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UNITED STATES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

(MARK ONE)

(Mark One)

/X/ ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED APRILFor the fiscal year ended April 30, 2001
2002
OR

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBERFor the transition period fromto
Commission file number 0-26714
ADE CORPORATION

(Exact
(Exact name of registrant as specified in its charter)

MASSACHUSETTS Massachusetts 04-2441829
(State
(State of incorporation) (IRS (I.R.S. Employer Identification No.)

80 WILSON WAY Wilson Way

02090
WESTWOOD, MASSACHUSETTS (zip code)
(Address
Westwood, Massachusetts
(Address of principal executive offices) (Zip Code)
(781) 467-3500
(Registrant's
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK,
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 PAR VALUE
(Titlepar value
(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 /X/ý 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K10-K or any amendment to this Form 10-K. / /o
As of July 24, 2001,25, 2002, there were outstanding 13,601,06113,687,400 shares of common stock, $.01 par value per share. The aggregate market value of shares of common stock held by non-affiliates of the registrant, based upon the last sale price for such stock on that date as reported by Nasdaq, was approximately $196,535,000.

$66,930,000.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 20012002 Annual Meeting of Stockholders are incorporated by reference into Part III.

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PART I
ITEM 1. BUSINESS

EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF ADE'S
BUSINESS CONTAINS FORWARD LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD LOOKING
STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS ANNUAL REPORT CONTAIN A DISCUSSION OF SOME OF THE
FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES. ANY FORWARD-LOOKING
STATEMENTS ARE MADE AS OF THE DATE OF THIS REPORT AND WE ASSUME NO OBLIGATION TO
UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS.
Except for historical information, the following description of ADE's business contains forward looking statements which involve risks and uncertainties. The outcome of the events described in these forward looking statements is subject to risks and actual results could differ materially. The sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" as well as those discussed elsewhere in this annual report contain a discussion of some of the factors that could contribute to these differences. Any forward-looking statements are made as of the date of this report and we assume no obligation to update any such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.
ADE Corporation, incorporated in 1967, is engaged in the design, manufacture, marketing and service of production metrology and inspection systems for the semiconductor wafer, semiconductor device, data storage and optics manufacturing industries. Our systems analyze and report product quality at critical manufacturing process steps, sort wafers and disks, and provide manufacturers with quality certification data upon which they rely to manage processes and accept incoming material. Semiconductor wafer, device and data storage manufacturers use our systems to improve yield and capital productivity.
ADE operates three major business segments, the Semiconductor Systems Group ("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). The Semiconductor Systems Group manufactures multifunctional semiconductor metrology and automation systems and optical wafer defect inspection equipment used to detect particles and other defects on silicon wafer surfaces. ADE Phase Shift manufactures high performance, non-contact surface metrology equipment using advanced interferometric technology that provides enhanced yield management to the data storage, semiconductor and optics industries. ADE Technologies manufactures high precision magnetic characterization and non-contact dimensional metrology gaging systems primarily for the data storage industry.
ADE's strategy is to provide our customers with complete metrology solutions for optimization of their processes, workflow, and engineering. We accomplish these goals by offering a broad range of plug and playadvanced metrology and inspection units that are combined with modular handling platformssystems, a variety of factory automation and control options and software analysis packages. Responsive to the wide range of production needs that our customers
have required over the past decades, ADE designs focus on a modular approach, which targets the lowest cost of ownership for a system at any given process step. The software analysis packages maximize information timelinessOver the past fiscal year, ADE has adhered to its strategy and availability while minimizing demands on customers' engineering staff.

PRODUCTShas introduced a number of new products, which are included in the discussion that follows.
Products
Our products have evolved from single instruments used in off-line engineering analysis to full, 100% online automated metrology solutions throughout the wafer, semiconductor device and hard disk drive manufacturing processes. Our systems are designedtargeted to deliver the high throughput, reliability, information and analysis necessary to meet the demands of increasingly complex and time-sensitive manufacturing processes.
Our principal products in the semiconductor wafer, semiconductor device and data storage device industries are described below. All of our metrology and inspection systems have the capability to record, print and store measurement data locally, as well as distribute the data via a network for yield and process management and offline analysis,analysis.
Semiconductor Industry Products
Wafer Dimensional Measurements
WaferSight System. A new wafer flatness and SEMI standard Silicon Wafer Order Form (SWOF) quality
certification.

SEMICONDUCTOR INDUSTRY PRODUCTS

ADVANCED FLATNESS SYSTEM.shape metrology tool for 300mm and advanced 200mm production, the WaferSight measurement precision allows wafer and device manufacturers to meet ITRS
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metrology requirements down to the 35nm generation. Utilizing optical technologies, the WaferSight system extends ADE's market presence in wafer dimensional metrology, leveraging 30 years of industry leadership and our knowledge of process and market requirements.
Advanced Flatness System (AFS). The AFS system advances ADE's established capacitance technology to 130nm and 100nm semiconductor wafer production. Customers involved with 300mm and 400mm wafers are using this measurement platform to characterize wafer dimensional properties. The wafer is handled only by the edges, thereby minimizing the possibility of any surface contamination or damage due to contact with the polished surfaces of the wafer. AFS measurement systems are the dominant solution for qualification of 300mm silicon, epi and SOI wafer flatness.

ULTRAGAGE-REGISTERED TRADEMARK- SERIES.flatness and shape.
UltraGage® Series. The UltraGage series of products are automated benchtop metrology systems containing a single measurement module which is capable of making any one of several measurements, including wafer shape, flatness, thickness and stress.stress on silicon, epi, SOI, or patterned wafers. The UltraGage series includes the 9530
model, which has beensystems optimized to handle the ultra-thin processed wafers used in the manufacture of devices for smart cards and advanced electronic packages.
UltraGage systems were designed to operate together with specialized
applications software to be used to manage the device manufacturing process. The
latest 9900

UltraGage systems meet 180nm technology requirements, allowing ADE customers to
meet advanced industry needs for flat wafers without having to retool their
manufacturing plants.

ULTRASCAN-REGISTERED TRADEMARK- SERIES.
UltraScan® Series. The UltraScan series of products are high throughput, 150mm to 200mm inline production systems that perform measurement and sorting at various stages of the wafer manufacturing and device fabrication processes. UltraScan systems measure wafer thickness, flatness, shape, and other mission-critical dimensional properties and can be integrated with factory automation systems. The UltraScan series systems support customer requirements
at the 0.35um, 0.25um, and the 180nm design rule technologies.

WAFERCHECK-REGISTERED TRADEMARK- SERIES.
WaferCheck® Series. The WaferCheck series of products are flexible, modular systems capable of automatically characterizing, inspecting and sorting semiconductor wafers. These systems measure thickness, flatness, shape, conductivity type, and resistivity on raw and processed wafers and provide high speed sorting. The products combine an automated transfer belt
module with one or more customer selected measurement modules into a single,
floor mounted system. These systems typically operate in a Class 1000 cleanroom environment and provide nondestructive inline sorting and classification capability on all wafer diameters up through 200mm.

ADVANCED WAFER INSPECTION SYSTEM. The AWIS system is a fully automated
inspection tool designed to handle the advanced surface inspecting requirements
of 200 and 300mm polished and epi wafers for high volume wafer production. This
system reduces the need for manual inspection of the wafers. The AWIS system is
available with an edge gripping wafer handling system and operates in a
Class 10 or better clean room. The system exceeds the 130nm design rules for
high speed sorting applications.

CR8X SERIES. The CR8X series products are high throughput, inline
production systems that are used to detect, measure and characterize particles
and other defects on wafer surfaces and provide process analysis and control
information for the wafer manufacturer. These tools rely on ADE's proprietary
flying spot laser scanning technology. The CR8X systems can be integrated with
factory automation systems. We offer a variety of software packages to tailor
the system to specific customer requirements.

SURFACE QUALITY MONITOR. The Surface Quality Monitor (SQM) is a new feature
on our wafer inspection systems; CR8X and AWIS. This feature adds the
characterization of the variations in nanotopography on the wafer surface to the
surface defect characterization family. Nanotopography has become a leading
technology requirement for yield optimization for design rules at 180nm and
below. The integration of this inspection for nanotopography is a cornerstone in
ADE's productivity enhancement program for our customers. This measurement is
being applied to both 200 and 300mm wafer diameters.

NANOMAPPER-TM-.
NanoMapper™. The NanoMapper system is a 200200mm and 300mm bridge tool that measures and analyzes nanotopography, front surface non-planar topographic wafer features, on semiconductor wafers using proprietary noncontact optical interference techniques. Nanotopography includesdetects a variety of process-induced defects and process control failures in silicon wafer and device manufacturing processes. Improved control of these defects can increase yields and reduce costs for 130130nm and 100nm devices by improving CD control, shallow trench isolation (STI), and chemical mechanical planarization (CMP) results. The NanoMapper system was the winner of the prestigious R&D 100 award, presented by R&D Magazine, in the year 2000 and is the standard for 300mm nanotopography characterization.

ACUDEP-TM- SYSTEM.
Wafer Surface Inspection Systems
Advanced Wafer Inspection System (AWIS). The AWIS system is a fully automated inspection tool designed to handle the advanced surface inspecting requirements of 200mm and 300mm polished, epi and SOI wafers for high volume wafer production. This system reduces the need for manual inspection of the wafers. The AWIS system is available with an edge-gripping wafer handling system and operates in a Class 10 or better clean room. The system meets the requirements for the 100nm design rules for high speed sorting applications.
CR8X Series. The CR8X series products are high throughput, 200mm inline production systems that are used to detect, measure and characterize particles and other defects on wafer surfaces and provide process analysis and control information for the wafer manufacturer.
Surface Quality Monitor (SQM). The SQM feature on our CR8X wafer inspection systems adds the characterization of the variations in nanotopography on the wafer surface to the surface defect characterization family. Nanotopography has become a leading technology requirement for yield
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optimization for design rules at 180nm and below. The integration of this inspection for nanotopography is a cornerstone in ADE's productivity enhancement program for our customers.
AcuDep™ System. ADE has signed an exclusive worldwide distribution agreement for the AcuDep Advanced Particle Deposition Systems manufactured by The Scatter Works, Inc. The AcuDep 300 system complements ADE's full line of wafer surface inspection and topology measurement systems by improving process control while reducing manufacturing costs for semiconductor device, wafer and disk manufacturers.

EPISCAN-TM- SERIES.
Film Mapping and Inspection Systems
Films Inspection Tool (FIT). The FIT is a new tool for the reliable inspection of unpatterned films, ranging from dielectrics through metals. The introduction of the films inspection tool marks ADE's strategic entry into the front-end device metrology market. The film system's superior performance is the result of successfully deploying our intellectual property onto existing hardware and software platforms to meet new metrology requirements and achieve total customer satisfaction.
EpiScan™ Series. The EpiScan series of products are high-speed tools used to measure and map the thickness of certain film layers, sometimes referred to as epi layers that are applied to wafers. The EpiScan system is based on advanced FTIR optical technology, which is licensed from MKS Instruments Inc., 2
On-Line Products. The newest addition to the EpiScan product line is the EpiScan
3000 system, which includes full edge grip handling for 300mm wafers.

ACUMAP-TM- SERIES.
AcuMap™ Series. AcuMap systems are full-wafer film thickness monitoring tools for SOI, CMP and photolithography applications. InAcuMap systems provide high-speed full wafer mapping with high data density on various thin films for production process development and control. The industry standard for high-speed SOI processing,film mapping, AcuMap measurements are used to monitor the thickness of both the silicon layer and new
AcuMap 3110 is designedsystems have shown excellent results in measuring leading edge ultra-thin SOI layers for 300mm.

INFOTOOLS-TM- SOFTWARE SUITE. The InfoTools product is an offline
application suite of productivity tools for ADE's dimensional AFS, UltraScan,
UltraGage and WaferCheck systems. InfoTools software includes the
ReportTools-TM- software for offline processing of wafer data and the
RecipeTools-TM- application for centralized process recipe management. Use of
the InfoTools product increases machine availability and leads to a lower cost
of ownership of an ADE tool.

WAFERANALYZER-TM-.fully depleted CMOS applications.
Software Products
WaferAnalyzer™. This offline software package increases productivity in a wafer production polishing area by automating the advanced analytical capability for wafer inspection data. In beta tests this software has proven to significantly reduce the process engineering man-hours required for process management and characterization and to add increased flexibility in analysis. The software is modularly priced based on the number of users and equipment connections.

DISK INDUSTRY PRODUCTS

PROPRIETARY
InfoTools Software Suite. InfoTools products are offline productivity enhancing applications for ADE's dimensional measurement systems. The InfoTools suite includes ReportTools for wafer data reprocessing and RecipeTools for centralized process recipe management.
Disk Industry Products
Proprietary ADE MAGNETIC TECHNOLOGY

VIBRATING SAMPLE MAGNETOMETERS (VSMS)Magnetic Technology
Vibrating Sample Magnetometers (VSMs). The VSM is used to measure the magnetic properties of the broad-spectrum of magnetic materials. Although we supply the magnetics community with high performance VSMs, our flag-ship product is the fully-automated X9 designed for the HDD industry, with applications in both the development and production of TMR and GMR recording heads. The VSM product line is comprised of several models, varying in maximum field strength and sensitivity. Most of the systems can be configured to characterize anisotropy in magnetic materials, the understanding of which is rapidly becoming critical in the development of magnetic disks, recording heads, and MRAM. Specifically developed for this purpose is the Model 10, the mostan advanced Vector VSM available in the industry for research on directional properties of magnetic materials.

WAFER MAPPING SYSTEM (WMS). The
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S150/200 Wafer Mapping System (WMS). The WMS rapidly and automatically creates 3-dimensional maps of the magnetic properties of entire wafers or coupons used to fabricate advanced GMR and TMR heads for disk drives, as well as the tunnel junctions of MRAM wafers. The WMS provides feedback to the design and fabrication process of GMR and TMR heads and TMR-based MRAM wafers. The system, which can be configured as a fully automated metrology system with a wafer handler and prealigner,pre-aligner, and an MR measurement option, allows userscustomers to manage process uniformity in order to improve overall yield.
V300 Wafer Mapping System. The V300 is the latest generation of Wafer Mapping Systems and is designed specifically to address the emerging MRAM market. The V300 features a proprietary Quadrupole magnet design with active field control that allows MRAM developers to simulate the action of the MRAM device early in the process control of the magnetic films. Using a patent pending Vector Kerr capability, the V300 is suitable for the most advanced MRAM development as well as in-depth studies of the uniformity of the TMR stacks at the sheet film level.
M2 DISKMAPPER-TM-.DiskMapper™. The M2 DiskMapper system is an inline fully automated noncontact measurement system that maps the variation of the most critical magnetic parameters over the surface of recording disks. The data provided by the tool is used to directly control the sputtering process. The M2 DiskMapper can be configured to handle multiple form factors.

PROPRIETARY
X9 Magnetic Properties Analysis System (X9 MPAS). The X9 MPAS is a fully automated system designed to make an in depth analysis of GMR style head coupons. Based upon the Model 10 VSM, the X9 automatically loads, measures and returns wafer coupons, repeatably measuring layer thicknesses to less than 0.2 NiFe equivalent Angstroms. In addition to layer thickness the X9 measures all Hysteresis and transport properties in a single step and has replaced several pieces of equipment in the process control of advanced head production.
Proprietary ADE CAPACITANCE TECHNOLOGY

MICROSENSE-REGISTERED TRADEMARK-Capacitance Technology
MicroSense® II. As the disk drive industry moves to ever-quieter fluid bearing motors there is an increasing requirement to measure non-repetitive run-out to achieve higher track densities. The MicroSense II product line has been widely adopted by disk drive motor manufactures.manufacturers. It has also achieved success in specialized applications such as fast tool servo control outside of the disk drive market.

PASSIVE GAGING.
Passive Gaging. ADE's passive capacitive gaging systems make use of a design that is fundamentally different from the MicroSense II products. These passive capacitance gages are incorporated in a number of ADE products that serve the hard disk, compact disk and semiconductor markets. ADE Passive Gages are increasingly being used by other semiconductor capital equipment makers on an OEM basis to solve difficult servo control problems where high precision and high stability are required.

MOTOR TEST SYSTEMS.
Motor Test Systems. Utilizing the 3700recently introduced Spincheck HR motor test system with ADE's noncontact dimensional gaging provides disk motor manufacturesmanufacturers with motor shaft runout measurements in both time and frequency domains. This software allows users to define sophisticated pass/fail criteria for production testing.

PROPRIETARY
Proprietary ADE INTERFEROMETER BASED TOOLS

MINIFIZ SERIES OF INTERFEROMETERS.Interferometer Based Tools
MiniFIZ Series of Interferometers. MiniFIZ series is a family of laser-based Fizeau interferometers that test the surface flatness, curvature and other shape characteristics of polished precision components such as optical mirrors, lenses and computer disks. The MiniFIZ interferometers provide interactive 3D modeling, statistical reporting, and user-selectable production and research modes. The product can be combined with full robotic automation to meet the needs of disk media and substrate process control.

MICROXAM OPTICAL PROFILERS.
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MicroXAM Optical Profilers. These 3D optical profilers are interference microscopes which produce measurements of the shape, density and distribution of laser bumps in the laser-textured area of hard disks. The MicroXAM optical profiler is the industry standard for measuring the laser-textured area of hard disk media. Other configurations of MicroXAM products measure disk dub-off. Dub-off is the transition between the top (usable) surface of the disk, and the rough edge of the disk. MicroXAM systems, consequently, are used widely by disk media manufacturers and by hard drive manufacturers.

OPTIFLAT FLATNESS GAGE. Similar to the MiniFIZ product, the OptiFLAT system
is an accurate surface flatness tester primarily utilized to characterize the
surface waviness of hard disks
Products in order to improve and maintain process control
in the hard disk manufacturing process. Waviness is a range of medium to high
frequency surface features which is now gage is also uniquely suited to measure
the flatness of uncoated transparent disk substrates.

PRODUCTS IN DEVELOPMENTDevelopment
In order to maintain our technology leadership, we continue to introduce new products.

SERIES
Series 4800, PASSIVE GAGING.5800 and Spincheck HR. Our entire line of gaging products undergo continuous product improvement to keep pace with the rapid developments in the HDD and semiconductor equipment markets. The performance of the 5800 series products is being enhanced to meet the ever-increasing demands of disk drive motor manufacturers as they develop the next generation fluid dynamic bearing motors. The 4800 series gage capabilities are being expanded to perform critical positioning of capacitive gages represents
substantial improvementoptics or targets in high vacuum applications to serve the needs of semiconductor capital equipment manufacturers. New data processing capabilities are being added to the Spincheck HR as customers require additional insight into FDB motor performance and qualification.
Polar Kerr Mapping System. With the advances in areal density of ADE's very successful passive
gaging product line.HDD media continuing at a rapid pace, the time when the current technology yields to the next generation of media is fast approaching. Leading edge media developers are now working on replacing longitudinal media with perpendicular in which the magnetic bits are orthogonal to the plane of the disk. The new 4800 series offers significantly higher resolution
and bandwidth as well as improved stability and new features. This productPolar Kerr Mapping System is designed to be used by OEM'scharacterize this new media segment in a wide varietydevelopment and move seamlessly into production as perpendicular media volumes increase. It handles the new media directly from cassette and leverages ADE's years of industries and will be part of
a new modular measure system used for general gaging applications.

TECHNOLOGYKerr experience.
Technology
Our metrology and inspection products use our proprietary non-contact capacitive, optical, eddy-current, interferometric and magnetic technologies to measure the dimensional, electrical magnetic and surface characteristics of semiconductor wafers and devices and computer hard disks and disk drives.

DIMENSIONAL TECHNOLOGY
Dimensional Technology
Our non-contact capacitive gaging technology, which is the subject of a series of patents, is used to measure the dimensional parameters (thickness, flatness, shape) of semiconductor wafers, computer hard disks and other objects. This technology is based on the measurement of the capacitance between a measurement probe and the surface of the object. The capacitance varies as a precise function of the distance between the probe and the object being measured. For example, in the measurement of a 4
semiconductor wafer, two probes, one on each side of the wafer, map both wafer surfaces simultaneously. Electronic circuitry converts the probe capacitance signal into distance signals, which are translated by our software to produce information concerning the wafer's thickness, flatness and shape.

SURFACE INSPECTION TECHNOLOGY
Surface Inspection Technology
We use patented optical methodstechnology to detect microscopic surface defects and non-uniformity. A finely focused laser beam is scanned over the surface of the wafer. Surface non-uniformities, particles or defects cause some of the beam's energy to deflect or scatter. Sensitive detectors quantify the scattering signals, which are translated by our software to produce information about particles, micro scratches, haze, nanotopography and other process-induced defects on the wafer surface. Although the principles of our optical technology are similar to those used by other manufacturers, we believe our theoretical modeling
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and patented optical engineering and proprietary software result in products having a superior combination of high sensitivity and throughput.

INTERFEROMETRIC TECHNOLOGY
Interferometric Technology
Optical interference is a technique used to produce surface images of alternating bright and dark images, called fringes, which correspond to variations in surface height. Using multiple reflection, optical interference can precisely measure variations in the height of a surface as small as a few atomic layers. Our software provides the ability to create and analyze these three-dimensional surface maps, comprised of millions of data points, which are used by our customers in advanced process development and in production control.

FOURIER TRANSFORM INFRARED SPECTROSCOPY TECHNOLOGY
Fourier Transform Infrared Spectroscopy Technology
Fourier Transform InfraRed (FTIR) Spectroscopy Technology has classically been used in a broad range of laboratory applications for examining various technical properties of materials and chemicals. MKS Instruments Inc., On-Line Products, has licensed its rugged, industrial strength Fourier Transform Infrared Spectroscopy Technology to us for incorporation into metrology tools for the wafer market. We are integratingintegrate this technology to provide the increasing precision and accuracy needed to support ever-tightening Epiepi specifications.

MAGNETICS CHARACTERIZATION TECHNOLOGY
Magnetics Characterization Technology
Our products for characterizing magnetic materials use a variety of non-contact measurement technologies including lasers (the Kerr effect), vibrating sample and torque-effect inductive sensing techniques. We believe our world-class theoretical modeling and magnetics engineering enable us to offer automated products with superior sensitivity, speed, accuracy and reproducibility.

PROPRIETARY SOFTWARE
Proprietary Software
Our proprietary software analyzes and transforms the large amounts of data generated by our metrology and inspection systems to produce information about process-induced defects that supports real-time process management. The flexible design of this software permits recipe-driven reconfiguration of these products to serve new applications with a minimum of hardware or software redesign or development. Our software is designed to integrate our various metrology functions with one another while implementing industry standards for integrating our products with the manufacturing facility's information systems. We currently have applied for patent protection on unique features of our software.

MARKETING, SALES AND CUSTOMER SUPPORT
Marketing, Sales and Customer Support
We market and sell our semiconductor metrology and inspection products through our direct sales force, distributors and independent sales representatives. We market and sell our metrology and inspection

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products in the United States, Europe and Malaysia through full-time salespersons located throughout the United States in Milpitas, Dallas, Portland and Boston as well as in the United Kingdom, Germany and Malaysia. During the past fiscal year, approximately 70%49% of our revenue was derived through our direct sales organization. Our direct sales force is supported by applications engineers in selected field offices and in each of our manufacturing locations.
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Sales of wafer dimensional systems, capacitive probes, and disk industry products in Japan are supported by Japan ADE Limited, a joint venture between usADE and Kanematsu Electronics, Ltd. Sales of optical surface inspection products are provided in Japan by a separate distributor. We also sell our semiconductor metrology and inspection products in Israel, South Korea, Singapore, Taiwan, India and the People's Republic of China through independent sales representatives. We market and sell our non-contact capacitive, dimensional metrology and magnetic characterization data storage products in the United States through three full-time salespersons and internationally through distributors and sales representatives. We market and sell our interferometric based surface metrology products through two full timefull-time salespersons and internationally through distributors and sales representatives.
The selling process for our products frequently involves participation by sales, marketing and customer support personnel. Customers and potential customers often evaluate our products by sending semiconductor and device wafers to us for measurement or by installing demonstration equipment at their facilities. We maintain demonstration equipment at our manufacturing sites and at some of our sales offices for this purpose. We plan to continue our investment in demonstration equipment to accelerate the introduction of products. Our marketing activities also include participation in international standards organizations, trade shows, the publication of articles in trade journals, in
industry forums and the distribution of sales literature.
We believe that our strong commitment to service is essential, based on the growing complexity of the equipment used in the semiconductor manufacturing process. This complexity makes it difficult for semiconductor wafer and device manufacturers to maintain an internal workforce sufficiently skilled and specialized to support the disparate equipment and technologies used in their processes. We have customer support centers in Boston, Dallas, Milpitas, Vancouver and Tucson in the United States; Milton Keynes, England; Munich, Germany; and Kuala Lumpur, Malaysia. In addition, our distributors and sales representatives provide customer support. We also offer training programs and maintenance contracts for our customers. We typically offer warranties of up to twelve months covering the performance and reliability of our products.

CUSTOMERS
Customers
Our customers include all of the leading semiconductor wafer manufacturers and many of the leading semiconductor device, and data storage and disk drive manufacturers throughout the world. Historically, a relatively limited number of customers, comprising a large share of the market, have accounted for a substantial portion of our revenue. In fiscal years 2002, 2001 2000 and 1999,2000, sales to our top five customers accounted for approximately 46.1%54.2%, 45.8%46.1% and 45.1%,
respectively,45.8% of our revenue.revenue, respectively. During fiscal year 20012002, one of our customers, Japan ADE Ltd., accounted for 15.4%28.3% of our revenue. During the past fiscal year, approximately 69.1%68.9% of our revenue was derived from sales made to wafer manufacturers, with the remainder derived from sales to manufacturers of semiconductor devices, data storage and disk drives and semiconductor equipment. Our principal customers are as follows:

SEMICONDUCTOR WAFER MANUFACTURERS

Formosa Komatsu

Semiconductor Wafer Manufacturers
MEMC Electronic Materials
Mitsubishi Silicon
Pure Wafer, Ltd.

Shin-Etsu Handotai
Siltron
Sumitomo Sitix Silicon

SUMCO
Wacker Siltronic

SEMICONDUCTOR DEVICE MANUFACTURERS

Okmetic
SOITEC
Kinik
7
Semiconductor Device Manufacturers
Intel
TSMC
UMC
SMIC
Samsung
PROMOS
Data Storage and Disk Drive Manufacturers
IBM
Intel
Micron Technology
Motorola
ST Microelectronics
Texas Instruments

DATA STORAGE AND DISK DRIVE MANUFACTURERS

IBM

Seagate Technology

RESEARCH AND DEVELOPMENT
Research and Development
The market for semiconductor wafer and device, data storage and disk drive equipment is characterized by rapid technological changesadvances and product innovations. Our research and development efforts are designed to enhance our current products and develop new products to keep pace with technological developments and constantly evolving customer requirements. We devote significant resources to programs directed towards developing new and enhanced products, as well as developing new applications for existing products.
In fiscal years 2002, 2001 2000 and 1999,2000, our research and development expenditures were $22.8 million, $22.6 million $21.9 million and $24.0$21.9 million, respectively, representing 22.5%27.9%, 35.0%22.5% and 39.5%35.0% of revenue. Research and development expenditures consist primarily of salaries, project materials, consulting fees and other costs associated with our ongoing research and development efforts.
Industry standards organizations, such as Semiconductor Equipment and Materials International and American Standards for Testing and Materials are pivotal in defining the test methods, measurement parameters and specifications governing commercial transactions within the semiconductor industry. We maintain a significant presence on standards committees of these two organizations and other international standards organizations. We believe that our involvement with these organizations has helped to ensure that our new products conform to industry standards.

BACKLOG
Backlog
Backlog increaseddecreased to approximately $21.2 million at April 30, 2002 from approximately $53.6 million at April 30, 2001 from
approximately $30.4 million at April 30, 2000.2001. This increasedecrease in backlog is primarily attributable to an increasea decrease in demand for capital equipment in the semiconductor industry duringsince the first nine monthsbeginning of calendarthe current industry downturn, which began to impact the Company near the end of fiscal year 2000.2001. We schedule production based on firm customer commitments and anticipated orders during the planning cycle. Backlog is comprised of written purchase orders accepted from customers to whom we expect to ship the related product or provide service within the following twelve months. Customers may cancel or delay orders with limited or no penalty. We do not believe that the level of backlog is an accurate indicator of our performance in future periods.

MANUFACTURING
Manufacturing
Our principal manufacturing activities take place at our ISO 9001-registered facility in Westwood, Massachusetts, where semiconductor dimensional metrology systems and semiconductor optical surface inspection equipment are manufactured,
in Newton, Massachusetts, where non-contact capacitive,manufactured. Our dimensional metrology
for gaging products and magnetic characterization products for the data storage industry are manufactured in Tucson, Arizona, whereNewton, Massachusetts. Our interferometric based surface metrology products are manufactured and in Bethel, Connecticut, whereTucson, Arizona. Our optical and infrared based thin film thickness metrology products are manufactured. manufactured in Bethel, Connecticut.
8

Manufacturing activities consist primarily of assembling and testing components and subassemblies, which are supplied by third party vendors and then integrated into our finished products. Many of the components and subassemblies are standard products, although certain items are made to our specification. We manufacture many of our semiconductor metrology and inspection systems in a cleanroom environment.

PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
Patents and Other Intellectual Property Rights
We rely on a combination of patent, copyright, trademark and trade secret laws and license agreements to establish and protect our proprietary rights in our products. We believe however, that our success depends to a greaterlarge extent upon innovation, technological expertise and distribution strength. We enter into standard confidentiality agreements with our employees and consultants and seek to control access to and distribution of our proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries.
As of July 24, 200125, 2002, we hold 3335 United States patents and 1918 foreign patents covering existing and potential products and have applied for 1317 additional patents in the United States and 3543 additional foreign patents. We have licensed certain patents and other intellectual property to a number of companies.

EMPLOYEES
Employees
As of April 30, 2001,2002, we employed approximately 613 persons at alla total of our
locations.494 persons. Management believes that our ongoing success depends on our continued ability to attract and retain highly skilled employees. There can be no assurance that we will be successful in attracting or retaining such personnel. None of our employees are represented by a labor union, and we have experienced no work stoppages. We consider our employee relations to be good.

8
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by our executive officers are as follows:

NAME AGE POSITION
---- -------- --------------------------------------

Robert C. Abbe........................ 63 Chris L. Koliopoulos 49 President and Chief Executive Officer
Brian C. James........................ 50James 51 Executive Vice President, Treasurer and Chief Financial Officer
AK Lum................................ 52 Vice President and General Manager of
ADE Semiconductor Systems
Chris L. Koliopoulos.................. 48 Vice President and President of ADE
Phase Shift, Inc.
Noel S. Poduje........................ 56 Vice President of Strategic Technology
Development
All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and qualified or until their earlier resignations or removal.

Robert C. Abbe founded ADE in 1967. Since that time, he
Chris L. Koliopoulos has served as President and Chief Executive Officer of ADE Corporation and President of ADE Phase Shift, Inc. since June 2002. From 1998 to 2002, Dr. Koliopoulos served as Vice President of ADE and President of ADE Phase Shift. Dr. Koliopoulos joined ADE in June 1998 through the merger with Phase Shift Technology, Inc., where he was President and co-founder. Dr Koliopoulos has been a Director of ADE. Mr. AbbeADE since September 1998. Dr. Koliopoulos received a BS from the University of Rochester and an AB in PhysicsMS and PhD from Harvard College.the University of Arizona.
Brian C. James joined ADE in August 2000 and serves as Executive Vice President, Treasurer and Chief Financial Officer. Mr. James served as Executive Vice President and Chief Financial Officer of CCT, Inc. and as Corporate Vice President and Chief Financial Officer of The Aerostructures Corporation, both privately held investor-backed companies, prior to joining ADE. Mr. James had previously served as Group Controller for Textron Inc.'s Aerospace-Technology sector and has held various operations and financial positions with Allied-Signal and Ford Motor Company. Mr. James received a BA from the University of Vermont and an MS in finance from the University of Massachusetts.

Chris L. Koliopoulos joined
9

Robert C. Abbe, age 64, founded ADE in June, 1998 through the merger with Phase
Shift Technology, Inc., which became a wholly owned subsidiary of ADE.
Dr. Koliopoulos was President and founder of Phase Shift Technology, has1967. From that time, he served as a Vice Presidentdirector of ADE and until June 20, 2002, as President of ADE Phase Shift sinceand Chief Executive Officer.
In addition, during the merger and
is a Director of ADE. Dr. Koliopoulos received a BS from the University of
Rochester and an MS and PhD from the University of Arizona.Company's 2002 fiscal year, AK Lum, joined ADE in 1998 and hasage 53, served as Vice President and General Manager of ADE Semiconductor Systems Group. From 1997Group until November 2001. In November 2001, Mr. Lum became the Company's Vice President of Marketing and Managing Director of Asia Pacific Operations and ceased to 1998, Mr. Lumbe an executive officer. Also during the Company's fiscal year 2002, John Blaha, age 47, served as Vice President and General Manager of ManufacturingADE Technologies until November 2001. In November 2001, Mr. Blaha became the Company's Corporate Director of Epson Portland Inc. From 1974Finance and ceased to 1997,be an executive officer. As of May 2002, Mr. Lum served Shin-Etsu Handotai-Group in various senior management positions.
Mr. Lum received a BA in electrical engineering from UniversityBlaha is no longer employed by ADE.
Cyclicality of Technology,
Malaysia, and an MBA from City University, State of Washington.

Noel S. Poduje joined ADE in 1972 and has served as Vice President of
Strategic Technology Development since 1985. Mr. Poduje received a BS in
Electrical Engineering from the Massachusetts Institute of Technology.

CYCLICALITY OF OUR BUSINESSOur Business
Our business depends in large part upon the capital expenditures of semiconductor wafer and device and data storage manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits, products utilizing integrated circuits and systems requiring data storage, respectively. The semiconductor and data storage industries are cyclical and have historically experienced periodic downturns, which have had a severe effect on the demand for capital equipment. Prior semiconductor and data storage industry downturns and construction of excess capacity by the industries have adversely affected our revenue, gross margin and net income and have also adversely affected the market price of our common stock. In addition, the need for continued investment in research and development and extensive customer service and support capability worldwide will continue to limit our ability to reduce expenses during industry downturns.

COMPETITION
Competition
The semiconductor and data storage equipment industries are highly competitive. Companies with complementary technologies and greater financial resources may enter these industries and develop products that are superior to our products or achieve market acceptance. In the market for optical defect inspection equipment, we compete directly with Hitachi Electronics Engineering Co., Ltd., Topcon and KLA-Tencor Corporation, bothall of which have significantly greater total assets and annual revenue than we do. In the metrology area of the device industry, we have encountered, and expect to encounter in the future, competition from companies offering similar and competing technologies, some of which have significantly greater total assets and annual revenue than we do or have an existing market presence in the device industry, or both. We also expect to encounter intense competition in the areas of metrology and inspection for the data storage industry. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price/performance characteristics. Competitive pressures can necessitate price reductions or non-revenue generating shipments of new products to certain strategic customers for evaluation purposes, which can adversely affect our operating results. In order to remain competitive, we must maintain a high level of investment in research and development, sales, marketing and customer service. There can be no assurance that we will have sufficient resources to continue to make such investment or that we will be able to make the technological advances necessary to remain competitive.
We expect acquisitions and business combinations by our competitors and potential competitors in the metrology as well as in the defect inspection markets. The impact of this activity could:

-
•
Allow them to offer new products without the lengthy time delays typically associated with internal product development

•
Limit our access to commercially significant technologies and/or new or complementary products

•
Permit them to accelerate the development and commercialization of new competitive products and the marketing of existing competitive products to their larger installed bases.
10
Accordingly, such business combinations and acquisitions by these companies could have an adverse impact on both our market share and the pricing of our products, which could have a material adverse effect on our business.

CUSTOMER AND INDUSTRY CONCENTRATION
Customer and Industry Concentration
A relatively limited number of customers have historically accounted for a substantial portion of our revenue in each year. In fiscal years 2002, 2001 2000 and 1999,2000, sales to our top five customers in each period accounted for approximately 46.1%54.2%, 45.8%46.1% and 45.1%, respectively,45.8% of our revenue.revenue, respectively. The loss of or any reduction in orders by any of these customers, including reductions due to market, economic or competitive conditions in the semiconductor industry or in other industries that manufacture products utilizing semiconductors, could adversely affect our business, financial condition and results of operations. In fiscal 2002, 2001 2000 and 1999,2000, we derived 69.1%68.9%, 58.3%69.1% and 57.7%58.3% of our revenue, respectively, from customers in the semiconductor wafer industry. While we are increasing our emphasis on expanding the level of our business in the device and data storage industries, there can be no assurance that our efforts will be successful. Our ability to maintain or increase our sales levels in the future will depend in part upon our ability to obtain orders from new customers as well as the financial condition and success of our existing customers and the general economy. There can be no assurance that we will be able to increase the level of our revenue in the future or that we will be able to retain existing customers or to attract new customers. In addition, given the limited number of customers, any delay in collecting, or inability to collect, accounts receivable could have a material adverse effect on our financial results. See Notes 2 and 1311 of Notes to Consolidated Financial Statements.

DEPENDENCE ON SUPPLIERSStatements for information regarding our accounting policies and our revenues by segment.
Dependence on Suppliers
Certain of the components and subassemblies, including certain systems controllers and robotics components, incorporated in our current systems and those under development are obtained from a single source or a limited group of suppliers. In some instances, we have not qualified a second source for these products and the partial or complete loss of certain of these sources could have an adverse effect on our results of operations and damage customer relationships. Further, a significant increase in the price of one or more of these components or failure to perform up to specification could adversely affect our results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Risks Associated with International Operations
International sales accounted for 63.5%77.4%, 64.2%63.5% and 59.3%64.2% of our revenue for fiscal years 2002, 2001 2000 and 1999,2000, respectively. See Note 1311 of Notes to Consolidated Financial Statements.Statements for information regarding our revenues and long-lived assets outside the United States. We expect that international sales will continue to represent a significant percentage of revenue. Our international business may be affected by changes in demand resulting from:

-
•
Fluctuations in interest and currency exchange rates

•
The investment policies of foreign countries

•
Changes in trade policies and/or tariff regulations

•
Difficulties in obtaining U.S. export licenses.
Given that historically approximately 45%--50%50%–60% of our revenue has historically come from Asia, financial instability in certain Asian countries could materially affect our competitive position and consequently, financial results.

ACQUISITIONS AND ALLIANCES

ADE has addressed the need to offer new products, in part, through the
acquisition of technology and other businesses. The acquisition of other
businesses involves numerous risks, including:

- Difficulties assimilating the operations, technologies and products of
acquired businesses.

- Diversion of management's attention from other business concerns.

- Entering markets in which we have no or limited direct prior experience
and must compete with competitors having stronger market positions.

- Potential loss of key employees of the acquired business.

Integrating acquired businesses requires, among other things, integration of
product offerings and coordination of sales, marketing, research and development
and management organizations. There can be no assurance that such integration
will be accomplished smoothly or successfully. The difficulties of integration
may be increased by the necessity of coordinating organizations that are
separated geographically. The inability of management to successfully integrate
the operations of any acquired businesses could have a material adverse effect
on our business and results of operations.

ITEM 2. PROPERTIES

Our corporate headquarters and
Information regarding our principal manufacturing operations of our ADE
Semiconductor Systems Group are located in an approximately 118,000 square foot
company-owned building in Westwood, Massachusetts. We own and occupy a 60,000
square foot building in Tucson, Arizona, which contains the headquarters and
manufacturing operations of ADE Phase Shift. We also own and occupy a 46,000
square foot building in Newton, Massachusetts which contains the headquarters
and manufacturing operations of ADE Technologies. In addition, we lease a 9,300
square foot building in Milpitas, California under a five year lease that
expires in October 2006. We lease a 5,000 square foot building in Bethel,
Connecticut where additional manufacturing operations of the ADE Semiconductor
Systems Group are located.properties at April 30, 2002 is set forth below:
Location
Principal Use Business Segment Sq. Footage Ownership
Westwood, MA Corporate Headquarters,
Manufacturing,
Engineering, Service,
Sales and Marketing Semiconductor Systems Group 118,000 Owned

Tucson, AZ

Manufacturing,
Engineering, Service,
Sales and Marketing

ADE Phase Shift

60,000

Owned

Newton, MA

Manufacturing,
Engineering, Service,
Sales and Marketing

ADE Technologies

46,000

Owned

Vancouver, WA

Sales, Service and
Engineering

Semiconductor Systems Group

12,800

Leased

Milpitas, CA

Sales and Service

Semiconductor Systems Group and ADE Technologies

9,300

Leased

Bethel, CT

Manufacturing and
Engineering

Semiconductor Systems Group

5,000

Leased
We also lease space for sales and service support offices in various other domestic and overseas locations.

11
ITEM 3. LEGAL PROCEEDINGS
On October 12, 2000, the Company filed a patent infringement lawsuit against KLA-Tencor (KLA)("KLA"), a competitor, in the U.S. District Court in Delaware. The Company seeks damages and a permanent injunction against further infringement upon United States Patent Number 6,118,525, entitled "Wafer Inspection System for Distinguishing Pits and Particles." On November 22, 2000, KLA filed a counterclaim in the United States District Court in Delaware that ADE has infringed upon three patents owned by KLA. KLA is seeking damages for patent infringement and a permanent injunction against any future infringement activity. In addition, KLA has asked the District Court for a declaration that United States Patent Number 6,118,525, owned by ADE, is invalid and not infringed upon by KLA. Since these matters are at a preliminary stage,At this time, the Company cannot predict the outcome or the amount of gain or loss, if any.
In addition to the matter noted above, from time to time the Company is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended April 30, 2001.

2002.
12

PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET PRICE OF COMMON STOCK
Market Price of Common Stock
Our common stock trades on the Nasdaq National Market System under the symbol "ADEX." The following table presents the high and low sale prices for each quarter for the common stock as reported for the periods indicated.
FISCAL YEAR ENDED APRIL 30, 2001 HIGH LOW
-------------------------------- -------- --------

First quarter............................................... 24.00 13.25
Second quarter.............................................. 23.13 15.00
Third quarter............................................... 22.88 10.44
Fourth quarter.............................................. 16.65 11.33

FISCAL YEAR ENDED APRIL 30, 2000 HIGH LOW
-------------------------------- -------- --------

First quarter............................................... 14.13 8.44
Second quarter.............................................. 17.00 10.88
Third quarter............................................... 22.63 14.88
Fourth quarter.............................................. 27.00 14.44
Fiscal year ended April 30, 2002
High Low
First quarter $ 20.00 $ 13.45
Second quarter 17.65 8.40
Third quarter 12.10 9.05
Fourth quarter 15.50 9.44
Fiscal year ended April 30, 2001
High Low
First quarter $ 24.00 $ 13.25
Second quarter 23.13 15.00
Third quarter 22.88 10.44
Fourth quarter 16.65 11.33
The last sale price of the common stock on July 24, 2001,25, 2002, as reported by Nasdaq, was $14.45$7.09 per share. As of July 24, 2001,25, 2002, there were 92107 holders of record of the common stock (approximately 2,8002,044 beneficial holders).
We have never declared or paid any cash dividends on our common stock and currently expect to retain future earnings for use in our business.

RECENT ISSUANCE OF UNREGISTERED SECURITIES

In June 1998, in consideration of a merger between ADE and Phase Shift
Technology, Inc., a privately-owned company, ADE issued an aggregate of
2,000,000 shares of common stock to the Phase Shift shareholders. All of the
recipients of shares were "accredited investors" under the definition of that
term in Regulation D under the Securities Act. The issuance of the shares was
privately negotiated in the context of negotiations for the merger with Phase
Shift, and was exempt from the registration requirements of Section 5 of the
Securities Act of 1933 pursuant to Section 4(2) of that Act.

13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business.business and is derived from the Company's historical consolidated financial statements. You should read the selected financial data in conjunction with our historical consolidated financial statements and related notes and the section of this annual report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

YEAR ENDED APRIL 30,
-----------------------------------------------------
2001 2000 1999 1998 1997
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue................................................... $ 100,183 $ 62,506 $ 60,885 $135,700 $111,133
Cost of revenue........................................... 50,236 35,475 46,489 61,755 49,414
--------- -------- -------- -------- --------
Gross profit.......................................... 49,947 27,031 14,396 73,945 61,719
--------- -------- -------- -------- --------
Operating expenses:
Research and development.............................. 22,583 21,884 24,026 27,580 17,689
Purchased in-process research and development......... -- -- -- 6,100 --
Marketing and sales................................... 16,218 13,002 12,280 15,638 14,501
General and administrative............................ 9,948 12,281 11,153 13,701 8,043
Restructuring charges................................. -- -- 2,318 -- --
--------- -------- -------- -------- --------
Total operating expenses.......................... 48,749 47,167 49,777 63,019 40,233
--------- -------- -------- -------- --------
Income (loss) from operations............................. 1,198 (20,136) (35,381) 10,926 21,486
Interest and other income, net............................ 1,130 1,280 2,600 2,347 387
--------- -------- -------- -------- --------
Income (loss) before provision for (benefit from) income
taxes, equity in net earnings (loss) of affiliated
companies and cumulative effect of change in accounting
principle............................................... 2,328 (18,856) (32,781) 13,273 21,873
Provision for (benefit from) income taxes................. 37 102 (9,335) 3,301 6,926
--------- -------- -------- -------- --------
Income (loss) before equity in net earnings (loss) of
affiliated companies and cumulative effect of change in
accounting principle.................................... 2,291 (18,958) (23,446) 9,972 14,947
Equity in net earnings (loss) of affiliated companies..... 2 (1,489) (1,082) (1,005) 99
--------- -------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting principle.................................... 2,293 (20,447) (24,528) 8,967 15,046
Cumulative effect of change in accounting principle, net
of $0 tax............................................... (1,785) -- -- -- --
--------- -------- -------- -------- --------
Net income (loss)..................................... $ 508 $(20,447) $(24,528) $ 8,967 $ 15,046
========= ======== ======== ======== ========
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change
in accounting principle............................. $ 0.17 $ (1.53) $ (1.89) $ 0.73 $ 1.46
Cumulative effect of change in accounting
principle........................................... $ (0.13) $ -- $ -- $ -- $ --
--------- -------- -------- -------- --------
Basic earnings (loss) per share........................... $ 0.04 $ (1.53) $ (1.89) $ 0.73 $ 1.46
========= ======== ======== ======== ========
Diluted
Earnings (loss) before cumulative effect of change in
accounting principle.................................... $ 0.17 $ (1.53) $ (1.89) $ 0.70 $ 1.38
Cumulative effect of change in accounting principle....... $ (0.13) $ -- $ -- $ -- $ --
--------- -------- -------- -------- --------
Diluted earnings (loss) per share......................... $ 0.04 $ (1.53) $ (1.89) $ 0.70 $ 1.38
========= ======== ======== ======== ========
Weighted average common shares outstanding
Basic............................................... 13,507 13,353 12,989 12,215 10,301
Diluted............................................. 13,754 13,353 12,989 12,822 10,880
Pro forma amounts assuming retroactive effect of change in
accounting principle related to revenue recognition: (1)
Net revenues.......................................... $ 100,183 $ 61,966 $ 63,194 * *
Net income (loss)..................................... $ 508 $(20,700) $(22,511) * *
Basic earnings (loss) per share....................... $ 0.04 $ (1.55) $ (1.73) * *
Diluted earnings (loss) per share..................... $ 0.04 $ (1.55) $ (1.73) * *

APRIL 30,
-----------------------------------------------------
2001 2000 1999 1998 1997
--------- -------- -------- -------- --------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 29,220 $ 35,001 $ 61,278 $ 72,711 $ 22,485
Working capital........................................... 71,958 65,710 90,654 111,840 49,043
Total assets.............................................. 146,707 132,870 153,430 173,643 94,508
Long-term debt, less current portion...................... 11,339 11,950 12,537 8,613 5,091
Total stockholders' equity................................ $ 104,664 $101,872 $120,822 $144,186 $ 64,730
Year ended April 30,
2002 2001 2000 1999 1998
(in thousands, except per share data)

Statement of Operations Data:
Revenue $ 81,806 $ 100,183 $ 62,506 $ 60,885 $ 135,700
Cost of revenue 48,132 50,236 35,475 46,489 61,755
Gross profit 33,674 49,947 27,031 14,396 73,945
Operating expenses:
Research and development 22,783 22,583 21,884 24,026 27,580
Purchased in-process research and development — — — — 6,100
Marketing and sales 13,064 16,218 13,002 12,280 15,638
General and administrative 11,290 9,948 12,281 11,153 13,701
Restructuring charges — — — 2,318 —
Total operating expenses 47,137 48,749 47,167 49,777 63,019
Income (loss) from operations (13,463 ) 1,198 (20,136 ) (35,381 ) 10,926
Interest and other income, net 256 1,130 1,280 2,600 2,347
Income (loss) before provision for (benefit from) income taxes, equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (13,207 ) 2,328 (18,856 ) (32,781 ) 13,273
Provision for (benefit from) income taxes 10,416 37 102 (9,335 ) 3,301
Income (loss) before equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (23,623 ) 2,291 (18,958 ) (23,446 ) 9,972
Equity in net earnings (loss) of affiliated companies 498 2 (1,489 ) (1,082 ) (1,005 )
Income (loss) before cumulative effect of change in accounting principle (23,125 ) 2,293 (20,447 ) (24,528 ) 8,967
Cumulative effect of change in accounting principle, net of $0 tax — (1,785 ) — — —
Net income (loss) $ (23,125 ) $ 508 $ (20,447 ) $ (24,528 ) $ 8,967
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change in accounting principle $ (1.70 ) $ 0.17 $ (1.53 ) $ (1.89 ) $ 0.73
Cumulative effect of change in accounting principle $ — $ (0.13 ) $ — $ — $ —
Basic earnings (loss) per share $ (1.70 ) $ 0.04 $ (1.53 ) $ (1.89 ) $ 0.73
Diluted
Earnings (loss) before cumulative effect of change in accounting principle $ (1.70 ) $ 0.17 $ (1.53 ) $ (1.89 ) $ 0.70
Cumulative effect of change in accounting principle $ — $ (0.13 ) $ — $ — $ —
Diluted earnings (loss) per share $ (1.70 ) $ 0.04 $ (1.53 ) $ (1.89 ) $ 0.70
Weighted average common shares outstanding
Basic 13,615 13,507 13,353 12,989 12,215
Diluted 13,615 13,754 13,353 12,989 12,822
Pro forma amounts assuming retroactive effect of change in accounting principle related to revenue recognition:(1)
Net revenues $ 100,183 $ 61,966 $ 63,194 *
Net income (loss) $ 2,293 $ (20,700 ) $ (22,511 ) *
Basic earnings (loss) per share $ 0.17 $ (1.55 ) $ (1.73 ) *
Diluted earnings (loss) per share $ 0.17 $ (1.55 ) $ (1.73 ) * 14
April 30,
2002 2001 2000 1999 1998
(in thousands)

Balance Sheet Data:
Cash and cash equivalents $ 26,108 $ 29,220 $ 35,001 $ 61,278 $ 72,711
Working capital 53,669 71,958 65,710 90,654 111,840
Total assets 114,751 146,707 132,870 153,430 173,643
Long-term debt, less current portion 10,715 11,339 11,950 12,537 8,613
Total stockholders' equity $ 83,322 $ 104,664 $ 101,872 $ 120,822 $ 144,186
*
Data is not available to provide pro forma information for these years.

this year.

(1) The
In fiscal year 2001, the Company recorded a non-cash charge of $1.8 million, net of $0 taxes, or $0.13 per diluted share to reflect the cumulative effect of the accounting change as of May 1, 2000 related to the adoption of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." See Note 3 of the consolidated financial statements. The pro forma results for the prior periods presented prior to fiscal 2001 above were calculated assuming the accounting change was made retroactively to those periods.

14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE DESCRIPTION OF BUSINESS, FINANCIAL
STATEMENTS AND THE RELATED NOTES OF
The following discussion of our financial condition and results of operations should be read together with the description of business, financial statements and the related notes of ADE WHICH APPEAR ELSEWHERE IN THIS ANNUAL
REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT ADE'S PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED BELOW AND IN THE FORWARD-LOOKING STATEMENTS
APPEARING ELSEWHERE IN THIS ANNUAL REPORT.

OVERVIEWwhich appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect ADE's plans, estimates and beliefs. Our actual results could differ materially from those discussed below and in the forward-looking statements appearing elsewhere in this annual report.
Overview
ADE was founded in 1967 to develop and market certain advanced concepts and designs in capacitance and other measurement technologies suitable for industrial applications requiring precise, reliable, damage-free and repeatable measurements. Our products have evolved from single instruments used in off-line engineering analysis to multi-function systems for automated in-line monitoring of process-induced defects throughout the semiconductor wafer, device and data storage manufacturing processes. We operate three major business segments, the Semiconductor Systems Group (SSG)("SSG"), ADE Phase Shift (PST)("PST") and ADE Technologies (ATI)("ATI"). The Semiconductor Systems Group manufactures multifunctional semiconductor metrology and automation systems and optical wafer defect inspection equipment used to detect particles and other defects on silicon wafer surfaces. ADE Phase Shift manufactures high performance, non-contact surface metrology equipment using advanced interferometric technology that provides enhanced yield management to the data storage, semiconductor and optics industries. ADE Technologies manufactures high precision magnetic characterization and non-contact dimensional metrology gaging systems primarily for the data storage industry. The Company's markets are cyclical. During fiscal year 2002, the Company experienced decreased demand for its products in all business segments as a result of the downturn in the semiconductor wafer and device manufacturing industries as well as the data storage industry. Consequently, the Company experienced reduced order levels and revenues. In response to the industry downturn, we have undertaken cost reduction measures, including headcount reductions, while maintaining our investment in research and development to position the Company for the next wave of capital spending in the semiconductor wafer and device manufacturing industries as well as the data storage industry.
Critical Accounting Policies, Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure at the date of our financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets, income taxes, and warranty obligations. 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. The Company considers certain accounting policies related to revenue recognition and allowance for doubtful accounts, inventory valuation, accounting for incomes taxes and valuation of long-lived assets to be critical policies due to the estimates and judgments involved in each.
Revenue Recognition and Allowance for Doubtful Accounts
The Company changed its revenue recognition policy effective JanuaryMay 1, 2000, based on guidance provided in SEC Staff Accounting Bulletin No. 101 (SAB
101)("SAB 101"), "Revenue Recognition in Financial Statements." The Company recognizes revenue when persuasive evidence of an arrangement exists,
16

delivery has occurred or services have been rendered, the seller'sour price is fixed or determinable and collectibility is reasonably assured. Our standard customer arrangement includes a signed purchase order, in which we offer payment terms of 30 to 90 days, no right of return of delivered products and a twelve month warranty. We assess whether the fee associated with our revenue transactions is fixed or determinable based on the payment terms associated with the transaction. If a significant portion of the fee is due after our normal payment terms, 30 to 90 days, we determine that the fee is not fixed or determinable. In these cases, we recognize revenue as the fees become due. We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash.
For some of the Company's sales transactions, a portion, usually 10%, of the fee is not due until installation occurs and the customer accepts the product. The other 90% of the fee is normally due 30 to 90 days after shipment. If the Company has met defined customer acceptance experience levels with a specific type of product, these transactions are accounted for as multiple-element arrangements with the deferral of the portion of the fee not due until installation is complete and customer acceptance has occurred. Management of the Company must make a determination of what constitutes an appropriate experience level with a product. This determination is based on, but not limited to, the extent to which a product contains significantly new technology, the number of similarly configured products previously delivered and our experience with a particular customer. The portion of the fee related to the installation of the product and customer training is classified as service revenue. All other sales with customer acceptance provisions are recognized as revenue upon customer acceptance.
The Company's transactions frequently involve the sales of systems and services under multiple element arrangements. Revenue under multiple element arrangements is allocated to all elements except systems based upon the fair value of those elements. The amounts allocated to training are based upon the price charged when this element is sold separately and unaccompanied by the other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time to complete the service. The amount allocated to system and parts is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to systemssystem revenue. Installation and training are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products.
We accrue for anticipated warranty costs upon shipment. Service revenue is recognized as the services are performed provided collection of the related receivable is probable. Service contract revenue is recognized ratably over the contractual periods in which the services are provided. We do not provide the right to return products. Revenue from software licenses is recognized when an agreement has been executed, software has been delivered, fees are fixed or determinable and collection of the related receivable is 15
probable. Revenue from software consulting services provided on a time and reimbursable expense basis is recognized as the services are provided.
Revenue from sales to Japan ADE Ltd, our 50% owned affiliate and a distributor of our products, by the SSG, ATI and PST segments are reflected in segment revenue during the period they are shipped by the respective segment, which can differ from the period the revenue is recognized for consolidated financial reporting purposes. Consolidated revenue on sales to Japan ADE Ltd is recognized when the related product or software is shipped to and accepted by the end user of the product or software.
The Company previously recorded revenuemaintains an allowance for doubtful accounts based on product sales upon shipment,
provideda continuous review of customer accounts, payment patterns and specific collection issues. Where specific collection issues are identified, the Company records a specific allowance based on the amount that evidence of an arrangement exists, feesthe Company believes will
17

be collected. For accounts where specific collection issues are fixed or determinable
and collectionnot identified, the Company will record a reserve based on the age of the receivable and historical collection patterns.
Inventory Valuation
Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. Management evaluates the need to record adjustments for impairment of inventory on a monthly basis. The Company's policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts. Obsolete inventory or inventory in excess of management's estimated usage is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management's estimates related receivableto current economic trends, future demand for the Company's products, and technological obsolescence. Significant management judgments must be made when establishing the reserve for obsolete and excess inventory. If our judgments and estimates relating to obsolete and excess inventory prove to be inadequate, our financial results could be materially adversely affected in future periods. If the inventory value is probable.written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold.
Accounting for Income Taxes
We record income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. Our financial statements contain certain deferred tax assets, which have arisen primarily as a result of operating losses incurred in prior years, as well as other temporary differences between book and tax accounting. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires the establishment of a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. During the second quarter of fiscal 2002, as a result of current year operating losses to date, anticipated additional operating losses for the third quarter of 2002, an expected operating loss for fiscal 2002, and uncertainty as to the extent and timing of profitability in future periods, the Company recorded an additional valuation allowance to reserve the remaining deferred tax assets, resulting in income tax expense of $10.6 million. The Company currently has a full valuation allowance. The decision to record the valuation allowance required significant judgment. Had we not recorded this allowance, we would have reported materially different results. If the realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period such determination was made. The amount of the deferred tax asset considered realizable is based on significant estimates, and it is at least reasonably possible that changes in these estimates in the near term could materially affect our financial condition and results of operations. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal, state or foreign tax laws, and deductibility of certain costs and expenses by jurisdiction.
Valuation of Long-Lived Assets
Intangible assets consist of capitalized license fees for software included in the Company's products as well as goodwill obtained through the acquisition of the Semiconductor Solutions Division of LPA Software, Inc. ("SSD") in September 1997. Goodwill of $2,407,000 related to the acquisition of SSD is amortized on a straight-line basis over ten years. Accumulated amortization on the goodwill at April 30,
18

2002 and 2001 was $1,089,000 and $854,000, respectively. Capitalized license fees of $2,900,000 for software included in the Company's products is amortized at the greater of 1) the ratio that current gross revenue for the related products bear to the total current and anticipated future gross revenue for those products or 2) on a straight-line basis over its estimated useful life. Accumulated amortization on the license fees at April 30, 2002 and 2001 was $1,618,000 and $1,168,000, respectively.
In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the guidance providedImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"), the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Factors we consider important which could trigger the impairment review include:
•
significant underperformance relative to historical or projected future operating results

•
significant negative industry or economic trends

•
significant decline in SAB 101,our stock price for a sustained period

•
significant decline in our technological value as compared to the Company recorded a non-cash chargemarket

•
our market capitalization relative to net book value.
If such circumstances exist, we evaluate the carrying value of $1.8 million, net of $0 income taxes, or $0.13 per sharelong-lived assets to reflectdetermine if impairment exists based upon estimated undiscounted future cash flows over the cumulative effectremaining useful life of the change in accounting principle as of May 1, 2000,assets and comparing that value to the beginningcarrying value of the fiscal year. Forassets. If the fiscal year ended April 30, 2001,carrying value of the Company recognized approximately $1.7 million in revenue that was includedasset is greater than the estimated future cash flows, the asset is written down to the estimated fair value. We determine the estimated fair value of the assets on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the cumulative effect adjustment ascurrent business model. In determining expected future cash flows, assets are grouped at the lowest level for which cash flows are identifiable and independent of May 1, 2000. The effect of that revenue
wascash flows from other asset groups. To date, no such impairment has been indicated. Our cash flow estimates contain management's best estimates, using appropriate and customary assumptions and projections at the time.
Off-Balance Sheet Arrangements
We have not created, and are not party to, increase income by $1.4 million (net of $0 in taxes)any special-purpose or off-balance sheet entities for the fiscal year
ended April 30, 2001. The pro forma amounts presented in the Consolidated
Statementpurpose of Operations were calculated assuming that the accounting change was
retroactive to prior periods. For periods prior to fiscal year 1999, data was
not available to provide pro forma information.

On June 11, 1998, ADE merged with Phase Shift Technology, Inc., an Arizona
corporation. Each outstanding share of Phase Shift's common stock was exchanged
for two shares of the ADE's common stock. A total of 2,000,000 sharesraising capital, incurring debt or operating parts of our common stock were issued in this transaction. This transaction has been
accounted for as a pooling-of-interests. Accordingly, all prior periodbusiness that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements have been restatedthat are reasonably likely to reflectmaterially affect our liquidity or the inclusionavailability of Phase Shift
operations.

RESULTS OF OPERATIONSour capital resources.
19
Results of Operations
The following table presents the percentage of total revenue for the respective line items in ADE's consolidated statements of operations.
YEAR ENDED APRIL 30,
------------------------------------
2001 2000 1999
-------- -------- --------

Revenue........................................... 100.0% 100.0% 100.0%
Cost
Year ended April 30,
2002 2001 2000
Revenue 100.0 % 100.0 % 100.0 %
Cost of revenue 58.8 % 50.1 % 56.8 %
Gross profit 41.2 % 49.9 % 43.2 %
Operating expenses:
Research and development 27.9 % 22.5 % 35.0 %
Marketing and sales 16.0 % 16.2 % 20.8 %
General and administrative 13.8 % 9.9 % 19.6 %
Income (loss) from operations (16.5 )% 1.2 % (32.2 )%
Interest and other income, net 0.3 % 1.1 % 2.0 %
Net income (loss) (28.3 )% 0.1 % (32.7 )%
Fiscal Year Ended April 30, 2002 Compared to Fiscal Year Ended April 30, 2001
Revenue. Total revenue decreased 18% to $81.8 million in fiscal 2002 from $100.2 million in fiscal 2001. Decreased sales of revenue................................... 50.1% 56.8% 76.3%
Gross profit...................................... 49.9% 43.2% 23.7%
Operating expenses:
Research and development.......................... 22.5% 35.0% 39.5%
Marketing and sales............................... 16.2% 20.8% 20.2%
General and administrative........................ 9.9% 19.6% 18.3%
Restructuring charges............................. -- -- 3.8%
Income (loss) from operations..................... 1.2% (32.2)% (58.1)%
Interest and other income (expense), net.......... 1.1% 2.0% 4.3%
Net income (loss)................................. 0.1% (32.7)% (40.3)%

RESTRUCTURING

In January 1999, we began the Company's products in the SSG segment reflected a decrease in demand for capital equipment in the semiconductor wafer and device industries as a result of the current severe down cycle. Revenue in the PST segment also decreased in fiscal 2002 compared with fiscal 2001 as a result of the current down cycle. Wafer and device manufacturers' capital equipment purchases have been focused on advanced industry requirements rather than on capacity expansion, which resulted in technology purchases of the Company's next generation of products in both the SSG and the PST segments.
The data storage industry has continued to experience extreme pricing pressure, consolidation of our Charlotte, North Carolina
operations and certain of our Milpitas, California operations into our
Massachusetts facilities to better align our cost structure with the prevailing
semiconductor andexcess supply in many data storage market conditionssegments, which has resulted in reduced production and capital equipment purchases. Consequently, revenues from the products that are marketed to position ourselvesthe data storage industry by the Company's ATI segment decreased in fiscal 2002 compared to fiscal 2001.
Consolidated revenue in fiscal 2002 was $3.3 million higher than aggregate segment revenue for this period and reflects the impact of revenue from sales to Japan ADE Ltd. that were recognized in fiscal 2002 for consolidated reporting purposes but were recognized during fiscal 2001 on a segment basis.
The decrease in service revenues is consistent with more efficient operations for expected industry recoveries. Anticipated savings
upon the completiondecrease in system and parts revenue and is reflective of the consolidation efforts included reduced costcurrent down cycle in the wafer and device manufacturing industries.
Gross profit. Gross profit decreased to 41% in fiscal 2002 from 50% in fiscal 2001. The decrease in gross profit was due primarily to the higher percentage of shipments of 300mm products in the SSG segment, which carry lower margins in their initial stages than the Company's legacy products. The Company expects these lower margins to continue in the short term due to expected shipments of newer technologies. Also contributing to the decrease in gross profit was a decline in factory utilization in all segments in fiscal 2002 compared to fiscal 2001 due to the decrease in demand for the Company's products. Gross profit from sales of services increased by 4% in fiscal 2002 compared to fiscal 2001 as a result of overhead expense reductions during fiscal 2002.
Research and Development. Research and development expense in fiscal 2002 increased 1% to $22.8 million from $22.6 million in fiscal 2001 and increased as a percentage of revenue to 28% from 23%. The sustained level of expense resulted primarily from continued investment by the SSG segment to develop its AFS and AWIS products to capitalize on the next wave of worldwide capital spending, which is expected to be focused on 300mm wafer production. Also contributing to the overall level of expense was
20

continued investment in research and development by the PST segment. The Company also continues to develop new products for the data storage industry, including those that measure the magnetic properties of materials used in manufacturing disk drives. The Company is committed to continuing its investment in research and development to maintain its position as a technological leader, which may necessitate continued research and development spending at or above current levels. The increase in expense as a percentage of revenues resulted primarily from the decrease in revenues during fiscal 2002 compared to fiscal 2001.
Marketing and Sales. Marketing and sales expense decreased 19% to $13.1 million in fiscal 2002 from $16.2 million in fiscal 2001, and remained consistent as a percentage of revenue at 16% in both fiscal 2002 and fiscal 2001. The decreased expense in the all business segments resulted primarily from decreased commissions expense on sales made through both internal and external sales representatives. The mix of sales due to reduced capacity-related expense, reduced payroll and related costs and
reduced travel costs. Expenses associated with these consolidations incurred in
fiscal 2000 and 1999 totaled $3.5 million and $4.5 million, respectively. The
fiscal 1999 consolidation expenses includedchannels through which the Company's products are sold may have a restructuring charge of
$2.3 million and $2.2 million in other non-recurring expenses. The restructuring
charges included severance costs of $1.2 million related tosignificant impact on the termination of
71 employees in general and administrative,Company's marketing and sales manufacturing,expense and engineering functions; $185,000the results in lease termination penalties;any period may not be indicative of marketing and $931,000sales expense for future periods. Also contributing to the decrease in non-cash fixed asset impairments related to

furniture, fixturesexpense was a decrease in payroll expense and building improvements on the terminated leased
facilities. Other non-recurring expenses includeddiscretionary spending such as travel consulting, and employee retention bonusesadvertising.
General and were included in generalAdministrative. General and administrative expenses. Retention bonusexpenses increased 13% to $11.3 million in fiscal 2002 from $9.9 million in fiscal 2001 and increased as a percentage of revenue to 14% in fiscal 2002 from 10% in fiscal 2001. Expenses increased primarily due to an increase in legal and patent expenses in fiscal 2002 compared with fiscal 2001. The increase in legal and patent expenses was partially offset by a decrease in bad debt expense related to payments to employees who had been
notifiedand lower discretionary spending during fiscal 2002 compared with fiscal 2001.
Interest and Other Income. Interest and other income, net of their termination dates, but whose services were required through
specified dates during the consolidation process. Thisinterest expense, was recorded
ratably over the respective estimated service periods. During$0.3 million in fiscal 2000 we
incurred recruiting costs2002 versus $1.1 million in fiscal 2001. Fiscal 2002 interest and labor redundancy costs associated with replacing
certain personnel in Charlotte who elected not to relocate to Massachusetts.
Moving and related costs were incurred through the endother income of January 2000 and were
included in general and administrative expenses. During fiscal 2001, the
remainder$1.1 million was mostly offset by interest expense of the restructuring accrual was paid, which consisted of $278,000 of
severance payments.

In July 2001, the Company reduced its workforce by approximately 5% as part
of a cost-cutting program that was implemented in response to softening market
conditions. All job reductions were$0.8 million associated with the Company's New England
facilities.

REALIZABILITY OF DEFERRED TAX ASSETS

DuringIndustrial Development Bonds used to finance the year ended April 30, 2001, we increasedacquisition and renovation of our corporate headquarters and SSG manufacturing facility in Westwood, Massachusetts, the headquarters and manufacturing facility of ATI in Newton, Massachusetts and the construction of the PST headquarters and manufacturing facility in Tucson, Arizona. The interest rates on these bonds are fixed. The decrease in interest and other income was due to both a decrease in interest rates and a decrease in invested cash balances in fiscal 2002 compared to fiscal 2001.
Provision for Income Taxes. The provision for income taxes was $10.4 million in fiscal 2002 compared to $37,000 in fiscal 2001. The provision for income taxes in fiscal 2002 consists of an increase of $10.6 million in the valuation allowance against the Company's deferred tax assets by $2.2 million,that was recorded in the second quarter of fiscal 2002. The Company has deferred tax assets, which have arisen primarily as a result of operating losses incurred in prior years, as well as other temporary differences between book and tax accounting. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires the full valueestablishment of our capitala valuation allowance to reflect the likelihood of the realization of deferred tax assets. During the second quarter of fiscal 2002, as a result of current year operating losses to date, anticipated additional operating losses for the third quarter of 2002, an expected operating loss carryforward in relationfor fiscal 2002, and uncertainty as to the saleextent and timing of oneprofitability in future periods, the Company recorded an additional valuation allowance to reserve the remaining deferred tax assets, resulting in income tax expense of $10.6 million. The Company currently has a full valuation allowance. As of April 30, 2002, the Company's investments
during the year and temporary differencesCompany has available unused operating loss carryforwards, which may not be realized. This increase was
based upon weighing all evidence available to management, including fiscal 2001
pre-tax income of $2.3 million, current estimates ofapplied against future taxable income, the
cyclicality of the semiconductor and data storage industries and the current
uncertainty within those markets.income. Net operating loss carryforwards generated in fiscal 19992000 and 20002002 begin to expire in fiscal 20042005 for state income tax
purposes and in fiscal 20192020 for federal purposes. The fiscal 2002 provision for income taxes was partially offset by a $200,000 refund due to recent tax purposes. We will need to
generate approximately $27.9 millionlaw changes. The fiscal 2001 provision for income taxes consisted of future taxablestate and foreign income to realize the
benefittaxes and federal income taxes, all of our net deferred tax assets as ofwhich represented alternative minimum taxes.
21

Fiscal Year Ended April 30, 2001. The amount of the
deferred tax assets considered realizable could materially change in the near
term if estimates of future taxable income change or do not materialize.

FISCAL YEAR ENDED APRIL2001 Compared to Fiscal Year Ended April 30, 2001 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2000

REVENUE.
Revenue. Revenue increased 60.3% to $100.2 million in fiscal 2001 from $62.5 million in fiscal 2000. The increase was primarily due to increased unit sales of our products in all segments of our business. Increased sales of the Company's products were primarily due to an increase in demand for capital equipment in the semiconductor wafer and device industries while demand in the computer hard disk industry remained consistent compared with the prior year. Capital equipment utilization at wafer and device manufacturers has improved, resulting in some capital equipment purchases to adjust capacity on existing lines. Advanced industry requirements driven by shrinking device dimensions and larger silicon wafers have resulted in increased purchases of the Company's next generation of products.

Revenue from sales to Japan ADE Ltd, our 50% owned affiliate and a
distributor of our products, by the Semiconductor Systems Group, ADE
Technologies and ADE Phase Shift are reflected in segment revenue during the
period they are shipped by the respective segment, which can differ from the
period the revenue is recognized for consolidated financial reporting purposes.
Consolidated revenue on sales to Japan ADE Ltd is recognized when the related
product or software is shipped to and accepted by the end user of the product or
software.
Consolidated revenue in fiscal 2001 was $2.9 million less than aggregate segment revenue for this period and reflects the impact of revenue from sales to Japan ADE Ltd. that was not recognized in fiscal 2001 for consolidated reporting purposes but was recognized during fiscal 2001 on a segment basis.

GROSS MARGIN.
Gross marginProfit. Gross profit increased to 49.9% in fiscal 2001 from 43.2% in fiscal 2000. The increase in the gross marginprofit resulted primarily from the effect of increased sales volume of shipments of legacy products and increased absorption of overhead expenses due to significantly increased manufacturing activity in the SSG segment. In addition, our capacity utilization for the SSG segment

17
improved during fiscal 2001 compared to fiscal 2000 as a result of efficiencies realized since the completion of the consolidation of the SSG manufacturing operations from Charlotte, North Carolina into the Westwood, Massachusetts facility in the latter half of fiscal 2000. Gross marginsprofit at PST increased in fiscal 2001 compared to fiscal 2000 primarily as a result of increased sales volume, while gross marginsprofit at ATI decreased during fiscal 2001 compared to fiscal 2000 due to product mix.

RESEARCH AND DEVELOPMENT.
Research and Development. Research and development expense in fiscal 2001 increased 3.2% to $22.6 million from $21.9 million in fiscal 2000 and decreased as a percentage of revenue to 22.5% from 35.0%. The increase in expense resulted primarily from continued investment by the SSG segment to develop its AFS and AWIS advanced wafer inspection systems to capitalize on the next wave of worldwide capital spending, which is expected to be focused on 300mm production. Also contributing to the increase in expense was continued investment by PST on its NanoMapper wafer nanotopography system. The overall increase in research and development expense was offset somewhat by a decrease in project materials expenses at ATI. The decrease in expense as a percentage of revenues resulted primarily from the increase in revenues during fiscal 2001 compared to fiscal 2000. The Company has continued its development efforts to enhance its existing 200mm and advanced 200mm wafer systems as its semiconductor industry customers seek to improve their yields on 200mm wafers as well as efforts to develop and enhance bridge tools, which can be used with either 200mm or 300mm wafers. The Company also continues to develop new products for the computer disk industry, including those, which measure the magnetic properties of materials used in manufacturing disk drives. The Company is committed to continuing its investment in research and development to maintain its position as a technological leader, which may necessitate continued research and development spending at or above current levels.

MARKETING AND SALES.
Marketing and Sales. Marketing and sales expense increased 24.7% to $16.2 million in fiscal 2001 from $13.0 million in fiscal 2000, and decreased as a percentage of revenue to 16.2% from 20.8%. The increased expense resulted primarily from increased commissions expense on sales made through external sales representatives, primarily in Asia, for the SSG segment due to increased sales volume during fiscal 2001 compared to fiscal 2000. Also contributing to the increase in expense was an increase in payroll and benefits expenses in SSG in fiscal 2001 compared to fiscal 2000. Expenses for PST and ATI remained consistent with the prior year. The mix of sales channels through which the Company's products are sold may have a significant impact on the Company's marketing and sales expense and the results in any period may not be indicative of marketing and sales expense for future periods.

GENERAL AND ADMINISTRATIVE.
22

General and Administrative. General and administrative expenses decreased 19.0% to $9.9 million in fiscal 2001 from $12.3 million in fiscal 2000 and decreased as a percentage of revenue to 9.9% from 19.6% in fiscal 2000. Expenses decreased primarily as a result of decreased payroll and travel expenses savings related to the final consolidation of SSG's Charlotte, North Carolina operations into the Westwood, Massachusetts facility which was completed during the latter half of fiscal 2000. Expenses at PST decreased due to a reallocation of benefits and expenses at ATI were consistent with the prior year.

OTHER INCOME.
Interest and Other Income. Interest and other income, net of interest expense, was $1.1 million in fiscal 2001 versus $1.3 million in fiscal 2000. Fiscal 2001 interest and other income of $2.0 million was partially offset by interest expense of $841,000$0.8 million associated with the Industrial Development Bonds used to finance the acquisition and renovation of our corporate headquarters and SSG manufacturing facility in Westwood, Massachusetts, the headquarters and manufacturing facility of ATI in Newton, Massachusetts and the construction of the PST headquarters and manufacturing facility in Tucson, Arizona.

PROVISION FOR INCOME TAXES.
Provision for Income Taxes. The provision for income taxes was $37,000 in 2001 compared to $102,000 in fiscal 2000. The fiscal 2001 provision for income taxes consisted of state and foreign income taxes and federal income taxes, all of which represent alternative minimum taxes. There was no change in net deferred tax assets during fiscal 2001.

FISCAL YEAR ENDED APRIL 30, 2000 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1999

REVENUE. Revenue increased 2.7% to $62.5 million in fiscal 2000 from
$60.9 million in fiscal 1999. The increase was primarily due to increased unit
sales of our products. Increased sales of the Company's products were primarily
due to an increase in demand for capital equipment in the semiconductor wafer
and device industries as well as the computer hard disk industry. Capital
equipment utilization at wafer and device manufacturers has improved, resulting
in some capital equipment purchases to adjust capacity on existing lines.
Advanced industry requirements driven by shrinking device dimensions and larger
silicon wafers have resulted in technology purchases to evaluate the Company's
next generation of products.

Revenue from sales to Japan ADE Ltd, our 50% owned affiliate and a
distributor of our products, by the Semiconductor Systems Group and ADE
Technologies are reflected in segment revenue during the period they are shipped
by the respective segment, which can differ from the period the revenue is
recognized for consolidated financial reporting purposes.
Selected Consolidated revenue
on sales to Japan ADE Ltd is recognized when the related product or software is
shipped to and accepted by the end user of the product or software. Consolidated
revenue in fiscal 2000 was $1.9 million more than aggregate segment revenue for
this period and reflects the impact of revenue that was recognized in fiscal
2000 for consolidated reporting purposes but recognized in a prior period on a
segment basis.

GROSS MARGIN. Gross margin increased to 43.2% in fiscal 2000 from 23.6% in
fiscal 1999. The increase in the gross margin resulted primarily from the effect
of increased sales volume and a reduction in material costs due to decreased
excess and obsolete inventory expense during fiscal 2000 compared to fiscal
1999.

RESEARCH AND DEVELOPMENT. Research and development expense in fiscal 2000
decreased 8.9% to $21.9 million from $24.0 million in fiscal 1999 and decreased
as a percentage of revenue to 35.0% from 39.5%. The decrease in expense resulted
from cost control measures implemented during fiscal 2000 compared to fiscal
1999. The Company has continued its development efforts to enhance its existing
200mm and advanced 200mm wafer systems as its semiconductor industry customers
seek to improve their yields on 200mm wafers as well as efforts to develop and
enhance bridge tools, which can be used with either 200mm or 300mm wafers. The
Company also continues to develop new products for the computer disk industry,
including those, which measure the magnetic properties of materials used in
manufacturing disk drives. The Company is committed to continuing its investment
in research and development to maintain its position as a technological leader,
which may necessitate continued research and development spending at or above
current levels.

MARKETING AND SALES. Marketing and sales expense increased 5.9% to
$13.0 million in fiscal 2000 from $12.3 million in fiscal 1999, and increased as
a percentage of revenue to 20.8% from 20.2%. The increased expense resulted
primarily from increased commissions expense due to increased sales volume
during the third and fourth quarters of fiscal 2000. Also contributing to the
increase was an increase in marketing expense due to an investment by the
Company to enhance device marketing. The mix of sales channels through which the
Company's products are sold may have a significant impact on the Company's
marketing and sales expense and the results in any period may not be indicative
of marketing and sales expense for future periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
10.1% to $12.3 million in fiscal 2000 from $11.2 million in fiscal 1999 and
increased as a percentage of revenue to 19.6% from 18.3%. Expenses increased
primarily as a result of expenses related to the final consolidation of the
Charlotte operations into the Westwood, Massachusetts facility.

OTHER INCOME. Other income was $1.3 million in fiscal 2000 versus
$2.6 million in fiscal 1999. Fiscal 2000 interest and other income of
$2.2 million was partially offset by interest expense of $919,000 associated
with the Industrial Development Bonds used to finance the acquisition and
renovation of our corporate headquarters and Semiconductor Systems Group
manufacturing facility in Westwood,

Massachusetts, the headquarters and manufacturing facility of ADE Technologies
in Newton, Massachusetts and the construction of the ADE Phase Shift
manufacturing facility in Tucson, Arizona.

PROVISION FOR INCOME TAXES. The provision for income taxes was $102,000 in
2000 versus a benefit of $9.3 million in fiscal 1999. The fiscal 2000 provision
for income taxes consisted of state and foreign income taxes. The increase in
deferred tax assets during fiscal 2000 was offset entirely by an increase in the
valuation allowance of $7.1 million. The effective tax rate for fiscal 1999 was
28.5% and differed from the federal statutory rate primarily because of a
$3 million increase in the valuation allowance against deferred tax assets as of
April 30, 1999, partially offset by alternative minimum tax credit
carryforwards.

SELECTED CONSOLIDATED QUARTERLY OPERATING RESULTSQuarterly Operating Results
The following table presents consolidated statement of operations data for each of the eight quarters in the period beginning May 1, 19992000 and ending April 30, 2001.2002. This information has been derived from ADE's unaudited consolidated financial statements. The unaudited financial statements have been prepared on the same basis as the audited financial statements and include all normal recurring adjustments considered necessary to present fairly this information when read in conjunction with ADE's annual audited financial statements and related notes appearing elsewhere in this annual report. Our quarterly operating results have varied and may continue to vary significantly. Our quarterly revenue typically is derived from a relatively small number of customer orders. These customer orders may consist of multiple systems, each of which are priced between approximately $100,000 and $750,000. As a result, the timing of significant orders or a reduction in the number of systems shipped in a quarter could have a material effect on our revenue and results of operations for that quarter. The results for a particular quarter may also vary due to a number of other factors, including:

-
•
Economic conditions in the semiconductor and data storage industries

•
Product mix of our sales for the period

•
The sales distribution channel of our sales for the period

•
Competitive pricing pressures

•
Our ability to design, introduce and manufacture new products on a cost effective and timely basis

•
Customer cancellations or rescheduled shipments

•
Production difficulties or the inability to obtain critical components resulting in delayed shipments

•
Seasonal factors such as customers' capital budget approval cycles.
These factors could have a material adverse effect on our results of operations. Significant levels of our expenses are fixed in advance and based in part on our expectations as to future revenue. As a consequence, any material shortfall in revenue in a given quarter could have a material adverse effect on our earnings.

QUARTER ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1999 1999 2000 2000 2000(1) 2000(1) 2001(1) 2001
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATONS DATA:
Revenue............................... $ 12,362 $ 13,625 $ 16,576 $ 19,943 $ 21,387 $ 23,671 $ 28,223 $ 26,902
Cost of revenue....................... 7,249 8,904 9,225 10,097 11,111 11,966 14,243 12,917
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 5,113 4,721 7,351 9,846 10,276 11,705 13,980 13,985
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development.......... 5,556 4,571 5,411 6,346 5,154 5,176 5,731 6,521
Marketing and sales............... 2,717 3,367 3,134 3,784 4,262 4,284 3,508 4,165
General and administrative........ 3,560 2,877 2,964 2,880 2,228 2,624 3,203 1,893
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses...... 11,833 10,815 11,509 13,010 11,644 12,084 12,442 12,579
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations......... (6,720) (6,094) (4,158) (3,164) (1,368) (379) 1,538 1,406
Interest and other income (expense),
net................................. 149 374 318 439 340 326 281 183
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for
(benefit from) income taxes, equity
in net earnings (loss) of affiliated
companies and cumulative effect of
change in accounting principle...... (6,571) (5,720) (3,840) (2,725) (1,028) (53) 1,819 1,589
Provision for (benefit from) income
taxes............................... -- -- -- 102 -- 64 47 (74)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before equity in net
earnings (loss) of affiliated
companies and cumulative effect of
change in accounting principle...... (6,571) (5,720) (3,840) (2,827) (1,028) (117) 1,772 1,663
Equity in net earnings (loss) of
affiliated companies................ (614) (149) (676) (50) (722) 304 (61) 482
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative effect
of change in accounting principle... (7,185) (5,869) (4,516) (2,877) (1,750) 187 1,711 2,145
Cumulative effect of change in
accounting principle, net of $0
tax................................. -- -- -- -- (1,785) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (loss)..................... $ (7,185) $ (5,869) $ (4,516) $ (2,877) $ (3,535) $ 187 $ 1,711 $ 2,145
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative
effect of change in accounting
principle........................... $ (0.54) $ (0.44) $ (0.34) $ (0.21) $ (0.13) $ 0.01 $ 0.13 $ 0.16
Cumulative effect of change in
accounting principle................ $ -- $ -- $ -- $ -- $ (0.13) $ -- $ -- $ --
-------- -------- -------- -------- -------- -------- -------- --------
Basic earnings (loss) per share....... $ (0.54) $ (0.44) $ (0.34) $ (0.21) $ (0.26) $ 0.01 $ 0.13 $ 0.16
======== ======== ======== ======== ======== ======== ======== ========
Diluted
Earnings (loss) before cumulative
effect of change in accounting
principle........................... $ (0.54) $ (0.44) $ (0.34) $ (0.21) $ (0.13) $ 0.01 $ 0.12 $ 0.16
Cumulative effect of change in
accounting principle................ $ -- $ -- $ -- $ -- $ (0.13) $ -- $ -- $ --
-------- -------- -------- -------- -------- -------- -------- --------
Diluted earnings (loss) per share..... $ (0.54) $ (0.44) $ (0.34) $ (0.21) $ (0.26) $ 0.01 $ 0.12 $ 0.16
======== ======== ======== ======== ======== ======== ======== ========

Weighted average shares
outstanding--basic.................. 13,198 13,360 13,403 13,458 13,483 13,497 13,511 13,537
Weighted average shares
outstanding--diluted................ 13,198 13,360 13,403 13,458 13,483 13,781 13,748 13,705

QUARTER ENDED
---------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1999 1999 2000 2000 2000 2000 2001 2001
-------- -------- -------- --------- -------- -------- -------- ---------

PERCENTAGE OF REVENUE:
Revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue....................... 58.6% 65.4% 55.7% 50.6% 52.0% 50.6% 50.5% 48.0%
Gross profit.......................... 41.4% 34.6% 44.3% 49.4% 48.0% 49.4% 49.5% 52.0%
Operating expenses:
Research and development.......... 44.9% 33.5% 32.6% 31.8% 24.1% 21.9% 20.3% 24.2%
Marketing and sales............... 22.0% 24.7% 18.9% 19.0% 19.9% 18.1% 12.4% 15.5%
General and administrative........ 28.8% 21.1% 17.9% 14.4% 10.4% 11.1% 11.3% 7.0%
Income (loss) from operations......... (54.4)% (44.7)% (25.1)% (15.9)% (6.4)% (1.6)% 5.4% 5.2%
Other income, net..................... 1.2% 2.7% 1.9% 2.2% 1.6% 1.4% 1.0% 0.7%
Net income (loss)..................... (58.1)% (43.1)% (27.2)% (14.4)% (16.5)% 0.8% 6.1% 8.0%

------------------------------

23
Quarter ended
July 31,
2000(1) Oct. 31,
2000(1) Jan. 31,
2001(1) April 30,
2001 July 31,
2001 Oct. 31,
2001 Jan. 31,
2002 April 30,
2002
(in thousands, except per share data, unaudited)

Statement of Operatons Data:
Revenue $ 21,387 $ 23,671 $ 28,223 $ 26,902 $ 25,371 $ 21,910 $ 17,945 $ 16,580
Cost of revenue 11,111 11,966 14,243 12,917 14,919 13,729 10,407 9,076
Gross profit 10,276 11,705 13,980 13,985 10,452 8,181 7,538 7,504
Operating expenses:
Research and development 5,154 5,176 5,731 6,521 6,115 5,961 5,190 5,517
Marketing and sales 4,262 4,284 3,508 4,165 3,588 3,551 2,973 2,953
General and administrative 2,228 2,624 3,203 1,893 2,312 2,796 2,995 3,186
Total operating expenses 11,644 12,084 12,442 12,579 12,015 12,308 11,158 11,656
Income (loss) from operations (1,368 ) (379 ) 1,538 1,406 (1,563 ) (4,127 ) (3,620 ) (4,152 )
Interest and other income (expense), net 340 326 281 183 311 48 — (105 )
Income (loss) before provision for (benefit from) income taxes, equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (1,028 ) (53 ) 1,819 1,589 (1,252 ) (4,079 ) (3,620 ) (4,257 )
Provision for (benefit from) income taxes — 64 47 (74 ) 7 10,598 9 (198 )
Income (loss) before equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (1,028 ) (117 ) 1,772 1,663 (1,259 ) (14,677 ) (3,629 ) (4,059 )
Equity in net earnings (loss) of affiliated companies (722 ) 304 (61 ) 482 68 109 384 (62 )
Income (loss) before cumulative effect of change in accounting principle (1,750 ) 187 1,711 2,145 (1,191 ) (14,568 ) (3,245 ) (4,121 )
Cumulative effect of change in accounting principle, net of $0 tax (1,785 ) — — — — — — —
Net Income (loss) $ (3,535 ) $ 187 $ 1,711 $ 2,145 $ (1,191 ) $ (14,568 ) $ (3,245 ) $ (4,121 )
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change in accounting principle $ (0.13 ) $ 0.01 $ 0.13 $ 0.16 $ (0.09 ) $ (1.07 ) $ (0.24 ) $ (0.30 )
Cumulative effect of change in accounting principle $ (0.13 ) $ — $ — $ — $ — $ — $ — $ —
Basic earnings (loss) per share $ (0.26 ) $ 0.01 $ 0.13 $ 0.16 $ (0.09 ) $ (1.07 ) $ (0.24 ) $ (0.30 )
Diluted
Earnings (loss) before cumulative effect of change in accounting principle $ (0.13 ) $ 0.01 $ 0.12 $ 0.16 $ (0.09 ) $ (1.07 ) $ (0.24 ) $ (0.30 )
Cumulative effect of change in accounting principle $ (0.13 ) $ — $ — $ — $ — $ — $ — $ —
Diluted earnings (loss) per share $ (0.26 ) $ 0.01 $ 0.12 $ 0.16 $ (0.09 ) $ (1.07 ) $ (0.24 ) $ (0.30 )
Weighted average shares outstanding—basic 13,483 13,497 13,511 13,537 13,567 13,607 13,627 13,659
Weighted average shares outstanding—diluted 13,483 13,781 13,748 13,705 13,567 13,607 13,627 13,659 24
Quarter ended
July 31,
2000 Oct. 31,
2000 Jan. 31,
2001 April 30,
2001 July 31,
2001 Oct. 31,
2001 Jan. 31,
2002 April 30,
2002
Percentage of Revenue:
Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 52.0 % 50.6 % 50.5 % 48.0 % 58.8 % 62.7 % 58.0 % 54.7 %
Gross profit 48.0 % 49.4 % 49.5 % 52.0 % 41.2 % 37.3 % 42.0 % 45.3 %
Operating expenses:
Research and development 24.1 % 21.9 % 20.3 % 24.2 % 24.1 % 27.2 % 28.9 % 33.3 %
Marketing and sales 19.9 % 18.1 % 12.4 % 15.5 % 14.1 % 16.2 % 16.6 % 17.8 %
General and administrative 10.4 % 11.1 % 11.3 % 7.0 % 9.1 % 12.8 % 16.7 % 19.2 %
Income (loss) from operations (6.4) % (1.6) % 5.4 % 5.2 % (6.2) % (18.8) % (20.2) % (25.0) %
Interest and other income, net 1.6 % 1.4 % 1.0 % 0.7 % 1.2 % 0.2 % 0.0 % (0.6) %
Net income (loss) (16.5) % 0.8 % 6.1 % 8.0 % (4.7) % (66.5) % (18.1) % (24.9) %
(1)
Effective May 1, 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101 (SAB 101). As a result, the quarterly information presented above for the first three quarters of fiscal 2001 has been restated from that previously filed on the Quarterly Reports on Form 10-Q. The adoption of SAB 101 had the effect of decreasing net revenue by $430,000, increasing net loss by $2.3 million and decreasing basic and diluted loss by $0.17 per share for the first quarter of fiscal 2001. The adoption of SAB 101 had the effect of decreasing net revenue and net income by $373,000 and $249,000, respectively, and decreasing basic and diluted earnings per share by $0.02 per share for the second quarter of fiscal 2001. The adoption of SAB 101 had the effect of increasing net revenue by $93,000, decreasing net income by $17,000, decreasing diluted earnings per share by $0.01 and no effect on basic earnings per share for the third quarter of fiscal 2001.
Our quarterly operating results have varied and may continue to vary significantly due to a number of factors, including economic conditions in the semiconductor and data storage industries, the timing of shipments of orders to major customers, the mix of products sold and competitive pricing. Customers may cancel or reschedule shipments. Product shipments could be delayed by production difficulties or critical component inventory shortages. These factors could have a material adverse effect on our results of operations. As cost of revenue includes manufacturing overhead, which is relatively constant from quarter to quarter, gross margin can vary significantly from quarter to quarter due to varying levels of production and revenue. Marketing and sales expenses can vary from quarter to quarter based on a number of factors, including mix of sales channels, geographic mix and the timing of marketing events. There can be no assurance that we will be profitable in any future period.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
At April 30, 2001,2002, we had $29.2$26.1 million in cash and cash equivalents and $72.0$53.7 million in working capital. In addition, we had $3.5$3.4 million in restricted cash used as security for a tax-exempt Industrial Development Bond issued through the Massachusetts Industrial Finance Agency in December 1997. We may substitute a letter of credit in an amount equal to approximately 105% of the outstanding principal balance as collateral for our obligations under this bond, assuming we have the ability to borrow under a credit facility. This substitution would allow the restricted cash balance to be used for general corporate purposes.
Cash used inprovided by operating activities for the year ended April 30, 20012002 was $1.7 million. This amount resulted from a net incomeloss of $0.5$23.1 million, adjusted for net non-cash charges of $7.7$15.5 million and a $9.9$9.3 million net increasedecrease in working capital accounts. Non-cash items primarily consisted of $5.8$5.3 million of depreciation and amortization and $1.8$10.6 million from an increase in the cumulative effect of the
change in accounting.deferred income tax asset valuation allowance.
The net increasedecrease in working capital total of $9.9$9.3 million was comprised of increaseda decrease in accounts receivable, inventories, and prepaid expenses of $9.9$12.7 million, $8.9$6.3 million and $810,000,$0.3 million, respectively, as well as increasesdecreases in accounts payable, accrued expenses and other current liabilities and deferred income on sales to Japan ADE Ltd. (JAL), our 50% owned Japanese affiliate, of $2.8$0.2 million, $5.1$9.1 million and $1.8$0.6 million, respectively.
The increasedecrease in accounts receivable resulted from the significantly
increaseddecreased billings and revenueimproved collections during fiscal 2001.2002. The increasedecrease in inventory resulted primarily from shipments of backlog from the end of
25
the last fiscal year and from decreased inventory purchases related to a ramp up in production
to meet the increasedecrease in customer orders. The increasedecrease in prepaid expenses results primarily from the timing of payments and an increasea decrease in prepaid commissions due to increaseddecreased sales levels. The increasedecrease in accounts payable resulted primarily from increaseddecreased purchases of inventory.inventory and the timing of payments to vendors. The increasedecrease in accrued expenses and other current liabilities resulted from increasesdecreases in deferred revenue and accrued warranty, which is related to increaseddecreased sales levels. The increasedecrease in deferred income on sales to Japan ADE Ltd. is due to the timing of shipments to JAL and the acceptance of those shipments by JAL's customers.
Cash used in investing activities was $4.3$5.3 million, and consisted of $3.7$5.7 million for purchases of fixed assets, $449,000 in advances to affiliated
companies and an increasewhich was offset by a decrease in other assets of $367,000$0.2 million and a decrease in restricted cash of $180,000.$0.2 million.
Cash provided by financing activities was $211,000$511,000 and consisted of proceeds from the issuance of common stock from the exercise of stock options and the purchase of stock under the employee stock purchase plan of $799,000.$1.1 million. This amount was partially offset by $588,000$599,000 in repaymentsprincipal payments of long-term debt.
We expect to meet our near-term working capital needs and capital expenditures primarily through our available cash and cash equivalents.

NEW ACCOUNTING PRONOUNCEMENTS

Inequivalents, which will primarily be generated from sales to our customer base, both existing and new. However, we can provide no assurance that we will be able to maintain our current customer base or acquire new customers.
The following table reflects future cash payments, including interest, due under current contractual obligations as of April 30, 2002:
Non-cancelable
Operating Lease
Commitments Long Term
Debt Total
(in thousands)

2003 $ 855 $ 1,270 $ 2,125
2004 758 1,258 2,016
2005 550 1,246 1,796
2006 466 1,235 1,701
2007 207 3,508 3,715
Thereafter — 5,781 5,781
Total $ 2,836 $ 14,298 $ 17,134
The Company's long-term debt consists of Industrial Development Bonds issued in April 1999, December 1997 and June 1998,1996, respectively. The face values of the Financial Accounting Standards Board ("FASB"April 1999 bond (the "1999 bond"), the December 1997 bond (the "1997 bond") issued
Statementand the June 1996 bond (the "1996 bond") were $4,500,000, $4,000,000 and $5,500,000, respectively. The 1999 bond, 1997 bond and the 1996 bond bear interest at a rate of Financial Accounting Standards ("SFAS") No. 133, "Accounting5.52%, 5.79% and 5.74%, respectively, and provide for Derivative Instruments50% of the principal to be paid over ten years from the dates of issuance with the remaining 50% due in March 2009, December 2007 and Hedging Activities", as amended by SFAS No. 137,
"AccountingJune 2006, respectively. Monthly payments of principal and accrued interest for Derivative Instrumentthe 1999 bond are approximately $31,000. Monthly payments of principal and Hedging Activities-Deferralaccrued interest for the 1997 bond commenced at approximately $36,000 and decrease to approximately $27,000 over the ten-year payment period. Monthly payments of Effective Dateprincipal and accrued interest for the 1996 bond are approximately $43,000. The proceeds of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities--an amendmentthe 1999 bond were used to fund the construction of FASB Statement No. 133," which establishes accounting and reporting standards
for derivative instruments and hedging activities.a new manufacturing facility in Tucson, Arizona. The Company will adopt SFAS
No. 133, as amended, in fiscal year 2002. To datecollateralized the issuance of this bond with a standby letter of credit from a financial institution. The standby letter of credit, bearing a fee of 1.5% of the outstanding bond balance, is collateralized by a mortgage on the building and land. Under the terms of the letter of credit, the Company hasis required to comply with certain financial covenants. As of April 30, 2002, the Company is in compliance with these covenants. The Company cannot provide assurance that it will continue to be in compliance with such covenants or, if it were to not utilized
derivative instruments or hedging activitiesbe in compliance, what the results would be. For example, should cash and therefore,cash equivalents fall below a requisite level at any fiscal quarter end, a covenant would be violated. The proceeds of the adoption1997 bond were used to fund the acquisition and renovation of SFAS 133the Company's Newton, Massachusetts manufacturing facility. The Company collateralized the issuance of this bond with
26
cash, which is not expectedclassified as restricted cash on the April 30, 2002 and 2001 balance sheet. The proceeds of the June 1996 bond were used to havefund the acquisition and renovation of the manufacturing facility in the Company's headquarters site in Westwood, Massachusetts. The Company collateralized the issuance of this bond with a significant impactstandby letter of credit from a financial institution. The standby letter of credit, bearing a fee of 1.25% of the outstanding bond balance, is collateralized by a mortgage on our financial position
or results of operations.

23
the building and land.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will beare effective for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required, in fiscal year 2003. The impactWe believe the adoption of SFAS No. 141 and SFAS No. 142 will not have a material impact on our current financial position and results of operations. As of May 1, 2002 the Company'sCompany will cease amortizing goodwill. Quarterly amortization for the year ended April 30, 2002 was approximately $60,000.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required in fiscal year 2003. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and provides a single accounting model for long-lived assets to be disposed of. We believe the adoption of SFAS No. 144 will not have a material impact on our current financial statements has not yet
been determined.

INFLATIONposition and results of operations.
Inflation
To date, inflation has not had a significant impact on our operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At April 30, 2001,2002, the Company's exposure to market risk relates primarily to changes in interest rates on its investment portfolio. The Company's cash equivalents consist primarily of fixed income securities. The Company invests only with high credit quality issuers and does not use derivative financial instruments in its investment portfolio. We do not believe that a sharp increase or decrease in interest rates would have a material adverse impact on the fair value of our investment portfolio. The Company's long-term borrowings are at fixed interest rates.
In addition, a portion of the Company's business is conducted outside the United States through its foreign subsidiaries and an affiliate. The Company generally transacts business in international markets in United States currency, but pays its employees in local currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 through F-23F-22 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.

24
27

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by this Item is included in the definitive Proxy Statement for the Company's 20012002 Annual Meeting of Stockholders (the "2002 Proxy Statement"), to be filed with the Commission on or about August 16, 200115, 2002 under "Election of Directors" and is incorporated herein by reference. The information regarding executive officers required by this Item is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 20012002 Proxy Statement under "Executive Compensation" and is incorporated herein by reference (excluding, however, the "Report on Executive Compensation" and the Performance Graph contained in the 20012002 Proxy Statement, which shall not be deemed incorporated herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item
Information regarding the security ownership of certain beneficial owners and management is included in the 20012002 Proxy Statement under "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference.
The following table sets forth certain information as of April 30, 2002 with respect to compensation plans under which our equity securities are authorized for issuance:
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) Weighted-average
exercise price of
outstanding options,
warrants and
rights
(b) Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
Equity compensation plans approved by security holders(1): 1,165,741 $ 13.81 1,286,816 (2)
Equity compensation plans not approved by security holders None None None
Total 1,165,741 $ 13.81 1,286,816
(1)
Please see Note 9 of our Notes to Consolidated Financial Statements for description of the Company's equity compensation plans.

(2)
Includes 777,382 shares that remain available for purchase under the ADE Corporation Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.

25
28

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The Financial Statements required to be filed by Item 8 of Form 10-K, and filed herewith, are as follows:

PAGE NUMBER IN
THIS FORM
Page Number in
this Form 10-K
-------------------
Report of Independent Accountants........................... Accountants F-1

Consolidated Balance Sheets as of April 30, 20012002 and 2000... 2001

F-2

Consolidated Statements of Operations for the three years F-3
ended April 30, 2001......................................

2002

F-3

Consolidated Statements of Stockholders' Equity for the F-4
three years ended
April 30, 2001............................................

2002

F-4

Consolidated Statements of Cash Flows for the three years F-5
ended April 30, 2001......................................

2002

F-5

Notes to Consolidated Financial Statements.................. Statements

F-6

(a)(2) Financial Statement Schedule:

II--Valuation

II—Valuation and Qualifying Accounts and Reserves S-1
for the three years
ended April 30, 2001............
2002

S-1
All other schedules are omitted because they are either not applicable or the required information is included in the financial statements or related notes.

26
29
(a)(3) Exhibits.

EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------

2.1 Agreement and Plan of Merger dated as of February 27, 1997
by and between ADE Corporation, ADE Technologies, Inc.,
Digital Measurement Systems, Inc., Dennis E. Speliotis,
Elias Speliotis, Evanthia Speliotis, Ismene Speliotis,
Advanced Development Corporation, David C. Bono and Alan
Sliski (filed as Exhibit 10.18 to the Company's Form 10-K
for the fiscal year ended April 30, 1997 and incorporated
herein by reference).

2.2 Agreement and Plan of Merger dated as of May 31, 1998 by and
among ADE Corporation, Theta Acquisition Corp., Phase Shift
Technology, Inc., Chris Koliopoulos and David Basila (filed
as Exhibit 2 to the Company's Form 8-K dated June 25, 1998
and incorporated herein by reference).

2.3 Purchase and Sale Agreement dated as of February 28, 1997 by
and between ADE Corporation and Dennis E. Speliotis,
individually and as Trustee of Thouria Investment Trust
under a Declaration of Trust dated August 18, 1992, Elias
Speliotis, Evanthia Speliotis and Ismene Speliotis (filed as
Exhibit 10.20 to the Company's Form 10-K for the fiscal year
ended April 30, 1997 and incorporated herein by reference).

Number
Description
3.1 Restated Articles of Organization (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (33-96408) or amendments thereto and incorporated herein by reference).

3.2

By-laws (as amended) (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (33-96408) or amendments thereto and
incorporated herein by reference)herewith).

4.1 Registration Rights Agreement dated as of February 28, 1997
by and between ADE Corporation and Dennis E. Speliotis,
individually and as Trustee of Thouria Investment Trust
under a Declaration of Trust dated August 18, 1992 recorded
in the Middlesex South District Registry of Deeds at Book
22305, Page 375 (filed as Exhibit 10.21 to the Company's
Form 10-K for the fiscal year ended April 30, 1997 and
incorporated herein by reference).

4.2 Registration Rights Agreement dated as of February 27, 1997,
by and among ADE Corporation and Advanced Development
Corporation, David C. Bono and Alan Sliski (filed as Exhibit
10.19 to the Company's Form 10-K for the fiscal year ended
April 30, 1997 and incorporated herein by reference).

4.3

Registration Rights Agreement dated as of May 31, 1998 by and among ADE Corporation, Chris Koliopoulos and David Basila (filed as Exhibit 4.6 to the Company's Form 8-K dated June 25, 1998 and incorporated herein by reference).

10.1

Form of Employee Confidentiality Agreement (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (333-96408) or amendments thereto and incorporated herein by reference).

10.2

2000 Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement with respect to its Annual Meeting of Shareholders for the fiscal year ended April 30, 2000 and incorporated herein by reference).*

10.3

1997 Stock Option Plan (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8(333-46505)S-8 (333-46505) or amendments thereto and incorporated herein by reference).*

10.4

Amendment to 1997 Stock Option Plan dated April 7, 1999 (filed as Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended April 30, 1999 and incorporated herein by reference).*

10.5

1995 Stock Option Plan (filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (33-96408) or amendments thereto and incorporated herein by reference).*

10.6

1992 Stock Option Plan (filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (33-96408) or amendments thereto and incorporated herein by reference).*

10.7

Amendment to 1992 Stock Option Plan dated April 7, 1999 (filed as Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended April 30, 1999 and incorporated herein by reference).*

10.8 1982 Stock Option Plan (filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-8 (333-2280) and
incorporated herein by reference).*

10.9

Employee Stock Purchase Plan (as amended) (filed as Exhibit
10.6 to the Company's Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference)herewith).*

10.11 Purchase and Sale Agreement for 80 Wilson Way, Westwood,
Massachusetts, dated January 11, 1996, between Met Path New
England, Inc., and the Company, with Schedules (filed as
Exhibit 10.12 to the Company's Form 10-K for the fiscal year
ended April 30, 1996 and incorporated herein by reference).

10.12

10.9

Loan Agreement dated as of June 7, 1996, among GE Capital Public Finance, Inc., Massachusetts Industrial Finance Agency and the Company (filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.13

10.10

Certificate as to Nonarbitrage and Tax Compliance, dated as of June 7, 1996, from the Company to Massachusetts Industrial Finance Agency (filed as Exhibit 10.10 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.14

10.11

Letter of Credit Agreement, dated June 7, 1996, between Citizens Bank of Massachusetts and the Company (filed as Exhibit 10.11 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.15

10.12

Mortgage, Security Agreement, and Assignment, dated June 7, 1996, from the Company to Citizens Bank of Massachusetts (filed as Exhibit 10.13 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.16

10.13

Pledge Agreement, dated June 7, 1996, from the Company to Citizens Bank of Massachusetts (filed as Exhibit 10.14 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.17

10.14

Oil and Hazardous Materials Indemnification Agreement, dated June 7, 1996, between the Company and Citizens Bank of Massachusetts (filed as Exhibit 10.15 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.18

10.15

Indemnification Agreement, dated as of February 28, 1996, among MetPath of New England, Inc., Corning Life Sciences, Inc. and the Company (filed as Exhibit 10.16 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.19

10.16

Letter Agreement regarding collateral assignment of Indemnification from the Company to Citizens Bank of Massachusetts, with attachment (filed as Exhibit 10.17 to the Company's Form 10-K for the fiscal year ended April 30, 1996 and incorporated herein by reference).

10.20
10.17

Noncompetition Agreement dated as of May 31, 1998 by and between ADE Corporation and Chris Koliopoulos (filed as Exhibit 10.21 to the Company's Form 10-K for the fiscal year ended April 30, 1998, and incorporated herein by reference).

10.21 Noncompetition*

10.18

Employment and Non-Competition Agreement dated as of May 31, 19981, 2002 by and between ADE Corporation and David BasilaBrian James (filed filed as
Exhibit 10.22 to the Company's Form 10-K for the fiscal year
ended April 30, 1998, and incorporated herein by reference)herewith).*

21.1

Subsidiaries of the Company (filed as Exhibit 21.1 to the Company's Form 10-Q for the fiscal quarter ended October 31, 2000 and incorporated herein by reference).

23.1

Consent of PricewaterhouseCoopers LLP (filed herewith).

24.1

Power of Attorney (filed herewith as part of the signature page hereto).

------------------------

*
Compensatory plan or agreement applicable to management andand/or employees.

(b)
Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth quarter of fiscal year 2001.

29
2002.
31

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION
Pursuant to the requirements of Section 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OFor 15(d) of the Securities Exchange Act of 1934, THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT ON FORMthe Company has duly caused this Annual Report on Form 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

to be signed on its behalf by the undersigned, thereunto duly authorized.
ADE CORPORATION

July 19, 2001 17, 2002

By: /s/ ROBERT C. ABBE
-----------------------------------------
Robert C. Abbe
PRESIDENT AND CHIEF EXECUTIVE OFFICER

/s/ CHRIS L. KOLIOPOULOS
Chris L. Koliopoulos
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Robert C.
Abbe,Chris L. Koliopoulos, Brian C. James, Eileen Smith Ewing,William A. Levine, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them, for him and in his name, place, and stead, and in any and all capacities, to sign this annual report on Form 10-K of ADE Corporation and any amendments thereto, and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
Pursuant to the requirements of the Securities Exchange Act of 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
IN THE CAPACITIES AND ON THE DATES INDICATED.

this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ ROBERT C. ABBE Signature Title Date

/s/ CHRIS L. KOLIOPOULOS
Chris L. Koliopoulos President, Chief Executive ------------------------------------------- Officer and Robert C. Abbe July 19, 2001
Robert C. Abbe Director (Principal Executive
Officer)

/s/ BRIAN C. JAMES Vice President, Treasurer and
------------------------------------------- Chief Financial Officer July 19, 2001
Brian C. James (Principal Financial Officer)

/s/ JOSEPH E. ROVATTI Controller (Principal Accounting July 19, 2001
------------------------------------------- Officer)
Joseph E. Rovatti

/s/ LANDON T. CLAY Chairman of the Board July 19, 2001
-------------------------------------------
Landon T. Clay

/s/ CHRIS L. KOLIOPOULOS Vice President of ADE Corporation, President July 19, 2001
------------------------------------------- of ADE Phase Shift and Director Chris L. Koliopoulos

SIGNATURE TITLE DATE
--------- ----- ----

/s/ FRANCIS B. LOTHROP, JR. Director (Principal Executive Officer) July 19, 2001
-------------------------------------------
17, 2002

/s/ BRIAN C. JAMES
Brian C. James

Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer)

July 17, 2002

/s/ JOSEPH E. ROVATTI
Joseph E. Rovatti

Controller (Principal Accounting Officer)

July 29, 2002

/s/ LANDON T. CLAY
Landon T. Clay

Chairman of the Board

July 17, 2002

/s/ ROBERT C. ABBE
Robert C. Abbe

Director

July 26, 2002

Francis B. Lothrop, Jr.

/s/

Director

/s/ H. KIMBALL FAULKNER Director July 19, 2001
-------------------------------------------

H. Kimball Faulkner

/s/

Director

July 25, 2002

/s/ KENDALL WRIGHT Director July 19, 2001
-------------------------------------------

Kendall Wright

/s/

Director

July 17, 2002

/s/ HARRIS CLAY Director July 19, 2001
-------------------------------------------

Harris Clay

Director

July 17, 2002

31
33

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ADE CorporationCorporation:
In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a)(1) on page 2629 present fairly, in all material respects, the financial position of ADE Corporation and its subsidiaries at April 30, 20012002 and 2000,2001, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2001,2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14 (a)(2) on page 2629 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, during the year ended April 30, 2001, the Company changed its method of recognizing revenue.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 19, 2001

12, 2002
F-1

ADE CORPORATION

CONSOLIDATED BALANCE SHEETS APRIL 30, APRIL 30, 2001 2000 --------- --------- $ 35,001 1,913 -- 20,898 13,935 3,526 614 39,025 29,968 1,566 756 6,514 4,484 -------- -------- 84,758 29,569 30,724 4,076 6,106 3,221 3,331 3,286 3,892 3,525 3,705 368 354 -------- -------- $132,870 ======== ======== 621 $ 598 6,833 4,017 21,134 14,096 2,116 337 -------- -------- 30,704 19,048 11,339 11,950 -------- -------- -- -- 136 135 101,580 686 178 1,413 -- -------- -------- 104,664 101,893 -- (21) -------- -------- 104,664 101,872 -------- -------- $132,870 ======== ======== data)
April 30,
2002 April 30,
2001
Assets
Current assets:
Cash and cash equivalents $ 26,108 $ 29,220
Marketable securities 2,571 1,913
Accounts receivable:
Trade, less allowance for doubtful accounts of $699 and $917, respectively 9,880 20,898
Affiliate 1,845 3,526
Inventories 32,701 39,025
Prepaid expenses and other current assets 1,278 1,566
Deferred income taxes — 6,514
Total current assets 74,383 102,662
Fixed assets, net 30,658 29,569
Deferred income taxes — 4,076
Investments 3,610 3,221
Intangible assets, net 2,601 3,286
Restricted cash 3,352 3,525
Other assets 147 368
Total assets $ 114,751 $ 146,707

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 646 $ 621
Accounts payable 6,594 6,833
Accrued expenses and other current liabilities 12,004 21,134
Deferred income on sales to affiliate 1,470 2,116
Total current liabilities 20,714 30,704

Long-term debt
10,715
11,339
Commitments and contingencies (Note 14)

Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued or outstanding — —
Common stock, $.01 par value; 25,000,000 shares authorized; 13,676,678 and 13,552,966 issued and outstanding at April 30, 2002 and 2001, respectively 137 136
Capital in excess of par value 103,553 102,429
(Accumulated deficit) retained earnings (22,439 ) 686
Accumulated other comprehensive income 2,071 1,413
Total stockholders' equity 83,322 104,664
Total liabilities and stockholders' equity $ 114,751 $ 146,707
The accompanying notes are an integral part of the consolidated financial statements.
F-2

ADE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------

Net Revenue:
System and parts............................................ $ 74,390 $ 46,120 $ 40,761
System and parts--affiliate................................. 15,452 8,787 9,254
Service..................................................... 10,341 7,599 10,870
-------- -------- --------
Total revenue........................................... 100,183 62,506 60,885
-------- -------- --------
Cost of revenue:
System and parts............................................ 31,704 21,893 28,341
System and parts--affiliate................................. 6,343 3,285 4,012
Service..................................................... 12,189 10,297 14,136
-------- -------- --------
Total cost of revenue................................... 50,236 35,475 46,489
-------- -------- --------
Gross profit.......................................... 49,947 27,031 14,396
-------- -------- --------
Operating expenses:
Research and development................................ 22,583 21,884 24,026
Marketing and sales..................................... 16,218 13,002 12,280
General and administrative.............................. 9,948 12,281 11,153
Restructuring charges................................... -- -- 2,318
-------- -------- --------
Total operating expenses.............................. 48,749 47,167 49,777
-------- -------- --------
Income (loss) from operations............................... 1,198 (20,136) (35,381)
Other income (expense):
Interest and other income............................... 1,971 2,199 3,220
Interest expense........................................ (841) (919) (620)
-------- -------- --------
Income (loss) before provision for (benefit from) income
taxes, equity in net loss of affiliated companies and
cumulative effect of change in accounting principle....... 2,328 (18,856) (32,781)
Provision for (benefit from) income taxes................... 37 102 (9,335)
-------- -------- --------
Income (loss) before equity in net earnings (loss) of
affiliated companies and cumulative effect of change in
accounting principle...................................... 2,291 (18,958) (23,446)
Equity in net earnings (loss) of affiliated companies....... 2 (1,489) (1,082)
-------- -------- --------
Income (loss) before cumulative effect of change in
accounting principle...................................... 2,293 (20,447) (24,528)
Cumulative effect of change in accounting principle, net of
$0 tax.................................................... (1,785) -- --
-------- -------- --------
Net income (loss)........................................... $ 508 $(20,447) $(24,528)
======== ======== ========
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change in
accounting principle.................................... $ 0.17 $ (1.53) $ (1.89)
Cumulative effect of change in accounting principle..... $ (0.13) $ -- $ --
-------- -------- --------
Basic earnings (loss) per share......................... $ 0.04 $ (1.53) $ (1.89)
======== ======== ========
Diluted
Earnings (loss) before cumulative effect of change in
accounting principle.................................... $ 0.17 $ (1.53) $ (1.89)
Cumulative effect of change in accounting principle..... $ (0.13) $ -- $ --
-------- -------- --------
Diluted earnings (loss) per share....................... $ 0.04 $ (1.53) $ (1.89)
======== ======== ========
Pro forma amounts assuming retroactive effect of change in
accounting principle related to revenue recognition:
Net revenues............................................ $100,183 $ 61,966 $ 63,194
Net income (loss)....................................... $ 508 $(20,700) $(22,511)
Basic earnings (loss) per share......................... $ 0.04 $ (1.55) $ (1.73)
Diluted earnings (loss) per share....................... $ 0.04 $ (1.55) $ (1.73)

Weighted average shares outstanding--basic.................. 13,507 13,353 12,989
Weighted average shares outstanding--diluted................ 13,754 13,353 12,989

(In thousands, except per share data)
Year ended April 30,
2002 2001 2000
Net Revenue:
System and parts $ 50,185 $ 74,390 $ 46,120
System and parts—affiliate 23,113 15,452 8,787
Service 8,508 10,341 7,599
Total revenue 81,806 100,183 62,506
Cost of revenue:
System and parts 27,191 31,704 21,893
System and parts—affiliate 11,282 6,343 3,285
Service 9,659 12,189 10,297
Total cost of revenue 48,132 50,236 35,475
Gross profit 33,674 49,947 27,031
Operating expenses:
Research and development 22,783 22,583 21,884
Marketing and sales 13,064 16,218 13,002
General and administrative 11,290 9,948 12,281
Total operating expenses 47,137 48,749 47,167
Income (loss) from operations (13,463 ) 1,198 (20,136 )
Other income (expense):
Interest and other income 1,066 1,971 2,199
Interest expense (810 ) (841 ) (919 )
Income (loss) before provision for income taxes, equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (13,207 ) 2,328 (18,856 )
Provision for income taxes 10,416 37 102
Income (loss) before equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle (23,623 ) 2,291 (18,958 )
Equity in net earnings (loss) of affiliated companies 498 2 (1,489 )
Income (loss) before cumulative effect of change in accounting principle (23,125 ) 2,293 (20,447 )
Cumulative effect of change in accounting principle, net of $0 tax — (1,785 ) —
Net income (loss) $ (23,125 ) $ 508 $ (20,447 )
Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change in accounting principle $ (1.70 ) $ 0.17 $ (1.53 )
Cumulative effect of change in accounting principle $ — $ (0.13 ) $ —
Basic earnings (loss) per share $ (1.70 ) $ 0.04 $ (1.53 )
Diluted
Earnings (loss) before cumulative effect of change in accounting principle $ (1.70 ) $ 0.17 $ (1.53 )
Cumulative effect of change in accounting principle $ — $ (0.13 ) $ —
Diluted earnings (loss) per share $ (1.70 ) $ 0.04 $ (1.53 )
Pro forma amounts assuming retroactive effect of change in accounting principle related to revenue recognition:
Net revenues $ 100,183 $ 61,966
Net income (loss) $ 2,293 $ (20,700 )
Basic earnings (loss) per share $ 0.17 $ (1.55 )
Diluted earnings (loss) per share $ 0.17 $ (1.55 )

Weighted average shares outstanding—basic
13,615
13,507
13,353
Weighted average shares outstanding—diluted 13,615 13,754 13,353 The accompanying notes are an integral part of the consolidated financial statements.
F-3

ADE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

COMMON STOCK ACCUMULATED
---------------------- CAPITAL IN OTHER TOTAL
NUMBER PAR EXCESS RETAINED COMPREHENSIVE DEFERRED STOCKHOLDERS'
OF SHARES VALUE OF PAR EARNINGS INCOME COMPENSATION EQUITY
----------- -------- ---------- -------- ------------- ------------ -------------

Balance at April 30,
1998.................... 13,116,052 $131 $ 99,045 $ 45,153 $ -- $ (143) $ 144,186

Exercise of common stock
options................. 106,820 2 517 519
Sale of common stock
pursuant to the Employee
Stock Purchase Plan..... 53,530 -- 469 469
Amortization of deferred
compensation............ 61 61
Tax benefit related to
exercise of common stock
options................. 115 115
Net loss.................. (24,528) (24,528)
----------- ---- -------- -------- -------- -------- ---------
Balance at April 30,
1999.................... 13,276,402 133 100,146 20,625 -- (82) 120,822
Exercise of common stock
options................. 157,250 2 957 959
Sale of common stock
pursuant to the Employee
Stock Purchase Plan..... 45,414 -- 477 477
Amortization of deferred
compensation............ 61 61
Net loss.................. (20,447) (20,447)
----------- ---- -------- -------- -------- -------- ---------
Balance at April 30,
2000.................... 13,479,066 135 101,580 178 -- (21) 101,872
Exercise of common stock
options................. 32,636 -- 236 236
Sale of common stock
pursuant to the Employee
Stock Purchase Plan..... 37,761 1 562 563
Common stock issued in
lieu of Board of
Directors' fees......... 3,503 -- 51 51
Amortization of deferred
compensation............ 21 21
Net income................ 508 508
Unrealized gain on
marketable securities... 1,413 1,413
---------
Comprehensive income...... 1,921
----------- ---- -------- -------- -------- -------- ---------
Balance at April 30,
2001.................... $13,552,966 $136 $102,429 $ 686 $ 1,413 $ -- $ 104,664
=========== ==== ======== ======== ======== ======== =========

(In thousands, except share data)
Common Stock
Retained
earnings
(accumulated
deficit) Accumulated
other
comprehensive
income
Number
of shares Par
value Capital in
excess of
of par Deferred
compensation Total
stockholders'
equity
Balance at April 30, 1999 13,276,402 $ 133 $ 100,146 $ 20,625 $ — $ (82 ) $ 120,822
Exercise of common stock options 157,250 2 957 959
Sale of common stock pursuant to the Employee Stock Purchase Plan 45,414 — 477 477
Amortization of deferred compensation 61 61
Net loss (20,447 ) (20,447 )
Balance at April 30, 2000 13,479,066 135 101,580 178 — (21 ) 101,872
Exercise of common stock options 32,636 — 236 236
Sale of common stock pursuant to the Employee Stock Purchase Plan 37,761 1 562 563
Common stock issued in lieu of Board of Directors' fees 3,503 — 51 51
Amortization of deferred compensation 21 21
Net income 508 508
Unrealized gain on marketable securities 1,413 1,413
Comprehensive income 1,921
Balance at April 30, 2001 13,552,966 136 102,429 686 1,413 — 104,664
Exercise of common stock options 74,172 1 681 682
Sale of common stock pursuant to the Employee Stock Purchase Plan 48,590 — 428 428
Common stock issued in lieu of Board of Directors' fees 950 — 15 15
Net loss (23,125 ) (23,125 )
Unrealized gain on marketable securities 658 658
Comprehensive loss (22,467 )
Balance at April 30, 2002 13,676,678 $ 137 $ 103,553 $ (22,439 ) $ 2,071 $ — $ 83,322
The accompanying notes are an integral part of the consolidated financial statements.
F-4

ADE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
DECREASE IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)

YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------

CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss)......................................... $ 508 $(20,447) $(24,528)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 5,793 5,881 5,945
Non-cash portion of restructuring charge.............. -- -- 931
Equity in net (earnings) loss of affiliated companies,
net of dividends received........................... 62 1,544 1,192
Deferred income taxes................................. -- (207) (808)
Shares issued in lieu of directors' fees.............. 51 -- --
Amortization of deferred compensation................. 21 61 61
Cumulative effect of change in accounting principle... 1,785 -- --
Changes in assets and liabilities, net of acquisition:
Accounts receivable, trade.......................... (6,963) (3,743) 5,353
Accounts receivable, affiliate...................... (2,912) 1,037 (258)
Inventories......................................... (8,856) (7,790) 6,614
Income tax refund receivable........................ -- 7,425 (2,074)
Prepaid expenses and other current assets........... (810) (174) 640
Accounts payable.................................... 2,816 1,761 (3,438)
Accrued expenses and other current liabilities...... 5,052 (1,353) 3,244
Deferred income on sales to affiliate............... 1,779 (1,454) (720)
------- -------- --------
Net cash used in operating activities............. (1,674) (17,459) (7,846)
------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of fixed assets................................. (3,682) (7,510) (7,759)
Change in restricted cash................................. 180 (172) 275
Equity investments and advances........................... (449) (1,006) (1,169)
Increase in other assets.................................. (367) (1,002) (102)
------- -------- --------
Net cash used in investing activities............. (4,318) (9,690) (8,755)
------- -------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Repayment of long-term debt............................... (588) (564) (435)
Proceeds from issuance of long-term debt.................. -- -- 4,500
Proceeds from issuance of common stock, net of issuance
costs................................................... 799 1,436 988
Tax benefit related to the exercise of common stock
options................................................. -- -- 115
------- -------- --------
Net cash provided by financing activities......... 211 872 5,168
------- -------- --------
Net decrease in cash and cash equivalents................... (5,781) (26,277) (11,433)
Cash and cash equivalents, beginning of year................ 35,001 61,278 72,711
------- -------- --------
Cash and cash equivalents, end of year...................... $29,220 $ 35,001 $ 61,278
======= ======== ========

(In thousands)
Year ended April 30,
2002 2001 2000
Cash flows from operating activities:
Net income (loss) $ (23,125 ) $ 508 $ (20,447 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 5,280 5,793 5,881
Equity in net (earnings) loss of affiliated companies, net of dividends received (389 ) 62 1,544
Deferred income taxes 10,590 — (207 )
Shares issued in lieu of directors' fees 15 51 —
Amortization of deferred compensation — 21 61
Cumulative effect of change in accounting principle — 1,785 —
Changes in assets and liabilities, net of acquisition:
Accounts receivable, trade 11,018 (6,963 ) (3,743 )
Accounts receivable, affiliate 1,681 (2,912 ) 1,037
Inventories 6,324 (8,856 ) (7,790 )
Income tax refund receivable — — 7,425
Prepaid expenses and other current assets 288 (810 ) (174 )
Accounts payable (239 ) 2,816 1,761
Accrued expenses and other current liabilities (9,130 ) 5,052 (1,353 )
Deferred income on sales to affiliate (646 ) 1,779 (1,454 )
Net cash provided by (used in) operating activities 1,667 (1,674 ) (17,459 )
Cash flows from investing activities:
Purchases of fixed assets (5,684 ) (3,682 ) (7,510 )
Change in restricted cash 173 180 (172 )
Equity investments and advances — (449 ) (1,006 )
Decrease (increase) in other assets 221 (367 ) (1,002 )
Net cash used in investing activities (5,290 ) (4,318 ) (9,690 )
Cash flows from financing activities:
Repayment of long-term debt (599 ) (588 ) (564 )
Proceeds from issuance of common stock, net of issuance costs 1,110 799 1,436
Net cash provided by financing activities 511 211 872
Net decrease in cash and cash equivalents (3,112 ) (5,781 ) (26,277 )
Cash and cash equivalents, beginning of year 29,220 35,001 61,278
Cash and cash equivalents, end of year $ 26,108 $ 29,220 $ 35,001
See supplemental disclosures of cash flow information (Note 17)

15)
The accompanying notes are an integral part of the consolidated financial statements.
F-5

ADE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESSNature of Business
ADE Corporation (the "Company") designs, manufactures, markets and services highly precise, automated measurement, defect detection and handling equipment with current applications in the production of semiconductor wafers, integrated circuits, data storage and optics industries. The predominant markets for the Company consist of semiconductor wafer and device manufacturing concerns as well as data storage device and disk drive manufacturers located in the United States, Japan, Europe and the Far East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATIONSummary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
Investments in companies in which the Company has a majority voting interest but does not have control due to significant minority stockholder rights and investments in 50% or less owned companies over which the companyCompany has the ability to exercise significant influence are accounted for using the equity method. Investments in 20% or less owned companies are accounted for using the cost method (Note 5)4).

REVENUE RECOGNITION
Revenue Recognition
The Company recognizes revenue from sales of systems upon shipment provided title and risk of loss has passed to the customer, persuasive evidence of an arrangement exists, fees are fixed or determinable and collectibility is reasonably assured. For some of the Company's sales transactions, a portion, usually 10%, of the fee is not due until installation occurs and the customer accepts the product. If the Company has met defined customer acceptance experience levels with a specific type of product, these transactions are accounted for as multiple-element arrangements with the deferral of the portion of the fee not due until installation is complete and customer acceptance has occurred. The portion of the fee related to the installation of the product and customer training is classified as service revenue. All other sales with customer acceptance provisions are recognized as revenue upon customer acceptance. To the extent that the Company grants payment terms in excess of its normal payment terms, those amounts are deferred and recognized as revenue when the payments become due.
The Company's transactions frequently involve the sales of systems and services under multiple element arrangements. Revenue under multiple element arrangements is allocated to all elements except systems based upon the fair value of those elements. The amounts allocated to training are based upon the price charged when this element is sold separately and unaccompanied by the other elements. The amount allocated to installation revenue is based upon hourly rates and the estimated time to complete the service. The amount allocated to system and parts is done on a residual method basis. Under this method, the total arrangement value is allocated first to undelivered elements, based on their fair values, with the remainder being allocated to systems revenue. Installation and training are not essential to the functionality of systems as these services do not alter the equipment's capabilities, are available from other vendors and the systems are standard products.
The Company accrues for anticipated warranty costs upon shipment. Service revenue is recognized as the services are performed provided collection of the related receivable is reasonably assured. Service contract revenue is recognized ratably over the contractual periods in which the services are provided. The Company does not provide the right to return products. Revenue from software licenses is recognized
F-6

when an agreement has been executed, software has been delivered, fees are fixed or determinable and

F-6

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) collection of the related receivable is reasonably assured. Revenue from software consulting services provided on a time and reimbursable expense basis is recognized as the services are provided.

CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company invests its excess cash in money market accounts. These investments are subject to minimal credit and market risks. At April 30, 20012002 and 2000,2001, the Company has classified its cash equivalent investments totaling $26,678,000approximately $23,857,000 and $30,951,000,$26,678,000, respectively, as available-for-sale. The carrying amount of these investments approximates fair market value.

MARKETABLE SECURITIES
Marketable Securities
The Company classifies its marketable securities as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities classified as available-for-sale are reported at fair market value with the related unrealized gains and losses included, net of tax, in accumulated other comprehensive income (loss). Gross unrealized gains on securities for the years ended April 30, 2002, 2001 and 2000, the cost of which is based upon the specific identification method, were $658,000, $1,413,000 and $0, respectively.

INVENTORIES
Inventories
Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis.

FIXED ASSETS
Fixed Assets
Fixed assets are stated at cost. Additions and betterments, unless of a relatively minor amount, are capitalized. Expenditures for normal maintenance and repairs are charged to expense as incurred. Depreciation is provided by use of the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their useful life or the remaining life of the lease.

INTANGIBLE ASSETS
Intangible Assets
Intangible assets consist of capitalized license fees for software included in the Company's products as well as goodwill obtained through the acquisition of the Semiconductor Solutions Division of LPA Software, Inc. ("SSD") in September 1997. Goodwill of $2,403,000$2,407,000 related to the acquisition of SSD is amortized on a straight-line basis over ten years. Accumulated amortization on the goodwill at April 30, 2002 and 2001 was $1,089,000 and 2000 was $854,000, and $618,000, respectively. Capitalized license fees of $2,900,000 for software included in the Company's products is amortized at the greater of 1) the ratio that current gross revenue for the related products bearbears to the total current and anticipated future gross revenue for those products or 2) on a straight-line basis over its estimated useful life. Accumulated amortization on the license fees at April 30, 2002 and 2001 was $1,618,000 and 2000 was $1,168,000, and $700,000, respectively.
F-7
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including goodwill, for impairment whenever events or other factors may indicate that the carrying amount may not be recoverable. Recoverability is measured by the carrying value of the asset against any undiscounted future net cash flow projections expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be expensed is the excess carrying value over the fair market value of the asset. ForDuring the year ended April 30, 2001, the Company determined that the remaining value of the assembled workforce intangible asset obtained in the SSD acquisition was impaired and recorded an expense of $228,000, which was included in general and administrative expenses. At April 30, 20012002 and 2000,2001, all other long-lived assets, including goodwill, were not impaired.

CONCENTRATIONS

CREDIT RISK
Concentrations
Credit Risk
Financial instruments whichthat potentially expose the Company to concentration of credit risk include cash, cash equivalents, marketable securities and trade accounts receivable. A significant amount of the Company's cash and cash equivalents are held by three financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured cash balances totaled approximately $1,767,000$1,431,000 and $3,214,000$1,767,000 at April 30, 20012002 and 2000,2001, respectively. The Company does not believe that such deposits are subject to any unusual credit risk associated with operating its business.
The Company's customer base primarily consists of semiconductor wafer, semiconductor device and data storage manufacturers. Accounts receivable from two customers accounted for approximately 29%32% and 22%29% of total accounts receivable at April 30, 20012002 and 2000,2001, respectively. The Company performs ongoing credit evaluations of our customers' financial condition and has used letters of credit from financial institutions to secure payments, although it generally does not require collateral. The Company maintains reserves for potential credit losses.

SUPPLIERS
Suppliers
Certain of the components and subassemblies incorporated into the Company's systems are obtained from a single source or a limited group of suppliers. The Company seeks to reduce the impact from its dependence on those sole and limited source suppliers by considering alternate sources of supply, alternate designs for its products and by maintaining an adequate supply of the components and subassemblies. However, the loss of one or more of the sole or limited suppliers could cause a delay in manufacturing and a potential loss of sales, which could affect operating results adversely.

FINANCIAL INSTRUMENTS
Financial Instruments
The carrying amount of the Company's financial instruments, which include cash, cash equivalents, marketable securities, accounts receivable, accounts payable, accrued expenses, and long-term debt, approximates their fair value at the balance sheet dates. It was not practicable to estimate the fair value of
the Company's long-term investments as the stock of the related investees is not
publicly traded.

F-8

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires that changes in comprehensive income be shown in a financial statement that is
F-8
displayed with the same prominence as other financial statements. The Company has presented accumulated other comprehensive income and other comprehensive income in the Consolidated Statement of Stockholders' Equity. Other comprehensive income consists primarily of unrealized gains on marketable securities.

ADVERTISING EXPENSE
Advertising Expense
The Company recognizes advertising expense as incurred. Advertising expense was approximately $227,000, $268,000 $143,000 and $164,000$143,000 for the years ended April 30, 2002, 2001 and 2000, and 1999, respectively.

STOCK-BASED COMPENSATION
Stock-Based Compensation
Stock-based compensation awards to employees under the Company's stock plans are accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, ("SFAS No.
123"No.123") "Accounting for Stock-Based Compensation."

EARNINGS (LOSS) PER SHARE
Earnings (Loss) Per Share
Earnings (loss) per share are presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which requires the presentation of "basic" earnings per share and "diluted" earnings per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed using the weighted average number of common shares outstanding and gives effect to all dilutive potential common shares outstanding during the period. Potential common shares include shares issuable upon the assumed exercise of dilutive stock options and shares issued in the PST merger held in escrow.options. For the years ended April 30, 2002, 2001 and 2000, respectively, 522,921, 377,400 and 256,976 common shares issuable upon the exercise of stock options are antidilutive and for the year
ended April 30, 2000, 200,000 shares issued in the PST merger held in escrow are
antidilutive because the Company recorded a net loss for the year and,
therefore, have been excluded from the diluted earnings (loss) per share
computation.

F-9

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)antidilutive.
The following is a reconciliation of the shares used in calculating basic and diluted earnings (loss) per share:
YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUANDS)

Shares used in computation:
a. Weighted average common stock outstanding used
in computation of basic earnings (loss) per
share.......................................... 13,507 13,353 12,989
b. Dilutive effect of stock options and
warrants........................................ 247 -- --
------ ------ ------
c. Shares used in computation of diluted earnings
(loss) per share............................... 13,754 13,353 12,989
====== ====== ======

USE OF ESTIMATES
Year ended April 30,
2002 2001 2000
(in thousands)

Shares used in computation:
a. Weighted average common stock outstanding used in computation of basic earnings (loss) per share 13,615 13,507 13,353
b. Dilutive effect of stock options and warrants — 247 —
c. Shares used in computation of diluted earnings (loss) per share 13,615 13,754 13,353
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and
F-9
liabilities and disclosure of contingencies at April 30, 20012002 and 2000,2001, and the reported amounts of revenue and expenses during the three year period ended April 30, 2001.2002. Areas particularly subject to estimation include the allowance for doubtful accounts, the reserve for potential excess and obsolete inventory, the carrying value of the Company's intangible assets and the valuation allowance on deferred tax assets. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform with the 2001 presentation.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial
New Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 137,
"Accounting for Derivative Instrument and Hedging Activities--Deferral of
Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities-an amendment of
FASB Statement No. 133," which establishes accounting and reporting standards
for derivative instruments and hedging activities. The Company will adopt SFAS
No. 133, as amended, in fiscal year 2002. To date the Company has not utilized
derivative instruments or hedging activities and, therefore, the adoption of
SFAS 133 is not expected to have a significant impact on our financial position
or results of operations.Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after F-10

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will beare effective for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required, in fiscal year 2003. The impactWe believe the adoption of SFAS No. 141 and SFAS No. 142 will not have a material impact on our current financial position and results of operations. As of May 1, 2002 the Company'sCompany will cease amortizing goodwill. Quarterly amortization for the year ended April 30, 2002 was approximately $60,000.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for fiscal years beginning after December 15, 2001, and will thus be adopted by the Company, as required in fiscal year 2003. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and provides a single accounting model for long-lived assets to be disposed of. We believe the adoption of SFAS No. 144 will not have a material impact on our current financial statements has not yet been determined.

position and results of operations.
3. CHANGE IN ACCOUNTING PRINCIPLEChange in Accounting Principle
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Historically, for some of the Company's sales transactions, a portion of the sales price, usually 10%, was not due until installation occurs and the customer accepts the product. Under SAB 101 and the new accounting method adopted retroactive to May 1, 2000, the Company now defers the portion of the sales price not due until the customer has accepted the product. During the fourth quarter of the year ended April 30, 2001, the Company implemented the SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was reported as a cumulative effect of a change in accounting principle as of May 1, 2000. The cumulative effect of the change in accounting principle on prior years resulted in a charge to income of $1.8 million (net of income taxes of $0), or $0.13 per share, which has been included in income for the fiscal year ended April 30, 2001. For the fiscal year ended April 30, 2001, the Company recognized approximately $1.7 million in revenue that is included in the cumulative effect adjustment as of May 1, 2000. The effect of that revenue was to increaseincreased income by $1.4 million (net of $0 in taxes) for the fiscal year ended April 30, 2001. The results for the first three quarters of the fiscal year ended April 30, 2001 have been restated to
F-10

conform with SAB 101. The pro forma results for prior periods presented in the consolidated statement of operations were calculated assuming the accounting change was made retroactively to prior periods.
4. MERGER

On June 11, 1998, the Company merged with Phase Shift Technology, Inc.
("PST"), an Arizona corporation. PST designs, manufactures and markets a broad
line of high-performance, non-contact surface metrology equipment using advanced
optical interoferometric technology. Each outstanding share of PST common stock
was exchanged for two shares of the Company's common stock. A total of 2,000,000
shares of the Company's common stock were issued in this transaction. This
transaction has been accounted for as a pooling-of-interests. Accordingly, all
prior period financial statements have been restated to reflect the inclusion of
PST's operations. There were no material transactions between the Company and
PST prior to the PST Agreement. No material adjustments to net assets or the
results of operations were necessary to conform the accounting practices of PST
to those of the Company.

5. INVESTMENTS

Investments in companies in which the Company has a majority voting interest
but does not have control due to significant minority stockholder rights and
investments
Investments in 50% or less owned companies over which the Company has the ability to exercise significant influence are accounted for using the equity method. Japan ADE Ltd. ("JAL"), a Japanese corporation, is an investment accounted for under the equity method at April 30, 20012002 and 2000. Microspec
Technologies Ltd. ("Microspec"), an Israeli corporation, was an investment
accounted for under the equity method at April 30, 2000.

F-11

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS (CONTINUED)2001. The Company has a 50% investment in JAL, which has been the exclusive distributor of ADE dimensional products in Japan since 1986. Sales to JAL which have not in turn been sold to unrelated third parties at April 30, 2001, 20002002 and 19992001 have been eliminated, and the related profit on such sales is recorded as deferred income on sales to affiliate.

In July 1996, the Company acquired a 25.1% interest in Microspec for
$1,250,000. In connection with this investment, the Company also executed an
exclusive five-year agreement to distribute Microspec products, subject to
certain performance criteria. In April 1998, the Company acquired an additional
37.5% of Microspec, bringing the Company's total investment to 62.6%, by
purchasing shares owned by one of the two other stockholders for $1,500,000.
During fiscal 2000, the Company advanced $1.0 million in short term notes
receivable to Microspec. On May 1, 1999, $1,000,000 of these advances converted
into additional shares of Microspec's common stock, which increased the
Company's ownership to 67.5%. The Company continued to account for this
investment under the equity method of accounting due to certain significant
contractual minority rights of the remaining stockholder. There were no material
purchases from or sales to Microspec during fiscal 2001, 2000 or 1999.

As of January 2000, the Company entered into an agreement with Microspec's
minority shareholder, which provided ADE an option to purchase the minority
interest in Microspec. The Company subsequently decided that it would not
exercise the option and that no additional investments in Microspec would be
made. In July of 2000, the Company sold its 67.5% investment in Microspec for
$1. The balance of the Company's investment in Microspec was approximately zero
at the time of sale. Therefore, no gain or loss was recorded on the transaction.
The financial positionsposition and results of operations of JAL and Microspec werewas not significant individually or in the aggregate, compared to those of the Company as of and for the years ended April 30, 20002002 and 1999.2000. The financial position and results of operations of JAL was significant compared to those of the Company for the year ended April 30, 2001. Below is the summarized unaudited financial information for JAL for fiscal year ended April 30, 2001:
YEAR ENDED APRIL
30,
2001
----------------
(IN THOUSANDS)

Revenue.................................................... $ 29,139
Gross profit............................................... 10,552
Net income................................................. 1,287

Current assets............................................. $ 22,015
Noncurrent assets.......................................... 2,098
Current liabilities........................................ 18,009
Noncurrent liabilities..................................... 6,103
Year ended April 30,
2001
(in thousands)

Revenue $ 29,139
Gross profit 10,552
Net income 1,287
April 30,
2001
Current assets $ 22,015
Noncurrent assets 2,098
Current liabilities 18,009
Noncurrent liabilities 6,103
The Company's share of the undistributed earnings of JAL was $2,443,000$2,832,000 at April 30, 2001.2002. The Company received $64,000$109,000 in dividends from JAL during fiscal year 2001.2002. At April 30, 2001,2002, the Company's investment is approximately equal to the underlying net assets of the affiliated company. Investments in excess of
the underlying net assets have been amortized by decreasing the equity in net
earnings of affiliated companies using the straight-line method over five years.
Related amortization expense of $246,000, $710,000 and $363,000 was recorded in
fiscal 2001, 2000 and 1999, respectively.
At April 30, 2000, the Company also had a less than 20% investment in a company in the amount of $500,000 that was accounted for using the cost method. During fiscal year 2001, this investee company was

F-12

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVESTMENTS (CONTINUED) acquired by a publicly traded company. The Company's original $500,000 investment was converted into shares of this publicly traded company, which have a readily determinable market value. The Company holds substantially less than 20% of this publicly traded company and has no ability to exercise significant influence. As a result, the shares of the publicly traded company received upon the acquisition of the investee company have been reclassified as available-for-sale marketable securities. At April 30, 2002, the fair market value of the shares held was $2,571,000, resulting in an unrealized gain on marketable securities of $658,000 for the year ended April 30, 2002. At April 30, 2001, the fair market value of the shares held was $1,913,000, resulting in an unrealized gain on marketable securities of $1,413,000 for the year ended April 30, 2001. The Company had paid $1,500,000 to license technology for use in its products
F-11

from this investee company. This license fee has been capitalized and is being amortized at the greater of 1) the ratio that current gross revenue for the related products bear to the total current and anticipated future gross revenue for those products or 2) on a straight line basis over its estimated useful life of 5 years. Related amortization expense of $300,000 was recognized in both fiscal 20012002 and 2000,2001, respectively. This capitalized license technology had accumulated amortization of $900,000$1,200,000 and $600,000$900,000 at April 30, 2002 and 2001, and 2000,
respectively.

6. RESTRUCTURING CHARGES

In January 1999, the Company implemented a restructuring of operations plan
designed to better align the Company's cost structure with its reduced revenue
resulting from the decline in capital equipment expenditures in the
semiconductor and data storage industries. The plan included workforce
reductions as well as the consolidation of manufacturing and other operational
facilities. The Company recorded restructuring charges of $2,318,000 for the
year ended April 30, 1999, comprised of the following: severance charges of
$1,202,000 related to the termination of 76 employees in general and
administrative, marketing and sales, manufacturing, and engineering functions;
$185,000 in lease termination penalties and $931,000 in non-cash fixed asset
impairments related to furniture, fixtures and building improvements on the
terminated leased facilities. The fair value of the impaired assets was
determined as their estimated salvage value at the time of their eventual
disposition increased by their estimated utility during their related service
period through disposition. These impaired assets were removed from service by
January 31, 2000. Through April 30, 2000, the Company has made lease termination
payments of $185,000. Of the $1,202,000 in accrued severance in accrued expenses
as of May 1, 1999, $924,000 was paid during the fiscal year ended April 30,
2000. During fiscal 2001, the remainder of the restructuring accrual was paid,
which consisted of $278,000 of severance payments.

7. INVENTORIES
5. Inventories
Inventories consist of the following:
APRIL 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)

Raw materials and purchased parts......................... $16,910 $13,202
Work-in-process........................................... 18,749 15,437
Finished goods............................................ 3,366 1,329
------- -------
$39,025 $29,968
======= =======

F-13

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. FIXED ASSETS
April 30,
2002 2001
(in thousands)

Raw materials and purchased parts $ 16,228 $ 16,910
Work-in-process 15,104 18,749
Finished goods 1,369 3,366
$ 32,701 $ 39,025
6. Fixed Assets
Fixed assets consist of the following:
APRIL 30,
USEFUL LIFE -------------------
IN YEARS 2001 2000
----------- -------- --------
(IN THOUSANDS)

Land............................................ $ 2,722 $ 2,722
Building and improvements....................... 15-25 22,208 22,135
Machinery and equipment......................... 3-10 14,650 12,915
Office equipment................................ 3-10 6,485 5,296
Leasehold improvements.......................... 5 491 268
Construction-in-progress........................ 728 239
------- -------
47,284 43,575
Less accumulated depreciation................... 17,715 12,851
------- -------
$29,569 $30,724
======= =======
April 30,
Useful life
in years
2002 2001
(in thousands)

Land $ 2,722 $ 2,722
Building and improvements 15–25 22,213 22,208
Machinery and equipment 3–10 17,553 14,650
Office equipment 3–10 6,824 6,485
Leasehold improvements 5 841 491
Construction-in-progress 2,688 728
52,841 47,284
Less accumulated depreciation 22,183 17,715
$ 30,658 $ 29,569
Depreciation expense for the years ended April 30, 2002, 2001 and 2000 and 1999 was $4,594,000, $4,837,000, $5,054,000, $4,618,000, respectively.

9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
F-12
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
APRIL 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)

Accrued salaries, wages, vacation pay and bonuses......... $ 2,342 $ 1,844
Accrued commissions....................................... 1,341 647
Accrued warranty costs.................................... 1,899 1,083
Accrued severance......................................... -- 278
Deferred revenue.......................................... 11,655 6,436
Other..................................................... 3,897 3,808
------- -------
$21,134 $14,096
======= =======

10. BORROWINGS

LONG-TERM DEBT
April 30,
2002 2001
(in thousands)

Accrued salaries, wages, vacation pay and bonuses $ 2,223 $ 2,342
Accrued commissions 1,191 1,341
Accrued warranty costs 1,146 1,899
Deferred revenue 4,537 11,655
Other 2,907 3,897
$ 12,004 $ 21,134
8. Borrowings
Long-term Debt
In April 1999, the Company issued a tax exempt Industrial Development Bond through the Industrial Development Authority of the County of Pima, Arizona. The Company also issued tax exempt Industrial Development Bonds through the Massachusetts Industrial Finance Agency in December 1997 and June 1996. The face values of the April 1999 bond (the "1999 bond"), the December 1997 bond (the "1997 bond") and the June 1996 bond (the "1996 bond") were $4,500,000, $4,000,000 and $5,500,000, respectively. The 1999 bond, 1997 bond and the 1996 bond bear interest at a rate of 5.52%, 5.79% and 5.74%, respectively, and provide for 50% of the principal to be paid over ten years from the dates of issuance with the remaining 50% due in March 2009, December 2007 and June 2006, respectively. Monthly payments of principal and accrued interest for the 1999 bond are approximately $31,000. Monthly F-14

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. BORROWINGS (CONTINUED)
payments of principal and accrued interest for the 1997 bond commencecommenced at approximately $36,000 and decrease to approximately $27,000 over the ten-year payment period. Monthly payments of principal and accrued interest for the 1996 bond are approximately $43,000. The proceeds of the 1999 bond were used to fund the construction of a new manufacturing facility in Tucson, Arizona. The Company collateralized the issuance of this bond with a standby letter of credit from a financial institution. The standby letter of credit, bearing a fee of 1.5% of the outstanding bond balance, is collateralized by a mortgage on the building and land. Under the terms of the letter of credit, the Company is required to comply with certain financial covenants. As of April 30, 2002, the Company is in compliance with these covenants. The proceeds of the 1997 bond were used to fund the acquisition and renovation of a manufacturing facility. The Company collateralized the issuance of this bond with cash, which is classified as restricted cash on the April 30, 20012002 and 20002001 balance sheet. The proceeds of the June 1996 bond were used to fund the acquisition and renovation of the manufacturing facility in the Company's headquarters site. The Company collateralized the issuance of this bond with a standby letter of credit from a financial institution. The standby letter of
F-13
credit, bearing a fee of 1.25% of the outstanding bond balance, is collateralized by a mortgage on the building and land. Future maturities of these bonds are as follows:
YEAR ENDING APRIL 30, (IN THOUSANDS)
--------------------- --------------

2002........................................................ $ 621
2003........................................................ 646
2004........................................................ 672
2005........................................................ 699
2006........................................................ 728
Thereafter.................................................. 8,594
-------
$11,960
=======

11. EMPLOYEE COMPENSATION PLANS
Year ending April 30,
(in thousands)
2003 $ 646
2004 672
2005 699
2006 728
2007 3,167
Thereafter 5,449
$ 11,361
9. Employee Compensation Plans
In April 1992, the Company adopted the 1992 Stock Option Plan (the "1992 Plan"). The 1992 Plan provides for the issuance to employees of options to purchase 479,000 shares of common stock plus any expired or canceled options granted pursuant to the Company's expired 1982 Stock Option Plan. In August 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for the issuance to employees of stock options or stock awards to purchase 400,000 shares of common stock. In October 1997, the Company adopted the 1997 Employee Stock Option Plan (the "1997 Plan"). The 1997 Plan provides for the issuance to employees of stock options or stock awards to purchase 500,000 shares plus the number of shares reserved under the 1995 Plan that have not been issued or have been issued and subsequently cancelled.
Options are granted under the 1992, 1995, 1997 Plans as either incentive stock options or non-qualified stock options and at exercise prices not less than the fair value of the stock on the date of grant or less than 110% of the fair value in the case of optionees holding more than 10% of the total combined voting power of all classes of stock of the Company. The terms of the options generally may not exceed ten years or five years in the case of optionees holding more than 10% of the total combined voting power of all classes of stock of the Company. The options are exercisable over periods determined by the compensation committee of the board of directors, generally at the rate of 20% per year, on a cumulative basis, beginning with the first anniversary of the date of grant.

F-15

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EMPLOYEE COMPENSATION PLANS (CONTINUED)
On June 21,
During 2000, the Board of Directors adopted subject to the approval of
the stockholders, the Company's 2000 Employee Stock Option Plan (the "Plan"). Under the Plan, stock rights may be granted which are either (i) options intended to qualify as "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended, (ii) non-qualified stock options or (iii) awards of shares of common stock or the opportunity to make a direct purchase of shares of common stock. The adoption of the 2000 Employee Stock Plan
was formally approved by the stockholders at the 2000 Annual Meeting of
Stockholders held on September 21, 2000. The Plan authorizes the issuance of up to 900,000 shares of the Company's common stock plus the number of shares of common stock previously reserved for granting of options under the Company's
1995 Stock Option Plan or itsthe 1997 Stock Option Plan which are not granted under either of these plans or which are not exercised and cease to be outstanding by reason of cancellation or otherwise. The options are exercisable over periods determined by the compensation committee of the board of directors, generally at the rate of 5% per quarter, on a cumulative basis, beginning with the first anniversary of the date of grant. At April 30, 2001, 649,7802002, 509,434 shares were available for future grants under the Company's stock option plans.
F-14

In October 1996, the Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan"), effective as of October 1, 1996. The Purchase Plan provides full-time employees, nearly all of whom are eligible to participate, the opportunity to purchase common shares, on a quarterly basis, at 85% of the fair market value of the shares on either the first or last day of the applicable quarter, whichever is lower. The original term of the Purchase Plan iswas for five years, and the Company has authorized 1,000,000 shares of the Company's common stock for issuance under the Purchase Plan. In October 2001, the Board of Directors adopted an amendment to the Purchase Plan to extend the term of the Plan by five years. Under the Purchase Plan, the Company sold 48,590, 37,761 45,414 and 53,53045,414 shares to employees in fiscal years 2002, 2001 and 2000, and 1999, respectively. In September 1998, the Compensation Committee of the Board of Directors ofAt April 30, 2002, the Company granted employees with outstanding stock options the opportunity to
cancel their existing options and receive new options on a one for one basis
with a new five year vesting schedule commencing on the new datehas reserved 777,382 shares of grant. On
October 2, 1998, 298,850 options with exercise prices between $12.94 and $41.25
per share and an average exercise price of $17.72 per share were cancelled and
298,850 new options were granted with an exercise price of $8.66 per share, the
fair market value of the Company's common stock on October 2, 1998. No executive
officer offor issuance to employees under the Company participated in the stock option repricing.Purchase Plan.
The Company applies APB No. 25 and related interpretations in accounting for stock-based compensation. The Company has recognized compensation expense of $0, $21,000 $61,000 and $61,000, respectively, in each of the fiscal years 2002, 2001 2000 and 19992000 for stock-based compensation. Had compensation cost for the stock-based compensation been determined based on the fair value at the grant

F-16

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EMPLOYEE COMPENSATION PLANS (CONTINUED) dates of awards consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts as follows:
YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Net income (loss):
As reported................................... $ 508 $(20,447) $(24,528)
Pro forma..................................... $(1,843) $(22,413) $(25,625)
Basic earnings (loss) per share:
As reported................................... $ 0.04 $ (1.53) $ (1.89)
Pro forma..................................... $ (0.14) $ (1.68) $ (1.97)
Diluted earnings (loss) per share:
As reported................................... $ 0.04 $ (1.53) $ (1.89)
Pro forma..................................... $ (0.14) $ (1.68) $ (1.97)
Year ended April 30,
2002 2001 2000
(In thousands, except
per share data)

Net income (loss):
As reported $ (23,125 ) $ 508 $ (20,447 )
Pro forma $ (25,364 ) $ (1,843 ) $ (22,413 )
Basic earnings (loss) per share:
As reported $ (1.70 ) $ 0.04 $ (1.53 )
Pro forma $ (1.86 ) $ (0.14 ) $ (1.68 )
Diluted earnings (loss) per share:
As reported $ (1.70 ) $ 0.04 $ (1.53 )
Pro forma $ (1.86 ) $ (0.14 ) $ (1.68 )
The fair value of each option and purchase right grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for fiscal years 2002, 2001 2000 and 1999:2000: no dividend yield; risk free interest rates of 5.1%4.7%, 6.6%5.1% and 5.2%6.6%, respectively; expected option terms of 6 years, 7 years 6 years and 76 years, respectively, and expected purchase right terms of three months; volatility of 54% for options and purchase rights granted in fiscal 2002, 62% for options and purchase rights granted in fiscal year 2001 and 58% for options and purchase rights granted in fiscal year 2000 and 70% for options and purchase rights granted in fiscal 1999.2000. The weighted average fair value per option for options granted with option exercise prices equal to the fair value of the underlying common stock in fiscal years 2002, 2001 and 2000 was $6.35, $12.15 and 1999 was $12.15, $10.31, and $7.19, respectively. The weighted average fair value per purchase right for purchase rights granted in fiscal years 2002, 2001 and 2000 was $5.48, $4.96 and 1999 was $4.96, $3.12, and $3.48, respectively.

F-17

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EMPLOYEE COMPENSATION PLANS (CONTINUED)
Because options vest over several years and additional option and purchase right grants are expected to be made in subsequent years, the pro forma impact on fiscal years 2002, 2001 2000 and 19992000 is not necessarily representative of the pro forma effects of reported net income and earnings per share for future years.
F-15

Stock option activity is summarized as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------

Options outstanding at April 30, 1998.................... 716,020 $12.20
Granted................................................ 558,850 10.16
Exercised.............................................. (106,820) 4.84
Canceled............................................... (408,300) 17.23
---------
Options outstanding at April 30, 1999.................... 759,750 9.06
Granted................................................ 273,965 16.38
Exercised.............................................. (162,590) 6.33
Canceled............................................... (138,780) 13.71
---------
Options outstanding at April 30, 2000.................... 732,345 11.53
Granted................................................ 454,625 18.67
Exercised.............................................. (32,700) 7.26
Canceled............................................... (54,625) 14.46
---------
Options outstanding at April 30, 2001.................... 1,099,645 $14.46
=========
Number
of shares Weighted
average
exercise
price
Options outstanding at April 30, 1999 759,750 $ 9.06
Granted 273,965 16.38
Exercised (162,590 ) 6.33
Canceled (138,780 ) 13.71
Options outstanding at April 30, 2000 732,345 11.53
Granted 454,625 18.67
Exercised (32,700 ) 7.26
Canceled (54,625 ) 14.46
Options outstanding at April 30, 2001 1,099,645 14.46
Granted 293,500 10.39
Exercised (74,235 ) 9.19
Canceled (153,169 ) 14.21
Options outstanding at April 30, 2002 1,165,741 $ 13.81
The number and weighted average exercise price of options exercisable at April 30, 2002, 2001 and 2000 was 414,824 and 1999 was$13.06; 285,904 and $11.43; and 172,660 and $9.43; and
198,900 and $7.34,$9.43, respectively.
The following table summarizes information about stock options outstanding at April 30, 2001:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------

$4.13--$5.88.................. 35,100 2.9 $ 4.44 35,100 $ 4.44
$8.38--$9.94.................. 320,080 7.1 8.75 130,240 8.88
$11.25--$14.75................ 248,950 8.2 13.06 54,200 13.13
$15.06--$21.16................ 495,315 8.9 19.56 66,164 18.69
$41.25........................ 200 6.3 41.25 200 41.25
--------- --- ------ ------- ------
1,099,645 8.0 $14.46 285,904 $11.43
========= === ====== ======= ======

F-18

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCKHOLDERS' EQUITY

RESERVED SHARES2002:
Options Outstanding Options Exercisable
Range of
exercise prices
Number
Outstanding Weighted
average
remaining
contractual
life (years) Weighted
average
exercise
price Number
exercisable Weighted
average
exercise
price
$4.15–$5.88 33,400 1.9 $ 4.43 33,400 $ 4.43
$8.38–$10.03 500,770 7.1 9.32 162,310 9.04
$11.25–$14.75 157,850 6.8 12.97 66,950 13.02
$15.06–$21.16 473,521 7.4 19.48 151,964 19.23
$41.25 200 5.3 41.25 200 41.25
1,165,741 7.1 $ 13.81 414,824 $ 13.06
10. Stockholders' Equity
Reserved Shares
At April 30, 2001,2002, the Company has reserved 1,721,5361,286,816 shares of common stock for issuance upon the grant and exercise of outstanding and available common stock options and for issuance to employees under the Purchase Plan.

PREFERRED STOCK
F-16
Preferred Stock
The Company has 1,000,000 shares of $1.00 par value preferred stock authorized. Shares of preferred stock may be issued at the discretion of the Board of Directors of the Company with such designation, rights and preferences as the Board may determine from time to time. The preferred stock may have voting rights, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions, which are more expansive than those of the holders of the common stock.

13. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

Beginning in the third quarter of fiscal 2001, the
11. Segment, Geographic and Significant Customer Information
The Company consolidated its
reported segments to conform with how the Company now manages its business.
Prior to the third quarter of fiscal 2001, the Company reportedhas three reportable segments: ADE Semiconductor Systems Group ("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). SSG manufactures and markets metrology and inspection systems to the semiconductor wafer and device manufacturing industries that are used to improve yield and capital productivity. PST manufactures and markets high performance, non-contact surface metrology equipment using advanced interferometric technology that provides enhanced yield management to the data storage, semiconductor and optics industries. ATI manufactures and markets high precision magnetic characterization and non-contact dimensional metrology gaging systems primarily to the data storage industry. Sales of the Company's stand-alone software products and software consulting services were included in the "other" category and are now reported in the SSG segment. Prior year segment
information has been recast to conform with the current year presentation.
The Company's reportable segments are determined based upon the nature of the products, the external customers and customer industries and the sales and distribution methods used to market the products. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon profit or loss from operations. The Company does not measure the assets allocated to the segments. Management fees representing certain services provided by corporate offices have been allocated to each of the reportable segments based upon the usage of those services by each segment. Additionally, other income (loss), the provision for (benefit from) income taxes and the equity in net earnings (losses) of affiliated companies are not included in segment profitability.

Sales
Some sales to JAL, ADE's 50% affiliate, are reflected in segment revenue during the period they are shipped by the respective segment, which can differ from the period the revenue is recognized for consolidated financial reporting purposes. For the reportable segments, intercompany sales are recorded at 60% of the domestic list price of the respective product.

F-19

13. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)

SSG PST ATI TOTAL
-------- -------- -------- --------
(IN THOUSANDS)

FOR THE YEAR ENDED APRIL 30, 2001
Revenue from external customers..................... 81,497 10,711 10,836 $103,044
Intersegment revenue................................ 319 -- 581 900
Loss from operations................................ 2,996 278 (474) 2,800
Depreciation and amortization expense............... 5,186 318 289 5,793
Capital expenditures................................ 3,184 278 220 3,682

FOR THE YEAR ENDED APRIL 30, 2000
Revenue from external customers..................... $ 44,965 $ 6,400 $ 9,235 $ 60,600
Intersegment revenue................................ 1,079 -- 315 1,394
Income (loss) from operations....................... (18,541) (1,518) (1,642) (21,701)
Depreciation and amortization expense............... 5,215 253 412 5,880
Capital expenditures................................ 6,889 354 266 7,509

FOR THE YEAR ENDED APRIL 30, 1999
Revenue from external customers..................... $ 43,223 $ 7,916 $ 8,594 $ 59,733
Intersegment revenue................................ 632 -- 456 1,088
Income (loss) from operations....................... (32,321) 1,343 (5,107) (36,085)
Depreciation and amortization expense............... 5,218 16 411 5,645
Capital expenditures................................ 7,592 92 75 7,759
Restructuring charges............................... 2,318 -- -- 2,318
F-17
SSG PST ATI Total
(in thousands)

For the year ended April 30, 2002
Revenue from external customers $ 61,369 $ 8,623 $ 8,519 $ 78,511
Intersegment revenue 596 1,897 1,003 3,496
Loss from operations (13,702 ) (760 ) (801 ) (15,263 )
Depreciation and amortization expense 4,636 422 222 5,280
Capital expenditures 5,320 217 146 5,683

For the year ended April 30, 2001
Revenue from external customers $ 81,497 $ 10,711 $ 10,836 $ 103,044
Intersegment revenue 319 — 581 900
Income (loss) from operations 2,996 278 (474 ) 2,800
Depreciation and amortization expense 5,186 318 289 5,793
Capital expenditures 3,184 278 220 3,682

For the year ended April 30, 2000
Revenue from external customers $ 44,965 $ 6,400 $ 9,235 $ 60,600
Intersegment revenue 1,079 — 315 1,394
Loss from operations (18,541 ) (1,518 ) (1,642 ) (21,701 )
Depreciation and amortization expense 5,215 253 412 5,880
Capital expenditures 6,889 354 266 7,509 The following is a reconciliation for the above items where aggregate reportable segment amounts differ from amounts contained in the Company's consolidated financial statements.
YEAR ENDED APRIL 30,
---------------------------------
2001 2000 1999
-------- ----------- --------
(IN THOUSANDS)

Total external revenue for reportable segments............. $103,044 $ 60,600 $ 59,733
Net impact of revenue recognition on sales to affiliate.... (2,861) 1,906 1,152
-------- -------- --------

Total consolidated revenue................................. $100,183 $ 62,506 $ 60,885
======== ======== ========

Total operating profit (loss) for reportable segments...... $ 2,800 $(21,701) $(36,085)
Net impact of intercompany gross profit eliminations and
deferred profit on sales to affiliate.................... (1,602) 1,565 704
-------- -------- --------
Total consolidated operating profit (loss)................. $ 1,198 $(20,136) $(35,381)
======== ======== ========
Year ended April 30,
2002 2001 2000
(in thousands)

Total external revenue for reportable segments $ 78,511 $ 103,044 $ 60,600
Net impact of revenue recognition on sales to affiliate 3,295 (2,861 ) 1,906

Total consolidated revenue
$
81,806
$
100,183
$
62,506

Total operating profit (loss) for reportable segments
$
(15,263
)
$
2,800
$
(21,701
)
Net impact of intercompany gross profit eliminations and deferred profit on sales to affiliate 1,800 (1,602 ) 1,565
Total consolidated operating profit (loss) $ (13,463 ) $ 1,198 $ (20,136 )
F-18
Revenue by geographic area is summarized as follows:
YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)

United States................................... $ 36,583 $22,372 $24,723
Japan........................................... 24,303 16,256 15,809
Taiwan.......................................... 10,226 4,452 4,451
Europe.......................................... 11,196 10,688 7,953
Asia............................................ 17,875 8,738 7,949
-------- ------- -------
$100,183 $62,506 $60,885
======== ======= =======

F-20

13. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
Year ended April 30,
2002 2001 2000
(in thousands)

United States $ 18,499 $ 36,583 $ 22,372
Japan 28,367 24,303 16,256
Taiwan 5,386 10,226 4,452
Europe 14,020 11,196 10,688
Asia 15,534 17,875 8,738
$ 81,806 $ 100,183 $ 62,506
Revenue from JAL in fiscal years 2002, 2001 and 2000 and 1999 totaled $23,113,000 (28%), $15,452,000 (15%), and $8,787,000 (14%), and $9,254,000 (16%), respectively. Revenue from another customer in fiscal years 2002, 2001 and 2000 and 1999 totaled $9,622,000 (12%), $12,318,000 (12%), and $3,825,000 (6%), and $6,553,000 (11%), respectively. Revenue from a third customer in fiscal 2002, 2001 and 2000 and 1999 totaled $4,695,000 (6%), $7,865,000 (8%), and $5,635,000 (9%) and $4,046,000 (7%), respectively. As of April 30, 2002, 2001 2000 and 1999,2000, all of the Company's long-lived assets are located in the United States except for $350,000,$583,000, $589,000, and $269,000, and $245,000, respectively.

14. INCOME TAXES
12. Income Taxes
The provision for (benefit from) income taxes consists of:
YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)

Current tax expense (benefit):
Federal............................................ $ 212 $ -- $(8,997)
Foreign............................................ 45 82 66
State.............................................. (220) 20 55
----- ---- -------
37 102 (8,876)
----- ---- -------
Deferred tax expense (benefit):
Federal............................................ -- -- 445
State.............................................. -- -- (904)
----- ---- -------
-- -- (459)
----- ---- -------
$ 37 $102 $(9,335)
===== ==== =======
Year ended April 30,
2002 2001 2000
(in thousands)

Current tax expense (benefit):
Federal $ (200 ) $ 212 $ —
Foreign — 45 82
State 26 (220 ) 20
(174 ) 37 102
Deferred tax expense (benefit):
Federal 9,754 — —
State 836 — —
10,590 — —
$ 10,416 $ 37 $ 102
F-19
12. Income Taxes (Continued)
The significant components of deferred tax assets and liabilities consist of the following:
2001 2000
-------- --------

Deferred tax assets:
Inventories, due to reserves and additional costs
inventoried for tax purposes........................ $ 5,020 $ 4,417
Acquired in-process research and development and
intangibles......................................... 2,372 2,441
Accrued expenses...................................... 1,859 1,240
Deferred revenue...................................... 3,383 2,445
Deferred profit on sales to affiliates................ 728 128
Net operating loss carryforwards...................... 9,190 10,238
Bad debt reserve...................................... 349 239
Depreciation.......................................... 124 --
Other................................................. 203 76
-------- --------
Gross deferred tax assets........................... 23,228 21,224
Deferred tax valuation allowance...................... (12,638) (10,396)
-------- --------
Net deferred tax assets............................. 10,590 10,828
Deferred tax liabilities:
Depreciation........................................ -- (238)
-------- --------
Total net deferred tax assets........................... $ 10,590 $ 10,590
======== ========

F-21

14. INCOME TAXES (CONTINUED)
2002 2001
Deferred tax assets:
Inventories, due to reserves and additional costs inventoried for tax purposes $ 5,158 $ 5,020
Acquired in-process research and development and intangibles 2,207 2,372
Accrued expenses 1,499 1,859
Deferred revenue 1,602 3,383
Deferred profit on sales to affiliates 917 728
Net operating loss and other carryforwards 18,672 9,190
Bad debt reserve 285 349
Depreciation 162 124
Other 309 203
Gross deferred tax assets 30,811 23,228
Deferred tax valuation allowance (30,811 ) (12,638 )
Net deferred tax assets — 10,590
Deferred tax liabilities:
Depreciation — —
Total net deferred tax assets $ — $ 10,590
Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"Taxes", the benefit associated with future deductible temporary differences is recognized if it is more likely than not that the benefit will be realized. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
During the second quarter of the year ended April 30, 2001,2002, as a result of current year operating losses to date, anticipated additional operating losses for the third quarter of 2002, an expected operating loss for fiscal 2002, and uncertainty as to the extent and timing of profitability in future periods, the Company increased itsrecorded an additional valuation allowance againstto reserve the remaining deferred tax assets, by $2,242,000, asresulting in income tax expense of $10.6 million. The Company currently has a full valuation allowance. As of April 30, 2002, the full value of its
netCompany has available unused operating and capital loss carryforwards, and temporary differenceswhich may not
be realized. This increase was based upon weighing all evidence available to
management, including a capital loss generated in fiscal 2001 of $2,079,000 from
the sale of one of the Company's investments, current estimates ofapplied against future taxable income, the cyclicality of the semiconductor and data storage industries
and the uncertainty within those markets. The amount of the deferred tax assets
considered realizable could materially change in the near term if estimates of
future taxable income change or do not materialize.income. Net operating loss carryforwards generated in fiscal 19992000 and 20002002 begin to expire in fiscal 20042005 for state purposes and in fiscal 20192020 for federal purposes.
Additionally, a valuation allowance of $336,000 has been recorded at April 30, 2001 and 2000 to reflect net operating carryforwards, which will expire before they can be used due to ownership change limitations. These carryforwards began to expire in the year 2000. Net operating loss carryforwards remaining at April 30, 20012002 and 2000,2001, not limited in their use due to ownership changes, totaled $7,714,000$39,788,000 and $8,975,000,$22,040,000, respectively. Included in the net operating loss carryforwards for April 30,
F-20

2002 and 2001 are $24,015,000 and 2000 are $1,634,000 and $1,698,000,$18,334,000, respectively, of state net operating losses that are only available to offset taxable state income.
The Company does not provide for taxes which would be payable if undistributed earnings of its foreign affiliates were remitted because the Company either considers these earnings to be invested for an indefinite period or anticipates that if such earnings were distributed, the U.S. income taxes payable would be substantially offset by foreign tax credits.
The following is a reconciliation between the amount of reported income tax expense (benefit) and the amount computed using the U.S. Federal Statutory rate of 35% for fiscal 2002, 2001 2000 and 1999:

YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)

Statutory federal rate.......................... $ 190 $ (6,411) $(11,170)
State taxes, net of federal benefit............. (220) (488) (566)
Foreign sales corporation benefit............... -- -- (72)
Research and development tax credits............ -- -- --
AMT credit carryforwards........................ -- -- (634)
Valuation allowance............................. -- 7,060 3,000
Other........................................... 67 (59) 107
------- -------- --------
$ 37 $ 102 $ (9,335)
======= ======== ========

The income tax benefits related to the exercise2000:
Year ended April 30,
2002 2001 2000
(in thousands)

Statutory federal rate $ (7,893 ) $ 190 $ (6,411 )
State taxes, net of federal benefit 17 (220 ) (488 )
Valuation allowance 18,173 — 7,060
Other 119 67 (59 )
$ 10,416 $ 37 $ 102
13. Incentive Savings and disqualifying
dispositions of certain stock options reduces taxes currently payable and is
credited to additional paid-in capital. Such amount approximated $115,000 for
the year ended April 30, 1999.

F-22

15. INCENTIVE SAVINGS AND PROFIT SHARING PLANProfit Sharing Plan
The Company has an incentive savings and profit sharing plan covering substantially all employees who wish to participate and meet minimum age and service requirements. Annual Company contributions are determined by the Board of Directors and are limited to the maximum amount deductible under the Internal Revenue Code. Company contributions for fiscal 2002, 2001 2000 and 19992000 were approximately $547,000, $671,000, and $596,000, respectively.
14. Commitments and $726,000, respectively.

16. COMMITMENTS AND CONTINGENCIESContingencies
The Company leases land and certain buildings, machinery and equipment under operating leases, which expire through 2006. Under the terms of the leases, the Company is responsible for normal maintenance, utility expenses and taxes and pays a monthly property management fee on certain leases.
Future minimum lease payments under operating leases, including management fees, are as follows:
YEAR ENDING APRIL 30, (IN THOUSANDS)
--------------------- --------------

2002........................................................ $ 772
2002........................................................ 803
2004........................................................ 731
2005........................................................ 525
2006........................................................ 466
Thereafter.................................................. 206
------
$3,503
======
Year ending April 30,
(in thousands)

2003 $ 855
2004 758
2005 550
2006 466
2007 207
$ 2,836
Total rent expense under non-cancelable operating leases was approximately $768,000, $826,000, $1,436,000, and $1,181,000$1,436,000 for the years ended April 30, 2002, 2001 and 2000, and 1999, respectively.
F-21

On October 12, 2000, the Company filed a patent infringement lawsuit against KLA-Tencor (KLA)("KLA"), a competitor, in the U.S. District Court in Delaware. The Company seeks damages and a permanent injunction against further infringement upon United States Patent Number 6,118,525, entitled "Wafer Inspection System for Distinguishing Pits and Particles." On November 22, 2000, KLA filed a counterclaim in the United States District Court in Delaware that ADE has infringed upon three patents owned by KLA. KLA is seeking damages for patent infringement and a permanent injunction against any future infringement activity. In addition, KLA has asked the District Court for a declaration that United States Patent Number 6,118,525, owned by ADE, is invalid and not infringed upon by KLA. Since these matters are at a preliminary stage,At this time, the Company cannot predict the outcome or the amount of gain or loss, if any.
In addition to the matter noted above, from time to time the Company is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on the Company's financial position or results of operations.

17. SUPPLEMENTAL DISCLOSURES
15. Supplemental Disclosures of Cash Flow Information
Year ended April 30,
2002 2001 2000
Cash paid during the year
Interest $ 660 $ 695 $ 728
Income taxes paid (refunds received), net $ (39 ) $ (329 ) $ (8,732 )
F-22

FINANCIAL STATEMENT SCHEDULE

(In thousands)
Schedule II—Valuation and Qualifying Accounts and Reserves
Description Balance at
May 1, 1999 Charged to
costs and
expenses Charged to
other
accounts Deductions
and
write-offs Balance at
April 30, 2000
Allowance for doubtful accounts $ 820 $ 339 $ — $ (530 ) $ 629
Inventory obsolescence 8,679 — — (1,730 ) 6,949
Deferred tax asset valuation allowance 3,336 7,060 — — 10,396
Description Balance at
May 1, 2000 Charged to
costs and
expenses Charged to
other
accounts Deductions
and
write-offs Balance at
April 30, 2001
Allowance for doubtful accounts $ 629 $ 291 $ — $ (3 ) $ 917
Inventory obsolescence 6,949 1,927 — (727 ) 8,149
Deferred tax asset valuation allowance 10,396 2,242 — — 12,638
Description Balance at
May 1, 2001 Charged to
costs and
expenses Charged to
other
accounts Deductions
and
write-offs Balance at
April 30, 2002
Allowance for doubtful accounts $ 917 $ — $ — $ (218 ) $ 699
Inventory obsolescence 8,149 400 — — 8,549
Deferred tax asset valuation allowance 12,638 18,173 — — 30,811

QuickLinks
DOCUMENTS INCORPORATED BY REFERENCE
PART I
PART II
PART III
PART IV
SIGNATURES
REPORT OF INDEPENDENT ACCOUNTANTS
ADE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
ADE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
ADE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data)
ADE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW INFORMATION

YEAR ENDED APRIL 30,
------------------------------
2001 2000 1999
-------- -------- --------

CASH PAID DURING THE YEAR
Interest....................................... $ 695 $ 728 $ 620
Income taxes paid (refunds received), net...... $ (329) $(8,732) $(5,885)

F-23
FLOWS (In thousands)
ADE CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE (IN THOUSANDS)

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 1998 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 1999
----------- ----------- ---------- ---------- ---------- --------------

Allowance for doubtful accounts....... 1,805 -- -- (985) 820
Inventory obsolescence................ 4,035 6,167 -- (1,523) 8,679
Deferred tax asset valuation
allowance........................... 352 3,000 -- (16) 3,336

CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 1999 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 2000
----------- ----------- ---------- ---------- ---------- --------------

Allowance for doubtful accounts....... 820 339 -- (530) 629
Inventory obsolescence................ 8,679 -- -- (1,730) 6,949
Deferred tax asset valuation
allowance........................... 3,336 7,060 -- -- 10,396

CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 2000 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 2001
----------- ----------- ---------- ---------- ---------- --------------

Allowance for doubtful accounts....... 629 291 -- (3) 917
Inventory obsolescence................ 6,949 1,927 -- (727) 8,149
Deferred tax asset valuation
allowance........................... 10,396 2,242 -- -- 12,638

S-1

~~NAME AGE POSITION ---- -------- --------------------------------------~~ ~~Robert C. Abbe........................ 63~~
Chris L. Koliopoulos		49		President and Chief Executive Officer
Brian C. ~~James........................ 50~~James		51		Executive Vice President, Treasurer and Chief Financial Officer AK Lum................................ 52 Vice President and General Manager of ADE Semiconductor Systems Chris L. Koliopoulos.................. 48 Vice President and President of ADE Phase Shift, Inc. Noel S. Poduje........................ 56 Vice President of Strategic Technology Development

Location	Principal Use	Business Segment	Sq. Footage	Ownership
Westwood, MA	Corporate Headquarters, Manufacturing, Engineering, Service, Sales and Marketing	Semiconductor Systems Group	118,000	Owned
Tucson, AZ	Manufacturing, Engineering, Service, Sales and Marketing	ADE Phase Shift	60,000	Owned
Newton, MA	Manufacturing, Engineering, Service, Sales and Marketing	ADE Technologies	46,000	Owned
Vancouver, WA	Sales, Service and Engineering	Semiconductor Systems Group	12,800	Leased
Milpitas, CA	Sales and Service	Semiconductor Systems Group and ADE Technologies	9,300	Leased
Bethel, CT	Manufacturing and Engineering	Semiconductor Systems Group	5,000	Leased

Fiscal year ended April 30, 2002	High
First quarter	$	20.00	$	13.45
Second quarter		17.65		8.40
Third quarter		12.10		9.05
Fourth quarter		15.50		9.44

Fiscal year ended April 30, 2001	High
First quarter	$	24.00	$	13.25
Second quarter		23.13		15.00
Third quarter		22.88		10.44
Fourth quarter		16.65		11.33

		Quarter ended
		July 31, 2000		Oct. 31, 2000		Jan. 31, 2001		April 30, 2001		July 31, 2001		Oct. 31, 2001		Jan. 31, 2002		April 30, 2002
Percentage of Revenue:
Revenue		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue		52.0	%	50.6	%	50.5	%	48.0	%	58.8	%	62.7	%	58.0	%	54.7	%
Gross profit		48.0	%	49.4	%	49.5	%	52.0	%	41.2	%	37.3	%	42.0	%	45.3	%
Operating expenses:
	Research and development		24.1	%	21.9	%	20.3	%	24.2	%	24.1	%	27.2	%	28.9	%	33.3	%
	Marketing and sales		19.9	%	18.1	%	12.4	%	15.5	%	14.1	%	16.2	%	16.6	%	17.8	%
	General and administrative		10.4	%	11.1	%	11.3	%	7.0	%	9.1	%	12.8	%	16.7	%	19.2	%
Income (loss) from operations		(6.4)	%	(1.6)	%	5.4	%	5.2	%	(6.2)	%	(18.8)	%	(20.2)	%	(25.0)	%
Interest and other income, net		1.6	%	1.4	%	1.0	%	0.7	%	1.2	%	0.2	%	0.0	%	(0.6)	%
Net income (loss)		(16.5)	%	0.8	%	6.1	%	8.0	%	(4.7)	%	(66.5)	%	(18.1)	%	(24.9)	%

	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)
Equity compensation plans approved by security holders(1):	1,165,741	$	13.81	1,286,816	(2)
Equity compensation plans not approved by security holders	None		None	None
Total	1,165,741	$	13.81	1,286,816

~~PAGE NUMBER IN THIS FORM~~
		Page Number in this Form 10-K ~~-------------------~~
Report of Independent ~~Accountants...........................~~ Accountants		F-1
Consolidated Balance Sheets as of April 30, ~~2001~~2002 and ~~2000...~~ 2001		F-2
Consolidated Statements of Operations for the three years ~~F-3~~ ended April 30, ~~2001......................................~~ 2002		F-3
Consolidated Statements of Stockholders' Equity for the ~~F-4~~ three years ended April 30, ~~2001............................................~~ 2002		F-4
Consolidated Statements of Cash Flows for the three years ~~F-5~~ ended April 30, ~~2001......................................~~ 2002		F-5
Notes to Consolidated Financial ~~Statements..................~~ Statements		F-6
	(a)(2) Financial Statement Schedule: ~~II--Valuation~~
II—Valuation and Qualifying Accounts and Reserves ~~S-1~~ for the three years ended April 30, ~~2001............~~ 2002		S-1

~~EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------~~ 2.1 Agreement and Plan of Merger dated as of February 27, 1997 by and between ADE Corporation, ADE Technologies, Inc., Digital Measurement Systems, Inc., Dennis E. Speliotis, Elias Speliotis, Evanthia Speliotis, Ismene Speliotis, Advanced Development Corporation, David C. Bono and Alan Sliski (filed as
Exhibit 10.18 to the Company's Form 10-K for the fiscal year ended April 30, 1997 and incorporated herein by reference). 2.2 Agreement and Plan of Merger dated as of May 31, 1998 by and among ADE Corporation, Theta Acquisition Corp., Phase Shift Technology, Inc., Chris Koliopoulos and David Basila (filed as Exhibit 2 to the Company's Form 8-K dated June 25, 1998 and incorporated herein by reference). 2.3 Purchase and Sale Agreement dated as of February 28, 1997 by and between ADE Corporation and Dennis E. Speliotis, individually and as Trustee of Thouria Investment Trust under a Declaration of Trust dated August 18, 1992, Elias Speliotis, Evanthia Speliotis and Ismene Speliotis (filed as Exhibit 10.20 to the Company's Form 10-K for the fiscal year ended April 30, 1997 and incorporated herein by reference). Number		Description
3.1		Restated Articles of Organization (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (33-96408) or amendments thereto and incorporated herein by reference).
3.2		By-laws (as amended) (filed ~~as Exhibit 3.2 to the Company's Registration Statement on Form S-1 (33-96408) or amendments thereto and incorporated herein by reference)~~herewith).
4.1 Registration Rights Agreement dated as of February 28, 1997 by and between ADE Corporation and Dennis E. Speliotis, individually and as Trustee of Thouria Investment Trust under a Declaration of Trust dated August 18, 1992 recorded in the Middlesex South District Registry of Deeds at Book 22305, Page 375 (filed as Exhibit 10.21 to the Company's Form 10-K for the fiscal year ended April 30, 1997 and incorporated herein by reference). 4.2 Registration Rights Agreement dated as of February 27, 1997, by and among ADE Corporation and Advanced Development Corporation, David C. Bono and Alan Sliski (filed as Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended April 30, 1997 and incorporated herein by reference). 4.3		Registration Rights Agreement dated as of May 31, 1998 by and among ADE Corporation, Chris Koliopoulos and David Basila (filed as Exhibit 4.6 to the Company's Form 8-K dated June 25, 1998 and incorporated herein by reference).
10.1		Form of Employee Confidentiality Agreement (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (333-96408) or amendments thereto and incorporated herein by reference).
10.2		2000 Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement with respect to its Annual Meeting of Shareholders for the fiscal year ended April 30, 2000 and incorporated herein by reference).*
10.3		1997 Stock Option Plan (filed as Exhibit 4.3 to the Company's Registration Statement on Form ~~S-8(333-46505)~~S-8 (333-46505) or amendments thereto and incorporated herein by reference).*

	Year ended April 30, 2001
	(in thousands)
Revenue	$	29,139
Gross profit		10,552
Net income		1,287

	April 30, 2001
Current assets	$	22,015
Noncurrent assets		2,098
Current liabilities		18,009
Noncurrent liabilities		6,103

~~(In thousands)~~

Massachusetts		04-2441829 ~~(State~~
(State of incorporation) ~~(IRS~~		(I.R.S. Employer Identification No.)
80 ~~WILSON WAY~~ Wilson Way		02090 ~~WESTWOOD, MASSACHUSETTS (zip code) (Address~~
Westwood, Massachusetts (Address of principal executive offices)		(Zip Code)

				Year ended April 30,
				2002			2001			2000			1999			1998
				(in thousands, except per share data)
Statement of Operations Data:
	Revenue			$	81,806		$	100,183		$	62,506		$	60,885		$	135,700
	Cost of revenue				48,132			50,236			35,475			46,489			61,755

		Gross profit			33,674			49,947			27,031			14,396			73,945

	Operating expenses:
		Research and development			22,783			22,583			21,884			24,026			27,580
		Purchased in-process research and development			—			—			—			—			6,100
		Marketing and sales			13,064			16,218			13,002			12,280			15,638
		General and administrative			11,290			9,948			12,281			11,153			13,701
		Restructuring charges			—			—			—			2,318			—

			Total operating expenses		47,137			48,749			47,167			49,777			63,019

	Income (loss) from operations				(13,463	)		1,198			(20,136	)		(35,381	)		10,926
	Interest and other income, net				256			1,130			1,280			2,600			2,347

	Income (loss) before provision for (benefit from) income taxes, equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle				(13,207	)		2,328			(18,856	)		(32,781	)		13,273
	Provision for (benefit from) income taxes				10,416			37			102			(9,335	)		3,301

	Income (loss) before equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle				(23,623	)		2,291			(18,958	)		(23,446	)		9,972
	Equity in net earnings (loss) of affiliated companies				498			2			(1,489	)		(1,082	)		(1,005	)

	Income (loss) before cumulative effect of change in accounting principle				(23,125	)		2,293			(20,447	)		(24,528	)		8,967
	Cumulative effect of change in accounting principle, net of $0 tax				—			(1,785	)		—			—			—

	Net income (loss)			$	(23,125	)	$	508		$	(20,447	)	$	(24,528	)	$	8,967

	Net earnings (loss) per share:
		Basic
			Earnings (loss) before cumulative effect of change in accounting principle	$	(1.70	)	$	0.17		$	(1.53	)	$	(1.89	)	$	0.73
			Cumulative effect of change in accounting principle	$	—		$	(0.13	)	$	—		$	—		$	—

			Basic earnings (loss) per share	$	(1.70	)	$	0.04		$	(1.53	)	$	(1.89	)	$	0.73

		Diluted
			Earnings (loss) before cumulative effect of change in accounting principle	$	(1.70	)	$	0.17		$	(1.53	)	$	(1.89	)	$	0.70
			Cumulative effect of change in accounting principle	$	—		$	(0.13	)	$	—		$	—		$	—

			Diluted earnings (loss) per share	$	(1.70	)	$	0.04		$	(1.53	)	$	(1.89	)	$	0.70

		Weighted average common shares outstanding
			Basic		13,615			13,507			13,353			12,989			12,215
			Diluted		13,615			13,754			13,353			12,989			12,822
		Pro forma amounts assuming retroactive effect of change in accounting principle related to revenue recognition:(1)
			Net revenues				$	100,183		$	61,966		$	63,194			*
			Net income (loss)				$	2,293		$	(20,700	)	$	(22,511	)		*
			Basic earnings (loss) per share				$	0.17		$	(1.55	)	$	(1.73	)		*
			Diluted earnings (loss) per share				$	0.17		$	(1.55	)	$	(1.73	)		*

			Quarter ended
			July 31, 2000(1)			Oct. 31, 2000(1)			Jan. 31, 2001(1)			April 30, 2001			July 31, 2001			Oct. 31, 2001			Jan. 31, 2002			April 30, 2002
			(in thousands, except per share data, unaudited)
Statement of Operatons Data:
Revenue			$	21,387		$	23,671		$	28,223		$	26,902		$	25,371		$	21,910		$	17,945		$	16,580
Cost of revenue				11,111			11,966			14,243			12,917			14,919			13,729			10,407			9,076

Gross profit				10,276			11,705			13,980			13,985			10,452			8,181			7,538			7,504

Operating expenses:
	Research and development			5,154			5,176			5,731			6,521			6,115			5,961			5,190			5,517
	Marketing and sales			4,262			4,284			3,508			4,165			3,588			3,551			2,973			2,953
	General and administrative			2,228			2,624			3,203			1,893			2,312			2,796			2,995			3,186

		Total operating expenses		11,644			12,084			12,442			12,579			12,015			12,308			11,158			11,656

Income (loss) from operations				(1,368	)		(379	)		1,538			1,406			(1,563	)		(4,127	)		(3,620	)		(4,152	)
Interest and other income (expense), net				340			326			281			183			311			48			—			(105	)

Income (loss) before provision for (benefit from) income taxes, equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle				(1,028	)		(53	)		1,819			1,589			(1,252	)		(4,079	)		(3,620	)		(4,257	)
Provision for (benefit from) income taxes				—			64			47			(74	)		7			10,598			9			(198	)

Income (loss) before equity in net earnings (loss) of affiliated companies and cumulative effect of change in accounting principle				(1,028	)		(117	)		1,772			1,663			(1,259	)		(14,677	)		(3,629	)		(4,059	)
Equity in net earnings (loss) of affiliated companies				(722	)		304			(61	)		482			68			109			384			(62	)

Income (loss) before cumulative effect of change in accounting principle				(1,750	)		187			1,711			2,145			(1,191	)		(14,568	)		(3,245	)		(4,121	)
Cumulative effect of change in accounting principle, net of $0 tax				(1,785	)		—			—			—			—			—			—			—

Net Income (loss)			$	(3,535	)	$	187		$	1,711		$	2,145		$	(1,191	)	$	(14,568	)	$	(3,245	)	$	(4,121	)

Net earnings (loss) per share:
Basic
Earnings (loss) before cumulative effect of change in accounting principle			$	(0.13	)	$	0.01		$	0.13		$	0.16		$	(0.09	)	$	(1.07	)	$	(0.24	)	$	(0.30	)
Cumulative effect of change in accounting principle			$	(0.13	)	$	—		$	—		$	—		$	—		$	—		$	—		$	—

Basic earnings (loss) per share			$	(0.26	)	$	0.01		$	0.13		$	0.16		$	(0.09	)	$	(1.07	)	$	(0.24	)	$	(0.30	)

Diluted
Earnings (loss) before cumulative effect of change in accounting principle			$	(0.13	)	$	0.01		$	0.12		$	0.16		$	(0.09	)	$	(1.07	)	$	(0.24	)	$	(0.30	)
Cumulative effect of change in accounting principle			$	(0.13	)	$	—		$	—		$	—		$	—		$	—		$	—		$	—

Diluted earnings (loss) per share			$	(0.26	)	$	0.01		$	0.12		$	0.16		$	(0.09	)	$	(1.07	)	$	(0.24	)	$	(0.30	)

Weighted average shares outstanding—basic				13,483			13,497			13,511			13,537			13,567			13,607			13,627			13,659
Weighted average shares outstanding—diluted				13,483			13,781			13,748			13,705			13,567			13,607			13,627			13,659

	Non-cancelable Operating Lease Commitments		Long Term Debt		Total
	(in thousands)
2003	$	855	$	1,270	$	2,125
2004		758		1,258		2,016
2005		550		1,246		1,796
2006		466		1,235		1,701
2007		207		3,508		3,715
Thereafter		—		5,781		5,781

Total	$	2,836	$	14,298	$	17,134

		ADE CORPORATION
July ~~19, 2001~~ 17, 2002		By: /s/ ROBERT C. ABBE ----------------------------------------- Robert C. Abbe PRESIDENT AND CHIEF EXECUTIVE OFFICER		/s/ CHRIS L. KOLIOPOULOS Chris L. Koliopoulos President and Chief Executive Officer

Signature		Title		Date

/s/ CHRIS L. KOLIOPOULOS Chris L. Koliopoulos		President, Chief Executive ~~-------------------------------------------~~ Officer and Robert C. Abbe July 19, 2001 Robert C. Abbe Director (Principal Executive Officer) /s/ BRIAN C. JAMES Vice President, Treasurer and ------------------------------------------- Chief Financial Officer July 19, 2001 Brian C. James (Principal Financial Officer) /s/ JOSEPH E. ROVATTI Controller (Principal Accounting July 19, 2001 ------------------------------------------- Officer) Joseph E. Rovatti /s/ LANDON T. CLAY Chairman of the Board July 19, 2001 ------------------------------------------- Landon T. Clay /s/ CHRIS L. KOLIOPOULOS Vice President of ADE Corporation, President ~~July 19, 2001 -------------------------------------------~~ of ADE Phase Shift and Director ~~Chris L. Koliopoulos~~

	July ~~19, 2001 -------------------------------------------~~ 17, 2002
/s/ BRIAN C. JAMES Brian C. James		Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer)	July 17, 2002
/s/ JOSEPH E. ROVATTI Joseph E. Rovatti		Controller (Principal Accounting Officer)	July 29, 2002
/s/ LANDON T. CLAY Landon T. Clay		Chairman of the Board	July 17, 2002

				April 30, 2002			April 30, 2001
Assets
Current assets:
	Cash and cash equivalents			$	26,108		$	29,220
	Marketable securities				2,571			1,913
	Accounts receivable:
		Trade, less allowance for doubtful accounts of $699 and $917, respectively			9,880			20,898
		Affiliate			1,845			3,526
	Inventories				32,701			39,025
	Prepaid expenses and other current assets				1,278			1,566
	Deferred income taxes				—			6,514

			Total current assets		74,383			102,662
Fixed assets, net					30,658			29,569
Deferred income taxes					—			4,076
Investments					3,610			3,221
Intangible assets, net					2,601			3,286
Restricted cash					3,352			3,525
Other assets					147			368

			Total assets	$	114,751		$	146,707

Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt			$	646		$	621
	Accounts payable				6,594			6,833
	Accrued expenses and other current liabilities				12,004			21,134
	Deferred income on sales to affiliate				1,470			2,116

			Total current liabilities		20,714			30,704
Long-term debt					10,715			11,339

Commitments and contingencies (Note 14)
Stockholders' equity:
	Preferred stock, $1.00 par value; 1,000,000 shares authorized; none issued or outstanding				—			—
	Common stock, $.01 par value; 25,000,000 shares authorized; 13,676,678 and 13,552,966 issued and outstanding at April 30, 2002 and 2001, respectively				137			136
	Capital in excess of par value				103,553			102,429
	(Accumulated deficit) retained earnings				(22,439	)		686
	Accumulated other comprehensive income				2,071			1,413

			Total stockholders' equity		83,322			104,664

Total liabilities and stockholders' equity				$	114,751		$	146,707

	Common Stock
	Common Stock					Retained earnings (accumulated deficit)			Accumulated other comprehensive income
	Number of shares	Par value		Capital in excess of of par		Retained earnings (accumulated deficit)			Accumulated other comprehensive income		Deferred compensation			Total stockholders' equity
Balance at April 30, 1999	13,276,402	$	133	$	100,146	$	20,625		$	—	$	(82	)	$	120,822
Exercise of common stock options	157,250		2		957										959
Sale of common stock pursuant to the Employee Stock Purchase Plan	45,414		—		477										477
Amortization of deferred compensation												61			61
Net loss							(20,447	)							(20,447	)

Balance at April 30, 2000	13,479,066		135		101,580		178			—		(21	)		101,872
Exercise of common stock options	32,636		—		236										236
Sale of common stock pursuant to the Employee Stock Purchase Plan	37,761		1		562										563
Common stock issued in lieu of Board of Directors' fees	3,503		—		51										51
Amortization of deferred compensation												21			21
Net income							508								508
Unrealized gain on marketable securities										1,413					1,413

Comprehensive income															1,921

Balance at April 30, 2001	13,552,966		136		102,429		686			1,413		—			104,664
Exercise of common stock options	74,172		1		681										682
Sale of common stock pursuant to the Employee Stock Purchase Plan	48,590		—		428										428
Common stock issued in lieu of Board of Directors' fees	950		—		15										15
Net loss							(23,125	)							(23,125	)
Unrealized gain on marketable securities										658					658

Comprehensive loss															(22,467	)

Balance at April 30, 2002	13,676,678	$	137	$	103,553	$	(22,439	)	$	2,071	$	—		$	83,322

		April 30,
	Useful life in years	April 30,
	Useful life in years	2002		2001
		(in thousands)
Land		$	2,722	$	2,722
Building and improvements	15–25		22,213		22,208
Machinery and equipment	3–10		17,553		14,650
Office equipment	3–10		6,824		6,485
Leasehold improvements	5		841		491
Construction-in-progress			2,688		728

			52,841		47,284
Less accumulated depreciation			22,183		17,715

		$	30,658	$	29,569

		Number of shares		Weighted average exercise price
Options outstanding at April 30, 1999		759,750		$	9.06
	Granted	273,965			16.38
	Exercised	(162,590	)		6.33
	Canceled	(138,780	)		13.71

Options outstanding at April 30, 2000		732,345			11.53
	Granted	454,625			18.67
	Exercised	(32,700	)		7.26
	Canceled	(54,625	)		14.46

Options outstanding at April 30, 2001		1,099,645			14.46
	Granted	293,500			10.39
	Exercised	(74,235	)		9.19
	Canceled	(153,169	)		14.21

Options outstanding at April 30, 2002		1,165,741		$	13.81

	Options Outstanding				Options Exercisable
Range of exercise prices	Number Outstanding	Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable	Weighted average exercise price
$4.15–$5.88	33,400	1.9	$	4.43	33,400	$	4.43
$8.38–$10.03	500,770	7.1		9.32	162,310		9.04
$11.25–$14.75	157,850	6.8		12.97	66,950		13.02
$15.06–$21.16	473,521	7.4		19.48	151,964		19.23
$41.25	200	5.3		41.25	200		41.25

	1,165,741	7.1	$	13.81	414,824	$	13.06

		SSG			PST			ATI			Total
		(in thousands)
For the year ended April 30, 2002
	Revenue from external customers	$	61,369		$	8,623		$	8,519		$	78,511
	Intersegment revenue		596			1,897			1,003			3,496
	Loss from operations		(13,702	)		(760	)		(801	)		(15,263	)
	Depreciation and amortization expense		4,636			422			222			5,280
	Capital expenditures		5,320			217			146			5,683
For the year ended April 30, 2001
	Revenue from external customers	$	81,497		$	10,711		$	10,836		$	103,044
	Intersegment revenue		319			—			581			900
	Income (loss) from operations		2,996			278			(474	)		2,800
	Depreciation and amortization expense		5,186			318			289			5,793
	Capital expenditures		3,184			278			220			3,682
For the year ended April 30, 2000
	Revenue from external customers	$	44,965		$	6,400		$	9,235		$	60,600
	Intersegment revenue		1,079			—			315			1,394
	Loss from operations		(18,541	)		(1,518	)		(1,642	)		(21,701	)
	Depreciation and amortization expense		5,215			253			412			5,880
	Capital expenditures		6,889			354			266			7,509

			2002			2001
Deferred tax assets:
	Inventories, due to reserves and additional costs inventoried for tax purposes		$	5,158		$	5,020
	Acquired in-process research and development and intangibles			2,207			2,372
	Accrued expenses			1,499			1,859
	Deferred revenue			1,602			3,383
	Deferred profit on sales to affiliates			917			728
	Net operating loss and other carryforwards			18,672			9,190
	Bad debt reserve			285			349
	Depreciation			162			124
	Other			309			203

		Gross deferred tax assets		30,811			23,228
	Deferred tax valuation allowance			(30,811	)		(12,638	)

		Net deferred tax assets		—			10,590
Deferred tax liabilities:
		Depreciation		—			—

Total net deferred tax assets			$	—		$	10,590

Description	Balance at May 1, 1999		Charged to costs and expenses		Charged to other accounts		Deductions and write-offs			Balance at April 30, 2000
Allowance for doubtful accounts	$	820	$	339	$	—	$	(530	)	$	629
Inventory obsolescence		8,679		—		—		(1,730	)		6,949
Deferred tax asset valuation allowance		3,336		7,060		—		—			10,396

Description	Balance at May 1, 2001		Charged to costs and expenses		Charged to other accounts		Deductions and write-offs			Balance at April 30, 2002
Allowance for doubtful accounts	$	917	$	—	$	—	$	(218	)	$	699
Inventory obsolescence		8,149		400		—		—			8,549
Deferred tax asset valuation allowance		12,638		18,173		—		—			30,811