UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
     15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2003

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 000-26911

THERMA-WAVE, INC.(Exact Name of Registrant as Specified in Its Charter)



|Delaware                                                       | 94-3000561                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

1250 Reliance WayFremont, California             94539(Address of Principal Executive Offices Including Zip Code)

(510) 668-2200(Registrant's Telephone Number, Including Area Code)

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 reports), and (2) has been subject to such filing
requirements for the past 90 days.    YES

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

Indicate the number of shares of the issuer's class of common stock, as of
the latest practical date:



|Class                        | Outstanding as of July 31, 2003
|---------------------------- | -------------------------------
|Common stock, $.01 par value | 29,373,084                     







THERMA-WAVE, INC.
                                TABLE OF CONTENTS



|PART I.   FINANCIAL INFORMATION                                                                       | 
|----------------------------------------------------------------------------------------------------- | 
|                                                                                                      | 
|ITEM 1.   Financial Statements                                                                        | 
|                                                                                                      | 
|Condensed Consolidated Balance Sheets as of
June 30, 2003 and March 31, 2003                          | 
|                                                                                                      | 
|Condensed Consolidated Statements of Operations for the
    Three Months Ended June 30, 2003 and 2002 | 
|                                                                                                      | 
|Condensed Consolidated Statements of Cash Flows for the
    Three Months Ended June 30, 2003 and 2002 | 
|                                                                                                      | 
|Notes to Condensed Consolidated Financial Statements                                                  | 
|                                                                                                      | 
|ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations         | 
|                                                                                                      | 
|ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                                  | 
|                                                                                                      | 
|ITEM 4.   Controls and Procedures                                                                     | 
|                                                                                                      | 

PART II.  OTHER INFORMATION



|ITEM 1.   Legal Proceedings                                   | 
|------------------------------------------------------------- | 
|                                                              | 
|ITEM 2.   Changes in Securities and Use of Proceeds           | 
|                                                              | 
|ITEM 3.  Defaults Upon Senior Securities                      | 
|                                                              | 
|ITEM 4.   Submission of Matters to a Vote of Security Holders | 
|                                                              | 
|ITEM 5.   Other Information                                   | 
|                                                              | 
|ITEM 6.   Exhibits and Reports on Form 8-K                    | 
|                                                              | 
|SIGNATURES                                                    | 

Note:	The first quarters of fiscal years 2004 and 2003 and the
entire fiscal year 2003 ended on June 29, 2003, June 30, 2002 and March 30,
2003, respectively. For presentation purposes, the accompanying financial
statements have been shown as ending on the last day of the calendar quarter
closest to each of these dates.



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PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

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THERMA-WAVE, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                (In thousands)

                                  (Unaudited)

`June 30,      March 31,
                                                          2003         2003
                                                      -----------  ------------
                           ASSETS
Current assets:
 Cash............................................... $    11,232  $     13,695
 Restricted cash....................................       3,500         1,064
 Accounts receivable, net...........................      10,023        13,822
 Inventories........................................      19,225        22,146
 Other current assets...............................       2,081         1,657
                                                      -----------  ------------
    Total current assets............................      46,061        52,384
 Property and equipment, net........................       7,710         9,004
 Intangible assets, net.............................       1,693         1,811
 Other assets.......................................       2,833         4,504
                                                      -----------  ------------
    Total assets.................................... $    58,297  $     67,703
                                                      ===========  ============
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable................................... $     3,101  $      2,148
 Accrued liabilities................................      14,269        15,589
 Deferred revenues..................................       7,040        11,138
                                                      -----------  ------------
    Total current liabilities.......................      24,410        28,875
 Non-current deferred revenues......................       4,738            --
 Other long-term liabilities........................       1,937         2,490
                                                      -----------  ------------
    Total liabilities...............................      31,085        31,365
                                                      -----------  ------------
Stockholders' equity:
 Common stock.......................................         294           293
 Additional paid-in capital.........................     321,574       322,048
 Treasury stock.....................................        (103)         (437)
 Notes receivable from stockholders.................        (174)         (196)
 Accumulated other comprehensive loss...............      (1,219)       (1,334)
 Deferred stock-based compensation..................        (697)       (1,107)
 Accumulated deficit................................    (292,463)     (282,929)
                                                      -----------  ------------
    Total stockholders' equity......................      27,212        36,338
                                                      -----------  ------------
    Total liabilities and stockholders' equity...... $    58,297  $     67,703
                                                      ===========  ============`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                     (In thousands, except per share data)

                                  (Unaudited)

`Three Months Ended
                                                June 30,
                                             --------------------
                                                2003       2002
                                             ---------  ---------
Net revenues
  Product.................................. $   6,807  $   9,710
  Service and parts........................     5,096      5,239
                                             ---------  ---------
         Total net revenues................    11,903     14,949
Cost of revenues...........................     9,071     11,871
                                             ---------  ---------
Gross profit...............................     2,832      3,078
                                             ---------  ---------
Operating expenses:
  Research and development.................     4,948      7,995
  Selling, general and administrative......     5,529      6,121
  Restructuring, severance and other.......     1,484         --
  Stock-based compensation.................       210        586
                                             ---------  ---------
         Total operating expenses..........    12,171     14,702
                                             ---------  ---------
Operating loss.............................    (9,339)   (11,624)
Other income (expense):
  Interest expense.........................       (21)       (51)
  Interest income..........................        37        264
  Other, net...............................      (211)       108
                                             ---------  ---------
         Total other income (expense)......      (195)       321
                                             ---------  ---------
Net loss................................... $  (9,534) $ (11,303)
                                             =========  =========
Net loss per share:
  Basic.................................... $   (0.33) $   (0.40)
  Diluted.................................. $   (0.33) $   (0.40)

Weighted average common shares outstanding:
  Basic....................................    28,704     28,565
  Diluted..................................    28,704     28,565`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

`Three Months Ended
                                                             June 30,
                                                          --------------------
                                                             2003       2002
                                                          ---------  ---------
Operating activities:
 Net loss............................................... $  (9,534) $ (11,303)
 Adjustments to reconcile net loss to net cash
  provided (used) by operating activities:
   Depreciation and amortization........................     1,407      1,696
   Amortization of intangible assets....................       118        290
   Amortization of deferred stock-based compensation....       211        601
   Allowance for doubtful accounts,
    returns and allowance...............................      (827)        (4)
   Inventory reserve....................................    (1,328)       548
   Loss on disposal of property, plant and equipment....        86         --
   Loss on sale of an investment........................       125         --
 Changes in assets and liabilities:
   Accounts receivable..................................     4,626     (3,075)
   Inventories..........................................     4,249       (609)
   Other assets.........................................       774        (45)
   Accounts payable.....................................       953     (1,322)
   Accrued and other liabilities........................    (1,873)        96
   Deferred revenues....................................       640      2,546
                                                          ---------  ---------
    Net cash used by operating activities...............      (373)   (10,581)
                                                          ---------  ---------
Investing activities:
  Purchases of property and equipment...................       (17)      (593)
  Purchase of short-term investments....................        --     (8,997)
  Proceeds from sale of an investment...................       375         --
  Purchase of patents and other.........................      (209)      (378)
                                                          ---------  ---------
     Net cash provided (used) by investing activities...       149     (9,968)
                                                          ---------  ---------
Financing activities:
  Restricted cash.......................................    (2,436)        --
  Proceeds from issuance of common stock................        60        835
  Proceeds from note receivable from stockholders.......        22         --
                                                          ---------  ---------
    Net cash provided (used) by financing activities....    (2,354)       835
                                                          ---------  ---------

  Effect of exchange rates on cash......................       115        410

 Net decrease in cash and cash equivalents..............    (2,463)   (19,304)
 Cash and cash equivalents at beginning of period.......    13,695     46,484
                                                          ---------  ---------
 Cash and cash equivalents at end of period............. $  11,232  $  27,180
                                                          =========  =========
 Supplementary disclosures:
  Cash paid for interest................................ $      17  $      10
                                                          =========  =========
  Cash paid for taxes................................... $       7  $      35
                                                          =========  =========`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission and include the accounts of Therma-Wave,
Inc. (the "Company") and its wholly-owned subsidiaries. Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In our opinion, the
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position at June 30, 2003, and the operating results and cash flows for the
three months ended June 30, 2003 and 2002. These financial statements and notes
should be read in conjunction with our audited financial statements and notes
thereto for the year ended March 31, 2003.

The results of operations for the interim periods are not
necessarily indicative of the results of operations that may be expected for any
other period or for the fiscal year, which ends on March 31, 2004.

Restricted Cash

At March 31, 2003, the Company had $1.1 million
restricted cash invested in a certificate of deposit. This restricted cash was
pledged as a deposit for financed insurance premiums. In late June 2003, Silicon
Valley Bank rolled our standby letter of credit in the amount of $957,000 under
our new loan and security agreement. As a result, the restriction on the cash
for the insurance premiums was lifted.

At June 30, 2003, the Company had $3.5 million restricted
cash invested in a certificate of deposit. This restricted cash was pledged as a
deposit required by our office building lease.In early July 2003,
Silicon Valley bank issued two standby letters of credit totaling $3.6 million
under our new loan and security agreement. As a result of the issuance, the
restriction on the $3.5 million cash as of June 29, 2003 was lifted and all our
cash balances became unrestricted.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." As allowed
by the provisions of SFAS No. 123, the Company has continued to apply Accounting
Principles Board Opinion No. 25 in accounting for its stock option plans and,
accordingly, does not recognize compensation cost because the exercise price of
stock options equals the market price of the underlying stock at the date of
option grant. The Company adopted the disclosure provisions of SFAS No. 123. In
April 2000, the Financial Accounting Standards Board issued FASB Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation: An
Interpretation of APB No. 25." The Company has adopted the provisions of FIN 44,
and such adoption did not materially impact the Company's results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure." The statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. The
Company has adopted the disclosure provisions of SFAS No. 148.



Had compensation costs been determined based upon the fair value at the grant
date for awards under the stock option plans and employee stock purchase plans,
consistent with the methodology prescribed under SFAS No. 123, our pro forma net
income (loss) and pro forma net income (loss) per share under SFAS No. 123 would
have been:

`Fiscal Quarters Ended June 30,
                                             ------------------------------
                                                 2003               2002
                                             -----------        -----------
Net loss (in thousands)
 As reported.............................    $   (9,534)        $   (11,303)
 Stock-based employee compensation
  expense included in the determination
  of net loss, as reported...............           211                 601
 Stock-based employee compensation
  expense determined using fair value
  method.................................        (1,196)             (1,962)
                                             -----------         -----------
Pro forma net loss.......................    $  (10,519)        $   (12,664)
                                             ===========         ===========
Basic net loss per share
  As Reported............................    $    (0.33)        $     (0.40)
  Pro forma..............................    $    (0.37)        $     (0.44)

Diluted net loss per share
  As Reported............................    $    (0.33)        $     (0.40)
  Pro forma..............................    $    (0.37)        $     (0.44)`

2. Inventories

Inventories are summarized as follows (in thousands):

`June 30,       March 31,
                                         2003          2003
                                     ------------  ------------
Purchased materials................ $        885  $      2,459
Systems in process.................       11,380        11,340
Finished systems...................        6,960         8,347
                                     ------------  ------------
                                    $     19,225  $     22,146
                                     ============  ============`

3. Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss)
for the period and the change in accumulated foreign currency translation
adjustments during the period. For the quarters ended June 30, 2003 and 2002,
comprehensive income (loss) amounted to approximately $(9.4) million and $(10.9)
million, respectively.

4. Deferred Revenues

Revenues are derived from three primary sources:
equipment sales, services sales and spare part sales. For equipment sales,
revenues are recognized on a multiple element approach in which the sales
transaction is bifurcated into two separate elements based on objective evidence
of fair value of the individual elements. The two elements are the
tool and installation of the tool. Under this approach, the portion of the
invoice price that is due after installation services have been performed and
upon final customer acceptance of the tool has been obtained, generally 20% of
the total invoice price, is deferred until final customer acceptance of the
tool.  The remaining portion of the total invoice price relating to the tool,
generally 80% of the tool invoice price, is recognized upon shipment and title
transfer of the tool. Revenues on service contracts are deferred and recognized
on a straight-line basis over the period of the contracts. For spare parts,
revenue is recognized upon shipment.

5. Net Income (Loss) Per Share

Basic net income (loss) per share is based on the
weighted-average number of common shares outstanding excluding contingently
issuable or returnable shares such as unvested common stock or shares that
contingently convert into common stock upon certain events. Diluted net income
(loss) per share is based on the weighted average number of common shares
outstanding and the potential dilution of securities, by including stock options
in the weighted average number of common shares outstanding for a period if
dilutive.

The following table summarizes securities outstanding (in
thousands), in absolute number, as of each period end which were not included in
the calculation of diluted net income (loss) per share since their inclusion
would be anti-dilutive.

`June 30,
                                             -------------------
                                               2003      2002
                                             --------- ---------
  Common stock subject to repurchase
   (unvested)...............................       --         6
  Common stock held in escrow account.......      541       541
  Stock options.............................    5,632     4,861
  Warrants..................................       79       110`

In connection with our acquisition of Sensys Instruments
Corporation, or Sensys, on January 16, 2002, 540,724 shares of Therma-Wave
common stock issuable to the former shareholders of Sensys were held in escrow
for a period of 18 months and during that time might be used to satisfy certain
working capital adjustments and indemnification claims. Effective July 16, 2003,
all the shares held in escrow account were released to former shareholders of
Sensys.

For the three months ended June 30, 2003 and 2002, anti-dilutive stock
options have a weighted average exercise price of $9.51 and $16.81,
respectively. The warrants outstanding at June 30, 2003 that we excluded from
the above calculation have a weighted average exercise price of $3.68.

6. Recently Issued Accounting Statements

In May 2003, the Financial Accounting Standard Board, or
FASB, issued SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure certain financial
instruments with characteristics of both liabilities and equity. It requires
companies to classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective
beginning the second quarter of fiscal 2004. We believe that the adoption of
this standard will have no material impact on our consolidated financial
statements.

In November 2002, the FASB issued FASB Interpretation No. 45,
or FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN
45 requires that a liability be recorded in the guarantor's balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires disclosures about the
guarantees that an entity has issued, including a reconciliation of changes in
the entity's product warranty liabilities. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year end. The disclosure requirements of FIN 45 are effective
for financial statements of interim or annual periods ending after December 15,
2002. The adoption of this standard had no material impact on our financial
statements.

In January 2003, the FASB issued FASB Interpretation No. 46,
or FIN 46, "Consolidation of Variable Interest Entities--an Interpretation
of ARB No. 51." FIN 46 requires certain variable interest entities 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 immediately for all new variable interest entities created
or acquired after January 31, 2003. For variable interest entities 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. We believe
that the adoption of this standard will have no material impact on our
consolidated financial statements.

In November 2002, the Emerging Issues Task Force reached a
consensus on Issue 00-21, "Multiple-Deliverable Revenue Arrangements."  EITF 00-
21 addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use assets. The
consensus mandates how to identify whether goods or services or both which are
to be delivered separately in a bundled sales arrangement should be accounted
for separately because they are "separate units of accounting." The guidance can
affect the timing of revenue recognition for such arrangements, even though it
does not change rules governing the timing or patterns of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with Accounting
Principles Board Opinion No. 20, "Accounting Changes." We are assessing the
potential impact of this guidance, but at this point we do not believe the
adoption of EITF 00-21 will have a material impact on our financial position or
results of operations.

7. Commitments and Contingencies

We lease our facilities under non-cancellable operating
leases that require us to pay maintenance and operating expenses, such as taxes,
insurance and utilities. We are required pursuant to the terms of facility
leases to maintain two standby letters of credit totaling $3.6 million.

As of June 30, 2003, future minimum lease payments under
non-cancellable operating leases are as follows (in thousands):

`Operating
   Fiscal Year                          Leases
-------------------------------------  ---------

   2004.............................. $   2,161
   2005..............................     2,484
   2006..............................     1,862
   2007..............................       536
   2008..............................       555
   Thereafter........................        93
                                       ---------
   Total future minimum payments..... $   7,691
                                       =========`

Indemnification

We indemnify some of our suppliers and customers for
specified intellectual property rights pursuant to certain parameters and
restrictions. The scope of these indemnities varies, but in some instances
includes indemnification for damages and expenses (including reasonable attorney
fees) related to any misuse by us of the intellectual property. No amounts have
been accrued in respect of the indemnification provisions at June 30, 2003, nor
have we incurred any losses under such indemnification during the periods
covered in this report.

Legal Proceedings

On April 22, 2002, we filed a patent infringement
suit against Boxer Cross, Inc. in the United States District Court, Northern
District of California. The suit alleges that Boxer Cross' BX-10 product
infringes certain patents held by Therma-Wave related to ion implant monitoring.
On June 7, 2002, Boxer Cross filed its amended answer and counterclaims to our
complaint and asserted various affirmative defenses to our claims of patent
infringement. The pleading also contained various counterclaims including
allegations that Therma-Wave's Therma-Probe product infringed upon certain
patents owned by Boxer Cross and also raised claims of misappropriation of trade
secrets, tortious interference with contract, unfair competition and unfair
business practices. We replied to Boxer Cross's counterclaims, denying the
material allegations and asserting declaratory judgment counterclaims. On April
29, 2003, Applied Materials announced that it had acquired all of the
outstanding stock of Boxer Cross. We settled this lawsuit with Boxer Cross and
Applied Materials on July 17, 2003. Pursuant to the settlement, Therma-Wave
dismissed its pending patent infringement claims with prejudice. Boxer Cross
dismissed its pending patent infringement claims without prejudice and dismissed
its pending state law claims with prejudice.

There are currently no other material legal proceedings
pending against us. We may be required to initiate additional litigation in
order to enforce any patents issued to or licensed to us or to determine the
scope and/or validity of a third party's patent or other proprietary rights. In
addition, we may be subject to additional lawsuits by third parties seeking to
enforce their own intellectual property rights.  Any such litigation, regardless
of outcome, could be expensive and time consuming and, as discussed above in the
prior risk factor, could subject us to significant liabilities or require us to
cease using proprietary third party technology and, consequently, could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.

8. Restructuring, Severance and Other Costs

The following table summarizes the changes in
restructuring, severance and other costs during the fiscal quarter ended June
30, 2003 in thousands:

`Liability as of                         Liability as of
                       March 31, 2003  Provision  Utilization  June 30, 2003
                       --------------  ---------  -----------  ---------------
Severance and workforce
   reduction......... $          558  $   1,392  $    (1,583)  $          367
Consolidation of excess
   facilities........            662         --         (144)             518
Other................            134         92         (145)              81
                       --------------  ---------  -----------  ---------------
Total                 $        1,354  $   1,484  $    (1,872)  $          966
                       ==============  =========  ===========  ===============`

Severance and workforce reduction

In April 2003, the Company reduced its workforce by
approximately 45 employees across all functional areas. Severance and related
employee benefit costs related to the reduction in force in April 2003 amounted
to $1.4 million, which have been or will be paid at the time of the employees'
separation. The Company anticipates that the accrued liability at June 30, 2003
of $0.4 million will be paid out by the end of October 2003.

Consolidation of excess facilities

The Company incurred a $0.7 million restructuring
charge in fiscal 2003 for two excess facilities leased by Sensys in Santa Clara,
California, which reflects the remaining lease obligations on vacated facilities
that are non-cancellable, net of the income from subleasing these facilities.
The income from subleasing these facilities is estimated based upon current
comparable rates for leases in the applicable market. If rental rates decrease
in the market, or if it takes longer than expected to sublease these facilities,
the actual loss could exceed this estimate. The Company anticipates that the
accrued liability at June 30, 2003 of $0.5 million will be paid out by the end
of March 2006.

Other

Other costs relate to specific expenses incurred as a
result of the reduction in force programs. The Company anticipates that the
$81,000 accrued liabilities as of June 30, 2003 related to other costs of
workforce reduction will be paid out by the end of November 2003.

9. Warranty Accrual

At the time of revenue recognition, we provide an accrual
for estimated costs to be incurred pursuant to our warranty obligation. Our
estimate is based primarily on historical experience. Changes in the warranty
accrual during the fiscal quarter ended June 30, 2003 are summarized in
thousands as follows:

`Provision for        Settlement of
                           Balance      Warranty Issued      Pre-Existing            Balance
                       March 31, 2003  During the Period     Warranties           June 30, 2003
                       --------------  -----------------  ----------------      ----------------
Warranty
accrual.............. $           983  $            472    $        (316)        $        1,139
                       ==============  =================  ================      ================`

10. Treasury Stock

On August 1, 2002, the Company's Board of Directors
announced a stock repurchase program for the repurchase of up to 1 million
shares of Therma-Wave's common stock. As of June 30, 2003, the Company has
repurchased 447,500 shares of common stock at an average price of $2.10 per
share, of which 302,961 shares were reissued under our Employee Stock Purchase
Plan, 30,675 shares were reissued to pay for consulting services and 2,657
shares were reissued upon exercise of stock options. The Company has 111,207
shares of common stock in treasury as of June 30, 2003. These shares are to be
used for various purposes, including, without limitation, satisfying stock
option exercises and employee stock purchase plan requirements. The repurchase
program is currently suspended but at any time and from time to time may be
reactivated without prior notice.

11. Goodwill and Other Intangible Assets

In fiscal 2003, the Company adopted Statement of Financial
Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets."  SFAS No. 142 supersedes Accounting Principles Board Opinion No.
17, "Intangible Assets," and discontinues the amortization of
goodwill. Our adoption of SFAS No. 142 did not result in reclassifications
between goodwill and intangible assets, impairment charges or changes in the
useful lives of amortizable intangible assets. Intangible assets include
developed technology, development contract and trade name and are being
amortized on a straight-line basis over the original estimated useful lives of
two to five years.

In accordance with SFAS No. 142, we performed a transitional
goodwill impairment test during the quarter ended September 30, 2002 with
respect to goodwill related to the Sensys acquisition. The impairment test under
SFAS No. 142 was based on a two-step process involving: 1) comparing the
estimated fair value of the related reporting unit to its net book value, and 2)
comparing the estimated implied fair value of goodwill to its carrying value. As
a result of our transitional impairment analysis, which considered current
operating losses, a decrease in market capitalization below tangible book value,
the absence of positive cash flows, and uncertainties resulting from the
duration and severity of the industry downturn, a goodwill impairment loss of
$65.9 million was recorded in the quarter ended September 30, 2002, which
effectively reduced the goodwill balance related to the Sensys acquisition to
zero.

We have also conducted impairment reviews for other
intangible assets under SFAS No. 144. Our impairment review process is based on
a discounted future cash flow approach that uses our estimates of revenues and
estimated costs as well as appropriate discount rates. As a result of the
reviews, we wrote off $576,000 for developed technology, $174,000 for a
development contract and $793,000 for trade name intangible assets in fiscal
2003.



The fair market value of intangible assets is being amortized
on a straight-line basis over the remaining estimated useful lives. Components
of intangible assets are as follows (in thousands):

`June 30, 2003                              March 31, 2003
                              -----------------------------------------  ---------------------------------------
                              Gross Carrying  Accumulated   Net Carrying Gross Carrying Accumulated  Net Carryin
                                 Amount      Amortization     Amount        Amount      Amortization   Amount
                              -------------  -------------  -----------  -------------  -----------  -----------
Intangible asets, net
  Developed technology...... $         314  $        (314) $        --  $         314  $      (314) $        --
  Development contract......         2,415           (722)       1,693          2,415         (604)       1,811
  Trade name................           197           (197)          --            197         (197)          --
                              -------------  -------------  -----------  -------------  -----------  -----------
                             $       2,926  $      (1,233) $     1,693  $       2,926  $    (1,115) $     1,811
                              =============  =============  ===========  =============  ===========  ===========`

Amortization of intangible assets was $0.1 million and $0.3
million for the three months ended June 30, 2003 and 2002, respectively.
Amortization expense is expected to be $0.4 million for the remainder of fiscal
2004 (a total of $0.5 million for fiscal 2004).  Amortization expense is
expected to be $0.5 million for fiscal 2005 and 2006, and $0.3 million for 2007,
respectively.



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

This Quarterly Report on Form 10-Q contains forward-
looking statements as that term is defined in the Private Securities Reform Act
of 1995, which are subject to known and unknown risks and uncertainties that
could cause actual results to differ materially from those expressed or implied
by such statements. The words "believe," "expect," "anticipate," "intend" and
other similar expressions generally identify forward-looking statements.
Potential investors are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of their dates. Statements relating to
our ability to manage our costs and reduce operating expenses, sustain our
operations and cash position in an extended global economic downturn, continue
the successful development and introduction of new products and improvement of
current products, and trends in our financial performance are all based on
current expectations. Such statements are subject to risks, uncertainties, and
changes in conditions, particularly those related to industry performance in the
current severe industry and economic downturn, political unrest, disease
epidemics, foreign currency exchange rates, activities and potential successes
of competitors and competing products and other risks, some of which are
detailed in documents filed with the Securities and Exchange Commission,
including specifically Exhibit 99.1 to the Company's Annual Report on Form 10-K
for the year ended March 31, 2003. See also the discussion of forward-looking
statements related to market risk in the first paragraph of Item 3 below. The
Company undertakes no obligation to update the information in this Quarterly
Report on Form 10-Q.

SEC Reports

Our quarterly reports on Form 10-Q, annual reports on
Form 10-K, current reports on Form 8-K, and all amendments to these reports
filed with the U.S. Security and Exchange Commission, are available for review
free of charge on our website at
www.thermawave.com as soon as reasonably
practicable after such material is electronically filed or furnished to the
SEC.

General

We are a worldwide leader in the development,
manufacture, marketing and service of process control metrology systems for use
in the manufacture of semiconductors. Process control metrology is used to
monitor process parameters in order to enable semiconductor manufacturers to
maintain high yields on the production lines, reduce feature size, increase
wafer size, increase equipment productivity and improve device performance. Our
metrology systems are used in all sections of the semiconductor fabrication
plant, or "fab", to control the wafer fabrication processes. Examples
of wafer fab processes, in which our metrology systems supply key information,
are photoresist processing to support lithography, deposition of insulator and
conductor films, patterned removal, or "etching", of insulator and
conductor films, ion implantation and chemical mechanical planarization.  We
currently sell four product families of process control metrology systems:
Therma-Probe® systems, Opti-Probe® systems, Opti-Probe Critical
Dimension (CD) systems, and Integra® integrated metrology systems.

Therma-Probe Product Family.   Therma-Probe systems
utilize our proprietary thermal wave technology and are the predominant
non-destructive process control metrology systems used to measure the critical ion
implantation process on product wafers in the fabrication of semiconductors.

Opti-Probe Product Family.   Opti-Probe Film Metrology
systems provide the industry's most powerful capability to control and diagnose
non-opaque films for semiconductor production.  This unsurpassed metrology power
is achieved by successfully integrating different measurement technologies,
including optical technologies that are proprietary to our company, into each
Opti-Probe system.

Opti-Probe CD Product Family.  Opti-Probe CD systems
measure the lateral dimensions, or CD, using a revolutionary, nondestructive
technique based on spectroscopic ellipsometry.  These systems are capable of
providing real-time CD metrology for the smallest features of the next several
generations of ICs.

Integra Product Family.  The Integra line of
integrated metrology products is a broad-based family of compact metrology
"modules" which are installed and function inside an IC process
system, such as an etching system or Chemical Vapor Desposition, or CVD, system,
to provide metrology on each wafer before it exits the process tool.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States. The methods, estimates and judgments we use in applying our
accounting policies has a significant impact on the results we report in our
financial statements. On an on-going basis, management evaluates its estimates
and judgments, including those related to inventories, revenue recognition,
goodwill and intangible assets,
income taxes and warranty accruals. 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 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.

Management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements:

Revenue Recognition.Revenues from spare parts
are generally recognized at the time of shipment. Revenues on service contracts
are deferred and recognized on a straight-line basis over the period of the
contract. Estimated contractual warranty obligations are recorded when related
sales are recognized. Equipment sales are accounted for as multiple-element
arrangement sales that require the deferral of a significant portion of revenues
in the amount of the greater of fair market value of installation and a
percentage of payment subject to final acceptance. The total revenues are
allocated to each component of the multiple-element arrangement. Revenues on
each element are recognized when persuasive evidence of an arrangement exists,
the sales price is fixed and determinable, the contractual obligations have been
performed, title and risk of loss have passed to the customer, collectibility of
the sales price has been reasonably assured and customer final acceptance has
been obtained if applicable.

Freight terms of all standard product sales are FOB shipping
point unless otherwise negotiated and agreed to in written form between our
customers and us. Shipments typically are made in compliance with shipment
requirements specified in our customer's purchase order.

Revenues on new products are recognized upon customer final
acceptance. Where the customer has the right to return the product, the revenues
are not recognized until all of the following conditions have been evidenced
after the customer's purchase order has been fulfilled: the price of the sales
is fixed or determinable; the payment terms are fixed and enforceable and
collectibility is reasonably assured.

We make estimates evaluating an allowance for doubtful
accounts. We continuously monitor collections and payments from our customers
and maintain a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
While such credit losses have historically been within our expectations and the
provisions established, there is no assurance that we will continue to
experience the same credit loss rates that we have in the past. A significant
change in the liquidity or financial position of our customers could have a
material adverse impact on the collectibility of our accounts receivable and our
future operating results.

Inventory.We value our inventory at the lower
of cost (first-in, first-out method) or market. We regularly review inventory
quantities on hand and record a provision to write down excess and obsolete
inventories to its estimated net realizable value, if less than cost, based
primarily on its product demand forecast. As demonstrated during fiscal 2003 and
2002, demand for our products can fluctuate significantly. We recorded charges
for excess and obsolete inventories of $9.6 million and $12.2 million in fiscal
2003 and 2002, respectively. These charges were primarily caused by a
significant reduction in demand including reduced demand for our older
technology products. A significant increase in the demand for our product could
result in a short-term increase of inventory purchases while a significant
decrease in demand could result in an increase in the charges for excess
inventory quantities on hand. In addition, our industry is subject to
technological change, new product development, and product technological
obsolescence that could result in an increase in the amount of obsolete
inventory quantities on hand. Therefore, any significant unanticipated changes
in demand or technological developments could have a significant impact on the
value of our inventory and reported operating results. When we recorded
additional reserves for excess and obsolete inventory, we created a new cost
basis for the inventory. The reserve is released only when the inventory that
the reserve is provided for is sold, expensed or scrapped.

Valuation of long-lived and intangible assets and
goodwill. We have fully adopted Statement of Financial Accounting Standards
No. 142, or SFAS No. 142, "Goodwill and Other Intangible Assets" and
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." We assess the impairment of identifiable intangibles, long-lived
assets and goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review of such assets include the following:

- significant under-performance relative to expected
historical or projected future operating results;

- significant changes in the manner of our use of the
acquired assets or the strategy for our overall business; and

- significant negative industry or economic trends.

When we determine that the carrying value of intangibles,
long-lived assets and related goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we measure any
impairment based on a projected discounted cash flow method using a discount
rate determined by our management to be commensurate with the risk inherent in
our business model. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations.

In accordance with SFAS No. 142, we performed a transitional
goodwill impairment test during the quarter ended September 30, 2002 with
respect to goodwill related to the Sensys acquisition. The impairment test under
SFAS No. 142 was based on a two-step process involving: 1) comparing the
estimated fair value of the related reporting unit to its net book value, and 2)
comparing the estimated implied fair value of goodwill to its carrying value. As
a result of our transitional impairment analysis, which considered current
operating losses, a decrease in market capitalization below tangible book value,
the absence of positive cash flows, and uncertainties resulting from the
duration and severity of the industry downturn, a goodwill impairment loss of
$65.9 million was recorded in the quarter ended September 30, 2002, which
reduced the goodwill balance related to the Sensys acquisition to zero.

We have also conducted impairment reviews for other
intangible assets under SFAS No. 144. Our impairment review process is based on
a discounted future cash flow approach that uses our estimates of revenues and
estimated costs as well as appropriate discount rates. As a result of the
reviews, we wrote off $576,000 for developed technology, $174,000 for a
development contract and $793,000 for trade name intangible assets in fiscal
2003.

Income Taxes.We account for income taxes using
the asset and liability approach, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in our financial statements, but have not been reflected in
our taxable income. A valuation allowance is established to reduce deferred tax
assets to their estimated realizable value. Therefore, we provide a valuation
allowance to the extent we cannot conclude, based on available objective
evidence, that it is more likely than not we will generate sufficient taxable
income in future periods to realize the benefit of our deferred tax assets.
Predicting future taxable income is difficult, and requires the use of
significant judgment. At June 30, 2003, we provided a full valuation allowance
for net operating loss carry-forwards for federal and state income tax purposes,
as we cannot
conclude that it is more likely than not that we will generate sufficient
taxable income in future periods to realize the benefit of these assets.

Warranty. We provide warranty coverage for a
predetermined amount of time, on systems and parts for material and labor to
repair and maintain the equipment. We record the estimated cost of systems and
parts warranty upon recognition of revenues, based on the average historical
warranty expense for a specific tool. Should actual costs or material usage
differ from our estimates, revisions to the estimated warranty liability may be
required.

Results of Operations

The following table summarizes our unaudited
historical results of operations as a percentage of net revenues for the periods
indicated. The historical financial data for the three months ended June 30,
2003 and 2002 were derived from our unaudited consolidated financial statements
which, in the opinion of management, reflect all adjustments necessary for the
fair presentation of the financial condition and results of operations for such
periods.

`Three Months Ended
                                                   June 30,
                                             --------------------
                                                2003       2002
                                             ---------  ---------
Net revenues
  Product..................................      57.2 %     65.0 %
  Service and parts........................      42.8       35.0
                                             ---------  ---------
         Total net revenues................     100.0      100.0
Cost of revenues...........................      76.2       79.4
                                             ---------  ---------
Gross profit...............................      23.8       20.6
                                             ---------  ---------
Operating expenses:
  Research and development.................      41.6       53.5
  Selling, general and administrative......      46.5       40.9
  Restructuring, severance and other.......      12.5         --
  Stock-based compensation.................       1.7        4.0
                                             ---------  ---------
         Total operating expenses..........     102.3       98.4
                                             ---------  ---------
Operating loss.............................     (78.5)     (77.8)
Other income (expense):
  Interest expense.........................      (0.2)      (0.3)
  Interest income..........................       0.3        1.8
  Other, net...............................      (1.7)       0.7
                                             ---------  ---------
         Total other income (expense)......      (1.6)       2.2
                                             ---------  ---------
Net loss...................................     (80.1)%    (75.6)%
                                             ========= ==========`

Net Revenues. Net revenues for the fiscal quarter
ended June 30, 2003 were $11.9 million. Compared to the fourth quarter of fiscal
2003, net revenues decreased $1.2 million, or 9.0%, from $13.1 million. The
fourth quarter of fiscal 2003 results included $1.0 million in reclassified
revenue related to a prior year transaction, which was previously announced on
May 6, 2003 as part of a restatement of results. Excluding this $1.0 million
reclassification, net revenues in the first fiscal quarter of fiscal 2004
decreased $0.2 million, or 1.4%, from $12.1 million in the fourth fiscal quarter
of fiscal 2003. Net
revenues decreased $3.0 million, or 20.4%, from $14.9 million in the same fiscal
quarter of the prior year.

During the three months ended June 30, 2003, we derived
approximately 57% of our net revenues from system sales and 43% from sales of
replacement and spare parts, including associated labor, and revenues recognized
from service contracts. During the three months ended June 30, 2002, we derived
approximately 65% of our net revenues from system sales and 35% from sales of
replacement and spare parts, including associated labor, and revenues recognized
from service contracts.

The decrease in total net revenues was primarily the result
of capital spending reductions by our customers due to the downturn of the
semiconductor industry and the weakness of the global economy. Our revenues from
service and spare parts were relatively stable due to our large base of
installed machines. Based on our current forecast, we believe that our total net
revenues will increase by an estimated 15% to 20% in the second quarter of
fiscal 2004 compared to the first quarter of fiscal 2004.

International sales accounted for approximately 43% and 77%
of our total net revenues for the three months ended June 30, 2003 and 2002,
respectively. We anticipate that international sales will continue to account
for a significant portion of our net revenues in the foreseeable future. A
substantial portion of our international sales are denominated in U.S. dollars.
As a result, changes in the values of foreign currencies relative to the value
of the U.S. dollar can render our products comparatively more expensive.
Although we have not been negatively impacted in the past by foreign currency
changes in Japan, Korea, Taiwan and Europe, such conditions could negatively
impact our international sales in future periods.

Gross Profit. Gross profit for the first quarter of
fiscal 2004 was $2.8 million, an increase of $4.7 million, from a loss of $1.9
million in the previous fiscal quarter. Compared to the same quarter of fiscal
2003, gross profit decreased $0.2 million or 8.0%. As a percentage of net
revenues, gross margin for the current quarter was 23.8%, compared to (14.6)%
for last fiscal quarter and 20.6% for the same quarter of last fiscal year.  The
significant change of gross profit from the previous fiscal quarter is primarily
due to a reduction in manufacturing and customer service expenses. The decrease
of gross profit from the same quarter of fiscal 2002 is primarily due to lower
revenues and production volume. In the next few quarters, we expect that our
gross profit will improve due to the effect of cost reduction programs we have
implemented and the release of inventory reserve for the inventory sold or
expensed.

Research and Development, or R&D, Expenses.
R&D expenses for the first quarter of fiscal 2004 were $4.9 million, a
decrease of 20.9% from the prior quarter and a decrease of 38.1% from the first
quarter of last fiscal year. The decrease was primarily due to reduction in
force programs in R&D functions in February 2003 and April 2003. We expect
our overall R&D expenditure will remain at current level. However, we plan
to reallocate our R&D resources to the programs that can sustain our
technological leadership which will strengthen our market position in the next
economic upturn.

Selling, General and Administrative, or SG&A,
Expenses. SG&A expenses for the first quarter of fiscal 2004 were $5.5
million, a decrease of 23.1% from SG&A expenses of $7.2 million in the prior
fiscal quarter. Compared to the first quarter of last fiscal year, SG&A
expenses decreased by 9.7%. The decrease was primarily due to reduction in force
programs in SG&A functions in February 2003 and April 2003. We expect there
will be no significant changes in SG&A expenses.

Stock-Based Compensation. As part of the acquisition
of Sensys, we recorded $3.5 million of stock-based compensation to be amortized
over the vesting period of the options. The amortization expenses were $211,000,
$267,000, and $601,000 for the quarters ended June 30, 2003, March 31, 2003 and
June 30, 2002, respectively, a portion of which was included in cost of
revenues.  The decrease of stock-based compensation expense in first quarter of
fiscal 2004 was primarily due to programs of reduction in force of Sensys
employees during fiscal 2003 and the first quarter of fiscal 2004, and partly
due to the accelerated amortization schedule that causes amortization in the
later years to be lower than that in the earlier years.

Other Income (Expense). Other expense for the first
quarter of fiscal 2004 was $195,000, compared to other income of $32,000 in the
prior fiscal quarter, and other income of $321,000 in the same quarter of the
prior fiscal year. We derived other income primarily from the investment of our
cash on hand. The decrease in other income was attributable to lower average
interest rates as well as lower average investment balances, as well as losses
on the sale of an investment in the first quarter of fiscal 2004.

Net Loss. The combination of all the factors discussed
above contributed to a net loss of $9.5 million for the first quarter of fiscal
2004, compared with net loss of $19.1 million in the prior fiscal quarter and
net loss of $11.3 million in the same quarter of last fiscal year. We expect
that with our cost reduction programs in place and the expected revenue
increase, we will reduce our net loss significantly in the coming quarters of
fiscal 2004.

Liquidity and Capital Resources

Our consolidated financial statements have been
prepared on the basis of a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. We
have incurred substantial losses and experienced negative cash flow since fiscal
2000, and have an accumulated deficit of $282.9 million at March 31, 2003. As a
result of these circumstances, our independent auditors' report indicates that
there is a substantial doubt about our ability to continue as a going
concern.

To conserve cash, we have implemented cost cutting measures,
and in September 2002, implemented a restructuring program. In addition, in June
2003, we entered into a credit agreement with a financial institution that
provides for a credit facility of up to $15.0 million, subject to certain
restrictions in the borrowing base based on eligibility of receivables and
inventory.

If liquidity problems should arise, we will, as a last
resort, take measures to reduce operating expenses such as reducing headcount or
cancelling research and development projects. However, we may need to raise
additional funds to finance our activities next year and beyond through public
or private equity or debt financings, the formation of strategic partnerships or
alliances with other companies or through bank borrowings with existing or new
banks. We may not be able to obtain additional funds on terms that would be
favorable to us, or at all.

We believe, based on our ability to implement the
aforementioned measures, if needed, that we will have liquidity sufficient to
meet our operating, working capital and financing needs for the next twelve
months and perhaps beyond. We have not made any adjustment to our consolidated
financial statements as a result of the outcome of the uncertainty described
above.

Our principal sources of funds are anticipated to be
unrestricted cash on hand ($11.2 million as of June 30, 2003), cash flows from
operating activities and, if available and necessary, borrowings under our bank
credit facility. Our cash and short-term investments balance decreased by $45.4
million during fiscal year 2003. We have implemented various cost reduction
programs during and subsequent to the end of fiscal year 2003 to bring operating
expenses in line with revenue projections. We believe that with these cost
reduction programs in place, we will reduce operating expenses significantly
enough so that we will have sufficient liquidity and capital resources to meet
our current and future financial obligations for at least the next twelve
months. No assurance can be given, however, that this will be the case. We may
require additional equity or debt financing to meet our working capital
requirements or to fund our research and development activities. There can be no
assurance that additional financing will be available when required or, if
available, will be on terms satisfactory to us.

Our principal liquidity requirements are for working capital.
Over the last three fiscal years, we have funded our operating activities
principally from funds generated from operations and the net proceeds from an
initial public offering.

Cash flows used by operating activities were $0.4 million and
$10.6 million for the first quarters of fiscal 2004 and 2003, respectively. The
decrease in cash flows used by operating activities from fiscal year 2003 to
2004 was mainly due to the collection of accounts receivable and use of
inventory on hand in the first three months of fiscal year 2004.

Cash flows provided (used) by investing activities were $0.1
million and $(10.0) million and for the first quarters of fiscal 2004 and 2003,
respectively.  During the first quarter of fiscal 2004, cash was generated from
the sale of an equity investment. Purchases of property and equipment were
$17,000 and $593,000 for the first quarters of fiscal 2004 and 2003,
respectively.

Cash flows provided (used) by financing activities were
$(2.4) million and $0.8 million for the first quarters of fiscal 2004 and 2003,
respectively. Cash was generated from the exercise of stock options and the
issuance of common stock under our employee stock purchase plan, and from
repayment of a note receivable from stockholders. The increase of cash used in
the first quarter of fiscal 2004 was primarily due to a significant increase of
restricted cash requirements.  In early July 2003, Silicon Valley Bank, or SVB,
issued letters of credit in the amount of $3.6 million under our new loan and
security agreement. As a result of the issuance, the restriction on the $3.5
million cash as of June 29, 2003 was lifted and all our cash balances became
unrestricted. At March 31, 2003, the Company had $1.1 million restricted cash
invested in a certificate of deposit. This restricted cash was pledged as a
deposit for financed insurance premiums. In late June 2003, Silicon Valley Bank
rolled our standby letter of credit in the amount of $957,000 under our new loan
and security agreement. As a result, the restriction on the cash for the
insurance premiums was lifted.

Our off-balance sheet commitments are limited to equipment
operating leases, leases on office and manufacturing space, certain software
license agreements and commitments to vendors related to non-cancellable
inventory purchase orders.  Future payments due under these obligations as of
June 30, 2003 (in thousands) are as follows:

`Operating      Other
   Fiscal Year                          Leases    Commitments
-------------------------------------  ---------  -----------

   2004.............................. $   2,161    $   5,077
   2005..............................     2,484           76
   2006..............................     1,862           40
   2007..............................       536           40
   2008..............................       555           --
   Thereafter........................        93           --
                                       ---------    ---------
   Total future minimum payments..... $   7,691    $   5,233
                                       =========    =========`

We indemnify some of our suppliers and customers for
specified intellectual property rights pursuant to certain parameters and
restrictions. The scope of these indemnities varies, but in some instances
includes indemnification for damages and expenses (including reasonable attorney
fees) related to any misuse by us of the intellectual property. No amounts have
been accrued in respect of the indemnification provisions at June 30, 2003.

In June 2003, we entered into a new loan and security
agreement with SVB. The new agreement includes a $5.0 million domestic line of
credit, including a sub-limit of $5.0 million for letters of credit, and a $10.0
million Export-Import Bank of the United States, or EXIM, guaranteed revolving
line of credit. The new bank credit facility allows us to borrow money under the
domestic line bearing interest at the SVB prime rate plus 1.50% floating. The
EXIM revolving line allows us to borrow money at the SVB prime rate plus 1.75%
floating. We may request advances in an aggregate outstanding amount not to
exceed the lesser of $15.0 million total under the two lines or the borrowing
base, in each case minus the aggregate face amount of outstanding letters of
credit, including any drawn but unreimbursed letters of credit. Our borrowings
under the SVB and EXIM guaranteed credit facilities are secured by substantially
all of our assets. As of June 30, 2003, we had $957,000 outstanding letter of
credit under this agreement. The credit facilities mature on June 13, 2004. As
of June 30, 2003, we violated certain compliance provisions of the agreement,
which were amended in July 2003 and we have been in compliance with the amended
agreement.

Inflation

The impact of inflation on our business has not been material for the
fiscal quarter ended June 30, 2003.



Item 3. Quantitative and Qualitative Disclosure About Market
Risk

Market Risk Disclosures

The following discussion about market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We are exposed to market
risks related to changes in interest rates and foreign currency exchange rates.
We do not have any derivative financial instruments. See also the discussion of
forward-looking statements in the first paragraph of Item 2 above.

Interest Rate Risk

As of June 30, 2003, our cash and cash equivalents
included money market securities and investment grade commercial paper. Due to
the short term duration of such an investment portfolio, an immediate 10% change
in interest rates would not have a material effect on the fair market value of
such a portfolio, therefore, we would not expect our operating results or cash
flows to be affected to any significant degree by the effect of a sudden change
in market interest rates on our securities portfolio.

Foreign Currency Exchange Risk

A substantial portion of our sales are denominated in
U.S. dollars and, as a result, we have relatively little exposure to foreign
currency exchange risk with respect to sales made. We do not use forward
exchange contracts to hedge exposures denominated in foreign currencies or any
other derivative financial instruments for trading or speculative purposes. The
effect of an immediate 10% change in exchange rates would not have a material
impact on our future operating results or cash flows.



ITEM 4. Controls and Procedures

As required by SEC Rule 13a-15(b), an evaluation was
performed under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. In
late January 2003, management became aware of a possible revenue recognition
issue associated with the sale of one tool through one of our foreign branches.
Our Audit Committee launched an investigation and engaged outside legal counsel
and independent forensic accountants to assist it. The investigation was
conducted to (i) identify additional potential revenue recognition issues, if
any; (ii) to review the business expense practices of certain of our employees
at that foreign branch. As a result of this matter, management conducted a
detailed review of revenue recognition. Based upon the investigation and
management's revenue recognition review, a material weakness has been identified
relating to controls surrounding evaluating and reporting revenue transactions,
particularly in the Asia/Pacific region.

As a result, we have implemented or are in the process of implementing the
following changes or additions to our internal controls and procedures, among
others:

- Establishing procedures for the timely reconciliation of
all accounts and manager's review of account reconciliation;
- Changing our internal reporting structure to require
branch accounting personnel to report directly to our finance department in the
United States;
- Establishing audit and review procedures for each foreign
branch consistent with each branch's exposure, including, as appropriate,
outside auditors;
- Requiring managers of foreign operations to attest in
writing that final acceptance documents for any given period are valid
acceptances that justify revenue recognition and that will result in customer
payment;
- Requiring corporate financial management personnel to
investigate transactions where revenue has been recognized but the customer has
not paid according to terms;
- Re-training employees and developing an ongoing training
program with particular focus on company policies and procedures related to
revenue recognition, expense reimbursements and bank account reconciliations;
- Establishing yearly or twice-yearly (for larger branches)
reviews with both internal and external accounting personnel and local
management, to be coordinated with quarterly business reviews; and
- Establishing controls to closely monitor the credit
status of certain customers, with emphasis on distributors.



Also, in connection with PricewaterhouseCoopers LLP's audit
for the year ended March 31, 2003, PricewaterhouseCoopers identified a material
weakness in our processes relating to account analysis and reconciliations,
including lack of timely management review.  As a result, management is pursuing
hiring additional, more experienced, accounting staff to provide more attention
to account reconciliations and management is examining methods of retaining and
training our current financial personnel.  We performed additional
reconciliation procedures which were designed to ensure that these internal
control deficiencies did not lead to material misstatements in our consolidated
financial statements and permitted PricewaterhouseCoopers to complete its audit
of our consolidated financial statements, notwithstanding the presence of the
internal control weaknesses noted above. We have also performed these additional
reconciliations when preparing the financial statements in this quarterly
report.

Based on the investigation by our audit committee and
additional procedures performed by our management, our Chief Executive Officer
and Chief Financial Officer have concluded that, except as noted above, and
subject to the inherent limitations in all control systems, Therma-Wave's
current disclosure controls and procedures are sufficient to timely alert them
to material information relating to the company that is required to be included
in our periodic Securities and Exchange Committee filings, and that our internal
controls are sufficient to provide reasonable assurance that our financial
statements are fairly presented in conformity with generally accepted accounting
principles.

We are assigning high priority to the short-term and long-
term correction of our internal control deficiencies. We will continue to
evaluate the effectiveness of our internal controls and procedures on an on-
going basis and will take further action as appropriate. Other than implementing
the improvements discussed above, there have been no changes in our internal
controls over financial reporting during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.





Part II. -- Other Information

Item 1. Legal Proceedings

On April 22, 2002, we filed a patent
infringement suit against Boxer Cross, Inc. in the United States District Court,
Northern District of California. The suit alleges that Boxer Cross' BX-10
product infringes certain patents held by Therma-Wave related to ion implant
monitoring.  On June 7, 2002, Boxer Cross filed its amended answer and
counterclaims to our complaint and asserted various affirmative defenses to our
claims of patent infringement. The pleading also contained various counterclaims
including allegations that Therma-Wave's Therma-Probe product infringed upon
certain patents owned by Boxer Cross and also raised claims of misappropriation
of trade secrets, tortious interference with contract, unfair competition and
unfair business practices. We replied to Boxer Cross's counterclaims, denying
the material allegations and asserting declaratory judgment counterclaims. On
April 29, 2003, Applied Materials announced that it had acquired all of the
outstanding stock of Boxer Cross. We settled this lawsuit with Boxer Cross and
Applied Materials on July 17, 2003. Pursuant to the settlement, Therma-Wave
dismissed its pending patent infringement claims with prejudice. Boxer Cross
dismissed its pending patent infringement claims without prejudice and dismissed
its pending state law claims with prejudice.

There are currently no other material legal proceedings
pending against us. We may be required to initiate additional litigation in
order to enforce any patents issued to or licensed to us or to determine the
scope and/or validity of a third party's patent or other proprietary rights. In
addition, we may be subject to additional lawsuits by third parties seeking to
enforce their own intellectual property rights.  Any such litigation, regardless
of outcome, could be expensive and time consuming and, as discussed above in the
prior risk factor, could subject us to significant liabilities or require us to
cease using proprietary third party technology and, consequently, could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibit is included herein:

|Exhibit Number | Description                                                                                            
|-------------- | -------------------------------------------------------------------------------------------------------
|10.6           | Severance Agreement Between Therma-Wave, Inc. and Talat
Hasan.                                         
|10.38          | Amendment to Loan and Security Agreement Between Therma-Wave,
Inc. and Silicon Valley Bank.            
|31.1           | Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|31.2           | Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1           | Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2           | Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.1           | Risk Factors. (1)                                                                                      

(1) Incorporated by reference to the same
numbered exhibit in the Company's Annual Report on Form 10-K for the period
ended March 31, 2003 (File No. 000-26911).

(b) Reports on Form 8-K

1. Current Report on Form 8-K filed on May 5, 2003
announcing the conclusion of an internal investigation and the restatement of
the company's prior financial statements.
2. Current Report on Form 8-K filed on May 28, 2003
announcing the filing of the earnings release for the fiscal year ended March
31, 2003.







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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.





THERMA-WAVE, INC.

(Registrant)



/s/ L. RAY CHRISTIE

L. RAY CHRISTIE

Chief Financial Officer(as Registrant and as Principal Accounting Officer)



August 11, 2003





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