UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-26911

THERMA-WAVE, INC.

(Exact Name of Registrant as Specified in Its Charter)

(Registrant’s Telephone Number, Including Area Code)

(510) 668-2200

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of Class)

     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 such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.     o

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

      The aggregate market value of the common equity held by non-affiliates of the registrant, based upon the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter (September 26, 2004) as reported by the Nasdaq National Market, was approximately $119 million.

      As of June 17, 2005, the registrant had 36,341,178 shares of common stock outstanding.

      Portions of the Proxy Statement for the 2005 annual stockholders meeting are incorporated by reference into Part III.

THERMA-WAVE, INC.

FORM 10-K

TABLE OF CONTENTS

PART I

      This annual report on Form 10-K contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation, any statements concerning the conditions in the semiconductor and semiconductor capital equipment industries, our operations, economic performance and financial condition, including in particular statements relating to our business, growth strategy, improved gross margins and product development efforts, statements related to benefits to be derived from our agreement with Hermes-Epitek Corporation, statements related to ongoing and future restructurings aimed at reducing the company’s overall cost structure, statements related to returning the company to profitability and statements of belief and statements of assumptions underlying any of the foregoing. The words “will,” “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology generally identify forward-looking statements.

      These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties, including, without limitation, those identified under the section titled “Risk Factors,” and elsewhere in this annual report and other risks and uncertainties indicated from time to time in our filings with the SEC. Actual results could differ materially from these forward-looking statements. All forward-looking statements included in this annual report are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Overview

      Therma-Wave develops, manufacturers, markets and services process control metrology systems used in the manufacture of semiconductors. Process control metrology is used to monitor process parameters to enable semiconductor manufacturers to maintain high overall manufacturing yield, increase their equipment productivity and reduce the size of the circuit features imprinted on the semiconductor to thereby improve the performance of the semiconductor device. Our current product families, Therma-Probe®, Opti-Probe®, Opti-Probe CD^tm and RT/ CD®, and Integra® integrated metrology products, use proprietary and patented technology to provide precise, non-contact, non-destructive measurement for the basic building blocks, or process modules, used in the manufacture of integrated circuits (ICs):

      Our services include selling parts, billable service calls, and maintenance contracts related to our metrology products. Service and parts revenues are derived either from the performance of billable service calls, direct sales of parts, or service maintenance contracts, which are normally of one-year duration. We do not service any products other than those sold by us.

Industry Background

      The demand for semiconductors has increased as the use of semiconductors has expanded beyond personal computers and computer systems to a wide array of additional applications, including telecommunication and data communication systems, automotive systems, consumer electronics, medical products and household appliances. Additionally, the Internet has stimulated the need for more high performance semiconductor devices. As a result, semiconductors have become more complex, requiring:

      Additionally, the life cycle for these semiconductor device processes has been compressed from four years in the early 1990s to approximately two years today. The increase in device complexity and reduction in product life cycles have led to a more costly and complex manufacturing process. At the same time, semiconductor manufacturers have continued to face significant price pressure due to competition in the industry. These factors have led semiconductor manufacturers to intensify efforts to improve fab productivity, including the increased use of process control metrology.

      Process control metrology is used to monitor process parameters so as to enable semiconductor manufacturers to reduce costs and improve device performance. Historically, semiconductor manufacturers have achieved annual reduction in cost per chip function through productivity improvements including reduced feature size, increased wafer size and increased equipment productivity. Although increasing wafer size and yield (percentage of “good” ICs per wafer) will continue to be sources of productivity gains by semiconductor manufacturers, increasingly, we believe, gains will come predominately from reduced feature size and non-yield-derived manufacturing productivity enhancements. This important last category includes increased equipment uptime, reduced manufacturing space requirements, reduced use of wafers for testing purposes, and lower tool maintenance costs.

Therma-Wave Metrology Solutions

      Our family of metrology products currently consists of Therma-Probe, Opti-Probe, including Opti-Probe CD, and Integra product lines.

      The following table lists the percentage of net revenues by product family for the years ended March 31, 2005, 2004 and 2003.

Therma-Probe Product Family

      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 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.

      A key process step in the fabrication of semiconductor devices is the implantation of ions of boron, phosphorous, arsenic, antimony, and indium into selective areas of silicon wafer to alter its electrical properties. Control of the accuracy and uniformity of the ion implant dose is critical to device performance and yield. Ion implantation is generally performed several (typically ten to 24) times during the early phases of the fabrication cycle. As a result, there is typically a time lag of several weeks between these implant steps and the first electrical measurements that indicate whether the ion implantation process was properly executed. Failure to identify improper ion implantation can be extremely costly to a semiconductor manufacturer if the wafer production is permitted to continue in error. To test on a more timely basis whether the ion implantation was properly executed, semiconductor manufacturers historically used a four-point probe, which required physical contact between the probe and the silicon wafer surface. Because the physical contact with the wafer surface produces silicon particles (defects), which can kill IC yield, the four-point probe method can only be used on monitor wafers (non-production blank wafers that have no IC devices on them). In contrast to that method, Therma-Probe’s ability to measure nondestructively on actual production IC wafers decreases manufacturing costs by reducing the need for test wafers. In addition, Therma-Probe systems detect implant processing problems that only affect the product wafers and which cannot be revealed by utilizing test wafer monitoring alone.

      As semiconductor devices decrease in size, demands for the formation of Ultra-Shallow-Junctions, or USJs, for source/drain formation are increasing. One of the main challenges in the scaling of complementary metal oxide semiconductor (CMOS) devices is the formation, control and monitoring of these USJs. The Therma-Probe system performs nondestructive evaluation of USJs for junction depth and junction abruptness simultaneously. These measurements are enabled by our proprietary USJ software. This Therma-Probe capability allows engineers to monitor and control the formation of USJs in CMOS device fabrication.

Opti-Probe Product Family

      Opti-Probe systems significantly improve upon existing thin-film metrology systems with the successful integration of up to five distinct film measurement technologies, three of which are patented by our company. By combining the measured data from these multiple technologies, 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.

Thin-Film Metrology

      The majority of the 100 to 500 process steps required to fabricate semiconductors on a silicon wafer involve the deposition and selective removal of a variety of insulating and conducting thin-films. Thin-film metrology systems measure the thickness and material properties of these thin-films and, because they are used to measure a large number of process steps, are one of the most important and pervasive metrology systems utilized at semiconductor fabrication facilities. The most widely used technologies to measure the thickness and properties of thin-films have historically been reflection spectrometry and ellipsometry. Reflection spectrometers obtain an optical spectrum as a function of the wavelength of light reflected from the surface of a wafer. This spectrum is then analyzed with appropriate physics-based algorithms to obtain film thickness and, in some cases, other properties of the film. In ellipsometry, the change of polarization of the reflected light is measured. The polarization change is likewise analyzed with appropriate algorithms to obtain film thickness and, in some cases, other properties of the film.

      Increasingly, traditional, single-technology film metrology systems have been unable to meet the process control metrology demands of the semiconductor industry. The continued demand for improved precision and repeatability require the ability to measure thicknesses that range from extremely thin films (generally measure below 20 angstroms) to films that are hundreds of thousands times thicker. Reflection spectrometers are most suitable for measuring thicker films, whereas ellipsometers are most suitable for measuring very thin films. Furthermore, the industry is now using film stacks composed of several layers of different films and the optical properties of many films are functions of the actual deposition conditions. Generally spectrometers or ellipsometers alone generate insufficient data to simultaneously determine the thicknesses and properties of these film stacks and new films with the precision that semiconductor manufacturers require. Reflection spectrometers and most ellipsometers have limited capabilities for the simultaneous measurement of both thickness and optical parameters when used as independent standalone measurement technologies.

      In 1992, we introduced the first Opti-Probe system based on our patented BPR measurement technology to meet the film measurement needs for the 250 nm technology node. Over the years the Opti-Probe products have evolved to keep pace with the need for increasing film measurement precision, repeatability and matching requirements driven by technology advances. In 2002, we introduced our latest generation of film thickness metrology product, the Opti-Probe Series 7. Integrating all five measurement technologies, the Opti-Probe Series 7 addresses the wide range of film measurements needed for 90 nm production as well as supporting films process development of 65 nm and below technology nodes.

Opti-Probe CD and RT/ CD Products

      In January 2002, we introduced Opti-Probe CD with Real Time CD processing (RT/ CD), a product designed to measure the lateral Critical Dimensions and cross-sectional shape, or profile, of fine IC features. As semiconductor device manufacturers continue to shrink feature sizes to the 90 nm technology node and smaller, traditional CD metrology techniques such as critical dimension scanning electron microscopy, or CD-SEM, lack the resolution and stability required to provide accurate data about feature critical dimensions and profiles. A significant limitation is that these methods provide only a top-down view of features and provide little or no data about characteristics of the sides or bottom of a structure.

      Semiconductor manufacturers are often confronted with problems involving variations in profile and sidewall angle. Detailed knowledge of profile shape is of high importance. In shallow trench isolation (STI),

or damascene integration schemes, etched trenches to be filled by downstream process steps may have problematic re-entrant angles, notching, t-topping or other feature artifacts. These feature artifacts can lead to yield-killing conditions such as voiding and cracking of deposited films in later deposition fill process steps.

      For the critical gate patterning process, tight control of the gate CD correlates with improved device performance and better bin sort yields (and average revenue per chip). Furthermore, shape anomalies such as undercut, microtrenching or notching, can have a detrimental effect on device speed and reliability. In these and other applications, precise shape profiling is crucial.

      Our Opti-Probe RT/ CD is the first optical CD scatterometry system that combines high-information content SE, optical measurement with ultra-fast calculation (“real-time regression”) to analyze and display results without the use of off-line modeling and solution libraries. Complex CD profiles can be calculated in seconds with precision and repeatability and with structural information not available with standard CD-SEM technologies.

      The Opti-Probe CD system leverages our established Opti-Probe thin-film metrology platform for optical data acquisition. The Opti-Probe’s patented RCSE provides rich spectral data, ensuring detail and accuracy in the results. This non-destructive CD measurement technology is beneficial for the current prevalent microelectronics technology node (130nm), and is extendible to the 65 nm technology node and even beyond for a wide range of process applications.

Integrated Metrology Products

      We have both spectrometer and spectroscopic ellipsometer based IM units available in the marketplace. These are compact metrology units that contain a single measurement technology matched to the specific metrology need of a particular semiconductor process tool (etcher, coater/developer, CVD, CMP, stepper, etc.) Each IM unit is installed directly on to a semiconductor process tool, and can measure each wafer immediately after processing. In this manner, processing variations 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. With 300 mm wafers, this economic loss becomes increasingly large due to the additional product value of each processed wafer.

      IM is becoming increasingly accepted as a means of achieving reach greater productivity. Advanced semiconductor manufacturing today is under great pressure to deliver ever greater levels of process performance, production availability and process repeatability in order to minimize the risk of product loss and improve manufacturing efficiencies and device yields. The transition towards 300mm wafers, continuing device shrinks and mixed foundry manufacturing models are key contributors to these trends. To successfully meet these challenges, device manufacturers and process tool equipment manufacturers are actively engaged in developing technologies for Advanced Process Control (APC). We believe that APC implementation requires the integration of metrology capabilities directly onboard the process tool.

      Device manufacturers can derive a wide range of benefits by implementing integrated metrology and APC strategies in their fabs. By integrating the measurement directly onto the process tool, they can greatly increase the rate of sampling and simultaneously decrease the delay between the process step and measurement. Increasing the measurement frequency to every single wafer allows for rapid fault detection and correction. This reduces the potential for scrap due to excursions in the process tool. In addition, the data collected can be input into real time process control models to correct minor drifts in processing conditions.

Integra Product Family

      All of our integrated metrology products are grouped into a family of products bearing the Integra name. These include:

      During fiscal years 2004 and 2005, a major coater/developer equipment supplier to the semiconductor industry installed multiple Integra CCD-i units at key development and pilot production fabs in Europe, North America, Taiwan and Japan. Additional end-user installations for advanced technology development and production lines are planned during fiscal 2006.

Employees

      As of March 31, 2005, we employed 382 persons, including 79 in engineering, research and development, 56 in manufacturing, 146 in customer support, 47 in sales and marketing and 54 in executive and administrative functions. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our employee relations to be good.

Sales and Marketing

      We maintain sales offices and regional sales representatives throughout the world. In the United States, we maintain a sales office in California. We also utilize manufacturers’ sales representatives to cover certain regions of the United States. In Asia, we maintain sales offices in Japan, China, Korea, Singapore and Taiwan. The Japan and Singapore offices work with distributors or manufacturers’ sales representatives to sell our products to customers in Japan, Singapore and Malaysia, while the China, Taiwan and Korean offices sell to customers directly. We also have sales representatives in the United Kingdom working with manufacturers’ sales representatives throughout the rest of Europe.

      Effective April 19, 2005, Therma-Wave entered into an exclusive representative agreement with Hermes-Epitek Corporation, under which Hermes-Epitek became an exclusive representative in certain countries to sell and service our Therma-Probe and Opti-Probe families of metrology products.

      Pursuant to the terms of this agreement, Hermes-Epitek will serve as the exclusive representative for our Therma-Probe and Opti-Probe metrology product lines for China, Malaysia, Singapore and Taiwan. Therma-Wave will pay Hermes-Epitek a commission on the sale of these products when the products are installed within one of the enumerated territories and where the sales process or purchasing decision was directly influenced by Hermes-Epitek. Additionally, Hermes-Epitek will provide our customers with technical support services for the products, including, among other things, installation services and qualification testing. The term of this agreement is twenty-four months, with a provision for automatic renewal for additional twelve-month terms.

      Sales to Taiwan Semiconductor Manufacturing Company, Intel Corporation and Samsung each accounted for more than 10% of net revenues in fiscal 2005. The following chart indicates the percentage of net revenues to customers representing 10% or more of net revenues for fiscal years 2005, 2004 and 2003, respectively.

      International revenues in fiscal 2005, 2004 and 2003 accounted for approximately 71%, 72% and 72% of net revenues in each of these periods, respectively. We anticipate that international sales will continue to account for a significant portion of our net revenues in the foreseeable future. The following table summarizes the percentage of our total net revenues by geography for the fiscal years ended March 31, 2005 and 2004, respectively:

      In addition, we provide direct customer support to all of our customers worldwide, including warranty support and post warranty maintenance and repair and application support. In some locations, field service is still provided by the same manufacturers’ sales representative that handles the sales function, but application support is provided by our employees in that territory or from our Fremont, California location. In the United States, we have field service and applications engineers located in Arizona, California, Colorado, Florida, Idaho, Massachusetts, New Mexico, Oregon, Tennessee, Texas, Virginia and Washington. Customers contract for dedicated site-specific field service and applications engineers. In Asia, we have provided customer support in Japan, China, Taiwan, Korea and Singapore. However, as discussed above, we are currently in the process of transitioning all sales, service and support for China, Taiwan, Singapore, and Malaysia, to a new sales representative. In Europe and the Middle East, our service and applications personnel, located in France, the United Kingdom, Italy, Ireland and Israel, provide direct customer support to our customers in Europe and the Middle East and to our European manufacturers’ sales representatives. We provide our customers with comprehensive support before, during and after delivery of our products. Prior

to shipment, our support personnel typically assist the customer in site preparation and inspection, and provide customers with training at our facilities and also at the customer’s location. Our customer training programs include instructions in the maintenance of our systems and in system hardware and software tools for optimizing the performance of our systems. Our field support personnel work with the customers’ employees to install the equipment and demonstrate equipment readiness as well as new procedures and capabilities. In addition, we maintain a group of highly skilled applications scientists in order to respond to customers’ process needs worldwide when a higher level of technical expertise is required.

      We generally warrant our products for a period of 12 months from system acceptance, although this can, at times, be extended according to the terms of a particular contract. Installation and initial training are customarily included in the price of a system. After the expiration of the warranty period, customers may enter into support agreements covering both field service and field applications support. Our field service engineers may also provide customers with repair and maintenance services on a fee basis. Our applications engineers and scientists are also available to work with the customers on recipe development. Additionally, for a fee, we train customers to perform routine maintenance on their purchased tools. We also provide a 24-hour telephone help-line.

Research and Development and Engineering

      The process control metrology market is characterized by continuous technological development and product innovations. We believe that continued and timely development of new products and enhancements to our existing products is necessary to maintain our competitive position. Accordingly, we devote a significant portion of our personnel and financial resources to engineering and research and development programs. As of March 31, 2005, our research, development and engineering staff comprised 79 people. Additionally, we seek to maintain close relationships with all our customers so as to continuously make improvements in our products that respond to customers’ needs. Our ongoing engineering and research and development efforts can be classified into three categories: new products; feature enhancements, such as features to improve precision, speed and automation; and customer-driven product enhancements, such as new measurement recipes or algorithms. We have research and development and engineering staffs working both on developing new products and features and also on responding to the particular needs of customers.

      Engineering and research and development expense, including the effects of stock-based compensation, were $17.3 million, $19.4 million and $30.2 million, in fiscal 2005, 2004 and 2003, respectively, or 21%, 30% and 61% of net revenues for those periods, respectively. We expect that engineering and research and development expenditures will continue to represent a substantial percentage of our net revenues for the foreseeable future. The decrease in the percentage of research and development expense to net revenues for fiscal year 2005 compared to 2004 reflects increased net revenues and decreased spending in 2005. The semiconductor industry is highly volatile, often causing revenues to fluctuate significantly year-to-year while R&D spending tends to be more consistent and reflect the costs of longer-term product development goals. The decrease in expenses in fiscal 2005 from 2004 is explained by lower charges for variable accounting for stock options by $0.9 million and lower project spending. In the near term, at least through fiscal year 2006, we expect engineering and research and development project spending to remain relatively flat and possibly, to be reduced if industry conditions remain unchanged.

      Our backlog consists of orders not yet shipped, deferred revenues for products that have been shipped and invoiced but have not yet been recognized as revenue in accordance with SAB 104, recurring fees payable under support contracts with our customers and orders for spare parts and billable services, such as non-recurring engineering services. Orders that are scheduled for shipment beyond twelve-months are not included in backlog until they fall within the twelve-month window. Orders are subject to rescheduling or cancellation by the customer, usually without penalty. Because of possible changes in product delivery schedules and cancellation of product orders and because our sales will sometimes reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. At March 31, 2005, our backlog was approximately $31.8 million, compared to approximately $27.5 million on March 31, 2004.

Manufacturing

      Our manufacturing strategy is to produce technologically advanced and high quality metrology systems. In order to lower production costs, we perform, in-house, only those manufacturing activities that add significant value or that require unique technology or specialized knowledge. As a result, we rely on subcontractors and turnkey suppliers to build assemblies and perform other activities in a cost effective manner.

      Our principal manufacturing activities include high value added assembly and test work, both of which are conducted at our facility in Fremont, California. Assembly activities include inspection, subassembly and final assembly. Test activities include modular testing, optical system alignments, system integration and final testing. Components and subassemblies, such as lasers, robots and stages, are acquired from third party vendors and integrated into our finished systems. These components and subassemblies are obtained from a limited group of suppliers, and occasionally from a single source supplier. While we use standard components and subassemblies wherever possible, most mechanical parts, metal fabrications and critical components are engineered and manufactured to our unique specifications. We have not entered into any formal agreements with limited source suppliers, other than long-term purchase orders and, in some cases, volume pricing agreements. Those parts coming from a limited group of suppliers are monitored to ensure that adequate supplies are available to maintain manufacturing schedules and to reduce our dependence on these suppliers should supply lines become interrupted. In selected cases, a small amount of safety stock is also maintained to minimize any potential disruption from a key supplier.

      We schedule production based upon firm customer commitments and anticipated orders. We have structured our production process and facility to be driven by both orders and forecasts and have adopted a modular system architecture to increase assembly efficiency and test flexibility. Cycle times for our products vary significantly. We believe these cycle times have improved and will continue to improve as we continue to emphasize manufacturability in our new product designs.

      We conduct the assembly of our optical components and final testing of our systems in clean-room environments. This procedure is intended to reduce the amount of particulates and other contaminants in the final assembled system, and to permit the testing of our products against our own as well as the customers’ acceptance criteria prior to shipment. Following the final test, the completed system is packaged within triple vacuum-sealed bags to maintain a high level of cleanliness during shipment and installation.

Competition

      The market for semiconductor capital equipment is highly competitive, and we face substantial competition in each of the markets that we serve from both larger and smaller companies. Some of our competitors have greater financial, engineering, manufacturing and marketing resources and broader product offerings than we have. Significant competitive factors in the market for metrology systems include system performance, ease of use, reliability, cost of ownership to the customer, technical support and customer relationships. However, we believe we compete favorably on the basis of these factors in each of our served markets.

      Our Therma-Probe systems compete primarily with other metrology systems designed to measure ion implant dose, some of which measure in an alternative fashion, such as contact and destructive four-point probe measurement systems, and include products manufactured by KLA-Tencor Corporation, Applied Materials, Inc. and others. Our Therma-Probe systems are non-contact, nondestructive ion implant metrology systems for product wafers. Several years ago, Jenoptik GmbH introduced a competitive product to our Therma-Probe systems, which utilized thermal wave technology. In November 1997, a jury found that Jenoptik’s product infringed on a number of our United States patents. As a result of the settlement of this litigation, Jenoptik has agreed not to sell any of its metrology products in the United States until the patents expire and to pay us a royalty fee for systems sold in Japan. To date, the sale of these products by Jenoptik (or TePla AG, who has purchased these rights from Jenoptik) has not had a material impact on our market position.

      Our Opti-Probe film thickness metrology systems primarily compete with systems manufactured by KLA-Tencor Corporation, Rudolph Technologies, Inc., Nanometrics, Inc. and Dai Nippon Screen, Mfg. Co., Ltd. Our Opti-Probe CD and RT/ CD systems participate in a newly developing market of optical CD metrology. We expect competition primarily from several of the same companies that compete with the Opti-Probe for film thickness metrology business. In addition, Accent Optical Technologies is an early participant in this market. For further information, see Note 6 of Notes to Consolidated Financial Statements entitled “Commitments and Contingencies”.

      Suppliers of integrated metrology with whom we compete include most of the companies listed above regarding the Opti-Probe, in addition to Nova Instruments.

Patents and Proprietary Rights

      The success of our business depends, at least in part, on our ability to obtain and maintain patents and proprietary rights, which protect our technology.

      We have a policy of seeking patents where appropriate on inventions concerning new products and improvements as part of our ongoing engineering and research and development activities. We have acquired a number of patents relating to our Therma-Probe, Opti-Probe and Integra systems. As of April 3, 2005, we owned 133 patents. Of these, 122 U.S. patents had expiration dates ranging from 2005 to 2022 and we had filed applications for 93 additional U.S. patents. We also owned 11 foreign patents with expiration dates ranging from 2005 to 2019 and had filed applications for 35 additional foreign patents. We believe that all of our revenue generating Therma-Probe, Opti-Probe and Integra products are protected by patents.

      As of April 3, 2005, we are licensed under 10 issued US patents applicable to our CD technology (scatterometry). Of these, we own 8 patents, and we filed applications for 12 additional US patents covering our CD technology.

      In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology. We routinely enter into confidentiality agreements with our employees. However, there can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach and/or that our confidential and proprietary information and technology will not be independently developed by, or become otherwise known, to third parties.

      As of April 3, 2005, we owned 21 registered trademarks in the U.S. and 2 in Japan and had filed 4 trademark applications in the U.S.

Available Information

      Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed with the U.S. Securities and Exchange Commission, are available for review free of charge on the SEC’s website which you can access through our website at www.thermawave.com as soon as reasonably practicable after such material is electronically filed or furnished to the SEC. In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information that we file with the SEC.

      Our executive and manufacturing, engineering, marketing, research and development operations are located in a 102,000 square foot building at 1250 Reliance Way in Fremont, California. The facility has approximately 800 square feet of Class 10 clean rooms for customer demonstrations and approximately 20,000 square feet of Class 1000 clean rooms for manufacturing. This facility is occupied under a lease expiring in 2011 at an aggregate annual rental expense of approximately $0.8 million in 2006, increasing to $1.0 million in 2007, and to $1.1 million in 2009. We own substantially all of the equipment used in our

facilities. We also lease a building of approximately 28,000 square feet on Kato Road in Fremont, California, and one building of approximately 13,000 square feet in Santa Clara, California. During March 2003, we completely moved all our employees out of the Kato Road and Santa Clara facilities and into our Reliance Way facility. We currently use the Kato Road facility for storage, but are attempting to sublet both these facilities to reduce our costs. We believe that our existing facilities, capital equipment and anticipated capital expenditures will be adequate to meet our requirements for at least the next two years and that suitable additional or substitute space will be readily available if needed.

      We also lease sales and customer support offices in Japan, China, Korea, Taiwan and Singapore.

      There are currently no 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, 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.

      No matters were submitted to a vote of security holders during the quarter ended March 31, 2005.

PART II

      Our common stock is traded on The NASDAQ National Market. As of June 17, 2005, there were 175 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low closing prices per share of our common stock as reported on The NASDAQ National Market.

      To date, we have not declared or paid cash dividends to our stockholders. We have no plans to declare or pay cash dividends in the near future. Any future determination to pay dividends will be at the discretion of the Board of Directors and will depend upon, among other factors, our results of operations, financial conditions, capital requirements and contractual restrictions.

Shares Authorized for Issuance Under Equity Compensation Plans

      The following table summarizes the total shares of our common stock that may be received by holders upon the exercise of currently outstanding options, the weighted average exercise price of those outstanding options, and the number of shares of our common stock that are still available for future issuance under our equity compensation plans after considering the stock options currently outstanding as of March 31, 2005. All of the options described below have been or can be issued pursuant to our 1997 Stock Purchase and Option Plan, our 1997 Employee Stock Purchase and Option Plan, our 1997 Special Employee Stock Purchase and Option Plan, our 2000 Equity Incentive Plan and our 2000 Employee Stock Purchase Plan as of March 31, 2005. All of these plans have been approved by our stockholders.

      The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and accompanying notes thereto included elsewhere in this annual report on Form 10-K.