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 December 30, 2001

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



|Class                        | Outstanding as of January 31, 2002
|---------------------------- | ----------------------------------
|Common stock, $.01 par value | 28,811,884                        









THERMA-WAVE, INC.
                                TABLE OF CONTENTS



|PART I.   FINANCIAL INFORMATION                                                                                                                                                                               | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                              | 
|ITEM 1.   Financial Statements                                                                                                                                                                                | 
|                                                                                                                                                                                                              | 
|Condensed Consolidated Balance Sheets as of
          
December 31, 2001 and March 31, 2001                                                                                                                   | 
|                                                                                                                                                                                                              | 
|Condensed Consolidated Statements of Operations for the
          
    Three and Nine Months Ended December 31, 2001 and 2000                                                                                 | 
|                                                                                                                                                                                                              | 
|Condensed Consolidated Statements of Cash Flows for the
                                                                                                    
    Nine Months Ended December 31, 2001 and 2000 | 
|                                                                                                                                                                                                              | 
|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                                                                                                                                          | 
|                                                                                                                                                                                                              | 

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                                                    | 

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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)

`December 31,  March 31,
                                                          2001         2001
                                                      -----------  ------------
                           ASSETS
Current assets:
 Cash and cash equivalents.......................... $    51,723  $     55,725
 Short-term investments.............................      18,325        19,850
 Accounts receivable, net...........................      17,364        43,348
 Inventories........................................      44,997        47,181
 Other current assets...............................       5,346         3,925
                                                      -----------  ------------
    Total current assets............................     137,755       170,029
 Property and equipment, net........................      12,992        14,478
 Deferred income taxes..............................       1,379         3,405
 Other assets.......................................       4,566         3,279
                                                      -----------  ------------
    Total assets....................................     156,692       191,191
                                                      ===========  ============
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable...................................       4,560        12,547
 Accrued warranty costs.............................       2,501         3,742
 Deferred revenue...................................       7,532        17,096
 Income tax payable.................................       8,417        10,810
 Other current liabilities..........................       8,145        15,985
                                                      -----------  ------------
    Total current liabilities.......................      31,155        60,180
 Long term debt.....................................          16            16
 Other liabilities..................................       2,057         1,913
                                                      -----------  ------------
    Total liabilities...............................      33,228        62,109

Stockholders' equity
 Common stock.......................................         243           240
 Additional paid-in capital.........................     232,934       230,646
 Notes receivable from stockholders.................        (201)         (212)
 Accumulated deficit................................    (107,885)     (100,129)
 Accumulated other comprehensive loss...............      (1,627)       (1,463)
                                                      -----------  ------------
    Total stockholders' equity......................     123,464       129,082
                                                      -----------  ------------
    Total liabilities and stockholders' equity......     156,692       191,191
                                                      ===========  ============`

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    Nine Months Ended
                                                December 31,          December 31,
                                             --------------------  --------------------
                                                2001       2000       2001       2000
                                             ---------  ---------  ---------  ---------
Net revenues............................... $  11,054  $  57,029  $  70,535  $ 144,440
Cost of revenues...........................     9,522     27,633     42,777     72,141
                                             ---------  ---------  ---------  ---------
Gross profit...............................     1,532     29,396     27,758     72,299

Operating expenses:
  Research and development.................     7,643      9,282     21,157     25,477
  Selling, general and administrative......     5,243      7,892     16,248     20,669
                                             ---------  ---------  ---------  ---------
         Total operating expenses..........    12,886     17,174     37,405     46,146
                                             ---------  ---------  ---------  ---------
Operating income (loss)....................   (11,354)    12,222     (9,647)    26,153
Other income (expense):
  Interest expense.........................       (70)       (47)      (177)      (159)
  Interest income..........................       449        902      2,032      2,986
  Other, net...............................         8        (40)        36        102
                                             ---------  ---------  ---------  ---------
         Total other income................       387        815      1,891      2,929
                                             ---------  ---------  ---------  ---------
Income (loss) before provision for income t   (10,967)    13,037     (7,756)    29,082
Provision for income taxes.................        --       (735)        --     (1,697)
                                             ---------  ---------  ---------  ---------
Income (loss)  before cumulative effect of
  change in accounting principle...........   (10,967)    12,302     (7,756)    27,385
Cumulative effect of change in
  accounting principle, net of taxes.......        --         --         --     (6,287)
                                             ---------  ---------  ---------  ---------
Net income (loss).......................... $ (10,967) $  12,302  $  (7,756) $  21,098
                                             =========  =========  =========  =========
Basic net income (loss) per share:
  Income before cumulative effect
   of change in accounting principle....... $   (0.45) $    0.52  $   (0.32) $    1.17
  Cumulative effect of change in
   accounting principle....................        --         --         --      (0.27)
                                             ---------  ---------  ---------  ---------
Basic net income (loss) per share.......... $   (0.45) $    0.52  $   (0.32) $    0.90
                                             =========  =========  =========  =========
Diluted net income (loss) per share:
  Income before cumulative effect
   of change in accounting principle....... $   (0.45) $    0.49  $   (0.32) $    1.08
  Cumulative effect of change in
   accounting principle....................        --         --         --      (0.25)
                                             ---------  ---------  ---------  ---------
Diluted net income (loss) per share........ $   (0.45) $    0.49  $   (0.32) $    0.83
                                             ========= ==========  =========  =========
Weighted average common shares outstanding:
  Basic....................................    24,114     23,446     23,995     23,370
  Diluted..................................    24,114     25,116     23,995     25,387`

See accompanying notes to condensed consolidated financial statements.

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THERMA-WAVE, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (in thousands)

                                   (Unaudited)

`Nine Months Ended
                                                             December 31,
                                                          --------------------
                                                             2001       2000
                                                          ---------  ---------
Operating activities:
 Net income............................................. $  (7,756) $  21,098
 Adjustments to reconcile net income to net cash used
  by operating activities:
   Change in accounting principles......................        --      6,287
   Depreciation and amortization........................     3,836      2,202
 Changes in assets and liabilities:                             --         --
   Accounts receivable..................................    25,984    (25,163)
   Inventories..........................................     2,184    (23,472)
   Other assets.........................................      (379)    (1,228)
   Other liabilities....................................   (28,816)    17,122
                                                          ---------  ---------
    Net cash used by operating activities...............    (4,947)    (3,154)
                                                          ---------  ---------
Investing activities:
  Purchases of property and equipment...................    (2,034)    (6,865)
  Short-term investments................................     1,525    (19,344)
  Other.................................................      (619)      (370)
                                                          ---------  ---------
     Net cash used by investing activities..............    (1,128)   (26,579)
                                                          ---------  ---------
Financing activities:
  Proceeds from issuance of common stock................     2,291      2,931
  Principal payments under capital lease obligations....       (65)      (461)
  Other.................................................      (153)      (326)
                                                          ---------  ---------
Net cash provided by financing activities...............     2,073      2,144
                                                          ---------  ---------
 Net increase (decrease) in cash and cash equivalents...    (4,002)   (27,589)
 Cash and cash equivalents at beginning of period.......    55,725     75,200
                                                          ---------  ---------
 Cash and cash equivalents at end of period............. $  51,723  $  47,611
                                                          =========  =========
 Supplementary disclosures:
  Cash paid for interest................................ $      77  $     171
                                                          =========  =========
  Cash paid for taxes................................... $   2,466  $     541
                                                          =========  =========`

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. and its wholly owned subsidiaries. Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. In our opinion, the financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position at December 31,
2001, and the operating results and cash flows for the three and nine months
ended December 31, 2001 and 2000. These financial statements and notes should be
read in conjunction with our audited financial statements and notes thereto for
the year ended March 31, 2001.

The results of operations for the interim periods are not
necessarily indicative of the results of operations that may be expected for any
other period or for the fiscal year, which ends on March 31, 2002.

The third quarters of fiscal years 2002 and 2001 and the
fiscal year 2001 ended on December 30, 2001, December 31, 2000 and April 1,
2001, 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.

2. Inventories

Inventories are summarized as follows (in thousands):

`December 31,   March 31,
                                         2001          2001
                                     ------------  ------------
Purchased materials................ $     22,018  $     22,197
Systems in process.................       15,147        19,571
Finished systems...................        7,832         5,413
                                     ------------  ------------
                                    $     44,997  $     47,181
                                     ============  ============`

3. Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss)
for the period and the change in accumulated foreign currency translation
adjustments during the period. For the quarters ended December 31, 2001 and
2000, comprehensive income (loss) amounted to approximately $(11.4) million and
$12.1 million, respectively. For the nine months ended December 31, 2001 and
2000, comprehensive income (loss) amounted to approximately $(7.9) million and
$20.8 million, respectively.

4. Change in Accounting Principle

Effective April 1, 2000, we changed our method of
accounting for revenue recognition in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition
in Financial Statements." Equipment sales are accounted for as multiple-element
arrangement sales as described in SAB 101. The total revenue is allocated to
each component of the multi-element arrangement. Revenue on each element is
recognized when the contractual obligations have been performed, risk of loss
has passed to the customer, collection is probable and customer acceptance has
been obtained, if applicable. Revenue from systems and spare parts is generally
recognized at the time of shipment. Revenue on service contracts is 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.

In accordance with guidance provided in SAB 101, we recorded
$6.3 million (net of income tax benefit of $0.4 million), or $0.25 per diluted
share, as the cumulative effect of the change in accounting principle as of
April 1, 2000. All periods presented are consistent with the guidance provided
in SAB 101.

During the three months ended December 31, 2001 and 2000, we
recognized $69,000 and $1.4 million, respectively, out of the $9.4 million
revenue that was included in the cumulative effect adjustment as of April 1,
2000. During the nine months ended December 31, 2001 and 2000, we recognized
$1.6 million and $6.0 million, respectively, out of the $9.4 million revenue
that was included in the cumulative effect adjustment as of April 1, 2000.

5. Net Income (Loss) Per Share

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

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

`December 31,
                                        -----------------
                                           2001     2000
                                        -------- --------
  Common stock subject to repurchase
     (unvested)........................     150      367
  Stock options........................   2,561      162`

For the three months ended December 31, 2001 and 2000, anti-
dilutive stock options have a weighted average exercise price of $17.04 and
$21.85, respectively. For the nine months ended December 31, 2001 and 2000,
anti-dilutive stock options have a weighted average exercise price of $20.16 and
$26.63, respectively.

6. Recently Issued Accounting Statements

In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations. SFAS No. 141 addresses financial accounting and reporting
for business combinations and supersedes Accounting Principles Board ("APB")
Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. All business combinations
in the scope of SFAS No. 141 are to be accounted for using one method, the
purchase method. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001.

In July 2001, the FASB issued SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangibles and supercedes APB Opinion
No. 17, Intangible Assets. The provisions of SFAS No. 142 are required to be
applied starting with fiscal years beginning after December 15, 2001, with
certain early adoption permitted.

In October 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, and APB No. 30, Reporting
the Result of Operations-Reporting the Effect of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 as well as interim periods within those fiscal years. We are
currently reviewing this statement to determine its effect on our Company's
financial position and results of operation.

7. Commitments and Contingencies

On December 17, 2001, we signed a
definitive agreement to acquire Sensys Instruments Corporation. On December 28,
2001, Sensys was named in a patent infringement suit filed by KLA-Tencor. KLA-
Tencor alleged that it patented an aspect of the integrated metrology technology
that Sensys uses in their integrated product family. KLA-Tencor is seeking
damages and an injunction to stop the sale of the equipment they allege uses
this aspect. We believe none of the current Sensys products infringes any of the
claims of KLA-Tencor's patent. We believe that the outcome from this matter,
even if adverse to us, would not have a material adverse effect on our financial
condition or results of operations.

We are involved in various legal
proceedings from time to time arising in the ordinary course of business, none
of which is expected to have a material adverse effect on our business or
financial condition.

8. Subsequent Event

On January 16, 2002, the Company completed its
acquisition of Sensys Instruments Corporation ("Sensys"), a privately
held California corporation, which was focusing primarily on the emerging market
for integrated metrology. Under the terms of the agreement, approximately
5,408,000 shares of the Company's common stock are issuable for shares of
Sensys, and assumed Sensys stock options and warrants. Based on the closing
price of Therma-Wave's common stock over the 5 day period, representing two days
before and after January 11, 2002, the aggregate purchase price represents the
fair value of the shares issued to Sensys shareholders totalling approximately
$72.8 million and the estimated fair value of stock options and warrants assumed
totalling $14.2 million. The Company will also incur acquisition related costs,
which will be included in the total purchase price. The acquisition will be
accounted for as a purchase business combination subject to the guidance under
FAS 141 and 142.



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. Such statements relating
to our ability to manage our costs and reduce operating expenses, sustain our
operations and cash position in an extended 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, 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, 2001. 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.

General

We are a worldwide leader in the development, manufacture, marketing and
service of process control metrology systems for use in the manufacture of
semiconductors. Semiconductor manufacturers use process control metrology system
to monitor process parameters, increase equipment productivity, and improve
device performance. Our current process control metrology systems are
principally used for measuring ion implantation and thin film deposition and
removal.  We currently sell five product families of process control metrology
systems: Therma-Probe systems, Opti-Probe systems, Opti-Probe CD systems, Meta-
Probe systems, and Integrated Metrology systems.

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

Opti-Probe Product Family. Opti-Probe systems utilize
our proprietary optical technologies and integrate different measurement
technologies to significantly improve existing thin film metrology systems.

Opti-Probe CD Product Family. Opti-Probe CD systems are spectroscopic,
scatterometry-based systems that provide revolutionary, nondestructive Critical
Dimension (CD) metrology for the smallest features of the next generations
integrated circuits.

Meta-Probe Product Family. Meta-Probe thin-film measurement systems
utilize a patented technique based on x-ray reflectometry to rapidly and
independently measure thickness, density, and roughness of each film in multi-
layer stacks.

Integrated Metrology Product Family. Our Integra line of integrated
metrology systems is a broad-based family of compact metrology "modules" that
function with an integrated circuit process system, such as an etch or chemical
vapor deposition system, to provide metrology on each wafer before it exits the
process tool. With our acquisition of Sensys on January 16, 2002, we expect to
complement our current technology with that of Sensys to become the leader in
the emerging integrated metrology market.

Results of Operations

The following table summarizes our unaudited historical
results of operations as a percentage of net revenues for the periods indicated.
The historical financial data for the three and nine months ended December 31,
2001 and 2000 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    Nine Months Ended
                                                December 31,          December 31,
                                             --------------------  --------------------
                                                2001       2000       2001       2000
                                             ---------  ---------  ---------  ---------
Net revenues...............................     100.0 %    100.0 %    100.0 %    100.0 %
Cost of revenues...........................      86.1       48.5       60.6       49.9
                                             ---------  ---------  ---------  ---------
Gross profit...............................      13.9       51.5       39.4       50.1
                                             ---------  ---------  ---------  ---------
Operating expenses:
  Research and development.................      69.1       16.3       30.0       17.6
  Selling, general and administrative......      47.5       13.8       23.1       14.4
                                             ---------  ---------  ---------  ---------
         Total operating expenses..........     116.6       30.1       53.1       32.0
                                             ---------  ---------  ---------  ---------
Operating income (loss)....................    (102.7)      21.4      (13.7)      18.1
Other income (expense):
  Interest expense.........................      (0.6)      (0.1)      (0.3)      (0.1)
  Interest income..........................       4.1        1.6        2.9        2.1
  Other, net...............................       0.0         --        0.1         --
                                             ---------  ---------  ---------  ---------
         Total other income................       3.5        1.5        2.7        2.0
                                             ---------  ---------  ---------  ---------
Income (loss) before provision for income t     (99.2)      22.9      (11.0)      20.1
Provision for income taxes.................        --       (1.4)        --       (1.2)
                                             ---------  ---------  ---------  ---------
Income (loss)  before cumulative effect of
  change in accounting principle...........     (99.2)      21.5      (11.0)      18.9
Cumulative effect of change in
  accounting principle, net of taxes.......        --         --         --       (4.4)
                                             ---------  ---------  ---------  ---------
Net income (loss)..........................     (99.2)%     21.5 %    (11.0)%     14.5 %
                                             ========= ==========  =========  =========`

Net Revenues. Net revenues for the fiscal quarter
ended December 31, 2001 were $11.1 million, a decrease of $45.9 million, or
80.6%, from $57.0 million in the same fiscal quarter of the prior year. Compared
to the prior fiscal quarter, net revenues decreased $10.6 million, or 49.0%,
from $21.7 million. For the nine months ended December 31, 2001, net revenues
were $70.5 million, a decrease of $73.9 million, or 51.2%, from $144.4 million
in the comparable period of the prior year. The decrease in revenue was
primarily the result of capital spending reductions by our customers due to the
cyclical downturn of the semiconductor industry and the weakness of the global
economy.

During the three months ended December 31, 2001, we derived
approximately 58% of our revenues from system sales, 21% from sales of
replacement and spare parts, including associated labor, and 21% from service
contracts. During the three months ended December 31, 2000, we derived
approximately 91% of our revenues from system sales, 5% from sales of
replacement and spare parts, including associated labor, and 4% from service
contracts. During the nine months ended December 31, 2001, we derived
approximately 81% of our revenues from system sales, 9% from sales of
replacement and spare parts, including associated labor, and 10% from service
contracts. During the nine months ended December 31, 2000, we derived
approximately 91% of our revenues from system sales, 6% from sales of
replacement and spare parts, including associated labor, and 3% from service
contracts.

International sales accounted for approximately 52% and 40%
of our total revenues for the three months ended December 31, 2001 and 2000,
respectively. International sales accounted for approximately 58% and 57% of our
total revenues for the nine months ended December 31, 2001 and 2000,
respectively. We anticipate that international sales will continue to account
for a significant portion of our revenue in the foreseeable future. A
substantial portion of our international sales are denominated in U.S. dollars.
As a result, changes in the values of foreign currencies relative to the value
of the U.S. dollar can render our products comparatively more expensive.
Although we have not been negatively impacted in the past by foreign currency
changes in Japan, Korea, Taiwan and Europe, such conditions could negatively
impact our international sales in future periods.

We do not expect our revenues to increase significantly for
the next quarter or possibly longer. We believe that current over capacity in
the semiconductor business has limited the total purchases made in new
equipment. Current sales reflect our customers' demand for cutting-edge
technology while purchases to increase capacity have been delayed. Low order
booking rates, rescheduling of delivery and order cancellations will
likely

Gross Profit. Gross profit for the third quarter of
fiscal 2002 was $1.5 million, a decrease of $7.0 million, or 82.1%, from $8.5
million in the previous fiscal quarter. Compared to the same quarter of fiscal
2001, gross profit decreased $27.8 million or 94.8%. As a percentage of net
revenues, gross margin for the current quarter was 13.9%, compared to 39.5% for
last fiscal quarter and 51.5% for the same quarter of last fiscal year. For the
nine months ended December 31, 2001, gross profit was $27.8 million, a decrease
of $44.5 million, or 61.6%, from $72.3 million in the comparable period of the
prior year. As a percentage of net revenues, gross margin for the current nine
months was 39.4%, compared to 50.1% for the comparable period of the prior year.
Although we have continued to implement some cost reduction measures during the
quarter, these measures were not sufficient to substantially offset the sharp
decline in revenue and the lower overhead absorption resulting from our
substantially lower production volume.

Research and Development ("R&D") Expenses. R&D
expenses for the third quarter of fiscal 2002 were $7.6 million, a increase of
17.0% from the prior quarter and a decrease of 17.7% from the third quarter of
last fiscal year. For the nine months ended December 31, 2001, R&D expenses
were $21.2 million, a decrease of $4.3 million, or 17.0%, from $25.5 million in
the comparable period of the prior year. The increase from the prior fiscal
quarter was primarily due to the increase in materials, headcount and other
expenses related to our critical projects. The decrease from the same periods of
the prior fiscal year was primarily the result of reductions in patent defense
expense, contract labor and discretionary expenses. We expect to continue to
commit significant resources to the development of new products and other
programs because we believe that technical leadership will strengthen our market
position in the next economic upturn.

Selling, General and Administrative ("SG&A")
Expenses. SG&A expenses for the third quarter of fiscal 2002 were $5.2
million, a decrease of 1.0% from SG&A expenses of $5.3 million in the prior
fiscal quarter. Compared to the third quarter of last fiscal year, SG&A
expenses decreased 33.6%. For the nine months ended December 31, 2001, SG&A
expenses were $16.2 million, a decrease of $4.4 million, or 21.4%, from $20.6
million in the comparable period of the prior year. The decrease was primarily
due to lower sales commissions resulting from the lower orders and sales volume
and to a lesser effect, the implementation of cost containment measures.

Other Income. Other income for the third quarter of
fiscal 2002 was $0.4 million, which was 45.9% lower than that of the prior
fiscal quarter. Compared to the third quarter of the prior fiscal year, other
income decreased 52.5%. We derived other income primarily from the investment of
our cash on hand. For the nine months ended December 31, 2001, other income was
$1.9 million, a decrease of $1.0 million, or 35.4%, from $2.9 million in the
comparable period of the prior year. The decrease in other income was
attributable to lower average interest rates during the periods.

Provision for Income Taxes. For the three and nine
months ended December 31, 2001, the effective tax rate of 0% was based upon our
projected tax loss for fiscal 2002.

Net Income (Loss). The combination of all the factors
discussed above contributed to a net loss of $11.0 million for the third quarter
of fiscal 2002, compared with net loss of $2.2 million in the prior fiscal
quarter, and net income of $12.3 million in the same quarter of last fiscal
year. For the nine months ended December 31, 2001, net loss was $7.8 million,
compared with net income of $21.1 million in the same period of the prior fiscal
year.

Liquidity and Capital Resources

Our principal liquidity requirements are for working
capital. 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 $4.9 million and
$3.2 million for the first nine months of fiscal 2002 and 2001, respectively.
The increase in cash flows used by operating activities from fiscal year 2001 to
2002 was mainly due to our net loss in the first nine months of fiscal year
2002.

Cash flows used by investing activities were $1.1 million and
$26.6 million for the first nine months of fiscal 2002 and 2001, respectively.
Purchases of property and equipment were $2.0 million and $6.9 million for the
first nine months of fiscal 2002 and 2001, respectively.

Cash flows provided by financing activities were $2.1 million
and $2.1 million for the first nine months of fiscal 2002 and 2001,
respectively. Cash was generated from the exercise of stock options and issuance
of common stock under our employee stock purchase plan.

On December 29, 2001, we amended our existing bank credit
facility with Comerica Bank. The credit extension limit was amended to $13.5
million from $10.0 million. The amended agreement allows us to borrow money
bearing interest either at a floating rate per annum equal to the prime rate or
at a rate per annum equal to LIBOR plus 2.0%. Under the amendment, we may
request advances in an aggregate outstanding amount not to exceed the lesser of
$13.5 million or the Borrowing Base, in each case minus the aggregate face
amount of outstanding letters of credit, including any drawn but unreimbursed
letters of credit. Our borrowings under the Comerica bank credit facility are
secured by substantially all of our assets. The amended Comerica bank credit
facility matures on June 30, 2004.  As of December 31, 2001, there was a $3.5
million letter of credit outstanding, as required by the lessor of our building,
and $10.0 million of unused borrowing capacity under the new bank credit
facility.  We have been in compliance with all financial covenants related to
the bank credit facility before and after the amendment.

Our principal sources of funds are anticipated to be cash and
short-term investments on hand ($70.0 million as of December 31, 2001), cash
flows from operating activities and, if necessary, borrowings under the bank
credit facility. We expect to limit our capital spending to essential items. We
believe that these funds will provide us with sufficient liquidity and capital
resources for us to meet our current and future financial obligations for at
least the next twelve months. The acquisition of Sensys Instruments, which
closed in January 2002, is not expected to have a material effect on our
liquidity and capital resources. 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, 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.



Item 3. Quantitative and Qualitative Disclosure About
Market Risk

Market Risk Disclosures

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

Interest Rate Risk

As of December 31, 2001, 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.



Part II. -- Other Information

Item 1. Legal Proceedings

On December 17, 2001, we signed a
definitive agreement to acquire Sensys Instruments Corporation. On December 28,
2001, Sensys was named in a patent infringement suit filed by KLA-Tencor. KLA-
Tencor alleged that it patented an aspect of the integrated metrology technology
that Sensys uses in their integrated product family. KLA-Tencor is seeking
damages and an injunction to stop the sale of the equipment they allege uses
this aspect. We believe none of the current Sensys products infringes any of the
claims of KLA-Tencor's patent. We believe that the outcome from this matter,
even if adverse to us, would not have a material adverse effect on our financial
condition or results of operations.

We are involved in various legal proceedings from time to
time arising in the ordinary course of business, none of which are expected to
have a material adverse effect on our business or financial condition.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibit is included herein:

|Exhibit Number | Description                                                                                                                                                                                                                           
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            | Agreement and Plan of Reorganization, dated as of December 17,
2001, among Therma-Wave, Inc., FND Corp., Sensys Instruments Corporation and a
certain representative of all of the shareholders of Sensys Instruments
Corporation. (1)
|4.1            | Form of Registration Rights Agreement, dated as of January 16,
2002, among Therma-Wave, Inc., Sensys Instruments Corporation and each holder of
Sensys Instruments Corporation capital stock. (2)                                     
|4.2            | Employment Agreement, dated as of December 17, 2001, among
Therma-Wave, Inc. and Talat Hasan. (2)                                                                                                                                     
|10.38          | Amendment To Loan And Security Agreement, dated as of December
29, 2001,between Therma-Wave, Inc. and Comerica Bank-California                                                                                                        
|99.1           | Risk Factors. (3)                                                                                                                                                                                                                     



(1) Incorporated herein by reference to Therma-Wave's Current
Report on Form 8-K, as filed with the Commission on December 19, 2001
(Registration No. 000-26911)

(2) Incorporated herein by reference to Therma-Wave's Current
Report on Form 8-K, as filed with the Commission on January 16, 2002
(Registration No. 000-26911)

(3) Incorporated by reference to the same numbered exhibit in
the Company's Annual Report on Form 10-K for the period ended March 31, 2001
(Registration No. 000-26911)

(b) Reports on Form 8-K

The company filed a report on Form 8-K on December 19, 2001
to report the Agreement and Plan of Reorganization with FND Corporation and
Sensys Instruments Corporation.





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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)



| |     |                    
| | --- | -------------------
| | By: | /s/ L. RAY CHRISTIE

| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                
| | L. RAY CHRISTIE                                                                                                                                                                                                                
| | Chief Financial Officer
              (as Registrant and as Principal Accounting Officer)

                                                                                                            Dated: February 12, 2002

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