ADE CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED APRIL 30, 2001
OR

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-26714

ADE CORPORATION

(Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2441829
(State of incorporation) (IRS Employer Identification No.)

80 WILSON WAY 02090
WESTWOOD, MASSACHUSETTS (zip code)
(Address of principal executive offices)

(781) 467-3500
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR 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/ No / /

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 10K or any
amendment to this Form 10-K. / /

As of July 24, 2001, there were outstanding 13,601,061 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.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2001 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.

ADE Corporation 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'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 play metrology and inspection
units that are combined with modular handling platforms 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 timeliness and
availability while minimizing demands on customers' engineering staff.

PRODUCTS

Our products have evolved from single instruments used in off-line
engineering analysis to full, 100% online automated metrology solutions
throughout the wafer and disk manufacturing processes. Our systems are designed
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 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,
offline analysis, and SEMI standard Silicon Wafer Order Form (SWOF) quality
certification.

SEMICONDUCTOR INDUSTRY PRODUCTS

ADVANCED FLATNESS SYSTEM. The AFS system advances ADE's established
capacitance technology to 130nm 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 wafer flatness.

ULTRAGAGE-REGISTERED TRADEMARK- 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. The UltraGage series includes the 9530
model, which has been 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

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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. The UltraScan series of products
are high throughput, 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. 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-. The NanoMapper system is a 200 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 includes 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 130 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 the year 2000
and is the standard for 300mm nanotopography characterization.

ACUDEP-TM- 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. 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.,

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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 systems are full-wafer film thickness monitoring
tools for SOI, CMP and photolithography applications. In SOI processing, AcuMap
measurements are used to monitor the thickness of both the silicon layer and new
AcuMap 3110 is designed 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-. 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 ADE 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 most advanced
Vector VSM available in the industry for research on directional properties of
magnetic materials.

WAFER MAPPING SYSTEM (WMS). The Wafer Mapping System (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, and an MR measurement option, allows users to
manage process uniformity in order to improve overall yield.

M2 DISKMAPPER-TM-. 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 ADE CAPACITANCE TECHNOLOGY

MICROSENSE-REGISTERED TRADEMARK- 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. It has
also achieved success in specialized applications such as fast tool servo
control outside of the disk drive market.

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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. Utilizing the 3700 motor test system with ADE's
noncontact dimensional gaging provides disk motor manufactures 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 ADE 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. 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 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 DEVELOPMENT

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

SERIES 4800 PASSIVE GAGING. The 4800 series of capacitive gages represents
substantial improvement in the performance of ADE's very successful passive
gaging product line. The new 4800 series offers significantly higher resolution
and bandwidth as well as improved stability and new features. This product is
designed to be used by OEM's in a wide variety of industries and will be part of
a new modular measure system used for general gaging applications.

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

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

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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

We use optical methods 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 and patented optical engineering and proprietary software result in
products having a superior combination of high sensitivity and throughput.

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 (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 integrating this technology to provide the
increasing precision and accuracy needed to support ever-tightening Epi
specifications.

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

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

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% 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.

Sales of dimensional systems in Japan are supported by Japan ADE Limited, a
joint venture between us 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 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 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, publication of articles in trade journals, in
industry forums and 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 offer warranties of up to twelve
months covering the performance and reliability of our products.

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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 2001, 2000 and 1999, sales
to our top five customers accounted for approximately 46.1%, 45.8% and 45.1%,
respectively, of our revenue. During fiscal year 2001 one of our customers
accounted for 15.4% of our revenue. During the past fiscal year, approximately
69.1% 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
MEMC Electronic Materials
Mitsubishi Silicon
Pure Wafer, Ltd.
Shin-Etsu Handotai
Siltron
Sumitomo Sitix Silicon
Wacker Siltronic

SEMICONDUCTOR DEVICE MANUFACTURERS

IBM
Intel
Micron Technology
Motorola
ST Microelectronics
Texas Instruments

DATA STORAGE AND DISK DRIVE MANUFACTURERS

IBM
Seagate Technology

RESEARCH AND DEVELOPMENT

The market for semiconductor wafer and device, data storage and disk drive
equipment is characterized by rapid technological changes 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 2001, 2000 and 1999, our research and development
expenditures were $22.6 million, $21.9 million and $24.0 million, respectively,
representing 22.5%, 35.0% and 39.5% 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.

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BACKLOG

Backlog increased to approximately $53.6 million at April 30, 2001 from
approximately $30.4 million at April 30, 2000. This increase in backlog is
primarily attributable to an increase in demand for capital equipment in the
semiconductor industry during the first nine months of calendar year 2000. 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

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, dimensional metrology
for gaging products and magnetic characterization products for the data storage
industry are manufactured, in Tucson, Arizona, where interferometric based
surface metrology products are manufactured and in Bethel, Connecticut, where
optical and infrared based thin film thickness metrology products are
manufactured. 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

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 greater 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, 2001 we hold 33 United States patents and 19 foreign patents
covering existing and potential products and have applied for 13 additional
patents in the United States and 35 additional foreign patents. We have licensed
certain patents and other intellectual property to a number of companies.

EMPLOYEES

As of April 30, 2001, we employed approximately 613 persons at all of our
locations. 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.

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EXECUTIVE OFFICERS

The names, ages and positions held by our executive officers are as follows:

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 has served as
President, Chief Executive Officer and a Director of ADE. Mr. Abbe received an
AB in Physics from Harvard College.

Brian C. James joined ADE in August, 2000 and serves as 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 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, has served
as a Vice President of ADE and President of ADE Phase Shift since 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.

AK Lum joined ADE in 1998 and has served as Vice President and General
Manager of ADE Semiconductor Systems Group. From 1997 to 1998, Mr. Lum served as
Vice President of Manufacturing of Epson Portland Inc. From 1974 to 1997,
Mr. Lum served Shin-Etsu Handotai-Group in various senior management positions.
Mr. Lum received a BA in electrical engineering from University 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 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.

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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. and KLA-Tencor Corporation, both 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.

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

A relatively limited number of customers have historically accounted for a
substantial portion of our revenue in each year. In fiscal years 2001, 2000 and
1999, sales to our top five customers in each period accounted for approximately
46.1%, 45.8% and 45.1%, respectively, of our revenue. 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 2001, 2000 and 1999, we derived 69.1%, 58.3% and 57.7% 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 13 of Notes
to Consolidated Financial Statements.

10

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

International sales accounted for 63.5%, 64.2% and 59.3% of our revenue for
fiscal years 2001, 2000 and 1999, respectively. See Note 13 of Notes to
Consolidated Financial Statements. 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% of our revenue has 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 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. 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), 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, the
Company cannot predict the outcome or the amount of gain or loss, if any.

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.

12

PART II

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

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.

The last sale price of the common stock on July 24, 2001, as reported by
Nasdaq, was $14.45 per share. As of July 24, 2001, there were 92 holders of
record of the common stock (approximately 2,800 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.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes the financial data for our business. You
should read the selected financial data in conjunction with our historical
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."

13

* Data is not available to provide pro forma information for these years.

(1) 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 above were calculated assuming the accounting change
was made retroactively to those periods.

14

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 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.

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), 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.

The Company changed its revenue recognition policy effective January 1,
2000, based on guidance provided in SEC Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognition in Financial Statements." The Company recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the seller's price is 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.

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.

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 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.

The Company previously recorded revenue on product sales upon shipment,
provided that evidence of an arrangement exists, fees are fixed or determinable
and collection of the related receivable is probable. In accordance with the
guidance provided in SAB 101, the Company recorded a non-cash charge of
$1.8 million, net of $0 income taxes, or $0.13 per share to reflect the
cumulative effect of the change in accounting principle as of May 1, 2000, the
beginning of the fiscal year. For the fiscal year ended April 30, 2001, the
Company recognized approximately $1.7 million in revenue that was included in
the cumulative effect adjustment as of May 1, 2000. The effect of that revenue
was to increase income by $1.4 million (net of $0 in taxes) for the fiscal year
ended April 30, 2001. The pro forma amounts presented in the Consolidated
Statement 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 shares of our
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 Phase Shift
operations.

RESULTS OF OPERATIONS

The following table presents the percentage of total revenue for the
respective line items in ADE's consolidated statements of operations.

RESTRUCTURING

In January 1999, we began the 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 and data storage market conditions and to position ourselves with
more efficient operations for expected industry recoveries. Anticipated savings
upon the completion of the consolidation efforts included reduced cost 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 included 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 to the termination of
71 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

16

furniture, fixtures and building improvements on the terminated leased
facilities. Other non-recurring expenses included travel, consulting, and
employee retention bonuses and were included in general and administrative
expenses. Retention bonus expense related to payments to employees who had been
notified of their termination dates, but whose services were required through
specified dates during the consolidation process. This expense was recorded
ratably over the respective estimated service periods. During fiscal 2000 we
incurred recruiting costs 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 end of January 2000 and were
included in general and administrative expenses. During fiscal 2001, the
remainder 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 associated with the Company's New England
facilities.

REALIZABILITY OF DEFERRED TAX ASSETS

During the year ended April 30, 2001, we increased our valuation allowance
against deferred tax assets by $2.2 million, as the full value of our capital
loss carryforward in relation to the sale of one of the Company's investments
during the year and temporary differences 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 of future taxable income, the
cyclicality of the semiconductor and data storage industries and the current
uncertainty within those markets. Net operating loss carryforwards generated in
fiscal 1999 and 2000 begin to expire in fiscal 2004 for state income tax
purposes and in fiscal 2019 for federal income tax purposes. We will need to
generate approximately $27.9 million of future taxable income to realize the
benefit of our net deferred tax assets as of 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 APRIL 30, 2001 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2000

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
that was not recognized in fiscal 2001 for consolidated reporting purposes but
was recognized during fiscal 2001 on a segment basis.

GROSS MARGIN. Gross margin increased to 49.9% in fiscal 2001 from 43.2% in
fiscal 2000. The increase in the gross margin 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 margins at PST increased in
fiscal 2001 compared to fiscal 2000 primarily as a result of increased sales
volume, while gross margins at ATI decreased during fiscal 2001 compared to
fiscal 2000 due to product mix.

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 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 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. 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. Other income 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 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. 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.

18

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. 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,

19

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 RESULTS

The following table presents consolidated statement of operations data for
each of the eight quarters in the period beginning May 1, 1999 and ending
April 30, 2001. 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.

20

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

(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.

22

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2001, we had $29.2 million in cash and cash equivalents and
$72.0 million in working capital. In addition, we had $3.5 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 in operating activities for the year ended April 30, 2001 was
$1.7 million. This amount resulted from net income of $0.5 million, adjusted for
net non-cash charges of $7.7 million and a $9.9 million net increase in working
capital accounts. Non-cash items primarily consisted of $5.8 million of
depreciation and amortization and $1.8 million from the cumulative effect of the
change in accounting.

The net increase in working capital total of $9.9 million was comprised of
increased accounts receivable, inventories and prepaid expenses of
$9.9 million, $8.9 million and $810,000, respectively, as well as increases 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 million, $5.1 million and $1.8 million, respectively.

The increase in accounts receivable resulted from the significantly
increased billings and revenue during fiscal 2001. The increase in inventory
resulted primarily from inventory purchases related to a ramp up in production
to meet the increase in customer orders. The increase in prepaid expenses
results primarily from the timing of payments and an increase in prepaid
commissions due to increased sales levels. The increase in accounts payable
resulted primarily from increased purchases of inventory. The increase in
accrued expenses and other current liabilities resulted from increases in
deferred revenue and accrued warranty, which is related to increased sales
levels. The increase 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 million, and consisted of
$3.7 million for purchases of fixed assets, $449,000 in advances to affiliated
companies and an increase in other assets of $367,000 and a decrease in
restricted cash of $180,000.

Cash provided by financing activities was $211,000 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. This
amount was partially offset by $588,000 in repayments 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

In June 1998, the Financial 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.

23

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 be effective for fiscal years beginning after December 15, 2001, and will
thus be adopted by the Company, as required, in fiscal year 2003. The impact of
SFAS No. 141 and SFAS No. 142 on the Company's financial statements has not yet
been determined.

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, 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is contained on pages F-1 through F-23 of
this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

24

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 2001 Annual Meeting of
Stockholders, to be filed with the Commission on or about August 16, 2001 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 2001 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 2001 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 is included in the 2001 Proxy
Statement under "Security Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

25

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:

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

(a)(3) Exhibits.

27

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).*

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 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 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 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 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 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 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 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 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).

28

10.20 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 Agreement dated as of May 31, 1998 by and
between ADE Corporation and David Basila (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).

21.1 Subsidiaries of the Company (filed as Exhibit 21.1 to the
Company's Form 10-Q for the 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 and 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

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT ON FORM
10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

ADE CORPORATION

July 19, 2001 By: /s/ ROBERT C. ABBE
-----------------------------------------
Robert C. Abbe
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Each person whose signature appears below constitutes and appoints Robert C.
Abbe, Brian C. James, Eileen Smith Ewing, 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 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
IN THE CAPACITIES AND ON THE DATES INDICATED.

31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of ADE Corporation

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) on page 26 present fairly, in all material
respects, the financial position of ADE Corporation and its subsidiaries at
April 30, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended April 30, 2001, 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 26 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.

PricewaterhouseCoopers LLP

Boston, Massachusetts
June 19, 2001

F-1

ADE CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

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)

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)

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)

See supplemental disclosures of cash flow information (Note 17)

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 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 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 company 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).

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.

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 the services are provided. The Company does
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

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

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, 2001 and 2000, the Company has
classified its cash equivalent investments totaling $26,678,000 and $30,951,000,
respectively, as available-for-sale. The carrying amount of these investments
approximates fair market value.

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, 2001 and 2000, the cost of which is
based upon the specific identification method, were $1,413,000 and $0,
respectively.

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 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 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 related to the acquisition of SSD is
amortized on a straight-line basis over ten years. Accumulated amortization on
the goodwill at April 30, 2001 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 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, 2001 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

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. For 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, 2001 and 2000, all
other long-lived assets, including goodwill, were not impaired.

CONCENTRATIONS

CREDIT RISK

Financial instruments which 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 and
$3,214,000 at April 30, 2001 and 2000, 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% and 22% of total accounts
receivable at April 30, 2001 and 2000, respectively. The Company performs
ongoing credit evaluations of 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

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

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

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 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

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

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") "Accounting for Stock-Based Compensation."

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. For the years
ended April 30, 2001 and 2000, respectively, 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)
The following is a reconciliation of the shares used in calculating basic
and diluted earnings (loss) per share:

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 liabilities and
disclosure of contingencies at April 30, 2001 and 2000, and the reported amounts
of revenue and expenses during the three year period ended April 30, 2001. 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 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.

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 be effective for fiscal years beginning after December 15,
2001, and will thus be adopted by the Company, as required, in fiscal year 2003.
The impact of SFAS No. 141 and SFAS No. 142 on the Company's financial
statements has not yet been determined.

3. CHANGE 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 increase 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 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 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, 2001 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)
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, 2000
and 1999 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 positions and results of operations of JAL and Microspec were
not significant, individually or in the aggregate, compared to those of the
Company as of and for the years ended April 30, 2000 and 1999. Below is the
summarized unaudited financial information for JAL for fiscal 2001:

The Company's share of the undistributed earnings of JAL was $2,443,000 at
April 30, 2001. The Company received $64,000 in dividends from JAL during fiscal
year 2001. At April 30, 2001, 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, 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 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 2001 and 2000, respectively. This capitalized license technology had
accumulated amortization of $900,000 and $600,000 at April 30, 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

Inventories consist of the following:

F-13

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. FIXED ASSETS

Fixed assets consist of the following:

Depreciation expense for the years ended April 30, 2001, 2000 and 1999 was
$4,837,000, $5,054,000, $4,618,000, respectively.

9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

10. 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 commence 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. 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, 2001 and 2000 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 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:

11. 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, 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 its 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, 649,780 shares were
available for future grants under the Company's stock option plans.

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 term of the Purchase Plan is for
five years, and the Company has authorized 1,000,000 shares of the Company's
common stock for issuance under the Purchase Plan. Under the Purchase Plan, the
Company sold 37,761, 45,414 and 53,530 shares to employees in fiscal years 2001,
2000 and 1999, respectively.

In September 1998, the Compensation Committee of the Board of Directors of
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 date 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 of the Company participated in the stock option repricing.

The Company applies APB No. 25 and related interpretations in accounting for
stock-based compensation. The Company has recognized compensation expense of
$21,000, $61,000 and $61,000, respectively, in each of the fiscal years 2001,
2000 and 1999 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:

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 2001, 2000 and 1999: no dividend
yield; risk free interest rates of 5.1%, 6.6% and 5.2%, respectively; expected
option terms of 7 years, 6 years and 7 years, respectively, and expected
purchase right terms of three months; volatility of 62% for options and purchase
rights granted in fiscal 2001, 58% for options and purchase rights granted in
fiscal year 2000 and 70% for options and purchase rights granted in fiscal 1999.
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 2001, 2000 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 2001, 2000 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 2001, 2000 and 1999 is not necessarily representative of the pro
forma effects of reported net income and earnings per share for future years.
Stock option activity is summarized as follows:

The number and weighted average exercise price of options exercisable at
April 30, 2001, 2000 and 1999 was 285,904 and $11.43; 172,660 and $9.43; and
198,900 and $7.34, respectively.

The following table summarizes information about stock options outstanding
at April 30, 2001:

F-18

ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STOCKHOLDERS' EQUITY

RESERVED SHARES

At April 30, 2001, the Company has reserved 1,721,536 shares of common stock
for issuance upon the exercise of outstanding and available common stock options
and for issuance to employees under the Purchase Plan.

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 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 reported three 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 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)

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.

Revenue by geographic area is summarized as follows:

F-20

13. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
Revenue from JAL in fiscal years 2001, 2000 and 1999 totaled $15,452,000
(15%), $8,787,000 (14%), and $9,254,000 (16%), respectively. Revenue from
another customer in fiscal years 2001, 2000 and 1999 totaled $12,318,000 (12%),
$3,825,000 (6%), and $6,553,000 (11%), respectively. Revenue from a third
customer in fiscal 2001, 2000 and 1999 totaled $7,865,000 (8%) and $5,635,000
(9%) and $4,046,000 (7%), respectively. As of April 30, 2001, 2000 and 1999, all
of the Company's long-lived assets are located in the United States except for
$350,000, $269,000, and $245,000, respectively.

14. INCOME TAXES

The provision for (benefit from) income taxes consists of:

The significant components of deferred tax assets and liabilities consist of
the following:

F-21

14. INCOME TAXES (CONTINUED)

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," 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 year ended April 30, 2001, the Company increased its valuation
allowance against deferred tax assets by $2,242,000, as the full value of its
net operating and capital loss carryforwards and temporary differences 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 of 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. Net operating loss
carryforwards generated in fiscal 1999 and 2000 begin to expire in fiscal 2004
for state purposes and in fiscal 2019 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, 2001 and 2000, not limited in their use due to ownership changes,
totaled $7,714,000 and $8,975,000, respectively. Included in the net operating
loss carryforwards for April 30, 2001 and 2000 are $1,634,000 and $1,698,000,
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 2001, 2000 and 1999:

The income tax benefits related to the exercise 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 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 2001, 2000 and 1999 were
approximately $671,000, $596,000 and $726,000, respectively.

16. COMMITMENTS AND CONTINGENCIES

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:

Total rent expense under non-cancelable operating leases was approximately
$826,000, $1,436,000, and $1,181,000 for the years ended April 30, 2001, 2000
and 1999, respectively.

On October 12, 2000, the Company filed a patent infringement lawsuit against
KLA-Tencor (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, 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 OF CASH FLOW INFORMATION

F-23

FINANCIAL STATEMENT SCHEDULE
(IN THOUSANDS)

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

S-1