wave, Inc. and Hermes-Epitek
    Corporation.                                                                                                                                             
|       
|        | 10 | .9          |  | Lease Agreement, dated as of May 26, 1995, by and between
    Therma-Wave and Sobrato Interests. (Incorporated herein by
    reference to Exhibit 10.14 to Therma-Waves
    Registration Statement on Form S-4 (Registration
    No. 0333-29871)                                   
|       
|        | 10 | .10         |  | Lease between Minos Management, Inc. as Landlord, and
    Therma-Wave as Tenant, dated May 31, 2000. (Incorporated
    herein by reference to Exhibit 10.32 to Therma-Waves
    annual report on Form 10-K for the period ended
    April 2, 2000.)                                
|       
|        | 10 | .11         |  | Agreement between Therma-Wave, Inc. and KLA-Tencor Corporation
    effective as of July 1, 2004. (Incorporated by reference to
    Form 8-K filed August 27, 2004.)                                                                                                                 
|       
|        | 10 | .12#        |  | Form of Indemnification Agreement with directors and executive
    officers.                                                                                                                                                                                                        
|        | 10 | .13#        |  | Therma-Wave Executive Deferred Compensation Plan, effective
    January 1, 2000. (Incorporated herein by reference to
    Exhibit 10.31 to Therma-Waves annual report on
    Form 10-K for the period ended April 2, 2000.)                                                        
|       
|        | 10 | .14#        |  | 1997 Stock Purchase and Option Plan. (Incorporated herein by
    reference to Exhibit 10.20 to Therma-Waves
    Registration Statement on Form S-4 (Registration
    No. 333-29871).)                                                                                              

96



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .15#        |  | 1997 Employee Stock Purchase and Option Plan. (Incorporated
    herein by reference to Exhibit 10.30 to Therma-Waves
    Registration Statement on Form S-1 (Registration No
    333-76019).)                                                                          
|       
|        | 10 | .16#        |  | 1997 Special Employee Stock Purchase and Option Plan.
    (Incorporated herein by reference to Exhibit 10.31 to
    Therma-Waves Registration Statement on Form S-1
    (Registration No. 333-76019).)                                                                 
|       
|        | 10 | .17#        |  | 2000 Equity Incentive Plan. (Incorporated herein by reference to
    Exhibit 10.22 to Therma-Waves annual report on
    Form 10-K for the period ended March 31, 2000.)                                                                                                
|       
|        | 10 | .18#        |  | Amendment No. 1 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.2 in
    Therma-Waves Registration Statement on Form S-8
    (Registration No. 333-83282).)                                                       
|       
|        | 10 | .19#        |  | Amendment No. 2 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.1 in
    Therma-Waves current report on Form 8-K filed
    August 27, 2004.)                                                                      
|       
|        | 10 | .20#        |  | Amendment No. 3 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 99.2 in
    Therma-Waves Registration Statement on Form S-8
    (Registration No. 333-83282).)                                                       
|       
|        | 10 | .21#        |  | Amendment No. 4 to Therma-Wave, Inc. 2000 Equity Incentive
    Plan.                                                                                                                                                                                                    
|       
|        | 10 | .22#        |  | Form of Stock Option Agreement under the 2000 Equity Incentive
    Plan. (Incorporated herein by reference to Exhibit 10.1 to
    Therma-Waves current report on Form 8-K filed
    May 11, 2005.)                                                                     
|       
|        | 10 | .23#        |  | Form of Amendment No. 1 to Stock Option Agreement for
    directors under the 2000 Equity Incentive Plan. (Incorporated
    herein by reference to Exhibit 99.3 in Therma-Waves
    current report on Form 8-K filed August 27, 2004.)                                 
|       
|        | 10 | .24#        |  | Form of Director Stock Option Agreement adopted
    November 24, 2004. (Incorporated herein by reference to
    Exhibit 10.1 to Therma-Waves quarterly report for the
    quarter ended December 26, 2004.)                                                            
|       
|        | 10 | .25#        |  | Amended and Restated 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26 in
    Therma-Waves annual report on Form 10-K for the
    period ended March 31, 2000.)                                                                
|       
|        | 10 | .26#        |  | Amendment No. 1 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26.1 to
    Therma-Waves quarterly report on Form 10-Q for the
    period ended July 1, 2001.)                                                           
|       
|        | 10 | .27#        |  | Amendment No. 2 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.26.2 to
    Therma-Waves amended quarterly report on Form 10-Q/ A
    for the period ended September 29, 2002.)                                          
|       
|        | 10 | .28#        |  | Amendment No. 3 to the 2000 Employee Stock Purchase Plan.
    (Incorporated herein by reference to Exhibit 10.29 in
    Therma-Waves annual report for the year ended
    March 30, 2003.)                                                                             
|       
|        | 10 | .29#        |  | Offer Letter, Board Services, dated as of March 12, 2003,
    from Therma-Wave, Inc. to Papken S. Der Torossian. (Incorporated
    herein by reference to Exhibit 10.45 in Therma-Waves
    quarterly report on Form 10-Q for the period ended
    December 29, 2002.) 
|       
|        | 10 | .30#        |  | Employment Agreement dated as of February 5, 2003, by and
    between Therma-Wave, Inc. and Boris Lipkin. (Incorporated herein
    by reference to Exhibit 10.43 in Therma-Waves
    quarterly report on Form 10-Q for the period ended
    December 29, 2002.)        
|       
|        | 10 | .31#        |  | Amendment No. 1 to Employment Agreement, dated as of
    August 21, 2003, between Boris Lipkin and Therma-Wave, Inc.
    (Incorporated herein by reference to Exhibit 10.39 to
    Therma-Waves quarterly report for the period ended
    September 28, 2003.)         
|       
|        | 10 | .32#        |  | Amendment No. 2, dated as of March 25, 2004 to the
    Employment Agreement by and between Therma-Wave and Boris
    Lipkin. (Incorporated herein by reference to Exhibit 10.9
    to Therma-Waves annual report on Form 10-K for the
    period ended March 28, 2004.)
|       
|        | 10 | .33#        |  | Employment Agreement, dated as of August 10, 1998, by and
    between Therma-Wave and L. Ray Christie. (Incorporated herein by
    reference to Exhibit 10.27 to Therma-Waves
    Registration Statement on Form S-1 (Registration
    No. 333-76019).)                

97



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .34#        |  | Amendment No. 1 to Employment Agreement, dated as of
    August 21, 2003, between L. Ray Christie and Therma-Wave,
    Inc. (Incorporated herein by reference to Exhibit 10.40 to
    Therma-Waves quarterly report for the period ended
    September 28, 2003.)
|       
|        | 10 | .35#        |  | Executive Stock Agreement, dated as of May 16, 1997, by and
    between Therma-Wave, Inc. and Jon L. Opsal. (Incorporated
    herein by reference to Exhibit 10.9 to Therma-Waves
    registration statement on Form S-4 (Registration
    No. 333-29871).)      
|       
|        | 10 | .36#        |  | Summary of Compensation for Outside Directors                                                                                                                                                                                                                     
|       
|        | 10 | .37#        |  | Summary of Compensation Arrangements with Certain Executives                                                                                                                                                                                                      
|       
|        | 10 | .38#        |  | Employment Agreement with Joseph Passarello dated April 8,
    2005.                                                                                                                                                                                              
|       
|        | 14 | .1          |  | Code of Ethics applicable to all employees. (Incorporated herein
    by reference to Exhibit 14.1 to Therma-Waves annual
    report on Form 10-K for the period ended March 28,
    2004.)                                                                       
|       
|        | 21 | .1          |  | Subsidiaries of Therma-Wave. (Incorporated herein by reference
    to Exhibit 21.1 to Therma-Waves annual report on
    Form 10-K for the period ended March 30, 2003.)                                                                                          
|       
|        | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                         
|       
|        | 31 | .1          |  | Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                       
|       
|        | 31 | .2          |  | Certification of the Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                       
|       
|        | 32 | .1          |  | Certification of the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                       
|       
|        | 32 | .2          |  | Certification of the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                       






|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|* | Confidential treatment has been requested for certain portions
    of this exhibit.
| 
|# | Denotes management contract or compensatory plan.                                  

98