EXHIBIT 99.1

RISK FACTORS

     You should carefully consider the following factors inaddition to the other information set forth in this annual report in analyzingan investment in our common stock. The risks and uncertainties described beloware not the only ones facing us. Additional risks and uncertainties that we donot presently know about or that we currently believe are immaterial may alsoadversely impact our business operations. If any of the following risks actuallyoccur, our business, financial condition or results of operations would likelysuffer. In such case, the trading price of our common stock could fall, and youmay lose all or part of the money you paid to buy our common stock. This annualreport contains forward-looking statements that involve risks and uncertainties.Actual results could differ materially from those discussed herein. Factors thatcould cause or contribute to such differences include, but are not limited to,those identified below as well as those discussed elsewhere in this annualreport.

Our operating results for the quarters ended March 31,2002 and December 30, 2001 declined significantly from the quarters ended April1, 2001 and December 30, 2000.  

     Our net and operating incomes for the quarters ended March 31, 2002 andDecember 30, 2001 decreased as compared to our results in the quarters endedApril 1, 2001 and December 30, 2000 as a result of a decline in our revenues.Our revenues for the quarters ended March 31, 2002 and December 30, 2001 were$13.2 million and $11.1 million, respectively, compared to $53.8 million and$57.0 million, respectively, in the same periods for the previous fiscal year.We cannot assure you that our business will not continue to decline or that ourperformance will improve.

We had net losses for fiscal 2002 and may incur furtherlosses in the future.

     We have reported $48.3 million of net losses for fiscal2002. We reported $25.8 million of net income for fiscal 2001 and $20.6 millionof net losses for fiscal 2000. Due to the current downturn in the semiconductorindustry and the related downturn in the semiconductor capital equipmentindustry, weak economic conditions worldwide, and other factors, we cannotpredict how long we will incur further losses or whether we will becomeprofitable again. Moreover, in part due to these downturns, for the quarterended March 31, 2002, we recorded $13.3 million for the write off of inventoryand inventory related costs, employee severance and other costs related toreductions in work force.

Our performance is affected by the cyclicality of thesemiconductor device industry which may, from time to time, lead to decreaseddemand for our products.

     The current downturn in the semiconductor industry ishaving a material adverse effect on our business, financial condition andresults of operations. Our business depends upon the capital expenditures ofsemiconductor manufacturers, which, in turn, depend upon the current andanticipated market demand for semiconductors and products utilizingsemiconductors. The semiconductor industry is cyclical and has historicallyexperienced periodic downturns, which have often resulted in a decrease in thesemiconductor industry's demand for capital equipment, including process controlmetrology systems. There is typically a six to twelve month lag between changesin the semiconductor industry and the related impact on the level of capitalexpenditures. In most cases, the resulting decrease in capital expenditures hasbeen more pronounced than the precipitating downturn in semiconductor industryrevenues. We cannot be sure:

when the semiconductor industry will recover; or

whether the recovery, if it happens, will result inincreased demand for capital equipment by the semiconductorindustry.

Our quarterly operating results have historically and may,in the future, vary significantly. This may result in volatility in the marketprice for our shares.

     Our quarterly operating results have historically andmay, in the future, vary significantly. Some of the factors that may influenceour operating results and that could cause trading in our shares to be subjectto extreme price and volume fluctuations in a given quarter include:

customer demand, which is influenced by economicconditions in the semiconductor industry, demand for products that usesemiconductors, market acceptance of our products and those of our customers,seasonality, changes in product mix, and the timing, cancellation or delay ofcustomer orders and shipments;

competition, such as competitive pressures on prices ofour products, the introduction or announcement of new products by us or ourcompetitors 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 orproduct enhancements, and the effect of transitioning to new or enhancedproducts; and

levels of fixed expenses relative to revenue levels,including research and development costs associated with productdevelopment.

     During a given quarter, a significant portion of ourrevenue may be derived from the sale of a relatively small number of systems.Accordingly, a small change in the number of systems actually shipped may causesignificant changes in operating results. In addition, because of thesignificantly different gross margins attributable to our two product lines,changes in product mix may cause fluctuations in operating results. In addition,we cannot assure you that the market price of our common stock will notexperience significant fluctuations in the future, including fluctuations thatare material, adverse and unrelated to our performance.

Our largest customers have historically accounted for asignificant portion of our revenues. Accordingly, our business may be adverselyaffected by the loss of, or reduced purchases by, one or more of our largecustomers.

     If, for any reason, any of our key customers were topurchase significantly less of our products in the future, such decreased levelof purchases could have a material adverse effect on our business, financialcondition and results of operations. During the year ended March 31, 2002, twocustomers represented 24% and 13% of our net revenues. During the year endedApril 1, 2001, two customers represented 22% and 13% of our net revenues. Duringthe year ended April 2, 2000, two customers represented 14% and 10% of our netrevenues. As customers seek to establish closer relationships with theirsuppliers, we expect that our customer base will continue to become moreconcentrated with a limited number of customers accounting for a significantportion of our revenues. 

Our business could be adversely affected if we are unableto protect our proprietary technology or if we infringe on the proprietarytechnology of others.

     Our future success and competitive position depend inpart upon our ability to obtain and maintain proprietary technology used in ourprincipal product families, and we rely, in part, on patent, trade secret andtrademark law to protect that technology. We have obtained a number of patentsrelating to our two key product families, the Opti-Probe and Therma-Probe, andhave filed applications for additional patents. There can be no assurance thatany of our pending patent applications will be approved, that we will developadditional proprietary technology that is patentable, that any patents owned byor issued to us will provide us with competitive advantages or that thesepatents will not be challenged by any third parties. Furthermore, there can beno assurance that third parties will not design around our patents. Any of theforegoing results could have a material adverse effect on our business,financial condition, results of operations or cash flows. On April 22, 2002, wefiled a patent infringement suit against Boxer-Cross Inc. in the United StatesDistrict Court, Northern District of California. The suit alleges that Boxer-Cross' BX-10 product infringes certain patents held by Therma-Wave related toion implant monitoring.  Two of the asserted patents were previously found to bevalid and infringed in a suit filed against Jenoptik, AG, in 1994. The earliercourt rulings led to Jenoptik's withdrawal from the U.S. market. We have askedthe court to issue an injunction barring Boxer-Cross from making, using orselling its BX-10 product.

     In addition to patent protection, we rely upon tradesecret protection for our confidential and proprietary information andtechnology. We routinely enter into confidentiality agreements with ouremployees. However, there can be no assurance that these agreements will not bebreached, that we will have adequate

remedies for any breach or that our confidential andproprietary information and technology will not be independently developed by orbecome otherwise known to third parties.

     We license and will continue to license certaintechnology used in our products from third parties. Our inability to acquire anythird-party licenses, or integrate the related third-party technologies into ourproducts, could result in delays in our product developments and enhancementsuntil equivalent technologies can be identified, licensed or integrated. We mayalso require new licenses in the future as our business grows and technologyevolves. We cannot assure you that these licenses will be available to us oncommercially reasonable terms, if at all.

     Our commercial success will also depend, in part, on ourability to avoid infringing or misappropriating any patents or other proprietaryrights owned by third parties. If we are found to infringe or misappropriate athird party's patent or other proprietary rights, we could be required to paydamages to such third party, alter our products or processes, obtain a licensefrom the third party or cease activities utilizing such proprietary rights,including making or selling products utilizing such proprietary rights. If weare required to do any of the foregoing, there can be no assurance that we willbe able to do so on commercially favorable terms, if at all. Our inability to doany of the foregoing on commercially favorable terms could have a materialadverse impact on our business, financial condition, results of operations orcash flows. As further described below, KLA-Tencor Corporation has filed apatent infringement claim against the company.  We do not believe that theoutcome of this patent infringement claim, even if adverse to us, would have amaterial adverse effect on our company.

Protection of our intellectual property rights, or thirdparties seeking to enforce their own intellectual property rights against us,may result in litigation, the cost of which could be substantial. 

     On December 28, 2001, Sensys Instruments Corporation, orSensys, a wholly-owned subsidiary of the company, was named in a patentinfringement suit filed by KLA-Tencor. KLA-Tencor alleged that it patented anaspect of the integrated metrology technology that Sensys uses in its integratedproduct family.  KLA-Tencor is seeking damages and an injunction to stop thesale of the equipment it alleges uses this aspect.  We believe none of thecurrent Sensys products infringes any of the claims of KLA-Tencor's patent. Webelieve that the outcome from this matter, even if adverse to us, would not havea material adverse effect on our company.

     There are currently no other material legalproceedings pending against us. We may be required to initiate additionallitigation in order to enforce any patents issued to or licensed to us or todetermine the scope and/or validity of a third party's patent or otherproprietary rights. In addition, we may be subject to additional lawsuits bythird parties seeking to enforce their own intellectual property rights. Anysuch litigation, regardless of outcome, could be expensive and time consumingand, as discussed above in the prior risk factor, could subject us tosignificant liabilities or require us to cease using proprietary third partytechnology and, consequently, could have a material adverse effect on ourbusiness, financial condition, results of operations or cash flows. 

We operate in the highly competitive semiconductor capitalequipment industry and compete against larger companies.

     We operate in the highly competitive semiconductorcapital equipment industry and face competition from a number of competitors,some of which have greater financial, engineering, manufacturing and marketingresources and broader product offerings than Therma-Wave. We cannot assure youthat our products will be able to compete successfully with the products of ourcompetitors. Many of our competitors are investing heavily in the development ofnew products aimed at applications we currently serve. Our competitors in eachproduct area can be expected to continue to improve the design and performanceof their products and to introduce new products with competitive prices andperformance characteristics. In addition, we believe that our competitorssometimes provide demonstration systems to semiconductor manufacturers at nocost. We could be required to employ similar promotions in order to remaincompetitive if this practice becomes more pervasive in the industry. 

Competitive conditions in our industry may require us toreduce our prices.

     Due to competitive conditions in our industry, we haveselectively reduced prices on our products in order to maintain our marketshare. These reductions are not necessarily permanent nor do they affect all ofour products. There can be no assurance that competitive pressures will notnecessitate further price reductions. Maintaining technological advantages tomitigate the adverse effect of pricing pressures will require a continued highlevel of investment by us in research and development and sales and marketing.There can be no assurance that we will have sufficient resources to continue tomake such investments or that we will be able to make the technological advancesnecessary to maintain such competitive advantages. To the extent our products donot provide technological advantages over products offered by our competitors,we are likely to experience increased price competition or loss of market sharewith respect to such products.

We encounter difficulties in soliciting customers of ourcompetitors because of high switching costs in the markets in which weoperate.

     We believe that once a device manufacturer has selecteda particular vendor's capital equipment, that manufacturer generally relies uponthat vendor's equipment for that specific production line application and, tothe extent possible, subsequent generations of that vendor's systems.Accordingly, it may be difficult to achieve significant sales to a particularcustomer once another vendor's capital equipment has been selected by thatcustomer unless there are compelling reasons to do so, such as significantperformance or cost advantages.

We may incur indebtedness in the future under our bankcredit facility, which could require the use of a portion of our excess cashflow and may limit our access to additional capital.

     As of March 31, 2002, we had no significant debtoutstanding. We may incur indebtedness from time to time to financeacquisitions, capital expenditures and working capital, make deferred bonuspayments to our executive officers or for other purposes.

     The level of our indebtedness could have importantconsequences for us. The following summarizes the material consequences:

a substantial portion of our cash flow from operationswould be required to be dedicated to the repayment of indebtedness and will notbe available for other purposes;

our future ability to obtain additional debt financingfor working capital, capital expenditures, acquisitions or other purposes may belimited; and

our level of indebtedness has in the past, and could inthe future, limit our flexibility in reacting to changes in the industry,general economic conditions and our ability to withstand a prolonged downturn inthe semiconductor and/or semiconductor capital equipmentindustries.

**Our future growth depends on our ability to develop newand enhanced products for the semiconductor industry. We cannot assure you thatwe will be successful in our product development efforts or that our newproducts will gain general market acceptance.**
     Our future growth will depend, in part, on our abilityto design, develop, manufacture, assemble, test, market and support new productsand enhancements on a timely and cost-effective basis. Our failure tosuccessfully identify new product opportunities or to develop, manufacture,assemble or introduce new products could have a material adverse effect on ourgrowth prospects. For example, we expect our product development efforts toinclude continuing to combine separate metrology systems into one tool,implementing integrated systems and networking these systems together.Integrated systems allow us to measure product wafers and monitor processequipment during the semiconductor fabrication process. We are also developingthe Meta-Probe system, which is a thin film metrology system specificallydesigned to measure the thickness and material properties of opaque and metallicthin films. We cannot assure you that we will not experience difficulties ordelays in our development efforts with respect to these products or that we willbe successful in developing these products. In addition, we cannot assure youthat these products will gain market acceptance or that we will not experiencereliability or quality problems.
**Rapid technological changes in our industry will requireus to continually develop new and enhanced products.**
     Any failure by us to anticipate or respond adequately totechnological developments and customer requirements, or any significant delaysin product development or introduction could result in a loss of competitivenessand could materially adversely affect our operating results. There can be noassurance that we will successfully develop and bring new products to market ina timely and cost-effective manner, that any product enhancement or new productdeveloped by us will gain market acceptance, or that products or technologiesdeveloped by others will not render our products or technologies obsolete ornoncompetitive. A fundamental shift in technology in our product markets couldhave a material adverse effect on us, particularly in light of the fact that wecurrently derive substantially all of our revenues from sales of our two majorproduct families, the Opti-Probe and Therma-Probe.
**We will need to be able to attract and retain keypersonnel with knowledge of instruments used in semiconductor manufacturingprocesses to help support our future growth. Competition for such personnel inour industry is high.**
     Our success depends to a significant degree upon thecontinued contributions of key management, engineering, sales and marketing,customer support, finance and manufacturing personnel. The loss of the servicesof key personnel, who would be extremely difficult to replace, could have amaterial adverse effect on us. There can be no assurance that the services ofsuch personnel will continue to be available to us. We have employmentagreements with key members of our senior management team, including Messrs.Schwartz, Christie, Smith and Opsal and Ms. Hasan. In addition, we maintain andare the named beneficiary under key-man life insurance policies for Mr. Opsal inthe amounts of $250,000. To support our future growth, we will need to attractand retain additional qualified employees. Competition for such personnel in ourindustry is high, and we cannot assure you that we will be successful inattracting and retaining such personnel.
**Our operations are characterized by the need for continuedinvestment in research and development and, as a result, our ability to reducecosts is limited.**
     Our operations are characterized by the need forcontinued investment in research and development and extensive ongoing customerservice and support capability. As a result, our operating results could bematerially adversely affected if our level of revenues is below expectations. Inaddition, because of our emphasis on research and development and technologicalinnovation, there can be no assurance that our operating costs will not increasein the future. We expect the level of research and development expenses toincrease in the near future in absolute dollar terms.
**We obtain some of the components and subassembliesincluded in our systems from a single source or limited group of suppliers, thepartial or complete loss of which could have at least a temporary adverse effecton our operations.**
     Some of the components and subassemblies included in oursystems are obtained from a single source or a limited group of suppliers. Fromtime to time, and in recent months due to the increase in demand forsemiconductor capital equipment, we have experienced temporary difficulties inreceiving orders from some of these suppliers. Although we seek to reducedependence on these sole and limited source suppliers, the partial or completeloss of these sources could have at least a temporary adverse effect on ourresults of

operations and damage customer relationships. Further, asignificant increase in the price of one or more of these components orsubassemblies could materially adversely affect our results of operations.
**We are subject to risks associated with manufacturing allof our products at a single facility. Any prolonged disruption in the operationsof that facility could have a material adverse effect on our business.**
     We produce all of our products in our manufacturingfacility located in Fremont, California. Our manufacturing processes are highlycomplex, require sophisticated and costly equipment and a specially designedfacility. As a result, any prolonged disruption in the operations of ourmanufacturing facility, whether due to technical or labor difficulties,destruction of or damage to this facility as a result of an earthquake, fire orany other reason, could have a material adverse effect on our business,financial condition, results of operations or cash flows.
**We rely upon manufacturers' sales representatives for asignificant portion of our sales. A disruption in our relationship with anysales representative could have a material adverse effect on our business.**
     Approximately 50% of our sales have historically beenmade through manufacturers' sales representatives. The activities of theserepresentatives are not within our control, and they may sell productsmanufactured by other manufacturers. In addition, in some locations ourmanufacturing sales representatives also provide field service to our customers.A reduction in the sales efforts or financial viability of such manufacturers'sales representatives, or a termination of our relationship with suchrepresentatives, could have a material adverse effect our sales, financialresults and ability to support our customers. Although we believe that wemaintain good relations with our sales representatives, there can be noassurance that such relationships will continue.
**Our net sales and results of operations can be adverselyaffected by the instability of Asian economies, from which we derive asignificant portion of our revenues.**
     Our sales to customers in Asian markets representedapproximately 44%, 47% and 50% of total net revenues for fiscal 2002, 2001 and2000, respectively. Companies in the Asia Pacific region, including Japan, Koreaand Taiwan, each of which accounts for a significant portion of our business inthat region, are currently experiencing weaknesses in their currency, bankingand equity markets. These weaknesses may adversely affect our sales tosemiconductor device and capital equipment manufacturers located in theseregions in the coming quarters.
**We are subject to operational, financial, political andforeign exchange risks due to our significant level of international sales.**
     International sales accounted for approximately 62%, 59%and 63% of our total revenues for fiscal 2002, 2001 and 2000, respectively. Weanticipate that international sales will continue to account for a significantportion of our revenue in the foreseeable future. Due to the significant levelof our international sales, we are subject to material risks which include: 

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 staffing and managing foreign branchoperations.

In addition, the laws of countries in which our products areor may be sold may not provide our products and intellectual property rightswith the same degree of protection as the laws of the United States.

     A substantial portion of our international sales isdenominated in U.S. dollars. As a result, changes in the values of foreigncurrencies relative to the value of the U.S. dollar can render our productscomparatively more expensive. Such conditions could negatively impact ourinternational sales. 

Acquisitions could result in dilution, operating difficulties and otherharmful consequences.

     From time to time, we may acquire or makesignificant investments in complementary companies, products and technologies.The following risks are common to the integration of two companies, and may beassociated with recent or future acquisitions:

the difficulty of incorporating new operations, technology and personnelinto one company;

the potential disruption of our ongoing business;

the additional expense associated with amortization of acquired intangibleassets;

the maintenance of uniform standards, controls, procedures and policies;and

the impairment of relationships with employees and customers.

     Prior to the acquisition of Sensys in January 2002, wehad no experience in managing this integration process.  Moreover, theanticipated benefits of the Sensys acquisition or any future acquisitions ormergers may not be realized.  Future acquisitions or mergers could result inpotentially dilutive issuances of equity securities, the incurrence of debt,contingent liabilities or amortization expenses related to goodwill and othertangible assets, any of which could be harmful to our business.  Futureacquisitions or mergers may require us to obtain additional equity or debtfinancing, which may not be on favorable terms or at all.  Even if available,this financing may be dilutive.  We cannot assure you that we will successfullyovercome these risks or any other problem that we encounter in connection withany future acquisitions.

Provisions of our charter documents and Delaware law coulddiscourage potential acquisition proposals and could delay, deter or prevent achange in control. 

     Provisions of our certificate of incorporation and by-laws may inhibit changes in control of Therma-Wave not approved by our board ofdirectors and would limit the circumstances in which a premium may be paid forthe common stock in proposed transactions, or a proxy contest for control of theboard may be initiated. These provisions provide for:

a classified board of directors;

a prohibition on stockholder action through writtenconsents;

a requirement that special meetings of stockholders becalled only by our chief executive officer or the board of directors;

advance notice requirements for stockholder proposals andnominations;

limitations on the ability of stockholders to amend,alter or repeal the by-laws; and

the authority of the board to issue, without stockholderapproval, preferred stock with such terms as the board maydetermine.

     We will also be afforded the protections of Section 203of the Delaware General Corporation Law, which could have similar effects.

Terrorist attacks, such as the attacks that occurred inNew York and Washington, D.C. on September 11, 2001, and other acts of violenceor war may affect the markets on which our securities trade, the markets inwhich we operate, our operations and our profitability.  

     Terrorist attacks may negatively affect ouroperations and your investment. There can be no assurance that there will not befurther terrorist attacks against the United States or United States businesses.These attacks or armed conflicts may directly impact our physical facilities orthose of our suppliers or customers.  Furthermore, these attacks may make traveland the transportation of our supplies and products more difficult and moreexpensive and ultimately affect the sales of our products in the United Statesand overseas.  

     Also as a result of terrorism, the United States has inthe past and may in the future enter into an armed conflict which could have afurther impact on our domestic and international sales, our supply chain, ourproduction capability and our ability to deliver product to our customers.Political and economic instability in some regions of the world may also resultand could negatively impact our business. The consequences of any of these armedconflicts are unpredictable, and we may not be able to foresee events that couldhave an adverse effect on our business or your investment.

The forward-looking statements contained in this AnnualReport are based on our predictions of future performance. As a result, youshould not place undue reliance on these forward-looking statements.

     This annual report contains forward-looking statements,including, without limitation, statements concerning the conditions in thesemiconductor and semiconductor capital equipment industries, our operations,economic performance and financial condition, including in particular statementsrelating to our business and growth strategy and product development efforts.The words "believe," "expect," "anticipate," "intend" and other similarexpressions generally identify forward-looking statements. Potential investorsare cautioned not to place undue reliance on these forward-looking statements,which speak only as of their dates. These forward-looking statements are basedlargely on our current expectations and are subject to a number of risks anduncertainties, including, without limitation, those identified under "RiskFactors" and elsewhere in this annual report and other risks and uncertaintiesindicated from time to time in our filings with the SEC. Actual results coulddiffer materially from these forward-looking statements. In addition, importantfactors to consider in evaluating such forward-looking statements includechanges in external market factors, changes in our business or growth strategyor an inability to execute our strategy due to changes in our industry or theeconomy generally, the emergence of new or growing competitors and various othercompetitive factors. In light of these risks and uncertainties, there can be noassurance that the matters referred to in the forward-looking statementscontained in this annual report will in fact occur.

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