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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For Quarter Ended: January 31, 2003              
|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 0-26714

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ADE CORPORATION(Exact Name of Registrant as Specified in its Charter)

|Massachusetts                                                  |  | 04-2441829                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|80 Wilson Way, Westwood, Massachusetts 02090                  
|(Address of Principal Executive Offices, Including Zip Code)  
|(781) 467-3500                                                
|(Registrant's Telephone Number, Including Area Code)          

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

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

Yes o    No ý

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

|Common Stock, par value $.01 per share |  | 13,741,622 shares            
|-------------------------------------- |  | -----------------------------
|Class                                  |  | Outstanding at March 14, 2003

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ADE CORPORATION  INDEX

|                              |  |                                                                                                               |  | Page
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|Part I.Financial Information
|Item 1.                       |  | Condensed Consolidated Financial Statements (unaudited)                                                       |  |     
|                              |  | Condensed Consolidated Balance Sheet
        January 31, 2003 and April 30, 2002                             |  | 3   
|                              |  | Condensed Consolidated Statement of Operations
        Three and Nine Months Ended January 31, 2003 and 2002 |  | 4   
|                              |  | Condensed Consolidated Statement of Cash Flows
        Nine Months Ended January 31, 2003 and 2002           |  | 5   
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                |  | 6   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         |  | 15  
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 28  
|Item 4.                       |  | Controls and Procedures                                                                                       |  | 28  
|Part II.Other Information   
|Item 1.                       |  | Legal Proceedings                                                                                             |  | 29  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                              |  | 29  
|Signatures                    |  | 30                                                                                                           
|Certifications                |  | 31                                                                                                           

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PART I.  FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited):

ADE CORPORATION    CONDENSED CONSOLIDATED BALANCE SHEET(in thousands, unaudited)

|                                           |                                                | January 31,
2003           |        | April 30,
2002 |       
|------------------------------------------ | ---------------------------------------------- | -------------------------- | ------ | -------------- | ------
|Assets                                     |                                                |                            |        |                |       
|Current assets:                            |                                                |                            |        |                |       
|                                           | Cash and cash equivalents                      |                            | $      | 17,649         |       
|                                           | Marketable securities                          |                            |        | 1,028          |       
|                                           | Accounts receivable, net                       |                            |        | 11,754         |       
|                                           | Inventories                                    |                            |        | 30,306         |       
|                                           | Prepaid expenses and other current assets      |                            |        | 925            |       
|                                           |                                                |                            |        |                |       
|                                           |                                                | Total current assets       |        |                | 61,662
|Fixed assets, net                          |                                                |                            | 27,860 |                |       
|Investments                                |                                                |                            | 3,651  |                |       
|Intangible assets, net                     |                                                |                            | 945    |                |       
|Goodwill, net                              |                                                |                            | 1,318  |                |       
|Restricted cash                            |                                                |                            | 3,206  |                |       
|Other assets                               |                                                |                            | 136    |                |       
|                                           |                                                |                            |        |                |       
|Total assets                               |                                                | $                          | 98,778 |                | $     
|                                           |                                                |                            |        |                |       
|Liabilities and stockholders' equity       |                                                |                            |        |                |       
|Current liabilities:                       |                                                |                            |        |                |       
|                                           | Current portion of long-term debt              |                            | $      | 665            |       
|                                           | Accounts payable                               |                            |        | 3,218          |       
|                                           | Accrued expenses and other current liabilities |                            |        | 8,002          |       
|                                           | Deferred income on sales to affiliate          |                            |        | 2,192          |       
|                                           |                                                |                            |        |                |       
|                                           |                                                | Total current liabilities  |        |                | 14,077
|                                           |                                                |                            |        |                |       
|Long-term debt                             |                                                |                            | 10,241 |                |       
|                                           |                                                |                            |        |                |       
|Stockholders' equity:                      |                                                |                            |        |                |       
|                                           | Common stock                                   |                            |        | 137            |       
|                                           | Capital in excess of par value                 |                            |        | 103,851        |       
|                                           | Accumulated deficit                            |                            |        | (30,056        | )     
|                                           | Accumulated other comprehensive income         |                            |        | 528            |       
|                                           |                                                |                            |        |                |       
|                                           |                                                | Total stockholders' equity |        |                | 74,460
|                                           |                                                |                            |        |                |       
|Total liabilities and stockholders' equity |                                                | $                          | 98,778 |                | $     
|                                           |                                                |                            |        |                |       

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

3

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ADE CORPORATION        CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(in thousands, except per share data, unaudited)

|                                                                                                   |                            | Three months
ended January 31, |              | Nine months
ended January 31, |       
|-------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------ | ------------ | ----------------------------- | ------
|
|Net Revenue:                                                                                       |                            |                                |              |                               |       
|Systems and parts                                                                                  |                            | $                              | 16,381       |                               | $     
|Service                                                                                            |                            |                                | 2,084        |                               |       
|                                                                                                   |                            |                                |              |                               |       
|                                                                                                   |                            | Total revenue                  |              |                               | 18,465
|                                                                                                   |                            |                                |              |                               |       
|Cost of revenue:                                                                                   |                            |                                |              |                               |       
|Systems and parts                                                                                  |                            |                                | 7,289        |                               |       
|Service                                                                                            |                            |                                | 2,203        |                               |       
|                                                                                                   |                            |                                |              |                               |       
|                                                                                                   |                            | Total cost of revenue          |              |                               | 9,492 
|                                                                                                   |                            |                                |              |                               |       
|                                                                                                   |                            |                                | Gross profit |                               |       
|                                                                                                   |                            |                                |              |                               |       
|Operating expenses:                                                                                |                            |                                |              |                               |       
|                                                                                                   | Research and development   |                                |              | 3,637                         |       
|                                                                                                   | Marketing and sales        |                                |              | 2,584                         |       
|                                                                                                   | General and administrative |                                |              | 2,094                         |       
|                                                                                                   | Restructuring charges      |                                |              |                              |       
|                                                                                                   |                            |                                |              |                               |       
|                                                                                                   |                            | Total operating expenses       |              |                               | 8,315 
|                                                                                                   |                            |                                |              |                               |       
|Income (loss) from operations                                                                      |                            |                                | 658          |                               |       
|Interest and other income (expense), net                                                           |                            |                                | (160         | )                             |       
|                                                                                                   |                            |                                |              |                               |       
|Income (loss) before provision for income taxes and equity in net earnings of affiliated companies |                            |                                | 498          |                               |       
|Provision for income taxes                                                                         |                            |                                | 36           |                               |       
|                                                                                                   |                            |                                |              |                               |       
|Income (loss) before equity in net earnings of affiliated companies                                |                            |                                | 462          |                               |       
|Equity in net earnings of affiliated companies                                                     |                            |                                | 132          |                               |       
|                                                                                                   |                            |                                |              |                               |       
|Net income (loss)                                                                                  |                            | $                              | 594          |                               | $     
|                                                                                                   |                            |                                |              |                               |       
|Basic earnings (loss) per share                                                                    |                            | $                              | 0.04         |                               | $     
|Diluted earnings (loss) per share                                                                  |                            | $                              | 0.04         |                               | $     
|Weighted average shares outstanding  basic                                                        |                            |                                | 13,721       |                               |       
|Weighted average shares outstanding  diluted                                                      |                            |                                | 13,742       |                               |       

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

4

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ADE CORPORATION        CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(in thousands, unaudited)

|                                                     |                                                                                           | Nine months ended
January 31,                                  |                                               
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ----------------------------------------------
|
|Cash flows from operating activities:                |                                                                                           |                                                                |                                               
|                                                     | Net loss                                                                                  |                                                                | $                                             
|                                                     | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                |                                               
|                                                     |                                                                                           | Depreciation and amortization                                  |                                               
|                                                     |                                                                                           | Deferred income taxes                                          |                                               
|                                                     |                                                                                           | Equity in net earnings of affiliate, net of dividends received |                                               
|                                                     |                                                                                           | Changes in assets and liabilities:                             |                                               
|                                                     |                                                                                           |                                                                | Accounts receivable, net                      
|                                                     |                                                                                           |                                                                | Inventories                                   
|                                                     |                                                                                           |                                                                | Prepaid expenses and other current assets     
|                                                     |                                                                                           |                                                                | Accounts payable                              
|                                                     |                                                                                           |                                                                | Accrued expenses and other current liabilities
|                                                     |                                                                                           |                                                                | Deferred income on sales to affiliate         
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|Cash flows from investing activities:                |                                                                                           |                                                                |                                               
|                                                     | Purchases of fixed assets                                                                 |                                                                |                                               
|                                                     | Change in restricted cash                                                                 |                                                                |                                               
|                                                     | Decrease in other assets                                                                  |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|Cash flows from financing activities:                |                                                                                           |                                                                |                                               
|                                                     | Repayment of long-term debt                                                               |                                                                |                                               
|                                                     | Proceeds from issuance of common stock                                                    |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|                                                     |                                                                                           |                                                                |                                               
|Net increase (decrease) in cash and cash equivalents |                                                                                           |                                                                | (8,459                                        
|Cash and cash equivalents, beginning of period       |                                                                                           |                                                                | 26,108                                        
|                                                     |                                                                                           |                                                                |                                               
|Cash and cash equivalents, end of period             |                                                                                           | $                                                              | 17,649                                        
|                                                     |                                                                                           |                                                                |                                               

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

5

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ADE CORPORATION        NOTES TO CONDENSED CONSOLIDATED        FINANCIAL STATEMENTS

1. Basis of Preparation

The accompanying unaudited condensed consolidated financial statements of ADE Corporation (the "Company") include, in the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) necessary for a fair statement of the Company's financial position, results of operations and cash flows at the dates and for the periods
indicated. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years.

Pursuant
to accounting requirements of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the accompanying unaudited condensed
consolidated financial statements and these notes do not include all disclosures required by generally accepted accounting principles in the United States of America for complete financial statements.
Accordingly, these statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 2002.

2. Comprehensive Income (Loss)

Comprehensive income (loss) was as follows:

|                                                                 |  | Three months ended |     | Nine months ended |  
|---------------------------------------------------------------- |  | ------------------ | --- | ----------------- | -
|
|
|Net income (loss)                                                |  | $                  | 594 |                   | $
|Other comprehensive income (loss):                               |  |                    |     |                   |  
|Unrealized income (loss) on marketable securities, net of $0 tax |  |                    | 31  |                   |  
|                                                                 |  |                    |     |                   |  
|Other comprehensive income (loss):                               |  |                    | 31  |                   |  
|                                                                 |  |                    |     |                   |  
|Comprehensive income (loss)                                      |  | $                  | 625 |                   | $
|                                                                 |  |                    |     |                   |  

3. Inventories

Inventories consist of the following:

(in thousands)January 31,
2003

April 30,
2002(unaudited)Raw materials and purchased parts

$
15,656

$
16,228Work-in-process


13,622


15,104Finished goods


1,028


1,369$
30,306

$
32,701


4. Goodwill and Intangible Assets

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets," which was effective for the

6

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Company on May 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. In accordance
with this statement, the Company discontinued the amortization of its net goodwill of $1.3 million. In addition, the Company completed the transitional impairment test of its goodwill during
the six months ended October 31, 2002 and determined that the carrying value was not impaired. The Company is required to perform impairment tests under SFAS 142 annually and whenever
events or changes in circumstances suggest that the goodwill may be impaired. During the second quarter of fiscal year 2003, the Company's market capitalization value fell below its book value for a
brief period of time. If the Company's market value subsequently falls below its book value for an extended period of time in the future, the Company may be required to record an impairment of its
goodwill and such amount could be material to the Company's results of operations. No events or circumstances occurred during the third quarter which indicated that the goodwill was impaired. Had
SFAS 142 been in effect during the three and nine months ended January 31, 2002, the Company's net income (loss) and earnings (loss) per share would have been as follows:

|                                           |  | Three months ended
January 31, |      | Nine months ended
January 31, |  
|------------------------------------------ |  | ------------------------------ | ---- | ----------------------------- | -
|
|
|Reported net income (loss)                 |  | $                              | 594  |                               | $
|Add back of goodwill amortization          |  |                                |     |                               |  
|                                           |  |                                |      |                               |  
|Adjusted net income (loss)                 |  | $                              | 594  |                               | $
|                                           |  |                                |      |                               |  
|Reported basic earnings (loss) per share   |  | $                              | 0.04 |                               | $
|Add back of goodwill amortization          |  |                                |     |                               |  
|                                           |  |                                |      |                               |  
|Adjusted basic earnings (loss) per share   |  | $                              | 0.04 |                               | $
|                                           |  |                                |      |                               |  
|Reported diluted earnings (loss) per share |  | $                              | 0.04 |                               | $
|Add back of goodwill amortization          |  |                                |     |                               |  
|                                           |  |                                |      |                               |  
|Adjusted diluted earnings (loss) per share |  | $                              | 0.04 |                               | $
|                                           |  |                                |      |                               |  

The
Company has $2.9 million in capitalized license fees for software included in the Company's products, which are still being amortized and have accumulated amortization of
$2.0 million and $1.6 million at January 31, 2003 and April 30, 2002, respectively. These license fees are amortized at the greater of 1) the ratio that current
gross revenue for the related products bear to the total current and anticipated future gross revenue for those products or 2) on a straight-line basis over the estimated useful
life of the related products. For the three and nine months ended January 31, 2003, respectively, the Company amortized $113,000 and $338,000 of the license fees to the cost of revenue.
Estimated amortization is $450,000 for the fiscal year ended April 30, 2003, $150,000 for each of the fiscal years ended April 30, 2004, 2005 and 2006, and $50,000 for the fiscal year
ended April 30, 2007.

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5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

(in thousands)January 31,
2003

April 30,
2002(unaudited)Accrued salaries, wages and vacation pay

$
1,444

$
2,223Accrued commissions


926


1,191Accrued warranty costs


961


1,146Accrued restructuring


210


Deferred revenue


1,620


4,537Other


2,841


2,907$
8,002

$
12,004


6. Restructuring

During the second quarter of fiscal 2003, as a result of the continued downturn in the semiconductor wafer and device manufacturing and magnetic data storage
industries, the Company recorded a restructuring charge of $711,000, which consisted primarily of severance expenses for the 41 terminated employees across all segments and various functional areas of
the Company. The majority of all severance payments from the second quarter restructuring will be made by the end of fiscal year 2003.

In
August 2002, an agreement was entered into between the Company and its former Chief Executive Officer, Robert C. Abbe. Under the terms of the agreement, Mr. Abbe will
receive a total of $1.1 million over a three year period, beginning in September 2002, for severance and consulting services. The Company recorded a restructuring charge of $307,000 for
the severance portion of Mr. Abbe's agreement, which will be paid through September 2003. This amount is included in the $711,000 discussed above. The consulting portion of the agreement
will be expensed as incurred.

During
the first quarter of fiscal 2003, the Company implemented selective headcount reductions and closed three satellite offices in response to the prolonged downturn in the
semiconductor and magnetic data storage industries. The Company recorded a restructuring charge of $877,000, which consisted of $679,000 in employee severance expenses for the 39 terminated employees
spread across all functional areas of the Company and $198,000 related to the closing of the satellite offices, which primarily represents future lease obligations on the vacated offices. When
applicable, anticipated future sublease income relating to vacated offices was offset against the charge for the remaining lease payments. The sublease income was based on estimates and will be
monitored going forward and is subject to change. All severance payments from the first quarter restructuring will be made by the end

8

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of fiscal year 2003. Below is a table summarizing the activity related to the restructuring accrual for the nine months ended January 31, 2003:

Severance

Office
Closures

Total(in thousands)Restructuring accrual

$
679

$
198

$
877Cash payments


(338
)

(44
)

(382
)Balance at July 31, 2002


341


154


495Restructuring accrual


701


10


711Cash payments


(566
)

(64
)

(630
)Balance at October 31, 2002


476


100


576Restructuring accrual








Cash payments


(311
)
$
(55
)

(366
)Balance at January 31, 2003

$
165

$
45

$
210


7. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding and gives effect to all dilutive potential common shares outstanding during the
period. For the three months ended
January 31, 2003 and 2002, respectively, 1,004,027 and 725,230 common shares issuable upon the exercise of stock options have been excluded from the computation of diluted earnings per share,
as their effect would have been antidilutive. For the nine months ended January 31, 2003 and 2002, respectively, 1,081,716 and 569,530 common shares issuable upon the exercise of stock options
have been excluded from the computation of diluted earnings per share, as their effect would have been antidilutive. For the three months ended January 31, 2002 and the nine months ended
January 31, 2003 and 2002, respectively, basic and diluted loss per share is the same due to the antidilutive effect of potential common shares outstanding.

The
following is a reconciliation of the shares used in calculating basic and diluted earnings per share:

|                            |  |                                                                                                  |  | Three months ended
January 31, |  | Nine months ended
January 31,
|--------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ------------------------------ |  | -----------------------------
|
|
|Shares used in computation: |  |                                                                                                  |  |                                |  |                              
|a.                          |  | Weighted average common stock outstanding used in computation of basic earnings (loss) per share |  | 13,721                         |  | 13,627                       
|b.                          |  | Dilutive effect of stock options outstanding                                                     |  | 21                             |  |                             
|                            |  |                                                                                                  |  |                                |  |                              
|c.                          |  | Shares used in computation of diluted earnings (loss) per share                                  |  | 13,742                         |  | 13,627                       
|                            |  |                                                                                                  |  |                                |  |                              

9

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8. Segment Reporting

The Company has three reportable segments: ADE Semiconductor Systems Group ("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). SSG manufactures and
markets metrology and inspection systems to the semiconductor wafer and device manufacturing industries that are used to improve yield and capital productivity. Sales of the Company's stand-alone
software products and software consulting services are also included in the SSG segment. PST manufactures and markets high performance, non-contact surface metrology equipment using
advanced interferometric technology that provides enhanced yield management to the data storage, semiconductor and optics industries. ATI manufactures and markets high precision magnetic
characterization and non-contact dimensional metrology gaging systems primarily to the data storage industry.

The
Company's reportable segments are determined based upon the nature of the products, the external customers and customer industries and the sales and distribution methods used to
market the products. The Company evaluates performance based upon profit or loss from operations. The Company does not measure the assets allocated to the segments. Management fees representing
certain services provided by corporate offices have been allocated to each of the reportable segments based upon the usage of those services by each segment. Additionally, other income (loss), the
provision for (benefit from) income taxes and the equity in net earnings (loss) of affiliated companies are not included in segment profitability.

Some
sales to Japan ADE, Ltd., ADE's 50% owned affiliate, are reflected in segment revenue during the period they are shipped by the respective segment, which can differ from the
period the revenue is recognized for consolidated financial reporting purposes. For the reportable segments, intersegment sales are recorded at 60% of the domestic list price of the respective
product.

|                                       |  | SSG |        | PST |   | ATI   |  | Total |      
|-------------------------------------- |  | --- | ------ | --- | - | ----- |  | ----- | -----
|
|For the quarter ended January 31, 2003 |  |     |        |     |   |       |  |       |      
|Revenue from external customers        |  | $   | 12,113 |     | $ | 5,060 |  | $     | 1,264
|Intersegment revenue                   |  |     | 105    |     |   |      |  |       | 264  
|Income (loss) from operations          |  |     | (557   | )   |   | 1,653 |  |       | (453 
|Depreciation and amortization expense  |  |     | 1,040  |     |   | 103   |  |       | 36   
|Capital expenditures                   |  |     | 10     |     |   |      |  |       | (52  
|For the quarter ended January 31, 2002 |  |     |        |     |   |       |  |       |      
|Revenue from external customers        |  | $   | 13,732 |     | $ | 2,073 |  | $     | 2,067
|Intersegment revenue                   |  |     | 100    |     |   | 1,262 |  |       | 291  
|Income (loss) from operations          |  |     | (3,922 | )   |   | 469   |  |       | (263 
|Depreciation and amortization expense  |  |     | 1,079  |     |   | 115   |  |       | 55   
|Capital expenditures                   |  |     | 1,558  |     |   |      |  |       | 53   

10

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|                                           |  | SSG |        | PST |   | ATI    |   | Total |       
|------------------------------------------ |  | --- | ------ | --- | - | ------ | - | ----- | ------
|
|For the nine months ended January 31, 2003 |  |     |        |     |   |        |   |       |       
|Revenue from external customers            |  | $   | 35,767 |     | $ | 10,032 |   | $     | 5,313 
|Intersegment revenue                       |  |     | 154    |     |   |       |   |       | 914   
|Income (loss) from operations              |  |     | (7,854 | )   |   | 1,196  |   |       | (725  
|Depreciation and amortization expense      |  |     | 3,110  |     |   | 304    |   |       | 136   
|Capital expenditures                       |  |     | 377    |     |   | 91     |   |       | (53   
|For the nine months ended January 31, 2002 |  |     |        |     |   |        |   |       |       
|Revenue from external customers            |  | $   | 50,431 |     | $ | 5,817  |   | $     | 5,750 
|Intersegment revenue                       |  |     | 497    |     |   | 1,262  |   |       | 806   
|Loss from operations                       |  |     | (8,869 | )   |   | (1,157 | ) |       | (1,039
|Depreciation and amortization expense      |  |     | 3,611  |     |   | 305    |   |       | 168   
|Capital expenditures                       |  |     | 3,518  |     |   | 49     |   |       | 141   

The
following is a reconciliation for the above items where aggregate reportable segment amounts differ from amounts contained in the Company's consolidated financial statements.

|                                                                                               |  | Three months ended
January 31, |        | Nine months ended
January 31, |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ----------------------------- | -
|
|Total external revenue for reportable segments                                                 |  | $                              | 18,437 |                               | $
|Net impact of revenue recognition on sales to affiliate                                        |  |                                | 28     |                               |  
|                                                                                               |  |                                |        |                               |  
|Total consolidated revenue                                                                     |  | $                              | 18,465 |                               | $
|                                                                                               |  |                                |        |                               |  
|Total operating income (loss) for reportable segments                                          |  | $                              | 643    |                               | $
|Net impact of intercompany gross profit eliminations and deferred profit on sales to affiliate |  |                                | 15     |                               |  
|                                                                                               |  |                                |        |                               |  
|Total consolidated operating income (loss)                                                     |  | $                              | 658    |                               | $
|                                                                                               |  |                                |        |                               |  

9. New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51." FIN 46 requires certain variable interest entities, or VIEs, to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is effective for all VIE created or acquired after January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Based on the accounting guidance and other information
available, the Company does not believe its 50% owned affiliate, Japan ADE, Ltd., meets the definition of a VIE. Therefore, the Company currently believes the adoption of FIN 46 will not have a
significant impact on its consolidated financial statements. However, the Company believes that the interpretative

11

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accounting guidance necessary for FIN 46 will continue to evolve. Additional interpretive guidance could affect the accounting for Japan ADE, Ltd.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation, Transition and
Disclosure, an Amendment of FAS 123." SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 148 also requires that entities that continue to account for stock-based compensation awards using the intrinsic value
method of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," will be required to provide more prominent disclosures than currently
required by SFAS 123, including disclosures in interim financial statements. The transition and annual
disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The new interim disclosure provisions are effective for the first interim period
beginning after December 15, 2002. The Company will continue to account for employee stock-based compensation under APB 25 and related interpretations. The Company will adopt the annual
disclosure requirements in its financial statements for the year ending April 30, 2003 and the interim disclosure requirements beginning in its financial statements for the quarter ending
July 31, 2003.

In
November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The
disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The provisions for initial recognition and measurement are
effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's year-end. The adoption of FIN 45 by the Company
during the quarter ended January 31, 2003 did not have a material impact on its current financial position and results of operations. See Note 10 for applicable disclosures.

In
November 2002, the Emerging Issues Task Force issued No. 00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple Deliverables."
EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF 00-21 establishes
three principles: revenue arrangements with multiple deliverables should be divided into separate units of accounting, arrangement consideration should be allocated among the separate units of
accounting based on their relative fair values and revenue recognition criteria should be considered separately for separate units of accounting. EITF 00-21 is effective for all revenue
arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company does not expect the adoption of EITF 00-21 to have a material
impact on the Company's consolidated financial statements.

10. Commitments and Contingencies



On October 12, 2000, the Company filed a patent infringement lawsuit against KLA-Tencor (KLA), a competitor, in the United States District
Court in Delaware. The Company seeks damages and a

12

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permanent injunction against further infringement of United States Patent Number 6,118,525, entitled "Wafer Inspection System for Distinguishing Pits and Particles." On November 22, 2000, KLA
filed a
counterclaim alleging that the Company has infringed three patents owned by KLA. KLA is seeking damages for the alleged patent infringement and a permanent injunction against future infringement. In
addition, KLA has asked the District Court for a declaration that United States Patent Number 6,118,525, owned by the Company, is invalid and not infringed by KLA. On March 13, 2003, the
District Court issued a ruling upholding KLA's principal arguments with respect to ADE's claims of infringement. The District Court has not yet ruled on KLA's counterclaims. Once all rulings have been
issued by the District Court, the Company will consider whether or not to appeal the rulings to the United States Court of Appeals for the Federal Circuit. Accordingly, at this time, the Company
cannot predict the outcome or the amount of gain or loss, if any, from this lawsuit.

On
October 18, 2002, a former employee of the Company filed a civil action against the Company in Massachusetts Superior Court, Suffolk County, alleging that the Company breached
his employment contract with the Company and seeking damages of approximately $500,000. The Company has filed an answer to the former employee's complaint denying his allegations, and believes that
the former employee's claim lacks merit. The Company has also filed counterclaims against the employee. In July 2002, the same former employee filed two charges of discrimination against the
Company with the Massachusetts Commission Against Discrimination ("MCAD") alleging that the Company exposed him to hostile work environment, and retaliated against him for complaining about that
environment. The former employee seeks damages in an unspecified amount. The MCAD served the charges on the Company in late October 2002. The Company has filed an answer to the former
employee's charges, which remain under investigation by the MCAD, and believes that the charges lack merit. The Company plans to defend the civil action and MCAD charges vigorously. Since the matters
are at a preliminary stage, the Company is unable to predict the outcome or amount of the related expense, or loss, if any, associated with either litigation. However, the Company believes that any
related expense or loss will be fully covered under the Company's insurance policies.



Under the Company's by-laws, the Company must indemnify its officers and directors against all liabilities incurred or threatened by reason of serving in such
capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements in unlimited; however, the Company has a Director and Officer
insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company's insurance policy coverage, it believes the estimated
fair value of these indemnification arrangements is minimal. All of these indemnification arrangements were grandfathered under the provisions of FIN 45 as they were in effect prior to
December 31, 2002. Accordingly, no liabilities have been recorded for these arrangements as of January 31, 2003.

The
Company has an agreement with a vendor whereby it guarantees the expenses incurred by certain of the Company's employees. The term of the agreement is from execution until
cancellation and payment of any outstanding amounts. The Company would be required to pay any unsettled employee expenses upon notification from the vendor. The maximum potential amount of future
payments the Company could be required to make under this agreement is not significant. As a result,

13

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the Company believes the estimated fair value of this guaranty is minimal. Accordingly, no liabilities have been recorded for this agreement as of January 31, 2003.

Pursuant
to one of the provisions in the Company's standard terms and conditions of sale, the Company agrees, subject to certain limitations and conditions, to defend any suit or
proceeding brought against a customer based on a claim that the Company's equipment, standing alone, infringes a United States patent or copyright or misappropriate a trade secret protected under
United States law. Actions arising under such provision may only be brought by customers within two years after the cause of action arises. The maximum potential amount of payments the Company may be
required to make under such provision is limited to the total purchase price of the Company's equipment sold under the particular contract. The Company has never incurred costs to defend lawsuits or
settle claims related to these customer contract provisions. As a result, the Company believes the estimated fair value of these provisions is minimal. Accordingly, the Company has no liabilities
recorded for these provisions as of January 31, 2003.

The
Company warrants that its products will perform in all material respects in accordance with its standard published specifications. The term of the Company's standard warranty is
12 months. The Company accrues 2% or 3% of product revenues to provide for estimated warranty costs, based on which business unit made the sale. The following is a reconciliation of the
activity in the Company's warranty liability for the three months ended January 31, 2003.

(in thousands)Balance at October 31, 2002

$
928Accruals for warranties issued


481Warranty settlements made


(448
)Balance at January 31, 2003

$
961


11. Subsequent Event

In February 2003, the Company's Board of Directors approved a plan to sell the Company's Newton, Massachusetts property, which houses the Company's ATI
subsidiary. The operations of ATI will be relocated into the Company's Westwood, Massachusetts facility. This relocation is expected to be completed by the end of May 2003. The Company has
listed the property for sale and is actively looking for a buyer. In accordance with SFAS 144 the Company has now classified the Newton property as "Held for Sale" and will disclose it as such
in its consolidated financial statements for the fiscal year ending April 30, 2003. Furthermore, the Company has ceased depreciation on these assets "Held for Sale."

14

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations:

Introduction

ADE Corporation (the "Company") designs, manufactures, markets and services highly precise, automated measurement, defect detection and handling equipment with
current applications in the production of semiconductor wafers, semiconductor devices and magnetic computer disks. The Company operates three major business segments, the Semiconductor Systems Group
("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). The Semiconductor Systems Group manufactures multifunctional semiconductor metrology and automation systems and optical wafer defect
inspection equipment used to detect particles and other defects on silicon wafer surfaces. ADE Phase Shift manufactures high-performance, non-contact surface metrology
equipment using advanced interferometric technology that provides enhanced yield management to the data storage, semiconductor and optics industries. ADE Technologies manufactures high precision
magnetic characterization and non-contact dimensional metrology gaging systems primarily for the data storage industry.

The
Company's markets are cyclical. Since the second quarter of fiscal year 2002, the Company has experienced decreased demand for its products in its SSG and ATI business segments as a
result of the downturn in the semiconductor wafer and device manufacturing industries as well as the magnetic data storage industry. Consequently, the Company has experienced reduced order levels and
revenues. In response to the industry downturn, the Company has undertaken cost reduction measures, including headcount reductions, while maintaining its investment in research and development to
position the Company for the next wave of capital spending in the semiconductor wafer and device manufacturing industries as well as the magnetic data storage industry. Although the Company has seen
signs of increased capital spending in the semiconductor wafer and device manufacturing and magnetic data storage industries, no assurances can be made that it will lead to a sustainable increase in
orders and revenue for the Company.

The
following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this quarterly report and the audited
consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2002.

Forward-Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements that are subject to known and unknown risks and uncertainties
that could cause actual results to differ materially from those expressed by such statements. Those statements that make reference to the Company's expectations, predictions and anticipations should
be considered forward-looking statements. These statements include, but are not limited to, risks and uncertainties associated with the strength of the semiconductor and magnetic data storage markets,
wafer pricing and wafer demand, the results of product development efforts, the success of the Company's product offerings in meeting customer needs within the timeframes required by customers in
these markets, further increases in backlog, the Company's visibility and the it's predictions of future financial outcomes. Further information on potential factors that could affect the Company's
business is described in "Other Risk Factors and Trends" appearing at the end of this Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Company's reports
on file with the Securities and Exchange Commission, including its Form 10-K for the fiscal year ended April 30, 2002.

15

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Restructuring

During the second quarter of fiscal 2003, as a result of the continued downturn in the semiconductor wafer and device manufacturing and magnetic data storage
industries, the Company recorded a restructuring charge of $711,000, which consisted primarily of severance expenses for the 41 terminated employees across all segments and various functional areas of
the Company. The majority of all severance payments from the second quarter restructuring will be made by the end of fiscal year 2003.

In
August 2002, an agreement was entered into between the Company and its former Chief Executive Officer, Robert C. Abbe. Under the terms of the agreement, Mr. Abbe will
receive a total of $1.1 million over a three year period, beginning in September 2002, for severance and consulting services. The Company recorded a restructuring charge of $307,000 for
the severance portion of Mr. Abbe's agreement, which will be paid through September 2003. This amount is included in the $711,000 discussed above. The consulting portion of the agreement
will be expensed as incurred.

During
the first quarter of fiscal 2003, the Company implemented selective headcount reductions and closed three satellite offices in response to the prolonged downturn in the
semiconductor and magnetic data storage industries. The Company recorded a restructuring charge of $877,000, which consisted of $679,000 in employee severance expenses for the 39 terminated employees
spread across all functional
areas of the Company and $198,000 related to the closing of the satellite offices, which primarily represents future lease obligations on the vacated offices. When applicable, anticipated future
sublease income relating to vacated offices was offset against the charge for the remaining lease payments. The sublease income was based on estimates and will be monitored going forward and is
subject to change. All severance payments from the first quarter restructuring will be made by the end of fiscal year 2003. Below is a table summarizing the activity related to the restructuring
accrual for the nine months ended January 31, 2003:

Severance

Office
Closures

Total(in thousands)Restructuring accrual

$
679

$
198

$
877Cash payments


(338
)

(44
)

(382
)Balance at July 31, 2002


341


154


495Restructuring accrual


701


10


711Cash payments


(566
)

(64
)

(630
)Balance at October 31, 2002


476


100


576Restructuring accrual








Cash payments


(311
)
$
(55
)

(366
)Balance at January 31, 2003

$
165

$
45

$
210


Critical Accounting Policies, Significant Judgments and Estimates

The discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure at the date of the Company's financial statements. On an on-going basis, management evaluates its
estimates and judgments, including those related to bad debts, inventories, intangible assets, income taxes, and warranty obligations. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making

16

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judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. The Company considers certain accounting policies related to revenue recognition and allowance for doubtful accounts, inventory valuation, accounting for income taxes and valuation of
goodwill and software to be critical policies due to the estimates and judgments involved in each.

Revenue Recognition and Allowance for Doubtful Accounts

The Company changed its revenue recognition policy effective May 1, 2000, based on guidance provided in SEC Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price
is fixed or determinable and collectibility is reasonably assured. The Company's standard customer arrangement includes a signed purchase order, in which it offers payment terms of 30 to
90 days, no right of return of delivered products and a twelve month warranty. The Company assesses whether the fee associated with its revenue transactions is fixed or determinable based on
the payment terms associated with the transaction. If a significant portion of the fee is due after the Company's normal payment terms, 30 to 90 days, it determines that the fee is not fixed or
determinable. In these cases, the Company recognizes revenue as the fees become due. The Company assesses collectibility based on the credit worthiness of the customer and past transaction history.
The Company performs on-going credit evaluations of its customers and does not require collateral from its customers.    For many of the Company's international customers, it
requires that an irrevocable letter of credit be issued by the customer before the purchase order is accepted. If the Company determines that collection of a fee is not reasonably assured, it defers
the fee and recognizes the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash.

For
some of the Company's sales transactions, a portion, usually 10%, of the fee is not due until installation occurs and the customer accepts the product. The other 90% of the fee is
normally due 30
to 90 days after shipment. If the Company has met defined customer acceptance experience levels with a specific type of product, these transactions are accounted for as multiple-element
arrangements with the deferral of the portion of the fee not due until installation is complete and customer acceptance has occurred. Management of the Company must make a determination of what
constitutes an appropriate experience level with a product. This determination is based on, but not limited to, the extent to which a product contains significantly new technology, the number of
similarly configured products previously delivered and the Company's experience with a particular customer. The portion of the fee related to the installation of the product and customer training is
classified as service revenue. All other sales with customer acceptance provisions are recognized as revenue upon customer acceptance.

The
Company's transactions frequently involve the sales of systems and services under multiple element arrangements. Revenue under multiple element arrangements is allocated to all
elements except systems based upon the fair value of those elements. The amounts allocated to training are based upon the price charged when this element is sold separately and unaccompanied by the
other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time to complete the service. The amount allocated to system and parts is done on a residual
method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to system revenue. Installation
and training are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products.

The
Company accrues for anticipated warranty costs upon shipment. Service revenue is recognized as the services are performed provided collection of the related receivable is probable.
Service contract revenue is recognized ratably over the contractual periods in which the services are provided. Revenue

17

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from software licenses is recognized when an agreement has been executed, software has been delivered, fees are fixed or determinable and collection of the related receivable is probable.

Revenue
from systems sales to Japan ADE Ltd, the Company's 50% owned affiliate and a distributor of our products, by the SSG, ATI and PST segments are reflected in segment revenue
during the period they are shipped by the respective segment, which can differ from the period the revenue is recognized for consolidated financial reporting purposes. Consolidated revenue on systems
sales to Japan ADE Ltd is recognized when the related product or software is shipped to and accepted by the end user of the product or software.

The
Company maintains an allowance for doubtful accounts based on a continuous review of customer accounts, payment patterns and specific collection issues. Where specific collection
issues are identified, the Company records a specific allowance based on the amount that the Company believes will be collected. For accounts where specific collection issues are not identified, the
Company will record a reserve based on the age of the receivable and historical collection patterns.

Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. Management evaluates the need
to record adjustments for impairment of inventory on a monthly basis. The Company's policy is to assess the valuation of all inventories, including raw materials,
work-in-process, finished goods and spare parts. Inventory that, in the judgment of management, is obsolete or in excess of the Company's estimated usage is
written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related to current economic trends, future demand
for the Company's products, and technological obsolescence. Significant management judgments must be made when establishing the reserve for obsolete and excess inventory. If the Company's judgments
and estimates relating to obsolete and excess inventory prove to be inadequate, its financial results could be materially adversely affected in future periods. If the inventory value is written down
to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold.

Accounting for Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards.
The Company's financial statements contain certain deferred tax assets, which have arisen primarily as a result of operating losses incurred in prior years, as well as other temporary differences
between book and tax accounting. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires the establishment of a valuation allowance to reflect the
likelihood of the realization of deferred tax assets. Significant management judgment is required in determining the Company's provision for income taxes, its deferred tax assets and liabilities and
any valuation allowance recorded against its net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or
all of the deferred income tax assets will not be realized. The Company currently has a valuation allowance for the full amount of its deferred tax assets. The decision to record the valuation
allowance required significant judgment. Had the Company not recorded this allowance, it would have reported materially different results. If the realization of deferred tax assets in the future is
considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period such determination was made. The amount of the deferred tax asset considered
realizable is based on significant estimates, and it is at least reasonably possible that changes in these estimates in the near term could materially affect the Company's

18

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financial condition and results of operations. The Company's effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation
allowance, changes to federal, state or foreign tax laws, and deductibility of certain costs and expenses by jurisdiction.

Valuation of Goodwill and Software

Intangible assets consist of $1.3 million of goodwill obtained through the acquisition of the Semiconductor Solutions Division of LPA Software, Inc.
("SSD") in September 1997 as well as $1.1 million of capitalized license fees for software included in the Company's products. In July 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which was effective for the Company on May 1, 2002.
SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. In accordance with this statement, the Company
discontinued the amortization of its net goodwill of $1.3 million on May 1, 2002. In addition, the Company was required to perform a transitional impairment test for goodwill under
SFAS 142. The impairment test under SFAS 142 uses a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including
goodwill. If the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill
impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater
than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value.

The
Company completed the transitional impairment test of its goodwill in the six months ended October 31, 2002 and no adjustment to goodwill was necessary. The Company is
required to perform impairment tests under SFAS 142 annually and whenever events or changes in circumstances suggest that the goodwill may be impaired. Factors the Company considers important
that could trigger the impairment review include:



During
the second quarter of fiscal 2003, the Company's market capitalization value fell below its book value for a brief period of time. If the Company's market value subsequently falls
below its book value for an extended period of time in the future, the Company may be required to record an impairment of its goodwill and such amount could be material to the Company's results of
operations.

Net
capitalized license fees of $0.9 million for software included in the Company's products, which are still being amortized, are amortized at the greater of 1) the ratio
that current gross revenue for the related products bears to the total current and anticipated future gross revenue for those products or 2) on a straight-line basis over its
estimated useful life. At each quarter-end, the carrying value of the software is compared to net realizable value ("NRV"). NRV is the estimated future gross revenues

19

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from products that incorporate the software reduced by the estimated future costs of disposal. If NRV is less than the carrying value, the excess is written-off and NRV becomes the new
carrying value of the software.

Significant
management judgments and estimates must be made when establishing criteria for future cash flows, estimating reporting unit fair value and assessing impairment. If the
Company's judgments and estimates relating to goodwill and software prove to be inadequate, an asset may be determined to be impaired and the Company's financial results could be materially adversely
impacted. Likewise, if a future event or circumstance indicates that an impairment assessment is required and, through the performance of that assessment, an asset is determined to be impaired, the
Company's financial results could be materially and adversely impacted in future periods.

Off-Balance Sheet Arrangements

The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt
or operating parts of its business that are not consolidated into its financial statements. The Company does not have any arrangements or relationships with entities that are not consolidated into its
financial statements that are reasonably likely to materially affect its liquidity or the availability of capital resources, except as set forth below under "Liquidity and Capital Resources."

Results of Operations

Three Months Ended January 31, 2003 compared to Three Months Ended January 31, 2002

Systems and parts revenue.Systems and parts revenue increased 2% to $16.4 million in the third quarter of fiscal 2003
from $16.0 million in the third quarter of fiscal 2002. Revenue in the SSG segment decreased 16% to $10.4 million in the third quarter of fiscal 2003 compared to $12.3 million in
the year earlier period. Decreased sales of the Company's products in the SSG segment reflected a decrease in demand for capital equipment in the semiconductor wafer and device industries as a result
of the current severe down cycle. Revenue in the PST segment increased 52% to $5.1 million in the third quarter of fiscal 2003 compared to $3.3 million in the year earlier period. The
increase in revenue from the PST segment was due primarily to industry acceptance and demand for its semiconductor industry products.

Wafer
manufacturers' capital equipment purchases have been focused on advanced industry requirements rather than on capacity expansion, which has resulted in technology purchases of the
Company's next generation of products. However, wafer manufacturers have been slowly adding capacity and the Company has experienced an increase in shipments of legacy products as a result of these
capacity related purchases. For the three months ended January 31, 2003, 93% of the Company's revenue was derived from the semiconductor industry compared to 83% for the year earlier period.
The Company sells its semiconductor products to both wafer and device manufacturers. Historically, the Company's semiconductor revenue has been derived more from wafer manufacturers than device
manufacturers. For the three months ended January 31, 2003, 84% of semiconductor revenue was derived from wafer manufacturers while 16% was derived from device manufacturers compared to 77% and
23%, respectively, for the year earlier period. An increase in short-term chip demand or increases in semiconductor market capital expenditures is expected to impact device manufacturers
prior to wafer manufacturers as wafer manufacturers are further down on the overall semiconductor industry supply chain. For the fourth quarter of fiscal 2003, the Company expects revenue from the
semiconductor industry to increase slightly from third quarter revenues. However, the Company can make no assurances that the expected increase in fourth quarter revenue can be sustained into the next
fiscal year.

20

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The
data storage industry has experienced extreme pricing pressure, consolidation and excess supply in many data storage market segments, which has resulted in reduced production and
capital equipment purchases. Consequently, revenue from the products that are marketed to the data storage industry by the Company's ATI segment decreased 40% to $1.3 million in the third
quarter of fiscal 2003 compared
to $2.2 million in the year earlier period. The decrease in revenue is due primarily to decreased shipments of the Company's magnetic storage products during the third quarter of fiscal 2003.
Data storage industry revenue comprised 7% of total revenue for the three months ended January 31, 2003, compared to 17% for the year earlier period. The Company expects revenue from the
magnetic data storage industry in the fourth quarter of fiscal 2003 to remain at or below third quarter levels.

Service revenue.Service revenue increased 7% to $2.1 million in the third quarter of fiscal 2003 compared to
$1.9 million in the third quarter of fiscal 2002. The Company's service revenue consists of fees for installation, training, product maintenance and technical support services. The majority of
the Company's service revenue is derived from the SSG segment. The increase is primarily due to customers bringing equipment back on-line to increase capacity.

Gross profitsystems and parts.Gross profit increased to 56% in the third quarter of fiscal 2003 from 48% in the
third quarter of fiscal 2002. The increase in gross profit in the SSG and PST segments was primarily due to factory overhead cost reductions undertaken over the past fiscal year. The increase in gross
profit in the SSG and PST segments was partially offset by a decrease in gross profit in the ATI segment due to lower factory utilization. The Company expects gross profit over the short term to
decrease compared to the quarter ended January 31, 2003 due to an expected change in product mix.

Gross profitservice.Gross profit was (6%) in both the third quarter of fiscal 2003 and the third quarter of
fiscal 2002.

Research and development.Research and development expense decreased $1.6 million, or 30%, to $3.6 million in
the third quarter of fiscal 2003 from $5.2 million in the third quarter of fiscal 2002 and decreased as a percentage of revenue to 20% compared to 29% in the third quarter of fiscal 2002. The
decrease in expense resulted primarily from a decrease in payroll, consulting and project material expenses in all segments, which were part of the overall cost reduction measures taken by the Company
over the past fiscal year. The Company continues to invest in its semiconductor wafer and device industry products as well as new products for the magnetic storage industry, including those that
measure the magnetic properties of materials used in manufacturing disk drives. The decrease in expense as a percentage of revenues reflects the cost reductions mentioned above. The Company expects
research and development expense over the short term to be at or near current levels as a percentage of revenues.

Marketing and sales.Marketing and sales expense decreased $0.4 million, or 13%, to $2.6 million in the third
quarter of fiscal 2003 from $3.0 million in the third quarter of 2002 and decreased as a percentage of revenue to 14% in the third quarter of fiscal 2003 compared to 17% in the third quarter of
fiscal 2002. The decreased expense resulted primarily from decreased payroll expense and discretionary spending including travel and advertising in all segments of the Company. Also contributing to
the decrease in expense was a decrease in commissions expense on sales made through internal and external sales representatives. The mix of sales channels through which the Company's products are sold
may have a significant impact on the Company's marketing and sales expense and the results in any period may not be indicative of marketing and sales expense for future periods.

General and administrative.General and administrative expense decreased $0.9 million, or 30%, to $2.1 million
in the third quarter of fiscal 2003 from $3.0 million in the third quarter of fiscal 2002 and decreased as a percentage of revenue to 11% from 17% in the third quarter of 2002. Expense

21

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decreased primarily due a decrease in payroll and benefits expenses, which were part of the overall cost reduction measures taken by the Company over the past fiscal year. Legal and patent expenses
in the third quarter of fiscal 2003 decreased $0.5 million compared to the third quarter of fiscal 2002.

Interest and other income (expense), net.Net interest and other income (expense) was ($160,000) in the third quarter of
fiscal 2003 compared to net interest and other income (expense) of $0 in the third quarter of fiscal 2002. Interest income and other income of $35,000 for the third quarter of fiscal 2003 was offset
by $195,000 of interest expense. The decrease in interest and other income resulted primarily from lower interest returns due to lower interest rates and invested cash balances during the third
quarter of fiscal 2003 compared to the year earlier period. Interest expense in the third quarter of fiscal 2003 was slightly less than the year earlier period due to the reduction of
long-term debt from scheduled principle payments made over the past year.

Income taxes.There was a provision for income taxes of $36,000 in the third quarter of fiscal 2003 compared to a provision
for income taxes of $9,000 in the third quarter of fiscal 2002. The provision for income taxes in both the third quarter of fiscal 2003 and the third quarter of fiscal 2002 primarily consisted of
foreign income taxes.

Equity in net earnings of affiliated companies.Equity in net earnings of affiliated companies was $132,000 in the third
quarter of fiscal 2003 compared to $384,000 in the third quarter of fiscal 2002. The Company's Japanese affiliate sells primarily to the semiconductor industry and the decrease in current period
earnings reflect the timing of shipments and the recognition of revenue by the affiliate.

Nine Months Ended January 31, 2003 compared to Nine Months Ended January 31, 2002

Systems and parts revenue.Systems and parts revenue decreased 23% to $45.2 million in the nine months ended
January 31, 2003 from $58.6 million in the year earlier period. Revenue in the SSG segment decreased 34% to $30.5 million in the nine months ended January 31, 2003 from
$45.8 million in the year earlier period. Decreased sales of the Company's products in the SSG segment reflected a decrease in demand for capital equipment in the semiconductor wafer and device
industries as a result of the current severe down cycle. Revenue in the PST segment increased 42% to $10.0 million in the nine months ended January 31, 2003 from to $7.1 million
in the year earlier period. The increase in revenue
from the PST segment was due primarily to industry acceptance and demand for its semiconductor industry products in the nine months ended January 31, 2003, compared to the year earlier period.

Wafer
manufacturers' capital equipment purchases have been focused on advanced industry requirements rather than on capacity expansion, which resulted in technology purchases of the
Company's next generation of products. However, wafer manufacturers have been slowly adding capacity and the Company has experienced an increase in shipments of legacy products as a result of these
capacity related purchases. For the nine months ended January 31, 2003, 86% of the Company's revenue was derived from the semiconductor industry compared to 85% for the year earlier period. The
Company sells its semiconductor products to both wafer and device manufacturers. Historically, the Company's semiconductor revenue has been derived more from wafer manufacturers than device
manufacturers. For the nine months ended January 31, 2003, 87% of semiconductor revenue was derived from wafer manufacturers while 13% was derived from device manufacturers compared to 84% and
16%, respectively, for the year earlier period. An increase in short-term chip demand or increases in semiconductor market capital expenditures is expected to impact device manufacturers
prior to wafer manufacturers as wafer manufacturers are further down on the overall semiconductor industry supply chain. For the fourth quarter of fiscal 2003, the Company expects revenue from the
semiconductor industry to increase slightly from third quarter revenues. However, the Company can make no assurances that the expected increase in fourth quarter revenue can be sustained into the next
fiscal year.

22

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The
data storage industry has experienced extreme pricing pressure, consolidation and excess supply in many data storage market segments, which has resulted in reduced production and
capital equipment purchases. Consequently, revenue from the products that are marketed to the data storage industry by the Company's ATI segment decreased 8% to $5.6 million in the nine months
ended January 31, 2003 from $6.1 million in the year earlier period. The decrease in revenue is due primarily to decreased shipments of the Company's magnetic storage products during the
third quarter of fiscal 2003. Data storage industry revenue comprised 14% of total revenue for the nine months ended January 31, 2003, compared to 15% for the year earlier period. The Company
expects revenue from the magnetic data storage industry in the fourth quarter of fiscal 2003 to remain at or below third quarter levels.

Service revenue.Service revenue decreased 8% to $6.1 million in the nine months ended January 31, 2003 from
$6.6 million in the year earlier period. The Company's service revenue consists of fees for installation, training, product maintenance and technical support services. The majority of the
Company's service revenue is derived from the SSG segment. The decrease in service revenue reflects the current severe down cycle in the wafer and device manufacturing industries.

Gross profitsystems and parts.Gross profit increased to 52% in the nine months ended January 31, 2003
from 46% in the year earlier period. The increase in gross profit in all segments was due primarily to factory overhead cost reductions undertaken over the past fiscal year. The Company expects gross
profit over the short term to decrease compared to the quarter ended January 31, 2003 due to an expected change in product mix.

Gross profitservice.Gross profit decreased to (12%) in the nine months ended January 31, 2003 from (11%)
in the year earlier period. The decrease in gross profit was due primarily to the decreased level of service revenue in the nine months ended January 31, 2003 compared to the year earlier
period.

Research and development.Research and development expense decreased $4.4 million, or 26%, to $12.8 million in
the nine months ended January 31, 2003 from $17.3 million in the year earlier period and decreased as a percentage of revenue to 25% compared to 26% in the year earlier period. The
decrease in expense resulted primarily from a decrease in payroll, consulting and project material expenses in all segments, which were part of the overall cost reduction measures taken by the Company
over the past fiscal year. The Company continues to invest in its semiconductor wafer and device industry products as well as new products for the magnetic storage industry, including those that
measure the magnetic properties of materials used in manufacturing disk drives. The decrease in expense as a percentage of revenues in spite of the decrease in revenues reflects the cost reduction
measures mentioned above. The Company expects research and development expense over the short term to be at or near current levels as a percentage of revenues.

Marketing and sales.Marketing and sales expense decreased $1.8 million, or 18%, to $8.3 million in the nine
months ended January 31, 2003 from $10.1 million in the year earlier period and remained consistent as a percentage of revenue at 16% compared to the year earlier period. The decreased
expense resulted from a decrease in commissions expense on sales made through internal and external sales representatives due to the decrease in sales during the nine months ended January 31,
2003. Also contributing to the decrease in expense was decreased payroll expense and discretionary spending including travel and advertising in all segments of the Company. The mix of sales channels
through which the Company's products are sold may have a significant impact on the Company's marketing and sales expense and the results in any period may not be indicative of marketing and sales
expense for future periods.

General and administrative.General and administrative expense decreased $0.7 million, or 9%, to $7.4 million
in the nine months ended January 31, 2003 from $8.1 million in the year earlier period and

23

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increased as a percentage of revenue to 14% from 12% in the year earlier period. Expense decreased primarily due to decreased payroll related expenses as a result of cost cutting measures taken over
the past year. This decrease in payroll related expenses was slightly offset by an increase in legal and patent expense of $0.4 million as a result of the ongoing litigation with
KLA-Tencor.

Interest and other income (expense), net.Net interest and other income (expense) was ($368,000) in the nine months ended
January 31, 2003 compared to net interest and other income (expense) of $361,000 in the year earlier period. Interest income and other income of $225,000 for the nine months ended
January 31, 2003 was offset by $593,000 of interest expense. The decrease in interest and other income resulted primarily from lower interest returns due to lower interest rates and invested
cash balances during the nine months ended January 31, 2003 compared to the year earlier period. Interest expense in
the nine months ended January 31, 2003 was slightly less than the year earlier period due to the reduction of long-term debt from scheduled principle payments made over the past
year.

Income taxes.There was a provision for income taxes of $71,000 in the nine months ended January 31, 2003 compared to
a provision for income taxes of $10.6 million in the year earlier period. The provision for income taxes in the nine months ended January 31, 2003 primarily consists of foreign income
taxes. The provision for income taxes in the nine months ended January 31, 2002 was due primarily to an increase in the valuation allowance against the Company's deferred tax assets in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."

Equity in Net Earnings of Affiliated Companies.Equity in net earnings of affiliated companies was $102,000 in the nine
months ended January 31, 2003 compared to $560,000 in the year earlier period. The Company's Japanese affiliate sells primarily to the semiconductor industry and the decrease in earnings during
the nine months ended January 31, 2003 compared to the year earlier period reflects the timing of shipments and the recognition of revenue by the affiliate.

Liquidity and Capital Resources

At January 31, 2003, the Company had $17.6 million in cash and cash equivalents and $47.6 million in working capital. In addition, the
Company had $3.2 million in restricted cash used as security for a tax-exempt Industrial Development Bond ("IDB") issued through the Massachusetts Industrial Finance Agency in
December 1997. Under the terms of the bond agreement, the Company may substitute a letter of credit in an amount equal to approximately 105% of the outstanding principal balance as collateral
for the Company's obligations under the IDB, assuming the Company has the ability to borrow under a credit facility. Such actions would allow the restricted cash balance to be used for general
corporate purposes. The Company has a standby letter of credit from a financial institution to collateralize a tax-exempt IDB issued in June 1996 through the Massachusetts
Industrial Finance Agency. The Company also has a standby letter of credit from the same financial institution to collateralize a tax-exempt IDB issued in April 1999 through the
Industrial Development Authority of the County of Pima, Arizona. The agreements under which the letters of credit were issued are secured by mortgages on Company buildings and land in Westwood,
Massachusetts and Tucson, Arizona. Under the terms of the agreements under which these letters of credit were issued, the Company is required to comply with certain financial covenants. As of
January 31, 2003, the Company was in violation of one covenant under each such agreement, relating in one instance to maintaining a requisite level of cash and in the other to maintaining a
requisite debt service coverage ratio. The Company has obtained a waiver for these violations for the quarter ended January 31, 2003. The Company cannot provide assurance that it will be in
compliance with these covenants at the end of the fiscal quarter ending April 30, 2003. If it were not to be in compliance at that time, the Company would attempt to obtain additional waivers.
The Company is engaged in discussions with financial institutions regarding obtaining financing to replace or eliminate the letters of credit. If the Company is unsuccessful in obtaining refinancing
or additional waivers, the issuer of the letters of credit could notify the holders of

24

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the IDBs, as the beneficiaries of the letters of credit, of its intention to terminate the letters of credit. The beneficiaries would then be able to draw upon the letters of credit. The issuer of
the letters of
credit would then have the right to demand immediate reimbursement from the Company of the amounts paid to the beneficiaries and to foreclose on collateral (restricted cash and real property) securing
the amounts due to the issuer of the letters of credit.

Cash
used in operating activities for the nine months ended January 31, 2003 was $8.0 million. This amount resulted from net loss of $7.6 million adjusted for
non-cash charges of $3.5 million and a $3.9 million net increase in working capital accounts. Non-cash items consisted primarily of $3.6 million of
depreciation and amortization and $0.1 million of equity in the net earnings of affiliated companies. Working capital items consisted primarily of an increase in deferred income on sales to
affiliates of $0.7 million and decreases in inventories of $2.4 million, prepaid expenses and other current assets of $0.4 million, accounts payable of $3.4 million, and
accrued expenses and other current liabilities of $4.0 million. The increase in deferred income on sales to affiliate is due to the timing of shipments and revenue recognition by the Company's
Japanese affiliate. The decrease in inventory was due to increased shipments during the third quarter of fiscal 2003. The decrease in accounts payable was primarily due to the timing of payments to
vendors. The decrease in accrued expenses and other current liabilities was primarily due to the decrease in deferred revenue, accrued salaries, wages and vacation pay and accrued warranty.

Cash
used in investing activities was $0.3 million, and consisted primarily of $0.4 million for purchases of fixed assets, which was partially offset by a combined decrease
in other assets and restricted cash of $0.1 million.

Cash
used in financing activities was $0.2 million, which consisted of $0.5 million in repayments of long-term debt, which were offset by $0.3 million of
aggregate proceeds from the issuance of common stock from the exercise of stock options and stock purchased through the Company's employee stock purchase plan.

Under
Generally Accepted Accounting Principles ("GAAP") in the United States, certain obligations and commitments are not required to be included in the consolidated balance sheet. These
obligations and commitments, while entered into in the normal course of business, may have a material impact on liquidity. The Company does not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged
in such relationships. The following table discloses the Company's contractual payment obligations as of January 31, 2003. The operating lease and consulting agreement obligations are not
included in the unaudited condensed consolidated financial statements included in "Item 1. Financial Information." The principal portion of the long term debt is included in the unaudited condensed
consolidated financial statements. The long-term debt payments in the table below include both principal and interest.

Payments due by periodLess than
1 year

1-3 years

Greater than
3 years

Total(in thousands)Long term debt

$
1,261

$
2,487

$
9,597

$
13,345Operating leases


652


705


271


1,628Consulting agreement (Note 6)


281


357





638$
2,194

$
3,549

$
9,868

$
15,611


25

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The
Company also enters into purchase order commitments in the normal course of business, for which the liability is not included in the financial statements in accordance with GAAP.

The
Company expects to meet its near-term working capital needs and capital expenditures primarily through available cash and cash equivalents, which will primarily be
generated from sales to both existing and new customers. However, the Company can provide no assurance that it will be able to maintain its current customer base or acquire new customers. The Company
expects to be somewhat below cash break-even in the near term, as it expects an increase in working capital due to an expected increase in revenues and accounts receivable in the fourth
quarter of fiscal 2003.

Other Risk Factors and Trends

Capital expenditures by semiconductor wafer and device manufacturers historically have been cyclical as they in turn depend upon the current and anticipated
demand for integrated circuits. While the semiconductor industry has not yet emerged from the recent severe down cycle, it is not clear when semiconductor wafer manufacturers, who have historically
accounted for approximately 74% of the Company's revenue, will be in a position to increase their purchases of capital equipment. The data storage industry has been in a period of oversupply and
excess manufacturing capacity for an extended period of time and this has also had an adverse impact on the Company. At January 31, 2003, the Company's backlog was $24.6 million. The
Company remains uncertain about when significant growth in revenue will return. The Company continues to evaluate its cost structure relative to expected revenue and will continue to implement
aggressive cost containment measures where necessary. However, the Company cannot provide assurance that it will be able to implement cost containment measures in a timely or cost effective manner.

Furthermore,
the Company's success is dependent upon supplying technologically superior products to the marketplace at appropriate times to satisfy customer needs. Product development
requires substantial investment and is subject to technological risks. Delays or difficulties in product development or market acceptance of newly developed products could adversely affect the future
performance of the Company.

As
discussed above, the Company was in violation of covenants under two standby letters of credit and has obtained a waiver for the violated covenants. The Company cannot provide
assurance that it will be in compliance with its covenants in the future, or if it were to not be in compliance, whether or not it would be able to obtain additional waivers, be able to refinance the
letters of credit, be required to reimburse the amounts of the letters of credit or lose its collateral securing the amounts of the letters of credit.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51." FIN 46 requires certain variable interest entities, or VIEs, to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Based on the accounting guidance and other information
available, the Company does not believe its 50% owned affiliate, Japan ADE, Ltd., meets the definition of a VIE. Therefore, the Company currently believes the adoption of FIN 46 will not have a
significant impact on its consolidated financial statements. However, the Company believes that the interpretative

26

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accounting guidance necessary for FIN 46 will continue to evolve. Additional interpretive guidance could affect the accounting for Japan ADE, Ltd.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation, Transition and
Disclosure, an Amendment of FAS 123." SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 148 also requires that entities that continue to account for stock-based compensation awards using the intrinsic value
method of Accounting Principles Board Opinion No. 25 ("APB"), "Accounting for Stock Issued to Employees," will be required to provide more prominent disclosures than currently required by
SFAS 123, including disclosures in interim financial statements. The transition and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after
December 15, 2002. The new interim disclosure provisions are effective for the first interim period beginning after December 15, 2002. The Company will continue to account for employee
stock-based compensation under APB 25 and related interpretations. The Company will adopt the annual disclosure requirements in its financial statements for the year ending April 30, 2003 and
the interim disclosure requirements beginning in its financial statements for the quarter ending July 31, 2003.

In
November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The
disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The provisions for initial recognition and measurement are
effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's year-end. The adoption of FIN 45 by the Company
during the quarter ended January 31, 2003 did not have a material impact on its current financial position and results of operations. See Note 10 for applicable disclosures.

In
November 2002, the Emerging Issues Task Force Issue issued No. 00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF
00-21 establishes three principles: revenue arrangements with multiple deliverables should be divided into separate units of accounting, arrangement consideration should be allocated among
the separate units of accounting based on their relative fair values, and revenue recognition criteria should be considered separately for separate units of accounting. EITF 00-21 is
effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company does not expect the adoption of EITF
00-21 to have a material impact on the Company's consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk:

At January 31, 2003, the Company's exposure to market risk relates primarily to changes in interest rates on its investment portfolio. The Company's cash
equivalents consist primarily of fixed income securities. The Company invests only with high credit quality issuers and does not use derivative financial instruments in its investment portfolio. The
Company does not believe that a sharp increase or decrease in interest rates would have a material adverse impact on the fair value of its investment portfolio. The Company's long-term
borrowings are at fixed interest rates.

In
addition, a portion of the Company's business is conducted outside the United States through its foreign subsidiaries and an affiliate. The Company generally transacts business in
international markets in United States currency, but pays its employees in local currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates.

27

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Item 4. Controls and Procedures:

The
term "disclosure controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required time periods. Within 90 days prior to the filing date of this Form 10-Q (the "Evaluation Date"),
the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and chief financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that,
as of the Evaluation Date, such disclosure controls and procedures were effective in ensuring that required information will be disclosed on a timely basis in the Company's reports filed under the
Exchange Act.

The
Company maintains a system of internal accounting controls that are designed to provide reasonable assurance that the Company's transactions are properly recorded, that the Company's
assets are safeguarded against unauthorized or improper use and that the Company's transactions are properly recorded and reported. As part of the evaluation of the Company's disclosure controls and
procedures, the Company evaluated its internal controls. There were no significant changes to the Company's internal controls or other factors that could significantly affect the controls subsequent
to the Evaluation Date, nor were any corrective actions taken with regard to any significant deficiencies or material weaknesses.

28

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PART II.  OTHER INFORMATION

Item 1. Legal Proceedings:

On October 12, 2000, the Company filed a patent infringement lawsuit against KLA-Tencor (KLA), a competitor, in the United States District
Court in Delaware. The Company seeks damages and a permanent injunction against further infringement upon United States Patent Number 6,118,525, entitled "Wafer Inspection System for Distinguishing
Pits and Particles." On November 22, 2000, KLA filed a counterclaim alleging that the Company has infringed upon three patents owned by KLA. KLA is seeking damages for patent infringement and a
permanent injunction against any future infringement activity. In addition, KLA has asked the District Court for a declaration that United States Patent Number 6,118,525, owned by ADE, is invalid and
not infringed upon by KLA. On March 13, 2003, the District Court issued a ruling upholding KLA's principal arguments with respect to ADE's claims of infringement. The District Court has not yet
ruled on KLA's counterclaims. Once all rulings have been issued by the District Court, the Company will consider whether or not to appeal the rulings to the United States Court of Appeals for the
Federal Circuit. Accordingly, at this time, the Company cannot predict the outcome or the amount of gain or loss, if any, from this lawsuit.

Item 6. Exhibits and Reports on Form 8-K:

|Exhibit
Number |  | Description                                                                                                                                       
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|10.1           |  | 2000 Employee Stock Option Plan (as amended).*                                                                                                    
|21.1           |  | Subsidiaries of the Company.                                                                                                                      
|99.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

None.

29

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                     | ADE CORPORATION                                                                         
|-------------------- | ----------------------------------------------------------------------------------------
|Date: March 17, 2003 | /s/CHRIS L. KOLIOPOULOSChris L. Koliopoulos, Ph.D. President and Chief Executive
Officer
|Date: March 17, 2003 | /s/BRIAN C. JAMESBrian C. James Executive Vice President and Chief Financial Officer    

30

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CERTIFICATION

Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

I,
Chris L. Koliopoulos, Ph.D., certify that:





|Date: March 17, 2003 | /s/CHRIS L. KOLIOPOULOSChris L. Koliopoulos, Ph.D. President and Chief Executive
Officer
|-------------------- | ----------------------------------------------------------------------------------------

31

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CERTIFICATION

Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002

I,
Brian C. James, certify that:





|Date: March 17, 2003 | /s/BRIAN C. JAMESBrian C. James Executive Vice President and Chief Financial Officer
|-------------------- | ------------------------------------------------------------------------------------

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