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

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FORM 10-Q

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(Mark One)

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

For the quarterly period ended September 28, 2003

OR

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

For the transition period from ________to _________

Commission file number 000-26911

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



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

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

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

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

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

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



|Class                        | Outstanding as of November 4, 2003
|---------------------------- | ----------------------------------
|Common stock, $.01 par value | 35,325,081                        







THERMA-WAVE, INC.
                                TABLE OF CONTENTS



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

PART II.  OTHER INFORMATION



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

Note:	The second quarters of fiscal years 2004 and 2003 and the
entire fiscal year 2003 ended on September 28, 2003, September 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.



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PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

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THERMA-WAVE, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                (In thousands)

                                  (Unaudited)

`September 30   March 31,
                                                          2003         2003
                                                      -----------  ------------
                           ASSETS
Current assets:
 Cash............................................... $    22,552  $     13,695
 Restricted cash....................................          --         1,064
 Accounts receivable, net...........................      10,666        13,822
 Inventories........................................      18,702        22,146
 Other current assets...............................       1,531         1,657
                                                      -----------  ------------
    Total current assets............................      53,451        52,384
 Property and equipment, net........................       6,465         9,004
 Intangible assets, net.............................       1,575         1,811
 Other assets.......................................       2,836         4,504
                                                      -----------  ------------
    Total assets.................................... $    64,327  $     67,703
                                                      ===========  ============
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable................................... $     3,077  $      2,148
 Accrued liabilities................................      14,114        15,589
 Deferred revenues..................................       6,768        11,138
                                                      -----------  ------------
    Total current liabilities.......................      23,959        28,875
 Non-current deferred revenues......................       4,715            --
 Other long-term liabilities........................       1,790         2,490
                                                      -----------  ------------
    Total liabilities...............................      30,464        31,365
                                                      -----------  ------------
Stockholders' equity:
 Common stock.......................................         352           293
 Additional paid-in capital.........................     334,879       322,048
 Treasury stock.....................................          --          (437)
 Notes receivable from stockholders.................        (174)         (196)
 Accumulated other comprehensive loss...............        (988)       (1,334)
 Deferred stock-based compensation..................      (2,015)       (1,107)
 Accumulated deficit................................    (298,191)     (282,929)
                                                      -----------  ------------
    Total stockholders' equity......................      33,863        36,338
                                                      -----------  ------------
    Total liabilities and stockholders' equity...... $    64,327  $     67,703
                                                      ===========  ============`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                     (In thousands, except per share data)

                                  (Unaudited)

`Three Months Ended    Six Months Ended
                                                September 30,         September 30,
                                             --------------------  --------------------
                                                2003       2002        2003       2002
                                             ---------  ---------  ---------  ---------
Net revenues
  Product.................................. $   9,604  $   5,688  $  16,411  $  15,398
  Service and parts........................     4,462      5,257      9,558     10,496
                                             ---------  ---------  ---------  ---------
         Total net revenues................    14,066     10,945     25,969     25,894
Cost of revenues (1).......................     8,499     17,969     17,570     29,840
                                             ---------  ---------  ---------  ---------
Gross profit (loss)........................     5,567     (7,024)     8,399     (3,946)
                                             ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.................     5,183      8,108     10,131     16,103
  Selling, general and administrative......     5,854      6,659     11,383     12,780
  Impairment of goodwill and
  other intangible assets..................        --     66,977         --     66,977
  Restructuring, severance and other.......       108      1,165      1,592      1,165
  Stock-based compensation (2).............       204        466        414      1,052
                                             ---------  ---------  ---------  ---------
         Total operating expenses..........    11,349     83,375     23,520     98,077
                                             ---------  ---------  ---------  ---------
Operating loss.............................    (5,782)   (90,399)   (15,121)  (102,023)
Other income (expense):
  Interest expense.........................        10        (51)       (11)      (102)
  Interest income..........................        32        501         69        765
  Other, net...............................        12         63       (199)       171
                                             ---------  ---------  ---------  ---------
         Total other income (expense)......        54        513       (141)       834
                                             ---------  ---------  ---------  ---------
Net loss................................... $  (5,728) $ (89,886) $ (15,262) $(101,189)
                                             =========  =========  =========  =========
Net loss per share:
  Basic and Diluted........................ $   (0.19) $   (3.16) $   (0.52) $   (3.55)

Weighted average common shares outstanding:
  Basic and Diluted........................    30,036     28,480     29,370     28,525

Stock-based compensation included in:
  (1) Cost of revenues..................... $      15  $      13  $      16  $      27
                                             ---------  ---------  ---------  ---------
Stock-based compensation excluded from:
      Research and development.............       126        269        250        586
      Selling, general and administrative..        78        197        164        466
                                             ---------  ---------  ---------  ---------
(2) Total operating expenses...............       204        466        414      1,052
                                             ---------  ---------  ---------  ---------
     Total stock-based compensation........ $     219  $     479  $     430  $   1,079
                                             =========  =========  =========  =========`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

`Six Months Ended
                                                             September 30,
                                                          --------------------
                                                             2003       2002
                                                          ---------  ---------
Operating activities:
 Net loss............................................... $ (15,262) $(101,189)
 Adjustments to reconcile net loss to net cash
  provided (used) by operating activities:
   Depreciation and amortization........................     2,750      3,459
   Amortization of intangible assets....................       236        581
   Amortization of deferred stock-based compensation....       430      1,079
   Impairment of goodwill and other intangible assets...        --     66,977
   Allowance for doubtful accounts, returns and
   allowance............................................    (1,013)      (488)
   Inventory charge.....................................        --      7,425
   Loss on disposal of property, plant and equipment....       191         --
   Loss on sale of an investment........................       125         --
 Changes in assets and liabilities:
   Accounts receivable..................................     4,169      1,558
   Inventories..........................................     3,444     (2,467)
   Other assets.........................................     1,293      1,658
   Accounts payable.....................................       929      1,404
   Accrued and other liabilities........................    (2,175)      (967)
   Deferred revenues....................................       345      2,401
                                                          ---------  ---------
    Net cash used by operating activities...............    (4,538)   (18,569)
                                                          ---------  ---------
Investing activities:
  Purchases of property and equipment...................       (37)      (821)
  Purchases of short-term investments...................        --       (990)
  Proceeds from sale of an investment...................       375         --
  Purchase of patents and other.........................      (363)      (617)
  Restricted cash.......................................     1,064         --
                                                          ---------  ---------
     Net cash provided(used)by investing activities.....     1,039     (2,428)
                                                          ---------  ---------
Financing activities:
  Proceeds from issuance of common stock................    11,988        970
  Proceeds from note receivable from stockholders.......        22          4
  Purchase of treasury stock............................        --       (846)
                                                          ---------  ---------
    Net cash provided by financing activities...........    12,010        128
                                                          ---------  ---------

  Effect of exchange rates on cash......................       346        364

 Net increase(decrease) in cash and cash equivalents....     8,857    (20,505)
 Cash and cash equivalents at beginning of period.......    13,695     46,484
                                                          ---------  ---------
 Cash and cash equivalents at end of period............. $  22,552  $  25,979
                                                          =========  =========
 Supplementary disclosures:
  Cash paid for interest................................ $      22  $      32
                                                          =========  =========
  Cash paid for taxes................................... $       9  $     129
                                                          =========  =========`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC. 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

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

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

Stock-Based Compensation

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



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

`Three Months Ended       Six Months Ended
                                               September 30,           September 30,
                                            --------------------   ---------------------
                                               2003       2002        2003        2002
                                            ---------  ---------   ---------   ---------
Net loss (in thousands)
As reported.............................  $   (5,728) $ (89,886) $  (15,262) $ (101,189)
Stock-based employee compensation
expense included in the determination
of net loss, as reported................         219        479         430       1,079
Stock-based employee compensation
expense determined using fair value
method..................................        (952)    (1,415)     (2,418)     (3,377)
                                            ---------  ---------   ---------   ---------
Pro forma net loss......................  $   (6,461) $ (90,822) $  (16,980) $ (103,487)

Basic and diluted net loss per share
As reported.............................  $    (0.19) $   (3.16) $    (0.52) $    (3.55)
Pro forma net loss......................  $    (0.22) $   (3.19) $    (0.58) $    (3.63)`

2. Inventories

Inventories are summarized as follows (in thousands):

`September 30,   March 31,
                                         2003          2003
                                     ------------  ------------
Purchased materials................ $      6,253  $      2,459
Systems in process.................        7,281        11,340
Finished systems...................        5,168         8,347
                                     ------------  ------------
                                    $     18,702  $     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 September 30, 2003 and 2002, comprehensive
loss amounted to approximately $5.5 million and $89.9 million, respectively. For
the six months ended September 30, 2003 and 2002, comprehensive loss amounted to
approximately $14.9 million and $100.8 million, respectively.

4. Deferred Revenues

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

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.

`September 30,
                                             -------------------
                                               2003      2002
                                             --------- ---------
  Common stock subject to repurchase
   (unvested)...............................       --        --
  Common stock held in escrow account.......       --       541
  Stock options.............................    5,209     5,025
  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 September 30, 2003 and 2002, anti-
dilutive stock options have a weighted average exercise price of $9.07 and
$12.52, respectively. The warrants outstanding at September 30, 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 1,371,820 options eligible for
exchange, 1,352,108 options, or 99%, were exchanged for 1,014,444 new options
with an exercise price of $2.38. None of these replacement options vest before
June 11, 2004.

We expect the weighted average exercise price of stock
options outstanding to be lower after the second quarter of fiscal 2004 due to
the completion of our employee stock option exchange program in September 2003.

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 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." We are assessing the potential impact of this guidance, but as of this
date we have not identified any material impact on our financial position or
results of operations due to the adoption of EITF 00-21.

7. Commitments and Contingencies

Our off-balance sheet commitments are limited to
equipment operating leases, leases on office and manufacturing space, certain
software license agreements, and commitments to vendors related to non-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.

Future payments due under operating leases and other
commitments as of September 30, 2003 (in thousands) are as follows:

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

   2004.............................. $   1,485  $   3,463
   2005..............................     2,546        482
   2006..............................     1,862         40
   2007..............................       536         40
   2008..............................       555         --
   Thereafter........................        93         --
                                       ---------  ---------
   Total future minimum payments..... $   7,077  $   4,025
                                       =========  =========`

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 September 30, 2003,
nor have we incurred any losses under such indemnification during the periods
covered in this report.

Legal Proceedings

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

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

8. Restructuring, Severance and Other Costs

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

`Liability as of                          Liability as of
                                    March 31, 2003   Provision  Utilization  September 30, 2003
                                    ---------------  ---------  -----------  ------------------
Severance and workforce reduction.. $         558    $  1,418   $   (1,951)  $             25
Consolidation of excess facilities.           662          82         (280)               464
Other..............................           134          92         (171)                55
                                    --------------   ---------  -----------  ------------------
                                    $       1,354    $  1,592   $   (2,402)  $            544
                                    ==============   =========  ===========  ==================`

Severance and workforce reduction

In April 2003, the Company reduced its workforce by
approximately 45 employees across all functional areas. Severance and related
employee benefit costs related to the reduction in force in April 2003 amounted
to $1.4 million, which have been or will be paid at the time of the employees'
separation. The Company anticipates that the accrued liability at September 30,
2003 of $25,000 will be paid out by the end of October 2003.

Consolidation of excess facilities

The Company incurred a $0.7 million restructuring
charge in fiscal 2003 for two excess facilities leased by Sensys in Santa Clara,
California, which reflects the remaining lease obligations on vacated facilities
that are non-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 quarter 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 September
30, 2003 of $0.5 million will be paid out by the end of March 2006.

Other

Other costs relate to specific expenses incurred as a
result of the reduction in force programs. The Company anticipates that the
$55,000 accrued liabilities as of September 30, 2003 related to other costs of
workforce reduction will be paid out by the end of November 2003.

9. Warranty Accrual

At the time of revenue recognition, we provide an accrual
for estimated costs to be incurred pursuant to our warranty obligation. Our
estimate is based primarily on historical experience. Changes in the warranty
accrual during the three and six months ended September 30, 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
September 30, 2003...... $           1,139  $           453  $        (282) $           1,310
                          -----------------  ---------------  -------------  -----------------
Six Months Ended
September 30, 2003...... $             983  $           925  $        (598) $           1,310
                          -----------------  ---------------  -------------  -----------------`

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 September 30, 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.

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

`September 30, 2003                            March 31, 2003
                              -----------------------------------------  ---------------------------------------
                              Gross Carrying  Accumulated   Net Carrying Gross Carrying Accumulated  Net Carrying
                                 Amount      Amortization     Amount        Amount      Amortization   Amount
                              -------------  -------------  -----------  -------------  -----------  -----------
Intangible assets, net
  Developed technology...... $         314  $        (314) $        --  $         314  $      (314) $        --
  Development contract......         2,415           (840)       1,575          2,415         (604)       1,811
  Trade name................           197           (197)          --            197         (197)          --
                              -------------  -------------  -----------  -------------  -----------  -----------
                             $       2,926  $      (1,351) $     1,575  $       2,926  $    (1,115) $     1,811
                              =============  =============  ===========  =============  ===========  ===========`

Amortization of intangible assets was $0.1 million and $0.2
million for the three and six months ended September 30, 2003.  Amortization
expense is expected to be $0.3 million for the remainder of fiscal 2004 (a total
of $0.5 million for fiscal 2004).  Amortization expense is expected to be $0.5
million for fiscal 2005 and 2006, and $0.3 million for 2007, respectively.

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 1,371,820 options
eligible for exchange, 1,352,108 options, or 99%, were exchanged for 1,014,444
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 September 30, 2003, the company has recorded approximately
$60,000 in compensation expense related to the exchange program. This charge
reflects the new options issued in the exchange which were outstanding for only
eighteen days of the fiscal quarter. Due to variable accounting, expense will be
recorded for vested options for 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.

13. Subsequent Events

In October 2003, the Company reduced its workforce by
approximately 6% across all functional areas. We expect severance related and
other restructuring costs to total approximately $0.4 million in our fiscal
third quarter.



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

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

SEC Reports

Our quarterly reports on Form 10-Q, annual reports on
Form 10-K, current reports on Form 8-K, and all amendments to these reports
filed with the U.S. Security and Exchange Commission, are available for review
free of charge on the SEC's website through a link on our website at

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®, and 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 linewidths 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.

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 techniques of combining optical measurement technologies and correlating
the results have also been patented by us.

Addressing New Market: Lithography Metrology

Opti-Probe RT/CD and Integra are two additional recently-introduced
product families. 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 our 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,
in-process research and development, or IPR&D, goodwill and intangible assets,
income taxes and warranty accruals. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of 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 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
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 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 $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 September 30, 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.

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 September 30, 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. 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 six months ended September 30,
2003 and 2002 were derived from our unaudited consolidated financial statements
which, in the opinion of management, reflect all adjustments (consisting of
normal recurring adjustments) necessary for the fair presentation of the
financial condition and results of operations for such periods.

`Three Months Ended    Six Months Ended
                                                September 30,         September 30,
                                             --------------------  --------------------
                                                2003       2002        2003       2002
                                             ---------  ---------  ---------  ---------
Net revenues
  Product..................................      68.3 %     52.0  %    63.2 %     59.5 %
  Service and parts........................      31.7       48.0       36.8       40.5
                                             ---------  ---------  ---------  ---------
         Total net revenues................     100.0      100.0      100.0      100.0
Cost of revenues...........................      60.4      164.2       67.7      115.2
                                             ---------  ---------  ---------  ---------
Gross profit (loss)........................      39.6      (64.2)      32.3      (15.2)
                                             ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.................      36.8       74.1       39.0       62.2
  Selling, general and administrative......      41.6       60.8       43.8       49.4
  Impairment of goodwill and
  other intangible assets..................        --      611.9         --      258.7
  Restructuring, severance and other.......       0.8       10.7        6.1        4.5
  Stock-based compensation.................       1.5        4.3        1.6        4.0
                                             ---------  ---------  ---------  ---------
         Total operating expenses..........      80.7      761.8       90.5      378.8
                                             ---------  ---------  ---------  ---------
Operating loss.............................     (41.1)    (826.0)     (58.2)    (394.0)
Other income (expense):
  Interest expense.........................       0.1       (0.5)        --       (0.4)
  Interest income..........................       0.2        4.6        0.2        3.0
  Other, net...............................       0.1        0.6       (0.8)       0.6
                                             ---------  ---------  ---------  ---------
         Total other income (expense)......       0.4        4.7       (0.6)       3.2
                                             ---------  ---------  ---------  ---------
Net loss...................................     (40.7)%   (821.3) %   (58.8)%   (390.8)%
                                             ========= ==========  ========= ==========`

Net Revenues. Net revenues for the fiscal quarter
ended September 30, 2003 were $14.1 million. Compared to the first quarter of
fiscal 2004, net revenues increased $2.2 million, or 18.2%, from $11.9 million.
Net revenues increased $3.2 million, or 28.5%, from $10.9 million in the same
fiscal quarter of the prior year. For the six months ended September 30, 2003,
net revenues were $26.0 million, an increase of $0.1 million, or 0.3%, from
$25.9 million in the comparable period of the prior year.

Our primary business is the design, manufacture and sale of
our Therma-Probe, Opti-Probe, Opti-Probe Critical Dimension and Integrated
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.  During the three months ended September 30, 2003, we
derived approximately 68% of our net revenues from system sales and 32% from
sales of replacement and spare parts, including associated labor, and revenues
recognized from service contracts. During the three months ended September 30,
2002, we derived approximately 52% of our net revenues from system sales and we
derived 63% and 60%, respectively, of our net revenues from system sales for the
six months ended September 30, 2003 and for the six months ended September 30,
2002.

International sales accounted for approximately 70% and 67%
of our total net revenues for the three months ended September 30, 2003 and
2002, respectively. For the six months ended September 30, 2003 and 2002,
respectively, international sales accounted for approximately 61% and 73% 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 second
quarter of fiscal 2004 was $5.6 million, an increase of $2.8 million, from a
gross profit of $2.8 million in the previous fiscal quarter. Compared to the
same quarter of fiscal 2003, gross profit increased $12.6 million. As a
percentage of net revenues, gross margin for the current quarter was 39.6%,
compared to 23.8% for the last fiscal quarter and (64.2)% for the same quarter
of last fiscal year. For the six months ended September 30, 2003, gross profit
was $8.4 million, an increase of $12.3 million, from $(3.9) million in the
comparable period of the prior year.  As a percentage of net revenues, gross
margin for the current six months was 32.3%, compared to (15.2)% in the
comparable period of the prior year. The rise of gross profit was attributable
to a combination of higher production and sales volumes, the sale of materials
previously reserved and cost reductions. During the second quarter of fiscal
2004, the release of inventory reserves under SAB 100 accounting for shipment of
materials previously reserved totaled $3.0 million, however, this was offset by
$1.7 million of additional provisions for obsolete and excess inventory. We also
disposed of $0.8 million of obsolete materials previously reserved.

Research and Development, or R&D, Expenses.
R&D expenses for the second quarter of fiscal 2004 were $5.2 million, an
increase of 4.7% from the prior quarter and a decrease of 36.1% from the same
quarter of last fiscal year. For the six months ended September 30, 2003,
R&D expenses were $10.1 million, a decrease of $6.0 million, or 37.1%, from
$16.1 million in the comparable period of the prior year. The decrease of
R&D expenses was primarily due to reduction in force programs in R&D
functions in February 2003 and April 2003. We expect our overall R&D
expenditure will remain at the current level. However we plan to reallocate 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 second quarter of fiscal 2004 were $5.9
million, an increase of 5.9% from SG&A expenses of $5.5 million in the prior
fiscal quarter. Compared to the second quarter of last fiscal year, SG&A
expenses decreased by 12.1%. For the six months ended September 30, 2003,
SG&A expenses were $11.4 million, a decrease of $1.4 million, or 10.9%, from
$12.8 million in the comparable period of the prior year.

Restructuring, Severance and Other. Restructuring,
severance and other expenses for the second quarter of fiscal 2004 were $0.1
million. This charge consisted of a change in estimate for sub-lease income
pertaining to one location which was sub-leased during the second fiscal quarter
of 2004, and a decrease of 93.3% from restructuring, severance and other
expenses of $1.5 million in the prior fiscal quarter. Compared to the second
quarter of last fiscal year, restructuring, severance and other expenses
decreased by 90.7%, from $1.2 million. For the six months ended September 30,
2003, restructuring, severance and other expenses were $1.6 million, an increase
of $0.4 million, or 36.7%, from $1.2 million in the comparable period of the
prior year.

In October 2003, we reduced our workforce by approximately 6%
across all functional areas. We expect severance related and other restructuring
costs to total approximately $0.4 million in our fiscal third quarter.

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 $0.2 million, $0.2 million, and $0.5 million for the
quarters ended September 30, 2003, June 30, 2003 and September 30, 2002,
respectively, a portion of which was included in cost of revenues.  The decrease
of stock-based compensation expense in the first quarter of fiscal 2004 was
primarily due to programs of reduction in force of Sensys employees during
fiscal 2003 and the first two 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 $60,000
of stock-based compensation in the second fiscal quarter of 2004.  This charge
reflects the new options issued in the exchange which were outstanding for only
eighteen days of the fiscal quarter.  Due to variable accounting, expense will
be recorded for vested stock options for 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 income for the second
quarter of fiscal 2004 was $0.1 million, compared to other expense of $0.2
million in the prior fiscal quarter, and other income of $0.5 million in the
same quarter of the prior fiscal year. For the six months ended September 30,
2003, other expense was $0.1 million, a decrease of $0.9 million, or 117% from
$0.8 million of other income 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 income from the same quarter of the prior year was
attributable to lower average interest rates as well as lower average investment
balances and an interest refund from the Internal Revenue Service in the amount
of $0.3 million, which was included in other income in the second quarter of
fiscal 2003. Other expense includes a loss on the sale of an investment in the
first quarter of fiscal 2004 in the amount of $0.1 million.

Net Loss. The combination of all the factors discussed
above contributed to a net loss of $5.7 million for the second quarter of fiscal
2004, compared with a net loss of $9.5 million in the prior fiscal quarter and
net loss of $89.9 million in the same quarter of last fiscal year. We expect
that with our cost reduction programs in place and the expected revenue
increase, we will continue to reduce our net loss amounts in the coming quarters
of fiscal 2004.

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. Our
accumulated deficit was $292.5 million as of June 30, 2003 and $298.2 million as
of September 30, 2003.

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.

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

Our principal sources of funds are anticipated to be cash on
hand ($22.6 million as of September 30, 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
place, we will reduce operating expenses significantly enough so that we will
have sufficient liquidity and capital resources to meet our current and future
financial obligations for at least the next twelve months. No assurance can be
given, however, that this will be the case. We may require additional equity or
debt financing to meet our working capital requirements or to fund our research
and development activities. There can be no assurance that additional financing
will be available when required or, if available, will be on terms satisfactory
to us.

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

Cash flows used by operating activities were $4.5 million and
$18.6 million for the first six months of fiscal 2004 and 2003, respectively.
The decrease in cash flows used by operating activities from fiscal year 2003 to
2004 was mainly due to a lower net loss, the collection of accounts receivable
and the use of inventory on hand in the first six months of fiscal year 2004.

Cash flows provided (used) by investing activities were $1.0
and $(2.4) million for the first six months of fiscal 2004 and 2003,
respectively.  The increase in cash flows provided by investing activities was
primarily due to 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 six months of fiscal 2004 and 2003,
respectively. Cash was generated from the exercise of stock options and warrants
and the issuance of common stock under our employee stock purchase plan, and
from the repayment of notes receivable from stockholders who were our former
employees. The increase in cash provided by financing activities in the second
quarter 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 and certain software
license agreements, and commitments to vendors related to non-cancelable
inventory purchase orders.  Future payments due under these obligations as of
September 30, 2003 (in thousands) are as follows:

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

   2004.............................. $   1,485  $   3,463
   2005..............................     2,546        482
   2006..............................     1,862         40
   2007..............................       536         40
   2008..............................       555         --
   Thereafter........................        93         --
                                       ---------  ---------
   Total future minimum payments..... $   7,077  $   4,025
                                       =========  =========`

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 September 30,
2003.

In June 2003, we entered into a new loan and security
agreement with Silicon Valley Bank, or SVB. The new agreement includes a $5.0
million domestic line of credit, including a sub-limit of $5.0 million for
letters of credit, and a $10.0 million Export-Import Bank of the United States,
or EXIM, guaranteed revolving line of credit. The new bank credit facility
allows us to borrow money under the domestic line bearing interest at the SVB
prime rate plus 1.50% floating. The EXIM revolving line allows us to borrow
money at the SVB prime rate plus 1.75% floating. We may request advances in an
aggregate outstanding amount not to exceed the lesser of $15.0 million total
under the two lines or the borrowing base, in each case minus the aggregate face
amount of outstanding letters of credit, including any drawn but 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 June 30, 2003,
we had $1.0 million outstanding letter of credit under this agreement. The
credit facilities mature on June 13, 2004. As of June 30, 2003, we violated
certain compliance provisions of the agreement, which were amended in July 2003.
As of September 30, 2003, we violated certain compliance provisions of the
agreement, which were waived by SVB in October 2003.

Inflation

The impact of inflation on our business was not material for the fiscal
quarter ended September 30, 2003.



Item 3. Quantitative and Qualitative Disclosure about
Market Risk

Market Risk Disclosures

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

Interest Rate Risk

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

Foreign Currency Exchange Risk

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



Item 4. Controls and Procedures

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

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

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



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

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

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



Part II. -- Other Information

Item 1. Legal Proceedings

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

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

Item 2. Changes in Securities and Use of Proceeds

On September 16, 2003, in a transaction exempt from
registration under Section 4(2) of the Securities Act, we completed a private
placement of 5,800,000 shares of our common stock to accredited investors, as
that term is defined in Section 501 of the Securities Act.  The shares were sold
at $2.20 per share and we received aggregate gross proceeds of $12,760,000 from
these sales.  Needham & Company, Inc., acted as placement agent and received
a commission for such services of $877,800.

Item 3. Defaults Upon Senior
Securities

None.

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

The 2003 Annual Meeting of Stockholders was held on August 22,
2003. The following proposals were voted: (I) the election of our directors;
(II) an increase in the number of shares of common stock that may be issued
under the 2000 Equity Incentive Plan by 1,000,000 shares; (III) an increase in
the number of shares of common stock that may be issued under the 2000 Employee
Stock Purchase Plan by 1,000,000 shares. The vote tally was as follows:

Proposal I

|Directors             | Director Class | Total Vote for Each Director | Total Vote Withheld From Each Director
|--------------------- | -------------- | ---------------------------- | --------------------------------------
|Talat F. Hasan        | I              | 23,068,116                   | 2,541,263                             
|G. Leonard Baker, Jr. | I              | 23,801,339                   | 1,808,040                             
|Boris Lipkin          | I              | 25,433,722                   | 175,657                               
|Papken Der Torossian  | III            | 25,430,296                   | 179,083                               



Proposal II

``

|For       | Against   | Abstain | Non Votes 
|--------- | --------- | ------- | ----------
|7,301,781 | 2,570,664 | 82,342  | 15,654,592

``

Proposal III

``

|For       | Against   | Abstain | Non Votes 
|--------- | --------- | ------- | ----------
|8,798,775 | 1,074,920 | 81,092  | 15,654,592

Proposal I, Proposal II and Proposal III were approved by our
stockholders.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are included herein:

|Exhibit Number | Description                                                                                                                                                                                                                                           
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6            | Registration Rights Agreement, dated as of
September 15, 2003, between Therma-Wave, Inc. and the stockholders listed
therein (incorporated by reference to the same numbered exhibit in the
Registration Statement on Form S-1 (Reg. No. 333-110162)).
|10.39          | Amendment No.1 to Employment Agreement, dated
August 21, 2003, between Boris Lipkin and Therma-Wave, Inc.                                                                                                                                             
|10.40          | Amendment No.1 to Employment Agreement, dated
August 10, 2003, between L. Ray Christie and Therma-Wave, Inc.                                                                                                                                          
|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 9 filed on September
17, 2003 announcing closing of $12.8 million of private placement of Therma-Wave
common stock.
2. Current Report on Form 8-K on Item 12 filed on July 29,
2003 announcing the filing of the earnings release for the fiscal quarter ended
June 29, 2003.

















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SIGNATURES

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





THERMA-WAVE, INC.

(Registrant)



/s/ L. RAY CHRISTIE

L. RAY CHRISTIE

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

November 12, 2003





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