##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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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
    December 28, 2003                                        
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number 000-26911

Therma-Wave, Inc.

(Exact Name of Registrant as Specified in Its
Charter)


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

1250 Reliance Way

Fremont, California 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 þ          NO o

Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange
Act).     YES o          NO þ

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

|                             |  |                                   
|---------------------------- |  | ----------------------------------
|Class                        |  | Outstanding as of January 30, 2004
|Common stock, $.01 par value |  | 35,476,398                        



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TABLE OF CONTENTS



|                                |                                                                                               |  |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                 
|                                | CONDENSED CONSOLIDATED BALANCE SHEETS                                                        
|                                | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                              
|                                | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                              
|                                | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                               
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Quantitative and Qualitative Disclosure 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                     
|EXHIBIT INDEX                  
|EXHIBIT 31.1                   
|EXHIBIT 31.2                   
|EXHIBIT 32.1                   
|EXHIBIT 32.2                   



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##### Table of Contents



THERMA-WAVE, INC.

TABLE OF CONTENTS

|                              |  |                                                                                                                        |    |      |    | 
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                                        |    | Page
|                              |  |                                                                                                                        |    | No. 
|                              |  |                                                                                                                        |    |     
|PART I. FINANCIAL INFORMATION |  |                                                                                                                        |    |     
|Item 1.                       |  | Financial Statements                                                                                                   |    |      |    | 
|                              |  | Condensed Consolidated Balance Sheets as of
    December 31, 2003 and March 31, 2003                                   |    |      | 2  | 
|                              |  | Condensed Consolidated Statements of Operations
    for the Three and Nine Months Ended December 31, 2003 and
    2002 |    |      | 3  | 
|                              |  | Condensed Consolidated Statements of Cash Flows
    for the Nine Months Ended December 31, 2003 and 2002               |    |      | 4  | 
|                              |  | Notes to Condensed Consolidated Financial
    Statements                                                               |    |      | 5  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                              |    |      | 12 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                         |    |      | 22 | 
|Item 4.                       |  | Controls and Procedures                                                                                                |    |      | 22 | 
|PART II. OTHER INFORMATION    |  |                                                                                                                        |    |     
|Item 1.                       |  | Legal Proceedings                                                                                                      |    |      | 25 | 
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                              |    |      | 25 | 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                        |    |      | 25 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                                                |    |      | 25 | 
|Item 5.                       |  | Other Information                                                                                                      |    |      | 25 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                       |    |      | 25 | 
|Signatures                    |  |                                                                                                                        | 26 |     

Note: The third quarters of fiscal years 2004 and
2003 and the entire fiscal year 2003 ended on December 28,
2003, December 29, 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.

1



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##### Table of Contents






PART I  FINANCIAL
INFORMATION




|        |                     
|------- | --------------------
|Item 1. | Financial Statements

THERMA-WAVE, INC.






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                         |                                      |                                            |   |           |        |  |   |          |        | 
|---------------------------------------- | ------------------------------------ | ------------------------------------------ | - | --------- | ------ |  | - | -------- | ------ | 
|                                         |                                      | December 31,                               |   | March 31,
|                                         |                                      | 2003                                       |   | 2003     
|                                         |                                      |                                            |   |          
|                                         |                                      |                                           
|                                         |                                      | (In thousands)                            
|                                         |                                      | (Unaudited)                               
|ASSETS                                  
|Current assets:                          |                                      |                                            |   |           |        |  |   |         
|                                         | Cash and cash equivalents            |                                            | $ | 22,512    |        |  | $ | 13,695   |       
|                                         | Restricted cash                      |                                            |   |          |        |  |   | 1,064    |       
|                                         | Accounts receivable, net             |                                            |   | 15,018    |        |  |   | 13,822   |       
|                                         | Inventories                          |                                            |   | 16,947    |        |  |   | 22,146   |       
|                                         | Other current assets                 |                                            |   | 1,305     |        |  |   | 1,657    |       
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total current assets                       |   |           | 55,782 |  |   |          | 52,384 | 
|                                         | Property and equipment, net          |                                            |   | 5,349     |        |  |   | 9,004    |       
|                                         | Intangible assets, net               |                                            |   |          |        |  |   | 1,811    |       
|                                         | Other assets                         |                                            |   | 2,834     |        |  |   | 4,504    |       
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total assets                               |   | $         | 63,965 |  |   | $        | 67,703 | 
|                                         |                                      |                                            |   |           |        |  |   |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                      |                                            |   |           |        |  |   |         
|                                         | Accounts payable                     |                                            | $ | 3,373     |        |  | $ | 2,148    |       
|                                         | Accrued liabilities                  |                                            |   | 16,151    |        |  |   | 15,589   |       
|                                         | Deferred revenues                    |                                            |   | 8,126     |        |  |   | 11,138   |       
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total current liabilities                  |   |           | 27,650 |  |   |          | 28,875 | 
|                                         | Non-current deferred revenues        |                                            |   | 1,042     |        |  |   |         |       
|                                         | Other long-term liabilities          |                                            |   | 1,237     |        |  |   | 2,490    |       
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total liabilities                          |   |           | 29,929 |  |   |          | 31,365 | 
|                                         |                                      |                                            |   |           |        |  |   |         
|Stockholders equity:                    |                                      |                                            |   |           |        |  |   |         
|                                         | Common stock                         |                                            |   | 353       |        |  |   | 293      |       
|                                         | Additional paid-in capital           |                                            |   | 336,729   |        |  |   | 322,048  |       
|                                         | Treasury stock                       |                                            |   |          |        |  |   | (437     | )     
|                                         | Notes receivable from stockholders   |                                            |   | (173      | )      |  |   | (196     | )     
|                                         | Accumulated other comprehensive loss |                                            |   | (778      | )      |  |   | (1,334   | )     
|                                         | Deferred stock-based compensation    |                                            |   | (2,873    | )      |  |   | (1,107   | )     
|                                         | Accumulated deficit                  |                                            |   | (299,222  | )      |  |   | (282,929 | )     
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total stockholders equity                 |   |           | 34,036 |  |   |          | 36,338 | 
|                                         |                                      |                                            |   |           |        |  |   |         
|                                         |                                      | Total liabilities and stockholders equity |   | $         | 63,965 |  |   | $        | 67,703 | 
|                                         |                                      |                                            |   |           |        |  |   |         

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



THERMA-WAVE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |        |         | 
|------------------------------------------- | -------------------------------------------------- | ------------------------------------- | ------ | ----------------- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | 
|                                            |                                                    |                                       |        |                  
|                                            |                                                    | Three Months Ended                    |        | Nine Months Ended
|                                            |                                                    | December 31,                          |        | December 31,     
|                                            |                                                    |                                       |        |                  
|                                            |                                                    | 2003                                  |        | 2002              |        | 2003 |         | 2002  
|                                            |                                                    |                                       |        |                   |        |      |         |       
|                                            |                                                    |                                      
|                                            |                                                    | (In thousands, except per share data)
|                                            |                                                    | (Unaudited)                          
|Net revenues                                |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Product                                            |                                       | $      | 15,579            |        |      | $       | 4,789  |        |   | $       | 31,990 |        |   | $        | 20,188 |        
|                                            | Service and parts                                  |                                       |        | 4,287             |        |      |         | 5,460  |        |   |         | 13,845 |        |   |          | 15,956 |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            |                                                    | Total net revenues                    |        |                   | 19,866 |      |         |        | 10,249 |   |         |        | 45,835 |   |          |        | 36,144  | 
|Cost of revenues(1)                         |                                                    |                                       | 9,904  |                   |        |      | 10,233  |        |        |   | 27,474  |        |        |   | 40,074   |       
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Gross profit (loss)                         |                                                    |                                       | 9,962  |                   |        |      | 16      |        |        |   | 18,361  |        |        |   | (3,930   | )     
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Operating expenses:                         |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Research and development                           |                                       |        | 4,497             |        |      |         | 6,872  |        |   |         | 14,628 |        |   |          | 22,975 |        
|                                            | Selling, general and administrative                |                                       |        | 5,316             |        |      |         | 6,097  |        |   |         | 16,699 |        |   |          | 18,877 |        
|                                            | Impairment of goodwill and other intangible assets |                                       |        |                  |        |      |         |       |        |   |         |       |        |   |          | 66,977 |        
|                                            | Restructuring, severance and other                 |                                       |        | 381               |        |      |         | 35     |        |   |         | 1,973  |        |   |          | 1,200  |        
|                                            | Stock-based compensation(2)                        |                                       |        | 795               |        |      |         | 359    |        |   |         | 1,209  |        |   |          | 1,411  |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            |                                                    | Total operating expenses              |        |                   | 10,989 |      |         |        | 13,363 |   |         |        | 34,509 |   |          |        | 111,440 | 
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Operating loss                              |                                                    |                                       | (1,027 | )                 |        |      | (13,347 | )      |        |   | (16,148 | )      |        |   | (115,370 | )     
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Other income (expense):                     |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Interest expense                                   |                                       |        | (39               | )      |      |         | (52    | )      |   |         | (50    | )      |   |          | (154   | )      
|                                            | Interest income                                    |                                       |        | 31                |        |      |         | 118    |        |   |         | 100    |        |   |          | 883    |        
|                                            | Other, net                                         |                                       |        | 4                 |        |      |         | (9     | )      |   |         | (195   | )      |   |          | 162    |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            |                                                    | Total other income (expense)          |        |                   | (4     | )    |         |        | 57     |   |         |        | (145   | ) |          |        | 891     | 
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Net loss                                    |                                                    | $                                     | (1,031 | )                 |        | $    | (13,290 | )      |        | $ | (16,293 | )      |        | $ | (114,479 | )     
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Net loss per share:                         |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Basic and Diluted                                  |                                       | $      | (0.03             | )      |      | $       | (0.47  | )      |   | $       | (0.52  | )      |   | $        | (4.02  | )      
|Weighted average common shares outstanding: |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Basic and Diluted                                  |                                       |        | 35,325            |        |      |         | 28,404 |        |   |         | 31,356 |        |   |          | 28,485 |        
|Stock-based compensation included in:       |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | (1) Cost of revenues                               |                                       | $      | 215               |        |      | $       | 11     |        |   | $       | 231    |        |   | $        | 39     |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|Stock-based compensation excluded from:     |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Research and development                           |                                       |        | 489               |        |      |         | 215    |        |   |         | 739    |        |   |          | 801    |        
|                                            | Selling, general and administrative                |                                       |        | 306               |        |      |         | 144    |        |   |         | 470    |        |   |          | 610    |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | (2) Total operating expenses                       |                                       |        | 795               |        |      |         | 359    |        |   |         | 1,209  |        |   |          | 1,411  |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       
|                                            | Total stock-based compensation                     |                                       | $      | 1,010             |        |      | $       | 370    |        |   | $       | 1,440  |        |   | $        | 1,450  |        
|                                            |                                                    |                                       |        |                   |        |      |         |        |        |   |         |        |        |   |          |       

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



THERMA-WAVE, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |          |         |         |  
|--------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------ | - | -------- | ------- | ------- | -
|                      |                                                                                 |                                                                                 
|                      |                                                                                 | Nine Months Ended                                                               
|                      |                                                                                 | December 31,                                                                    
|                      |                                                                                 |                                                                                 
|                      |                                                                                 | 2003                                                                             |                                           | 2002   
|                      |                                                                                 |                                                                                  |                                           |        
|                      |                                                                                 |                                                                                 
|                      |                                                                                 | (In thousands)                                                                  
|                      |                                                                                 | (Unaudited)                                                                     
|Operating activities: |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      | Net loss                                                                        |                                                                                  | $                                         | (16,293 | )      |        | $ | (114,479 | )      
|                      | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                                  |                                           |         |        |        |   |          |        
|                      |                                                                                 | Depreciation and amortization                                                    |                                           |         | 3,941  |        |   |          | 4,499   |        
|                      |                                                                                 | Amortization of intangible assets                                                |                                           |         | 1,811  |        |   |          | 1,315   |        
|                      |                                                                                 | Amortization of deferred stock-based compensation                                |                                           |         | 1,439  |        |   |          | 1,449   |        
|                      |                                                                                 | Allowance for doubtful accounts, returns and
    allowance                       |                                           |         | (932   | )      |   |          | (475    | )      
|                      |                                                                                 | Impairment of goodwill and other intangible assets                               |                                           |         |       |        |   |          | 66,977  |        
|                      |                                                                                 | Inventory charge                                                                 |                                           |         |       |        |   |          | 7,425   |        
|                      |                                                                                 | Loss on disposal of property, plant and equipment                                |                                           |         | 459    |        |   |          | 55      |        
|                      |                                                                                 | Loss on sale of an investment                                                    |                                           |         | 125    |        |   |          |        |        
|                      |                                                                                 | Issuance of treasury stock in connection with
    payment of consulting services |                                           |         |       |        |   |          | 50      |        
|                      | Changes in assets and liabilities:                                              |                                                                                  |                                           |         |        |        |   |          |        
|                      |                                                                                 | Accounts receivable                                                              |                                           |         | (264   | )      |   |          | 6,398   |        
|                      |                                                                                 | Inventories                                                                      |                                           |         | 5,199  |        |   |          | (807    | )      
|                      |                                                                                 | Other assets                                                                     |                                           |         | 1,525  |        |   |          | 2,243   |        
|                      |                                                                                 | Accounts payable                                                                 |                                           |         | 1,225  |        |   |          | 2,925   |        
|                      |                                                                                 | Accrued and other liabilities                                                    |                                           |         | (691   | )      |   |          | (10,825 | )      
|                      |                                                                                 | Deferred revenues                                                                |                                           |         | (1,970 | )      |   |          | 2,401   |        
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 |                                                                                  | Net cash used in operating activities     |         |        | (4,426 | ) |          |         | (30,849 | )
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      | Investing activities:                                                           |                                                                                  |                                           |         |        |        |   |          |        
|                      |                                                                                 | Purchases of property and equipment                                              |                                           |         | (197   | )      |   |          | (1,372  | )      
|                      |                                                                                 | Sales of short-term investments                                                  |                                           |         |       |        |   |          | 8,003   |        
|                      |                                                                                 | Proceeds from sale of an investment                                              |                                           |         | 375    |        |   |          |        |        
|                      |                                                                                 | Purchase of patents and other                                                    |                                           |         | (551   | )      |   |          | (850    | )      
|                      |                                                                                 | Restricted cash                                                                  |                                           |         | 1,064  |        |   |          |        |        
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 |                                                                                  | Net cash provided by investing activities |         |        | 691    |   |          |         | 5,781   |  
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      | Financing activities:                                                           |                                                                                  |                                           |         |        |        |   |          |        
|                      |                                                                                 | Proceeds from issuance of common stock                                           |                                           |         | 11,973 |        |   |          | 1,049   |        
|                      |                                                                                 | Proceeds from note receivable from stockholders                                  |                                           |         | 23     |        |   |          | 4       |        
|                      |                                                                                 | Purchase of treasury stock                                                       |                                           |         |       |        |   |          | (938    | )      
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 |                                                                                  | Net cash provided by financing activities |         |        | 11,996 |   |          |         | 115     |  
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 | Effect of exchange rates on cash                                                 |                                           |         | 556    |        |   |          | 485     |        
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 | Net increase (decrease) in cash and cash
    equivalents                         |                                           |         | 8,817  |        |   |          | (24,468 | )      
|                      |                                                                                 | Cash and cash equivalents at beginning of period                                 |                                           |         | 13,695 |        |   |          | 46,484  |        
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 | Cash and cash equivalents at end of period                                       |                                           | $       | 22,512 |        |   | $        | 22,016  |        
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 | Supplementary disclosures:                                                       |                                           |         |        |        |   |          |         |        
|                      |                                                                                 |                                                                                  | Cash paid for interest                    |         | $      | 25     |   |          | $       | 42      |  
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         
|                      |                                                                                 |                                                                                  | Cash paid for taxes                       |         | $      | 9      |   |          | $       | 130     |  
|                      |                                                                                 |                                                                                  |                                           |         |        |        |   |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



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 December 31, 2003, the
operating results for the three and nine months ended
December 31, 2003 and 2002, and the cash flows for the nine
months ended December 31, 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 28, 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. We had no restricted
cash as of December 31, 2003.



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

In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting
for Stock-Based Compensation. The Company has applied
Accounting Principles Board Opinion No. 25 in accounting
for its stock option plans and has 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.

5



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 loss and pro forma net loss per share under
SFAS No. 123 would have been:

|                                                                                                     |  |                    |        |                   |  |      |         |      |  |   |         |   |  |   |          |  
|---------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                     |  |                    |        |                  
|                                                                                                     |  | Three Months Ended |        | Nine Months Ended
|                                                                                                     |  | December 31,       |        | December 31,     
|                                                                                                     |  |                    |        |                  
|                                                                                                     |  | 2003               |        | 2002              |  | 2003 |         | 2002
|                                                                                                     |  |                    |        |                   |  |      |         |     
|Net loss (in thousands)                                                                              |  |                    |        |                   |  |      |         |      |  |   |         |   |  |   |          |  
|As reported                                                                                          |  | $                  | (1,031 | )                 |  | $    | (13,290 | )    |  | $ | (16,293 | ) |  | $ | (114,479 | )
|Stock-based employee compensation expense
    included in the determination of net loss, as reported |  |                    | 1,010  |                   |  |      | 370     |      |  |   | 1,440   |   |  |   | 1,450    |  
|Stock-based employee compensation expense
    determined using fair value method                     |  |                    | (1,630 | )                 |  |      | (1,637  | )    |  |   | (3,778  | ) |  |   | (5,014   | )
|                                                                                                     |  |                    |        |                   |  |      |         |      |  |   |         |   |  |   |          |  
|Pro forma net loss                                                                                   |  | $                  | (1,651 | )                 |  | $    | (14,557 | )    |  | $ | (18,631 | ) |  | $ | (118,043 | )
|Basic and diluted net loss per share                                                                 |  |                    |        |                   |  |      |         |      |  |   |         |   |  |   |          |  
|As reported                                                                                          |  | $                  | (0.03  | )                 |  | $    | (0.47   | )    |  | $ | (0.52   | ) |  | $ | (4.02    | )
|Pro forma                                                                                            |  | $                  | (0.05  | )                 |  | $    | (0.51   | )    |  | $ | (0.59   | ) |  | $ | (4.14    | )



|   |            
|-- | -----------
|2. | Inventories

Inventories are summarized as follows (in
thousands):

|                    |  |              |        |           |  |   |        | 
|------------------- |  | ------------ | ------ | --------- |  | - | ------ | 
|                    |  | December 31, |        | March 31,
|                    |  | 2003         |        | 2003     
|                    |  |              |        |          
|Purchased materials |  | $            | 5,548  |           |  | $ | 2,459  | 
|Systems in process  |  |              | 6,385  |           |  |   | 11,340 | 
|Finished systems    |  |              | 5,014  |           |  |   | 8,347  | 
|                    |  |              |        |           |  |   |        | 
|                    |  | $            | 16,947 |           |  | $ | 22,146 | 
|                    |  |              |        |           |  |   |        | 



|   |                   
|-- | ------------------
|3. | Comprehensive Loss

Comprehensive loss consists of net loss for the
period and the change in accumulated foreign currency
translation adjustments during the period. For the quarters
ended December 31, 2003 and 2002, comprehensive loss
amounted to approximately $0.8 million and
$13.1 million, respectively. For the nine months ended
December 31, 2003 and 2002, comprehensive loss amounted to
approximately $15.7 million and $114.0 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
or more separate elements based on objective evidence of fair
value of the individual elements. In most cases, there are two
elements, which are the shipment of the tool and installation of
the tool. Under this approach, the portion of the invoice price
that is due upon shipment of the tool and title transfer is
recognized when those events occur. The remaining portion of the
total invoice price relating to installation is deferred until
after installation services have been performed and final
customer acceptance of the tool has

6



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


been obtained. Revenues on service contracts are
deferred and recognized on a straight-line basis over the period
of the contracts. For spare parts, revenues are recognized upon
shipment.

Deferred revenues of $4.7 million related to
a development agreement were recognized in the quarter ended
December 31, 2003 upon the termination of the agreement. As
of September 30, 2003, these revenues were classified as
non-current deferred revenues. In addition, the company reversed
approximately $0.4 million of previously accrued loss
relating to the agreement, as well as accelerated the
amortization of $1.5 million of related intangible assets.



|   |                   
|-- | ------------------
|5. | Net Loss Per Share

Basic net 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 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) as of each period end which were not
included in the calculation of diluted net loss per share since
their inclusion would be anti-dilutive.

|                                    |  |              |       |      |  |  |       | 
|----------------------------------- |  | ------------ | ----- | ---- |  |  | ----- | 
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2003         |       | 2002
|                                    |  |              |       |     
|Common stock held in escrow account |  |              |      |      |  |  | 541   | 
|Stock options                       |  |              | 5,649 |      |  |  | 4,928 | 
|Warrants                            |  |              | 79    |      |  |  | 79    | 

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 the escrow
account were released to former shareholders of Sensys.

For the three months ended December 31, 2003
and 2002, anti-dilutive stock options have a weighted average
exercise price of $12.11 and $10.54, respectively. The warrants
outstanding at December 31, 2003 that we excluded from the
above calculation had a weighted average exercise price of $3.68.

During the second quarter of fiscal 2004, we
commenced and completed an employee stock option exchange
program. The voluntary program allowed Therma-Wave employees,
excluding officers and directors, to return to the Company
existing options issued before July 1, 2002 with an
exercise price greater than $2.00 per share and exchange them
for new options that were granted on September 10, 2003.
The number of new options granted in the employee stock option
exchange program was equal to 75% of the number of options
canceled in the exchange. The new option grants have a different
vesting schedule from the original option grants and have an
exercise price equal to $2.38, the fair market value on
September 10, 2003. Of the 1,366,570 options eligible
for exchange, 1,352,108 options, or 99%, were exchanged for
1,014,144 new options with an exercise price of $2.38. None of
these replacement options vest before June 11, 2004.



|   |                                          
|-- | -----------------------------------------
|6. | Recently Issued Accounting
    Statements

In May 2003, the Financial Accounting Standards
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

7



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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, which addresses consolidation by business
enterprises of variable interest entities, or VIEs, either:
(1) that do not have sufficient equity investment at risk
to permit the entity to finance its activities without
additional subordinated financial support, or (2) in which
the equity investors lack an essential characteristic of a
controlling financial interest. FIN 46 is effective immediately
for all VIEs created or acquired after January 31, 2003.
For VIEs created or acquired prior to February 1, 2003, the
provisions of FIN 46 must be applied effective in the
annual period ending after December 15, 2003. We do not
expect the adoption of this interpretation to have a material
impact on our results of operations or financial position.
However, changes in our business relationships with various
entities could occur which may impact our financial statements
under the requirements of FIN 46.

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 is applicable to agreements entered into in the
first interim period beginning after June 15, 2003 with
early adoption permitted. Additionally, companies are 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. In the third fiscal quarter of
2004, we deferred the system revenues for two tools until we
deliver custom capabilities related to the tools. We expect the
adoption of EITF 00-21 may continue to impact the timing of
revenue recognition by delaying revenue recognition into future
quarters.

7.     Commitments
and Contingencies

Our off-balance sheet commitments are limited to
equipment operating leases, leases on office and manufacturing
space, minimum royalty payments under certain software license
agreements, and cancellation fee commitments to vendors related
to non-cancelable inventory purchase orders. We lease our
facilities under non-cancelable 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.

8



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


Future payments due under operating leases and
other commitments as of December 31, 2003 (in thousands)
are as follows:

|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 
|----------------------------- |  | --------- | ----- | ----------- |  | -------- | ----- | ------------ |  | ----- | --- |  |  | - | --- |  |  | - | ------ | 
|                              |  |           |       |             |  | Minimum  |       |              |  |      
|                              |  | Operating |       | Purchase    |  | Royalty  |       | Cancellation |  |      
|Fiscal Year                   |  | Leases    |       | Commitments |  | Payments |       | Fees         |  | Total
|                              |  |           |       |             |  |          |       |              |  |      
|2004                          |  | $         | 714   |             |  | $        | 5,980 |              |  | $     | 40  |  |  | $ | 200 |  |  | $ | 6,934  | 
|2005                          |  |           | 2,576 |             |  |          | 1,717 |              |  |       | 40  |  |  |   | 350 |  |  |   | 4,683  | 
|2006                          |  |           | 1,873 |             |  |          | 220   |              |  |       | 40  |  |  |   |    |  |  |   | 2,133  | 
|2007                          |  |           | 536   |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 536    | 
|2008                          |  |           | 555   |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 555    | 
|Thereafter                    |  |           | 93    |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 93     | 
|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 
|Total future minimum payments |  | $         | 6,347 |             |  | $        | 7,917 |              |  | $     | 120 |  |  | $ | 550 |  |  | $ | 14,934 | 
|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 

In June 2003, we entered into a loan and security
agreement with Silicon Valley Bank, or SVB. The 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 a floating interest rate equal to the SVB prime rate
plus 1.50%. The EXIM revolving line allows us to borrow money at
a floating interest rate equal to the SVB prime rate plus 1.75%.
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 un-reimbursed letters of credit. Our borrowings under
the SVB and EXIM guaranteed credit facilities are secured by
substantially all of our assets. As of December 31, 2003,
we had $5.9 million in outstanding letters 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 was amended in July 2003 to
bring us into compliance. As of September 30, 2003, we
violated certain compliance provisions of the agreement, which
were waived by SVB in October 2003. As of December 31,
2003, we were in compliance with the covenants in the agreement.



| |                
| | ---------------
| | 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 December 31, 2003, nor have we incurred any
losses under such indemnification during the periods covered in
this report.



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

We settled a patent infringement suit with Boxer
Cross, Inc. in July 2003. For details, see our quarterly report
on Form 10-Q for the quarter ended September 28, 2003.

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,

9



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 nine months
ended December 31, 2003 (in thousands):

|                                   |  |           |       |           |  |             |       |              |  |   |        |   |  |   |     | 
|---------------------------------- |  | --------- | ----- | --------- |  | ----------- | ----- | ------------ |  | - | ------ | - |  | - | --- | 
|                                   |  | Liability |       |           |  |             |       | Liability   
|                                   |  | as of     |       |           |  |             |       | as of       
|                                   |  | March 31, |       |           |  |             |       | December 31,
|                                   |  | 2003      |       | Provision |  | Utilization |       | 2003        
|                                   |  |           |       |           |  |             |       |             
|Severance and workforce reduction  |  | $         | 558   |           |  | $           | 1,773 |              |  | $ | (2,235 | ) |  | $ | 96  | 
|Consolidation of excess facilities |  |           | 662   |           |  |             | 82    |              |  |   | (402   | ) |  |   | 342 | 
|Other                              |  |           | 134   |           |  |             | 118   |              |  |   | (211   | ) |  |   | 41  | 
|                                   |  |           |       |           |  |             |       |              |  |   |        |   |  |   |     | 
|                                   |  | $         | 1,354 |           |  | $           | 1,973 |              |  | $ | (2,848 | ) |  | $ | 479 | 
|                                   |  |           |       |           |  |             |       |              |  |   |        |   |  |   |     | 

Severance and workforce reduction

In April 2003 and October 2003, the Company
reduced its workforce by approximately 45 and 22 employees,
respectively, across all functional areas. Severance and related
employee benefit costs related to the reductions in force
amounted to $1.8 million, which have been paid or committed
at the time of the employees separation. The Company
anticipates that the accrued liability at December 31, 2003
of $96,000 will be paid out by the end of March 2004.



| |                                       
| | --------------------------------------
| | 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-cancelable, net of the income from subleasing these
facilities. The income from subleasing one facility 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. For the other facility, we
entered a sublease during the second fiscal quarter ended
September 30, 2003 and increased the liability estimate by
$82,000 to reflect the difference between the estimated sublease
income and the actual sublease income. The Company anticipates
that the accrued liability at December 31, 2003 of
$0.3 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 $41,000 accrued liabilities as of
December 31, 2003 related to other costs of workforce
reduction will be paid out by the end of March 2004.

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

10



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


accrual during the three and nine months ended
December 31, 2003 are summarized (in thousands) as follows:

|                                     |  |           |       |                   |  |               |       |         |  |   |        |   |  |   |       | 
|------------------------------------ |  | --------- | ----- | ----------------- |  | ------------- | ----- | ------- |  | - | ------ | - |  | - | ----- | 
|                                     |  |           |       | Provision for     |  | Settlement of |       |        
|                                     |  | Beginning |       | Warranty Issued   |  | Pre-Existing  |       | Ending 
|                                     |  | Balance   |       | During the Period |  | Warranties    |       | Balance
|                                     |  |           |       |                   |  |               |       |        
|Three Months Ended December 31, 2003 |  | $         | 1,310 |                   |  | $             | 581   |         |  | $ | (471   | ) |  | $ | 1,420 | 
|                                     |  |           |       |                   |  |               |       |         |  |   |        |   |  |   |       | 
|Nine Months Ended December 31, 2003  |  | $         | 983   |                   |  | $             | 1,506 |         |  | $ | (1,069 | ) |  | $ | 1,420 | 
|                                     |  |           |       |                   |  |               |       |         |  |   |        |   |  |   |       | 

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 December 31, 2003, the Company has
repurchased 447,500 shares of common stock at an average
price of $2.10 per share, of which 414,168 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 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.

During the quarter ended September 30, 2002,
due to current operating losses, the absence of positive cash
flows, recent significant declines in our common stock price and
uncertainties resulting from the duration and severity of the
industry downturn, we assessed the recoverability of the
intangible assets related to the Sensys acquisition subject to
amortization in accordance with SFAS No. 144 and tested
goodwill related to the Sensys acquisition for impairment in
accordance with SFAS No. 142. Based upon our projection of
significantly reduced future cash flows related to Sensys
products, we recognized an impairment expense of $576,000 for
developed technology, $174,000 for development contract and
$362,000 for trade name intangible assets in the quarter ended
September 30, 2002. In addition, during the quarter ended
March 31, 2003, we recognized an additional impairment charge of
$431,000 related to trade name intangible assets. 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 the test, we wrote down goodwill assets by
$65.9 million in the quarter ended September 30, 2002.

During the quarter ended December 31, 2003,
due to the termination of a development agreement, we
accelerated the amortization on $1.5 million of intangible
assets related to the contract.

11



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


As of December 31, 2003, all intangible
asset values have been written off. Components of intangible
assets are as follows (in thousands):

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

Amortization of intangible assets was
$0.1 million and $0.3 million for the three and nine
months ended December 31, 2003. As the net carrying amount
of these intangible assets is zero, no amortization expenses
will be recorded for these assets in future fiscal periods.



|    |                               
|--- | ------------------------------
|12. | Employee Stock Option Exchange

During the second quarter of fiscal 2004, we
commenced and completed an employee stock option exchange
program. The voluntary program allowed Therma-Wave employees,
excluding officers and directors, to return to the Company
existing options issued before July 1, 2002 with an
exercise price greater than $2.00 per share and exchange them
for new options that were granted on September 10, 2003.
The number of new options granted in the employee stock option
exchange program was equal to 75% of the number of options
canceled in the exchange. The new option grants have a different
vesting schedule from the original option grants and have an
exercise price equal to $2.38, the fair market value on
September 10, 2003. Of the 1,366,570 options eligible for
exchange, 1,352,108 options, or 99%, were exchanged for
1,014,144 new options with an exercise price of $2.38. None of
these replacement options vest before June 11, 2004.

As a result of the modification to the exercise
price of the stock option, the replacement options are accounted
for as variable from the date of modification until the option
is either exercised, canceled or expired. As of
December 31, 2003, the company has recorded approximately
$1.4 million in deferred compensation expense. This charge
reflects the new options eligible for exchange which were
outstanding since September 10, 2003 and reflects options
issued to eligible participants within the six months prior to
or following September 10, 2003. Due to variable
accounting, expense is being recorded for the vesting of these
options over time based on increases in the stock price over and
above the exercise price of the new options. In future quarters,
the expense could increase as more shares become vested and if
the stock price increases. Reductions to expense may also be
recorded if the stock price decreases, but such reductions will
be limited to the net expense previously reported.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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, continue the successful development and
introduction of new products and improvement of current
products, and trends in our financial performance are all based
on

12



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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 our annual report on Form 10-K for the
year ended March 31, 2003 and subsequent registration
statements on Form S-1. See also the discussion of
forward-looking statements related to market risk in the first
paragraph of Item 3 below. We undertake 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. Securities and Exchange Commission, are available for
review free of charge on the SECs website through a link
on our website at www.thermawave.com as soon as reasonably
practicable after such material is electronically filed or
furnished to the SEC.



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

Since 1982, Therma-Wave, Inc. has been
revolutionizing process control metrology systems through
innovative proprietary products and technologies. We are a
worldwide leader in the development, manufacture, marketing and
service of process control metrology systems used in the
manufacture of semiconductors. Process control metrology is used
to monitor process parameters in order to enable semiconductor
manufacturers to maintain high overall manufacturing yield,
reduce the size of the circuit features imprinted on the
semiconductor to improve the performance of the semiconductor
device and increase their equipment productivity. Our current
product families, Therma-Probe®, Opti-Probe®,
Opti-Probe CD and RT/CD®, Integra® integrated
metrology products, use proprietary and patented technology to
produce precise, non-contact, non-destructive measurement for
each and every basic building block, or process module, in the
manufacture of integrated circuits, or ICs.



| |                   
| | ------------------
| | Market Opportunity

During the course of implementing several complex
process steps in semiconductor manufacturing, it has grown
increasingly necessary to monitor the failure rate of
semiconductor devices as well as the quality of the underlying
process steps, particularly as line widths shrink, metal levels
increase and new materials are introduced into the process.
Generally speaking, the manufacturing process is monitored and
diagnosed using two methodologies:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | measuring specific results to determine whether
    process steps are performing according to specifications; and
|
| |  | determining the locations of yield limiting
    defects on the wafer.                                            

This second practice is often followed by an
automated review of the defects and, in certain cases, further
analysis. This can be distinguished as a third category of
defect review and analysis. Process control is a highly
segmented market consisting of optical metrology, critical
dimension scanning electron microscopy, or CD-SEM, thin film
measurement, patterned wafer inspection, defect review and
classification, unpatterned wafer inspection, and other process
control tools. Therma-Waves ion implant and thin film
measurement products, including related service and parts
revenue, comprise the majority of our revenues today. These
mature product lines, however, have allowed us to expand into
segments of metrology, potentially doubling our total available
market.

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Products

Our products are used to produce precise,
non-contact, nondestructive measurement for each basic process
module in the manufacture of integrated circuits, including ion
implant, dielectric film deposition and etching, conductor film
deposition and etching, chemical mechanical planarization and
wafer patterning.



| |                                                            
| | -----------------------------------------------------------
| | Core Products Today: Thin Films  Ion
    Implant Metrology

Therma-Probe and Opti-Probe systems are two
well-established, major product families of in-line process
control metrology equipment.

Therma-Probe:The
Therma-Probe systems employ proprietary thermal wave technology
that uses highly focused but low power laser beams to generate
and detect thermal and plasma wave signals in the silicon wafer.
Proprietary software correlates the signals to the ion implant
dose. Unlike previous ion implant metrology systems, the
Therma-Probe systems utilize a totally non-contact, non-damaging
technology and thus can be used to monitor product wafers
immediately after the ion implantation process. These features
have been integrated into an easy-to-use and reliable package
with automated wafer handling and statistical data processing.

Opti-Probe:Opti-Probe systems significantly improve upon existing thin-film
metrology systems by successfully integrating up to five
distinct film measurement technologies, three of which are
patented by us. By combining the measured data from these
multiple technologies and correlating it by using proprietary
software, Opti-Probe systems provide increased measurement
capability leading to higher yields, less misprocessing, less
rework, faster production ramp-up and increased productivity on
both test and product wafers. These are Therma-Waves
patented techniques for combining optical measurement
technologies and correlating the results.



| |                                                 
| | ------------------------------------------------
| | Addressing New Market: Lithography
    Metrology

Opti-Probe RT/CD and Integra are two additional
recently introduced product families.

Opti-Probe RT/CD:Opti-Probe RT/CD is the first optical CD scatterometry system
that combines high-information content spectroscopic
ellipsometry, or SE, optical measurement with ultrafast
calculation, or real-time regression, to analyze and display
results without the use of off-line modeling and solution
libraries. Fullfeatured, complex CD profiles can be calculated
in seconds with precision and repeatability and, we believe,
with more structural information than its competitors on
sidewall profile and shape.

Integra:In 2000, we
committed to a program of developing a broad family of
Integrated Metrology, or IM, modules under the product family
name Integra. We have at this time both spectrometer and
spectroscopic ellipsometer based IM units available in the
marketplace. Each IM unit is installed directly onto a
semiconductor process tool, and can measure each wafer
immediately after processing. In this manner, processing
mistakes can be detected at the earliest possible moment, as
opposed to the conventional procedure in which a 25-wafer lot is
typically completed before metrology is first done, thereby
leaving the entire lot at risk of becoming scrap.

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, intangible assets, income taxes and
warranty accruals. Management bases its estimates and

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 our 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 or 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
Ex-works or 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 the
customers 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 right
of return has expired and any potential returns would require
authorization by our company under warranty provisions; the
price of the sale 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 our estimated net realizable value, if less than cost, based
primarily on our product demand forecast. 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 have recorded additional reserves for excess and obsolete
inventory, we have 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

15



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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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.

During the quarter ended September 30, 2002,
due to operating losses, the absence of positive cash flows,
significant declines in our common stock price and uncertainties
resulting from the industry downturn, we assessed the
recoverability of the intangible assets related to the Sensys
acquisition subject to amortization in accordance with SFAS
No. 144 and tested goodwill related to the Sensys
acquisition for impairment in accordance with SFAS No. 142.
Based upon our projection of significantly reduced future cash
flows related to Sensys products, we recognized an impairment
expense of $0.6 million for developed technology,
$0.2 million for development contract and $0.4 million
for trade name intangible assets in the quarter ended
December 31, 2002. In addition, during the quarter ended
March 31, 2003, we recognized an additional impairment
charge of $0.4 million related to trade name intangible
assets. 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 the
test, we wrote down goodwill assets by $65.9 million in the
quarter ended September 30, 2002.

During the quarter ended December 31, 2003,
due to the termination of a development agreement, we
accelerated the amortization on $1.5 million of intangible
assets related to the contract.

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 December 31, 2003, we provided a full
valuation allowance for net operating loss carry-forwards for
federal and state income tax purposes of approximately
$75.5 million and $13.6 million, respectively, 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.

16



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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 and nine months ended December 31, 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             |      | Nine Months 
|                        |                                                    | Ended                    |      | Ended       
|                        |                                                    | December 31,             |      | December 31,
|                        |                                                    |                          |      |             
|                        |                                                    | 2003                     |      | 2002         |       | 2003 |        | 2002
|                        |                                                    |                          |      |              |       |      |        |     
|Net revenues            |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        | Product                                            |                          |      | 78.4         | %     |      |        | 46.7 | %     |  |       | 69.8 | %     |   |        | 55.9  | %    
|                        | Service and parts                                  |                          |      | 21.6         |       |      |        | 53.3 |       |  |       | 30.2 |       |   |        | 44.1  |      
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        |                                                    | Total net revenues       |      |              | 100.0 |      |        |      | 100.0 |  |       |      | 100.0 |   |        |       | 100.0 | 
|Cost of revenues        |                                                    |                          | 49.9 |              |       |      | 99.8   |      |       |  | 59.9  |      |       |   | 110.9  |      
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|Gross profit (loss)     |                                                    |                          | 50.1 |              |       |      | 0.2    |      |       |  | 40.1  |      |       |   | (10.9  | )    
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|Operating expenses:     |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        | Research and development                           |                          |      | 22.6         |       |      |        | 67.1 |       |  |       | 31.9 |       |   |        | 63.6  |      
|                        | Selling, general and administrative                |                          |      | 26.8         |       |      |        | 59.5 |       |  |       | 36.5 |       |   |        | 52.2  |      
|                        | Impairment of goodwill and other intangible assets |                          |      | 0.0          |       |      |        | 0.0  |       |  |       | 0.0  |       |   |        | 185.3 |      
|                        | Severance charge                                   |                          |      | 1.9          |       |      |        | 0.3  |       |  |       | 4.3  |       |   |        | 3.3   |      
|                        | Stock-based compensation                           |                          |      | 4.0          |       |      |        | 3.5  |       |  |       | 2.6  |       |   |        | 3.9   |      
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        |                                                    | Total operating expenses |      |              | 55.3  |      |        |      | 130.4 |  |       |      | 75.3  |   |        |       | 308.3 | 
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|Operating income (loss) |                                                    |                          | (5.2 | )            |       |      | (130.2 | )    |       |  | (35.2 | )    |       |   | (319.2 | )    
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|Other income (expense)  |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        | Interest expense                                   |                          |      | (0.2         | )     |      |        | (0.5 | )     |  |       | (0.1 | )     |   |        | (0.4  | )    
|                        | Interest income                                    |                          |      | 0.2          |       |      |        | 1.1  |       |  |       | 0.2  |       |   |        | 2.4   |      
|                        | Other, net                                         |                          |      | 0.0          |       |      |        | (0.1 | )     |  |       | (0.4 | )     |   |        | 0.5   |      
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|                        |                                                    | Total other income       |      |              | 0.0   |      |        |      | 0.5   |  |       |      | (0.3  | ) |        |       | 2.5   | 
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      
|Net loss                |                                                    |                          | (5.2 | )%           |       |      | (129.7 | )%   |       |  | (35.5 | )%   |       |   | (316.7 | )%   
|                        |                                                    |                          |      |              |       |      |        |      |       |  |       |      |       |   |        |      

Net Revenues.Net
revenues for the fiscal quarter ended December 31, 2003
were $19.9 million. Compared to the prior quarter, net
revenues increased $5.8 million, or 41.2%, from
$14.1 million. Net revenues increased $9.6 million, or
93.8%, from $10.2 million in the same fiscal quarter of the
prior year. For the nine months ended December 31, 2003,
net revenues were $45.8 million, an increase of
$9.7 million, or 26.8%, from $36.1 million in the
comparable period of the prior year. Of these increases,
$4.7 million reflects the recognition of revenues in the
quarter and nine months ended December 31, 2003 due to the
termination of a development agreement. Excluding the revenues
related to the development agreement, net revenues increased
$1.1 million, or 7.7% over the previous quarter, increased
$4.9 million, or 47.8% over the same quarter of the prior
fiscal year, and increased $5.0 million, or 13.8% over the
nine months ended December 31,

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


2002. The termination of the development
agreement contributed $3.7 million of gross profit in the
fiscal third quarter of 2004.

Our primary business is the design, manufacture
and sale of our Therma-Probe, Opti-Probe, Opti-Probe Critical
Dimension and integrated product metrology systems. We also sell
replacement and spare parts and service support for these
products, including associated labor, which is often sold in
service contracts for one or more years duration. Gross margins
for our systems sales are typically much higher than gross
margins on replacement and spare parts and service support. This
creates a mix factor that impacts overall average gross margins,
which generally are higher when the percentage of systems sales
is higher.

International sales accounted for approximately
77% and 71% of our total net revenues for the three months ended
December 31, 2003 and 2002, respectively. For the nine
months ended December 31, 2003 and 2002, respectively,
international sales accounted for approximately 68% and 72% of
our total net revenues. 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 is 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
Taiwan, Japan, China, Korea, and Europe, such conditions could
negatively impact our international sales in future periods.

Gross Profit (Loss).Gross profit for the third quarter of
fiscal 2004 was $10.0 million, an increase of
$4.4 million, or 78.9%, from a gross profit of
$5.6 million in the previous fiscal quarter. Compared to
the same quarter of fiscal 2003, gross profit increased
$9.9 million. As a percentage of net revenues, gross margin
for the current quarter was 50.1%, compared to 39.6% for the
last fiscal quarter and 0.2% for the same quarter of last fiscal
year. For the nine months ended December 31, 2003, gross
profit was $18.4 million, an increase of
$22.3 million, from $(3.9) million in the comparable
period of the prior year. As a percentage of net revenues, gross
margin for the current nine months was 40.1%, compared to
(10.9)% in the comparable period of the prior year.

The rise of gross profit was primarily
attributable to a combination of higher production and sales
volumes, the sale of materials previously reserved, the
termination of a development agreement and cost reductions.
During the third quarter of fiscal 2004, the release of
inventory previously reserved totaled $2.5 million,
however, this was offset by $0.6 million of additional
provisions for obsolete and excess inventory. We also disposed
of $0.9 million of obsolete materials previously reserved.
The third quarter of fiscal 2004 gross margins also benefited
from the reversal of $0.6 million of Value Added Tax, or
VAT, that was originally accrued during the fourth quarter of
fiscal 2003, due to an assessment of tax following a VAT audit
by the Korean government. A subsequent appeal of the assessment
resulted in the reversal of the assessment during the third
quarter of fiscal 2004. We expect our gross margins for the
fiscal fourth quarter 2004 to be in the low 40 percent
range.

Deferred revenues of $4.7 million related to
a development agreement were recognized in the quarter ended
December 31, 2003 upon the termination of the agreement. As
of September 30, 2003, these revenues were classified as
non-current deferred revenues. In addition, we reversed
approximately $0.4 million of previously accrued loss
relating to the agreement, as well as accelerated the
amortization of $1.5 million of related intangible assets.
The termination of the development agreement contributed
$3.7 million of gross profit in the fiscal third quarter of
2004.

Research and Development, or R&D,
Expenses.R&D expenses for the
third quarter of fiscal 2004 were $4.5 million, a decrease
of 13.2% from $5.2 million in the prior quarter and a
decrease of 34.6% from $6.9 million in the same quarter of
last fiscal year. For the nine months ended December 31,
2003, R&D expenses were $14.6 million, a decrease of
$8.4 million, or 36.3%, from $23.0 million in the
comparable period

18



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##### Table of Contents



THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


of the prior fiscal year. The decrease of R&D
expenses was primarily due to reduction in force programs in
R&D functions in September 2002 and February, April and
October 2003. We expect our overall R&D expenditure will
increase by $0.4 to $0.5 million in the fiscal fourth
quarter of 2004 due to higher project costs. However, we are
reallocating our R&D resources to the programs that can
sustain our technological leadership, which we expect will
strengthen our market position in the next economic upturn.

Selling, General and Administrative, or
SG&A, Expenses.SG&A expenses
for the third quarter of fiscal 2004 were $5.3 million, a
decrease of 9.2% from SG&A expenses of $5.9 million in
the prior fiscal quarter. Compared to the third quarter of last
fiscal year, SG&A expenses decreased by 12.8% from
$6.1 million. For the nine months ended December 31,
2003, SG&A expenses were $16.7 million, a decrease of
$2.2 million, or 11.5%, from $18.9 million in the
comparable period of the prior fiscal year. These decreases in
SG&A expenses were primarily due to reduction in force
programs in SG&A functions in September 2002 and February,
April and October 2003. However, we expect to increase SG&A
expenses in future quarters to support expected revenue growth.
In the fiscal fourth quarter of 2004 we anticipate an increase
in SG&A expenses of $0.5 to $0.6 million primarily due
to expenses, including sales commissions, related to generating
and sustaining orders and revenue growth, and due to spending on
Sarbanes-Oxley Act compliance activities such as internal
control reports.

Restructuring, Severance and Other.Restructuring, severance and other
expenses for the third quarter of fiscal 2004 were
$0.4 million. This charge consisted of severance and other
expenses related to a reduction in force in the third quarter of
fiscal 2004. Compared to the second quarter of fiscal 2004,
restructuring, severance and other expenses increased by
$0.3 million from $108,000. Compared to the third quarter
of last fiscal year, restructuring, severance and other expenses
increased by $0.3 million from $35,000. For the nine months
ended December 31, 2003, restructuring, severance and other
expenses were $2.0 million, an increase of
$0.8 million, or 64.4%, from $1.2 million in the
comparable period of the prior year. We do not anticipate
additional severance expenses in the fourth quarter of fiscal
2004.

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 related to the Sensys acquisition were
$0.1 million, $0.2 million, and $0.4 million for
the quarters ended December 31, 2003, September 30,
2003 and December 31, 2002, respectively, a portion of
which was included in cost of revenues. The decrease of
stock-based compensation expense in fiscal 2004 was primarily
due to programs of reduction in force of Sensys employees during
fiscal 2003 and the first three quarters 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.

As a result of the completion of the employee
stock option exchange program effective September 10, 2003,
we recorded approximately $0.9 million of stock-based
compensation in the fiscal third quarter of 2004 and $60,000 of
stock-based compensation in the fiscal second quarter of 2004.
This charge reflects the new options eligible for exchange on
September 10, 2003 and reflects options issued to eligible
participants within the six months prior to and following
September 10, 2003. Due to variable accounting, expense is
being recorded for the vesting of these options over time based
on increases in the stock price over and above the exercise
price of the new options. In future quarters, the expense could
increase as more shares become vested and if the stock price
increases. Reductions to expense may also be recorded if the
stock price decreases, but such reductions will be limited to
the net expense previously reported.

Other Income (Expense).Other expense, net, for the third
quarter of fiscal 2004 was $4,000, compared to other income,
net, of $54,000 in the prior fiscal quarter, and other income,
net, of $57,000 in the same quarter of the prior fiscal year.
For the nine months ended December 31, 2003, other expense,
net, was $145,000, a decrease of $1.0 million, from other
income of $0.9 million in the comparable period of the
prior year. We derive other income primarily from the investment
of our cash on hand. The decrease in other

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


income from the same quarter of the prior year
was attributable to lower average interest rates as well as
lower average investment balances. Other expense for the nine
months ended December 31, 2003 includes a loss on the sale
of an investment in the first quarter of fiscal 2004 in the
amount of $0.1 million. Other income for the nine months
ended December 31, 2002 includes an interest refund from
the Internal Revenue Service in the amount of $0.3 million.

Net Loss.The
combination of all the factors discussed above contributed to a
net loss of $1.0 million for the third quarter of fiscal
2004, compared with a net loss of $5.7 million in the prior
fiscal quarter and net loss of $13.3 million in the same
quarter of last fiscal year. The net loss for the third quarter
of fiscal 2004 includes a net gain on the termination of a
development agreement of $3.7 million. Excluding the gain
recognized on the termination of the development agreement, we
expect that with our cost reduction programs in place and an
expected revenue increase, we will continue to reduce our net
loss in the upcoming quarters. We expect the fiscal fourth
quarter 2004 net loss to be within a range of negative $0.07 to
$0.12 per basic and diluted share.

Liquidity and Capital Resources

We have incurred substantial losses and
experienced negative cash flow since fiscal 2000, and had an
accumulated deficit of $282.9 million at March 31,
2003. As a result of these circumstances, our independent
auditors report for our last fiscal year, included in our
Form 10-K filed on June 30, 2003, included an
explanatory paragraph that indicated that there was substantial
doubt about our ability to continue as a going concern.

Subsequent to the filing of the March 31,
2003 consolidated financial statements in our Form 10-K, in
September 2003, we raised approximately $11.8 million in
net proceeds from a private placement. As a result of this, our
independent auditors determined that the explanatory paragraph
relating to our ability to continue as a going concern included
in the earlier filing was no longer required. Our accumulated
deficit was $299.2 million as of December 31, 2003.

To conserve cash, we have implemented cost
cutting measures, and in September 2002, implemented a
restructuring program, with further reductions in workforce in
the nine months ended December 31, 2003 during April and
October. 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. Also, in September 2003, we sold
5.8 million shares of common stock in a private placement
which yielded us approximately $11.8 million in net
proceeds.

If liquidity problems should arise, we will take
additional measures to reduce operating expenses such as
reducing headcount or canceling research and development
projects. However, we may need to raise additional funds to
finance our activities next fiscal 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, and with the combination of existing
cash resources including the funds raised in September 2003,
together with our lines of credit, that we will have liquidity
sufficient to meet our operating, working capital and financing
needs for at least the next twelve months.

Our principal sources of funds are anticipated to
be cash on hand ($22.5 million as of December 31,
2003), cash flows from operating activities and, if available
and necessary, borrowings under our bank credit facility. Our
cash and short-term investments 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

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


place, we have reduced operating expenses
significantly enough so that we have adequate 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 if 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 net proceeds from our initial public
offering.

Cash flows used in operating activities were
$4.4 million and $30.8 million for the first nine
months of fiscal 2004 and 2003, respectively. The decrease in
cash flows used in operating activities from fiscal year 2003 to
2004 was mainly due to a lower net loss, the use of inventory on
hand, and an overall reduction in accrued and other liabilities
in the first nine months of fiscal year 2004.

Cash flows provided by investing activities were
$0.7 and $5.8 million for the first nine months of fiscal
2004 and 2003, respectively. The reduction in cash flows
provided by investing activities was primarily due to a decrease
in sales of short-term investments, the lifting of restrictions
on cash, a decrease in capital expenditures and proceeds from
the sale of an investment in the first fiscal quarter of 2004.

Cash flows provided by financing activities were
$12.0 million and $0.1 million for the first nine
months of fiscal 2004 and 2003, respectively. The increase in
cash provided by financing activities in the first nine months
of fiscal 2004 was primarily due to the completion of the sale
of 5.8 million shares of our common stock in a private
placement in September 2003, which increased cash by
approximately $11.8 million net of expenses related to the
transaction.

Our off-balance sheet commitments are limited to
equipment operating leases, leases on office and manufacturing
space, minimum royalty payments under certain software license
agreements, and cancellation fee commitments to vendors related
to non-cancelable inventory purchase orders. Future payments due
under these obligations as of December 31, 2003 (in
thousands) are as follows:

|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 
|----------------------------- |  | --------- | ----- | ----------- |  | -------- | ----- | ------------ |  | ----- | --- |  |  | - | --- |  |  | - | ------ | 
|                              |  |           |       |             |  | Minimum  |       |              |  |      
|                              |  | Operating |       | Purchase    |  | Royalty  |       | Cancellation |  |      
|Fiscal Year                   |  | Leases    |       | Commitments |  | Payments |       | Fees         |  | Total
|                              |  |           |       |             |  |          |       |              |  |      
|2004                          |  | $         | 714   |             |  | $        | 5,980 |              |  | $     | 40  |  |  | $ | 200 |  |  | $ | 6,934  | 
|2005                          |  |           | 2,576 |             |  |          | 1,717 |              |  |       | 40  |  |  |   | 350 |  |  |   | 4,683  | 
|2006                          |  |           | 1,873 |             |  |          | 220   |              |  |       | 40  |  |  |   |    |  |  |   | 2,133  | 
|2007                          |  |           | 536   |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 536    | 
|2008                          |  |           | 555   |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 555    | 
|Thereafter                    |  |           | 93    |             |  |          |      |              |  |       |    |  |  |   |    |  |  |   | 93     | 
|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 
|Total future minimum payments |  | $         | 6,347 |             |  | $        | 7,917 |              |  | $     | 120 |  |  | $ | 550 |  |  | $ | 14,934 | 
|                              |  |           |       |             |  |          |       |              |  |       |     |  |  |   |     |  |  |   |        | 

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 December 31, 2003.

In June 2003, we entered into a loan and security
agreement with Silicon Valley Bank, or SVB. The agreement
includes a $5.0 million domestic line of credit, including
a sub-limit of $5.0 million for letters of

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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 a floating interest rate equal to the SVB
prime rate plus 1.50%. The EXIM revolving line allows us to
borrow money at a floating interest rate equal to the SVB prime
rate plus 1.75%. 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
un-reimbursed letters of credit. Our borrowings under the SVB
and EXIM guaranteed credit facilities are secured by
substantially all of our assets. As of December 31, 2003,
we had $5.9 million in outstanding letters 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 was amended in July 2003 to
bring us into compliance. As of September 30, 2003, we
violated certain compliance provisions of the agreement, which
were waived by SVB in October 2003. As of December 31,
2003, we were in compliance with the covenants in the agreement.

Inflation

The impact of inflation on our business was not
material for the fiscal quarter ended December 31, 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 December 31, 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

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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:



| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have established procedures for the timely
    reconciliation of all accounts and management review of account
    reconciliations;                                                                                                                     
|
| |  | We have changed our internal reporting structure
    to require branch accounting personnel to report directly to our
    finance department in the United States;                                                                                         
|
| |  | We are in the process of establishing audit and
    review procedures for each foreign branch consistent with each
    branchs exposure, including, as appropriate, outside
    auditors;                                                                 
|
| |  | We require 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;                           
|
| |  | We require corporate financial management
    personnel to investigate transactions where revenue has been
    recognized but the customer has not paid according to terms;                                                                                
|
| |  | We are in the process of 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;
|
| |  | We are 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                                     
|
| |  | We have established 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 has hired additional, more experienced, accounting
staff to provide more attention to account reconciliations. 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. 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-

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THERMA-WAVE, INC.


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


going basis and will take further action as
appropriate. Other than implementing the improvements discussed
above, there have been no significant 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.

24



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##### Table of Contents






PART II.  OTHER
INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

We settled a patent infringement suit with Boxer
Cross, Inc. in July 2003. For details, see our quarterly report
on Form 10-Q for the quarter ended September 28, 2003.

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 exhibits are included
herein:

|        |      |             |  |                                                                                                                                                                                        
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 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 (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 on Item 12
    filed on October 23, 2003 announcing the filing of the
    earnings release for the fiscal quarter ended September 28,
    2003.             
|
| | (2) | Current Report on Form 8-K on Item 5
    and Item 7 filed on December 22, 2003 announcing
    amended audit report of PricewaterhouseCoopers LLP for the year
    ended March 30, 2003.

25



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##### Table of Contents






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)

February 11, 2004

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EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                                        
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 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 (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)).