##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 3, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file number 000-26911
 THERMA-WAVE, INC.
  Delaware
    
    94-3000561(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 1250 Reliance Way
Fremont, California 94539
 
  (510) 668-2200
 
  þ o
 þ o
  Class
    
    Outstanding as of August 3, 2005Common stock, $0.01 par value
    
    36,678,734




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THERMA-WAVE, INC.
TABLE OF CONTENTS
 Page No.PART I. FINANCIAL INFORMATIONITEM 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2005 and March 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2005 and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34ITEM 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    37ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37ITEM 5. Other Information
    
    
    37ITEM 6. Exhibits
    
    
    38SIGNATURESEXHIBIT 10.9EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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THERMA-WAVE, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 (Unaudited)
 June 30,
    
    March 31,2005
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,233
    
    
    $
    13,419Accounts receivable, net of allowances for doubtful accounts of $763
and $715 at June 30, 2005 and March 31, 2005, respectively
    
    
    12,119
    
    
    
    15,678Inventories
    
    
    28,098
    
    
    
    30,870Other current assets
    
    
    2,852
    
    
    
    2,680Total current assets
    
    
    56,302
    
    
    
    62,647Property and equipment, net
    
    
    2,128
    
    
    
    2,976Other assets
    
    
    1,605
    
    
    
    1,950Total assets
    
    $
    60,035
    
    
    $
    67,573LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,832
    
    
    $
    8,227Accrued liabilities
    
    
    13,504
    
    
    
    15,784Deferred revenues
    
    
    11,622
    
    
    
    15,804Total current liabilities
    
    
    29,958
    
    
    
    39,815Non-current deferred revenues
    
    
    1,291
    
    
    
    1,425Other long-term liabilities
    
    
    403
    
    
    
    370Total liabilities
    
    
    31,652
    
    
    
    41,610Commitments and contingencies (Note 5)Stockholders equity:Common stock, $0.01 par value; 75,000,000 shares authorized; 36,542,745
shares issued and outstanding at June 30, 2005; 36,318,565 shares issued
and outstanding at March 31, 2005
    
    
    366
    
    
    
    363Additional paid-in capital
    
    
    334,434
    
    
    
    334,352Notes receivable from stockholders
    
    
    (174
    )
    
    
    (174
    )Accumulated other comprehensive loss
    
    
    (802
    )
    
    
    (659
    )Deferred stock-based compensation
    
    
    (44
    )
    
    
    (76
    )Accumulated deficit
    
    
    (305,397
    )
    
    
    (307,843
    )Total stockholders equity
    
    
    28,383
    
    
    
    25,963Total liabilities and stockholders equity
    
    $
    60,035
    
    
    $
    67,573
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THERMA-WAVE, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended June 30,2005
    
    2004Net revenuesProduct
    
    $
    12,720
    
    
    $
    16,189Service and parts
    
    
    4,819
    
    
    
    4,962Total net revenues
    
    
    17,539
    
    
    
    21,151Cost of revenues (including stock-based compensation expense
of $4 and $318)Product
    
    
    6,419
    
    
    
    7,108Service and parts
    
    
    4,005
    
    
    
    3,323Total cost of revenues
    
    
    10,424
    
    
    
    10,431Gross profit
    
    
    7,115
    
    
    
    10,720Operating expenses:Research and development (including stock-based
compensation expense (benefit) of $(178) and $886)
    
    
    3,837
    
    
    
    5,265Selling, general and administrative (including stock-based
compensation expense of $15 and $547)
    
    
    7,753
    
    
    
    6,303Restructuring, severance and other
    
    
    1,467
    
    
    
    373Total operating expenses
    
    
    13,057
    
    
    
    11,941Operating loss
    
    
    (5,942
    )
    
    
    (1,221
    )Other income (expense):Gain on sale of product line
    
    
    8,550
    
    
    
    Interest expense
    
    
    (57
    )
    
    
    Interest income
    
    
    32
    
    
    
    42Other, net
    
    
    (96
    )
    
    
    10Total other income, net
    
    
    8,429
    
    
    
    52Income (loss) before provision for income taxes
    
    
    2,487
    
    
    
    (1,169
    )Provision for income taxes
    
    
    (41
    )
    
    
    Net income (loss)
    
    $
    2,446
    
    
    $
    (1,169
    )Net income (loss) per share:Basic
    
    $
    0.07
    
    
    $
    (0.03
    )Diluted
    
    $
    0.07
    
    
    $
    (0.03
    )Weighted average common shares outstanding:Basic
    
    
    36,349
    
    
    
    35,637Diluted
    
    
    37,432
    
    
    
    35,637
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THERMA-WAVE, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three months ended June 30,2005
    
    2004Operating activities:Net income (loss)
    
    $
    2,446
    
    
    $
    (1,169
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Gain on sale of product line
    
    
    (8,550
    )
    
    
    Depreciation of property and equipment
    
    
    716
    
    
    
    663Amortization of intangible assets
    
    
    185
    
    
    
    198Stock-based compensation expense (benefit)
    
    
    (159
    )
    
    
    1,751Provision (credit) for doubtful accounts receivable
    
    
    48
    
    
    
    (48
    )Provision for excess and obsolete inventories
    
    
    138
    
    
    
    983Loss on
disposal of property and equipment
    
    
    93
    
    
    
    Changes in
operating assets and liabilities (excluding assets sold and
liabilities assumed):Accounts receivable
    
    
    3,511
    
    
    
    (1,399
    )Inventories
    
    
    1,831
    
    
    
    (4,923
    )Other assets
    
    
    (198
    )
    
    
    123Accounts payable
    
    
    (3,395
    )
    
    
    1,604Accrued and other liabilities
    
    
    (2,379
    )
    
    
    37Deferred revenues
    
    
    (4,431
    )
    
    
    (184
    )Net cash used in operating activities
    
    
    (10,144
    )
    
    
    (2,364
    )Investing activities:Sale of product line
    
    
    9,950
    
    
    
    Purchases of property and equipment
    
    
    (40
    )
    
    
    (246
    )Purchase of patents
    
    
    (85
    )
    
    
    (199
    )Net cash provided by (used in) investing activities
    
    
    9,825
    
    
    
    (445
    )Financing activities:Proceeds from issuance of common stock
    
    
    276
    
    
    
    135Net cash provided by financing activities
    
    
    276
    
    
    
    135Effect of exchange rates on cash
    
    
    (143
    )
    
    
    (77
    )Net decrease in cash and cash equivalents
    
    
    (186
    )
    
    
    (2,751
    )Cash and cash equivalents at beginning of period
    
    
    13,419
    
    
    
    23,899Cash and cash equivalents at end of period
    
    $
    13,233
    
    
    $
    21,148Supplementary disclosures:Application of customer deposit to sale of product line
    
    $
    1,000
    
    
    $
    
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THERMA-WAVE, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (As of June 30, 2005)
 1. Basis of Presentation
   Liquidity
   Revenue Recognition
  6




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Persuasive evidence of an arrangement exists
 Delivery has occurred or services have been rendered:
 The sellers price to the buyer is fixed or determinable:
 Collectability is reasonably assured:
  a.
    
    Systems Are also Sold Through Resellers. We account separately for the services provided by
the resellers, including sales services and any post-shipment services that the resellers may
be contractually obligated to provide per the terms of the specific sales contract.b.
    
    Standard Product Warranty. We offer a standard product warranty of one year, usually,
beginning on the date of customer final acceptance. Additional periods of warranty are
sometimes included in the price of the system sale or are sold separately. When service
coverage outside the one-year warranty is included in the price of the system sale, we defer
the fair market value of that
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service coverage as a liability for deferred service contract revenues, and recognize those
revenues ratably over the service delivery time periods applicable to the contract.c.
    
    Systems Under Trial and Evaluation Agreements. Revenues are not recognized for shipments of
systems under trial and evaluation agreements.d.
    
    Payment Terms. Payment terms usually are net 30 to net 60 days. In rare circumstances, we
agree to extended payment terms greater than 60 days. In those instances, generally involving
foreign sales, revenue recognition is deferred until payment is received.
   Service and Parts Revenues.
  Stock-Based Compensation
  8




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Three Months Ended June 30,2005
    
    2004(In thousands, except per share data)Pro forma Net Income (loss) Under SFAS No. 123Net income (loss) (in thousands)As reported
    
    $
    2,446
    
    
    $
    (1,169
    )Add: Stock-based employee compensation expense (benefit) included in
the determination of net income (loss), as reported
    
    
    (159
    )
    
    
    1,751Deduct: Stock-based employee compensation expense as determined
using the fair value method
    
    
    (249
    )
    
    
    (1,401
    )Pro forma net income (loss)
    
    $
    2,038
    
    
    $
    (819
    )Basic net income (loss) per shareAs reported
    
    $
    0.07
    
    
    $
    (0.03
    )Pro forma
    
    $
    0.06
    
    
    $
    (0.02
    )Diluted net income (loss) per shareAs reported
    
    $
    0.07
    
    
    $
    (0.03
    )Pro forma
    
    $
    0.05
    
    
    $
    (0.02
    )
  Three Months Ended June 30,2005
    
    2004Assumptions for Estimating Fair Value of Option GrantsRisk-free interest rate
    
    
    3.8
    %
    
    
    3.1
    %Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    74
    %
    
    
    100
    %Expected life in years
    
    
    3.2
    
    
    
    5.0
   Three Months Ended June 30,2005
    
    2004Assumptions for Estimating Fair Value of ESPP Purchase RightsRisk-free interest rate
    
    
    3.4
    %
    
    
    1.2
    %Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    48
    %
    
    
    60
    %Expected life in years
    
    
    0.5
    
    
    
    1.3
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Recently Issued Accounting Pronouncements
    10




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2. Balance Sheet Components
 June 30,
    
    March 31,2005
    
    2005(In thousands)Inventories:Purchased materials
    
    $
    11,627
    
    
    $
    11,339Systems in process
    
    
    6,982
    
    
    
    9,700Finished systems
    
    
    5,545
    
    
    
    4,537Inventory at customer locations
    
    
    3,944
    
    
    
    5,294Total
inventories
    
    $
    28,098
    
    
    $
    30,870
 June 30,
    
    March 31,2005
    
    2005(In thousands)Property and equipment:Laboratory and test equipment
    
    $
    4,058
    
    
    $
    4,659Office furniture and equipment
    
    
    10,225
    
    
    
    10,802Machinery and equipment
    
    
    732
    
    
    
    709Leasehold improvements
    
    
    8,605
    
    
    
    8,649Total property and equipment
    
    
    23,620
    
    
    
    24,819Accumulated depreciation and amortization
    
    
    (21,492
    )
    
    
    (21,843
    )Total property and equipment, net
    
    $
    2,128
    
    
    $
    2,976
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June 30,
    
    March 31,2005
    
    2005(In thousands)Accrued liabilities:Accrued compensation and related expenses
    
    $
    2,937
    
    
    $
    3,352Accrued warranty
    
    
    1,303
    
    
    
    1,656Commissions payable
    
    
    1,013
    
    
    
    1,830Income taxes
    
    
    5,004
    
    
    
    4,972Restructuring liabilities
    
    
    831
    
    
    
    178Other accrued liabilities
    
    
    2,416
    
    
    
    3,796Total accrued liabilities
    
    $
    13,504
    
    
    $
    15,784
 3. Comprehensive Gain (Loss)
  4. Net Income (Loss) Per Share
    June 30,2005
    
    2004(In thousands)Securities Excluded from Diluted Net Income (Loss) per ShareStock options
    
    
    3,869
    
    
    
    5,510Warrants
    
    
    47
    
    
    
    79
   Three
Months EndedJune 30,
    
    June 30,2005
    

2004Basic:Net income
(loss)
    
    $
    2,446
    
    
    $
    (1,169
    )Weighted
shares outstanding
    
    
    36,349
    
    
    
    35,637Net income
(loss) per share
    
    $
    0.07
    
    
    $
    (0.03
    )Diluted:Net income
(loss)
    
    $
    2,446
    
    
    $
    (1,169
    )Weighted
shares outstanding
    
    
    36,349
    
    
    
    35,637Effect of
dilutive securities:Stock
options
    
    
    1,083
    
    
    
    Diluted
weighted shares outstanding
    
    
    37,432
    
    
    
    35,637Net income (loss) per share
    
    $
    0.07
    
    
    $
    (0.03
    )
 5. Commitments and Contingencies
  12




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2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total(In thousands)Contractual obligations
By Fiscal Year March 31:Operating lease obligations
    
    $
    1,241
    
    
    $
    1,853
    
    
    $
    1,654
    
    
    $
    1,229
    
    
    $
    1,143
    
    
    $
    1,012
    
    
    $
    8,132
 Operating Leases
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Three MonthsEnded June 30,2005(In thousands)Calculation of gain on sale of product line:Proceeds from sale of product line:Cash payment by TEL
    
    $
    8,950TEL deposit applied to sale of product line
    
    
    1,000Total proceeds from sale of product line
    
    
    9,950Less: Net assets sold and transaction expenses:Property and equipment, net
    
    
    79Inventory
    
    
    803Patents, net
    
    
    271Accrued warranty assumed by TEL
    
    
    (243
    )Legal expenses
    
    
    296Transaction costs and other
    
    
    194Total net assets sold, and transaction expenses:
    
    
    1,400Gain on sale of product line
    
    $
    8,550
 6. Financing Arrangements
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Indemnification
  Legal Proceedings
  7. Restructuring, Severance and Other Costs
  Liability
    
    
    
    
    
    
    
    
    
    Liabilityas of March
    
    
    
    
    
    
    
    
    
    as of June31, 2005
    
    Provision
    
    Payments
    
    30, 2005(In thousands)Restructuring severance and other costs incurredSeverance and workforce reduction
    
    $
    
    
    
    $
    1,225
    
    
    $
    (660
    )
    
    $
    565Consolidation of excess facilities
    
    
    178
    
    
    
    188
    
    
    
    (100
    )
    
    
    266Other
    
    
    
    
    
    
    54
    
    
    
    (54
    )
    
    
    Total
    
    $
    178
    
    
    $
    1,467
    
    
    $
    (814
    )
    
    $
    831
 Liability
    
    
    
    
    
    
    
    
    
    Liabilityas of March
    
    
    
    
    
    
    
    
    
    as of June31, 2004
    
    Provision
    
    Payments
    
    30, 2004(In thousands)Restructuring severance and other costs incurredConsolidation of excess facilities
    
    $
    220
    
    
    $
    373
    
    
    $
    (119
    )
    
    $
    474
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Restructuring provision recorded during three months ended June 30, 2005.
  Restructuring provision recorded during three months ended June 30, 2004.
  Restructuring of the Companys North American operations.
    16




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Restructuring of the Companys Asian operations.
  8. Accrued Warranty
  Provisionsfor Warranties
    
    SettlementsIssued
    
    OfBeginning
    
    During
    
    Pre-Existing
    
    EndingBalance
    
    The Period
    
    Warranties
    
    Balance(In thousands)Accrued WarrantyThree Months Ended June 30, 2005
    
    $
    1,656
    
    
    $
    104
    
    
    *($
    457
    )
    
    $
    1,303Three Months Ended June 30, 2004
    
    $
    1,731
    
    
    $
    353
    
    
    ($
    458
    )
    
    $
    1,626
 
 *
    
    Includes $243,000 assumed by TEL. See Note 5 of Notes to the Unaudited Condensed Consolidated
Financial Statements, entitled Commitments and Contingencies. 9. Other Assets, Net
  10. Segment Information
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Three Months Ended June 30,2005
    
    2004Revenues by CountryGermany
    
    
    38
    %
    
    
    3
    %United States
    
    
    22
    %
    
    
    25
    %Japan
    
    
    17
    %
    
    
    12
    %Taiwan
    
    
    10
    %
    
    
    6
    %Europe, excluding Germany
    
    
    7
    %
    
    
    7
    %Korea
    
    
    4
    %
    
    
    17
    %China
    
    
    1
    %
    
    
    12
    %Singapore
    
    
    1
    %
    
    
    18
    %Total
    
    
    100
    %
    
    
    100
    %
    18




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OtherForeignU.S.
    
    Locations
    
    Eliminations
    
    ConsolidatedSegment Information (in thousands)Three Months Ended June 30, 2005Sales to unaffiliated customers
    
    $
    15,112
    
    
    $
    2,427
    
    
    $
    
    
    
    $
    17,539Transfers between geographic regions
    
    
    (430
    )
    
    
    552
    
    
    
    (122
    )
    
    
    Total net revenues
    
    $
    14,682
    
    
    $
    2,979
    
    
    $
    (122
    )
    
    $
    17,539Operating income (loss)
    
    $
    (6,355
    )
    
    $
    (56
    )
    
    $
    469
    
    
    $
    (5,942
    )Three Months Ended June 30, 2004Sales to unaffiliated customers
    
    $
    18,783
    
    
    $
    2,368
    
    
    $
    
    
    
    $
    21,151Transfers between geographic regions
    
    
    (372
    )
    
    
    (411
    )
    
    
    783
    
    
    
    Total net revenues
    
    $
    18,411
    
    
    $
    1,957
    
    
    $
    783
    
    
    $
    21,151Operating income (loss)
    
    $
    (1,065
    )
    
    $
    (166
    )
    
    $
    10
    
    
    $
    (1,221
    )
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   19




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Critical Accounting Policies and Estimates
   Results of Operations
  20




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Three Months Ended June 30,2005
    
    2004Net revenuesProduct
    
    
    72.5
    %
    
    
    76.5
    %Service and parts
    
    
    27.5
    %
    
    
    23.5
    %Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenuesProduct
    
    
    36.6
    %
    
    
    33.6
    %Service and parts
    
    
    22.8
    %
    
    
    15.7
    %Total cost of revenues
    
    
    59.4
    %
    
    
    49.3
    %Gross profit
    
    
    40.6
    %
    
    
    50.7
    %Operating expenses:Research and development
    
    
    21.9
    %
    
    
    24.9
    %Selling, general and administrative
    
    
    44.2
    %
    
    
    29.8
    %Restructuring, severance and other
    
    
    8.4
    %
    
    
    1.8
    %Total operating expenses
    
    
    74.5
    %
    
    
    56.5
    %Operating loss
    
    
    (33.9
    )%
    
    
    (5.8
    )%Other income (expense):Gain on sale of product line
    
    
    48.7
    %
    
    
    0.0
    %Interest expense
    
    
    (0.3
    )%
    
    
    0.0
    %Interest income
    
    
    0.2
    %
    
    
    0.3
    %Other, net
    
    
    (0.5
    )%
    
    
    0.0
    %Total other income, net
    
    
    48.1
    %
    
    
    0.3
    %Income (loss) before provision for income taxes
    
    
    14.2
    %
    
    
    (5.5
    )%Benefit (provision) for income taxes
    
    
    (0.2
    )%
    
    
    0.0
    %Net income (loss)
    
    
    14.0
    %
    
    
    (5.5
    )%
 Net
Revenues.
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Gross Profit.
 Research and Development (R&D) Expenses.
 Selling, General and Administrative (SG&A) Expenses.
 Restructuring, Severance and Other.
 Stock-Based Employee Compensation.
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Other Income (Expense).
 Net Income (Loss).
 Liquidity and Capital Resources
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Off-Balance Sheet Commitments
  MinimumOperating
    
    Purchase
    
    Royalty
    
    CancellationFiscal Year:
    
    Leases
    
    Commitments
    
    Payments
    
    Fees
    
    Total2006 (9 months)
    
    $
    1,241
    
    
    $
    6,258
    
    
    $
    40
    
    
    $
    45
    
    
    $
    7,5842007
    
    
    1,853
    
    
    
    179
    
    
    
    40
    
    
    
    45
    
    
    
    2,1172008
    
    
    1,654
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    1,7012009
    
    
    1,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,2292010
    
    
    1,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,1432011 and thereafter
    
    
    1,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,012Total future minimum payments
    
    $
    8,132
    
    
    $
    6,484
    
    
    $
    80
    
    
    $
    90
    
    
    $
    14,786
 Operating Leases
 Purchase Commitment and Cancellation Fees
 Minimum Royalty Payments
 Financing/Other Contingencies.
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Inflation
  Factors Affecting Future Results
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
    
    customer demand, which is influenced by economic conditions in the semiconductor industry,
demand for products that use semiconductors, market acceptance of our products and those of
our customers, seasonality, changes in product mix, and the timing, cancellation or delay of
customer orders and shipments;
    
    competition, such as competitive pressures on the prices of our products, the introduction or
announcement of new products by us or our competitors and discounts that may be granted to
customers;
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
    
    fluctuations in the availability and cost of components, subassemblies and production capacity;
    
    expenses incurred in connection with litigation;
    
    product development costs, such as increased research, development, engineering and marketing
expenses associated with new products or product enhancements, and the effect of transitioning
to new or enhanced products; and
    
    levels of fixed expenses relative to revenue levels, including research and development costs
associated with product development.
    
    
    a substantial portion of our cash flow from operations, if
any, would be required to be dedicated to the repayment of
indebtedness and would not be available for other purposes;
    
    our future ability to obtain additional debt financing for
working capital, capital expenditures, acquisitions or
other purposes may be limited; and
    
    our level of indebtedness has in the past, and could in the
future, limit our flexibility in reacting to changes in the
industry, general economic conditions and our ability to
withstand a prolonged downturn in the semiconductor and/or
semiconductor capital equipment industries.
     
    
    when the semiconductor industry will recover; or
    
    whether the recovery will result in increased demand for our capital equipment by the semiconductor industry.
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1.
    
    As of April 3, 2005, we did not maintain effective controls over intercompany accounts.
Specifically, we did not have effective controls to ensure that intercompany account
balances were reconciled timely and properly eliminated in consolidation in accordance with
generally accepted accounting principles.2.
    
    As of April 3, 2005, we did not maintain effective controls over the review and
approval of journal entries. Specifically, a manual journal entry to allocate certain
customer service and support costs between cost of revenues and selling, general and
administrative expenses was not properly documented, reviewed and approved.
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
    
    unexpected changes in regulatory requirements;
    
    tariffs and other market barriers;
    
    political and economic instability;
    
    potentially adverse tax consequences;
    
    outbreaks of hostilities;
    
    difficulties in accounts receivable collection;
    
    extended payment terms;
    
    difficulties in managing foreign sales representatives; and
    
    difficulties in managing staffing and other elements of foreign subsidiary and branch operations.
     
    
    A classified board of directors;
    
    A prohibition on stockholder action through written consents;
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
    
    A requirement that special meetings of stockholders be called only by our chief executive officer or the board of directors;
    
    advance notice requirements for stockholder proposals and nominations;
    
    limitations on the ability of stockholders to amend, alter or repeal the by-laws; and
    
    the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the
board may determine.
      
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
 Market Risk Disclosures
  Market Risk Related to Interest Rates and Foreign Currency
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Interest Rate Risk
   Foreign Currency Exchange Risk
     Sarbanes-Oxley Act of 2002 Compliance Risk
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
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1.
    
    As of April 3, 2005, the Company did not maintain effective controls over
intercompany accounts. Specifically, the Company did not have effective controls to ensure
that intercompany account balances were reconciled timely and properly eliminated in
consolidation in accordance with generally accepted accounting principles.2.
    
    As of April 3, 2005, the Company did not maintain effective controls over the review
and approval of journal entries. Specifically, a manual journal entry to allocate certain
customer service and support costs between cost of revenues and selling, general and
administrative expense was not properly documented, reviewed and approved.
  Remediation Steps to Address Material Weaknesses
  
    
    Implemented additional monitoring controls used in conjunction with the performance of
intercompany account reconciliations and independent internal reviews of all key account
reconciliations, including inventory transactions with consolidated entities and support
for allocations of customer service and support costs between cost of revenue and selling
general and administrative expense;
    
    Hired new senior accounting personnel and recruited additional experienced accounting
and finance staff, including a Corporate Controller;
    
    Enhanced our training programs for accounting staff as well as our overall supervision
of finance personnel; and
    
    Implemented procedures to ensure all intercompany accounts are reconciled on a quarterly
basis and to ensure that sufficient support is maintained on a timely basis for all
accounting entries.
   Internal Control Over Financial Reporting
  Limitation on Effectiveness of Controls
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 5. Other Information
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Item 6. Exhibits
 Exhibit Number
    
    Description3.1(1)#
    
    Restated Certificate of Incorporation of Therma-Wave, Inc.3.2(2)#
    
    Certificate of Amendment to Restated Certificate of Incorporation of Therma-Wave, Inc.3.3(3)#
    
    Amended and Restated By-Laws of Therma-Wave, Inc.4.1(4)#
    
    Form of certificate representing shares of Common Stock of Therma-Wave, Inc.10.1(5)#
    
    Summary of Final Terms for Passarello Compensation10.2(8)#
    
    Employment Agreement between Therma-Wave, Inc. and Joseph Passarello dated April 8, 200510.3(8)*
    
    Exclusive Representation Agreement between Therma-Wave, Inc. and Hermes-Epitek Corporation dated
April 19, 200510.4(6)
    
    Severance Agreement and Release between Therma-Wave, Inc. and James Mitchener dated May 20, 200510.5(6)
    
    Amendment to Severance Agreement and Release between Therma-Wave, Inc. and James Mitchener dated May
20, 200510.6(7)
    
    Amended and Restated Loan and Security Agreement between Therma-Wave, Inc. and Silicon Valley Bank
dated June 10, 200510.7(7)
    
    Streamline Facility Agreement between Therma-Wave, Inc. and Silicon Valley Bank dated June 10, 200510.8 (9)*
    
    Asset Purchase Agreement by and between the Company and Tokyo Electron Limited dated June 29, 200510.9#
    
    Amended and Restated Employment Agreement between Therma-Wave, Inc. and Boris Lipkin dated August 10,
200531.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to Therma-Waves Annual Report on Form 10-K for the period
ended April 2, 2000 (File No. 000-26911) and filed with the SEC on June 30, 2000.(2)
    
    Incorporated herein by reference to Therma-Waves Quarterly Report on Form 10-Q for the
period ended September 29, 2002 (File No. 000-26911) and filed with the SEC on November 13,
2002.(3)
    
    Incorporated herein by reference to Therma-Waves Annual Report on Form 10-K for the period
ended April 1, 2001 (File No. 000-26911) and filed with the SEC on June 21, 2001. 38




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(4)
    
    Incorporated herein by reference to Therma-Waves Amendment No. 3 to Registration Statement
on Form S-1 (Registration No 333-76019) and filed with the SEC on July 21, 1999.(5)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated April 15, 2005
(File No. 000-2691) filed with the SEC on April 15,2005.(6)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated May 20, 2005
(File No. 000-26911) and filed with the SEC on May 26, 2005(7)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated June 10, 2005
(File No. 000-26911) and filed with the SEC on June 16, 2005(8)
    
    Incorporated by reference to Therma-Waves Annual Report on Form 10-K for the period ended
April 3, 2005 (File No. 000-26911) and filed with the SEC on June 27, 2005(9)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated June 29, 2005
(File No. 000-26911) and filed with the SEC on July 6, 2005*
    
    Confidential treatment has been requested for certain portions of this exhibit#
    
    Denotes management contract 39




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SIGNATURES
  THERMA-WAVE, INC.(Registrant)/s/ Joseph PassarelloJoseph PassarelloSenior Vice President, Chief Financial Officer and Assistant Secretary(as Registrant and as Principal Accounting Officer)August 11, 2005
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EXHIBIT INDEX
 Exhibit Number
    
    Description3.1(1)
    
    Restated Certificate of Incorporation of Therma-Wave, Inc.3.2(2)
    
    Certificate of Amendment to Restated Certificate of Incorporation of Therma-Wave, Inc.3.3(3)
    
    Amended and Restated By-Laws of Therma-Wave, Inc.4.1(4)
    
    Form of certificate representing shares of Common Stock of Therma-Wave, Inc.10.1(5)#
    
    Summary of Final Terms for Passarello Compensation10.2(8)#
    
    Employment Agreement between Therma-Wave, Inc. and Joseph Passarello dated April 8, 200510.3(8)*
    
    Exclusive Representation Agreement between Therma-Wave, Inc. and Hermes-Epitek Corporation dated
April 19, 200510.4(6)
    
    Severance Agreement and Release between Therma-Wave, Inc. and James Mitchener dated May 20, 200510.5(6)
    
    Amendment to Severance Agreement and Release between Therma-Wave, Inc. and James Mitchener dated May
20, 200510.6(7)
    
    Amended and Restated Loan and Security Agreement between Therma-Wave, Inc. and Silicon Valley Bank
dated June 10, 200510.7(7)
    
    Streamline Facility Agreement between Therma-Wave, Inc. and Silicon Valley Bank dated June 10, 200510.8 (9)*
    
    Asset Purchase Agreement by and between the Company and Tokyo Electron Limited dated June 29, 200510.9#
    
    Amended and Restated Employment Agreement between Therma-Wave, Inc. and Boris Lipkin dated August 10,
200531.1
    
    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to Therma-Waves Annual Report on Form 10-K for the period
ended April 2, 2000 (File No. 000-26911) and filed with the SEC on June 30, 2000.(2)
    
    Incorporated herein by reference to Therma-Waves Quarterly Report on Form 10-Q for the
period ended September 29, 2002 (File No. 000-26911) and filed with the SEC on November 13,
2002.




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(3)
    
    Incorporated herein by reference to Therma-Waves Annual Report on Form 10-K for the period
ended April 1, 2001 (File No. 000-26911) and filed with the SEC on June 21, 2001.(4)
    
    Incorporated herein by reference to Therma-Waves Amendment No. 3 to Registration Statement
on Form S-1 (Registration No 333-76019) and filed with the SEC on July 21, 1999.(5)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated April 15, 2005
(File No. 000-2691) filed with the SEC on April 15,2005.(6)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated May 20, 2005
(File No. 000-26911) and filed with the SEC on May 26, 2005(7)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated June 10, 2005
(File No. 000-26911) and filed with the SEC on June 16, 2005(8)
    
    Incorporated by reference to Therma-Waves Annual Report on Form 10-K for the period ended
April 3, 2005 (File No. 000-26911) and filed with the SEC on June 27, 2005(9)
    
    Incorporated by reference to Therma-Waves Current Report on Form 8-K dated June 29, 2005
(File No. 000-26911) and filed with the SEC on July 6, 2005*
    
    Confidential treatment has been requested for certain portions of this exhibit#
    
    Denotes management contract