Certain statements in this quarterly report on Form 10-Q are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  In addition, we may, from time to time, make oral forward looking statements.  Forward looking statements may be identified by the words "anticipate", "believe", "expect", "intend", "will" and similar expressions, as they relate to us or our management.  These statements include, without limitation, the statement that we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for the foreseeable future.

        The forward looking statements contained herein reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions.  Actual results may differ materially from those projected in such forward looking statements due to a number of factors, risks and uncertainties, including the factors that may affect future results set forth in this current report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2004.  We disclaim any obligation to update any forward looking statements as a result of developments occurring after the date of this quarterly report.

           Selling, General and Administrative.    Selling, general and administrative expense is primarily comprised of salaries and related costs for sales, marketing, and general administrative personnel, as well as commissions and other non-personnel related expenses.  Our selling, general and administrative expense was $5.3 million for the three month period ended March 31, 2005, compared to $3.3 million for the same periods in the prior year.  Selling, general and administrative expense represented 23.1% of our revenues for the three month period ended March 31, 2005 compared to 17.4% of our revenues for the same period in the prior year.  The year over year dollar increase in selling, general and administrative expense was primarily due to increased compensation costs, increased costs associated with our mergers and acquisitions (M&A) activities and increased outside auditor fees for the completion of the 2004 Sarbanes-Oxley Section 404 reporting compliance.  The start of our operations in Japan in the fourth quarter of 2004 also increased our selling, general and administrative expenses this quarter compared to the same period in the prior year.   We currently anticipate that selling, general and administrative expenses will represent approximately 22% of revenue for the three month period ended June 30, 2005.

        Interest income and other, net.    Interest income and other, net was $0.4 million for the three month period ended March 31, 2005, compared to $0.3 million for the same period in the prior year.  Interest income and other, net consisted primarily of interest income, realized gains and losses on sales of marketable securities and rental income.  The year over year increase in interest income and other, net in the three month period ended March 31, 2005 was primarily attributable to an increase in interest income of $0.1 million.

        Income Taxes.    We use the asset and liability method of accounting for income taxes prescribed by SFAS No. 109, "Accounting for Income Taxes."  Income tax expense was $0.5 million for the three month period ended March 31, 2005 compared to $0.3 million for the same period in the prior year.  Our effective tax rate for the three month period ended March 31, 2005 is 23.1%, the same rate as in the prior year period.    Our anticipated effective tax rate is different than the expected federal tax rate of 34% primarily as a result of state taxes and the positive impact of our research and experimentation tax credits.

Liquidity and Capital Resources

        At March 31, 2005, we had $84.4 million of cash, cash equivalents and marketable securities and $122.9 million in working capital.  At December 31, 2004, we had $76.7 million of cash, cash equivalents and marketable securities and $120.1 million in working capital.

        Typically during periods of revenue growth, changes in accounts receivable and inventories represent a use of cash as we incur costs and expend cash in advance of receiving cash from our customers.   Similarly, during periods of declining revenue, changes in accounts receivable and inventories represent a source of cash as inventory purchases decline and revenue from prior periods is collected. 

        Operating activities provided $7.8 million and used $6.1 million in cash for the three month period ended March 31, 2005 and 2004, respectively.  The net cash provided by operating activities during the three month period ended March 31, 2005 was primarily a result of a decrease in inventories of $2.6 million, an increase in other current liabilities of $2.3 million, profit before depreciation and amortization of $2.4 and a decrease in prepaid expenses and other assets of $0.5 million.  The net cash used in operating activities during the three month period ended March 31, 2004 was primarily a result of an increase in accounts receivable of $7.6 million and an increase in inventories of $3.4 million, partially offset by an increase in accrued liabilities and accounts payable of $2.1 million, an increase in other current liabilities of $0.8 million and profit before depreciation and amortization of $1.5 million.

        Net cash provided by investing activities during the three month period ended March 31, 2005 of $9.5 million was due to a net decrease in marketable securities of $9.9 million, partially offset by an increase in capitalized software of $0.3 million and capital expenditures of $0.1 million.  Net cash used in investing activities during the three month period ended March 31, 2004 of $7.7 million was due to a net increase in marketable securities of  $7.5 million and capital expenditures of $0.2 million.

        Net cash provided by financing activities for the three month periods ended March 31, 2005 and 2004 of $0.6 million and $0.4 million, respectively, was a result of proceeds received from sales of shares through employee stock plans.

        From time to time we evaluate whether to acquire new or complementary businesses, products and/or technologies.  We may fund all or a portion of the purchase price for these acquisitions in cash.  As previously disclosed, we have made a proposal to acquire August Technology Corporation, or August, for a combination of cash and shares of our common stock.  On April 4, 2005 we entered into a confidentiality agreement with August. Discussions with August regarding a business combination are ongoing and the due diligence process has begun.  There can be no assurance, however, that we will enter into a merger agreement with August, and if we do, the terms of any such agreement.

        Our future capital requirements will depend on many factors, including the timing and amount of our revenues and our investment decisions, which will affect our ability to generate additional cash.   We believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for the foreseeable future.  Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means.  There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.

Factors that May Affect Future Results

Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems and may from time to time continue to do so

        Our operating results are subject to significant variation due to the cyclical nature of the semiconductor device industry.  Our business depends upon the capital expenditures of semiconductor device manufacturers, which, in turn, depend upon the current and anticipated market demand for semiconductors and products using semiconductors.  The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict.   This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future expense levels.  When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in order for us to remain competitive and financially sound.  During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees.   In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand.   We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles.   If we fail to respond to industry cycles, our business could be seriously harmed.  

We obtain some of the components and subassemblies included in our systems from a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenues

        We obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers.  Our dependence on limited source suppliers of components and our lack of long-term contracts with many of our suppliers exposes us to several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality.   Disruption or termination of the supply of these components could delay shipments of our systems, damage our customer relationships and reduce our sales.   From time to time in the past, we have experienced temporary difficulties in receiving shipments from our suppliers.  The lead time required for shipments of some of our components can be as long as four months.  In addition, the lead time required to qualify new suppliers for lasers could be as long as a year, and the lead time required to qualify new suppliers of other components could be as long as nine months.  If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our systems.   Further, a significant increase in the price of one or more of these components or subassemblies included in our systems could seriously harm our results of operations.

Our largest customers account for a significant portion of our revenues, and our revenues would significantly decline if one or more of these customers were to purchase significantly fewer of our systems or they delayed or cancelled a large order

        In 2002, 2003, 2004 and for the three months ended March 31, 2005, sales to end user customers that individually represented at least five percent of our revenues accounted for 46.8%, 59.4%, 53.4% and 79.2% of our revenues.  In 2002, 2003, 2004 and for the three months ended March 31, 2005, sales to Intel, a key customer, accounted for 46.8%, 35.3%, 23.2% and 25.2% of our revenues.  For the three months ended March 31, 2005, sales to Samsung America, Inc. accounted for 20.0% of our revenues.  We operate in the highly concentrated, capital intensive semiconductor device manufacturing industry.   Historically, a significant portion of our revenues in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue.   If any of our key customers were to purchase significantly fewer of our systems in the future, or if a large order were delayed or cancelled, our revenues would significantly decline.  We expect that we will continue to depend on a small number of large customers for a significant portion of our revenues for at least the next several years.  In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated.

Our operating results have in the past varied and probably will in the future continue to vary significantly from quarter to quarter, causing volatility in our stock price

         Our quarterly operating results have varied significantly in the past and may continue to do so in the future, which could cause our stock price to decline. Some of the factors that may influence our operating results and subject our stock to extreme price and volume fluctuations include:

        *    changes in customer demand for our systems, which is influenced by economic conditions in the
               semiconductor device industry, demand for products that use semiconductors market acceptance
               of our systems and those of our customers and changes in our product offerings;

        *    seasonal variations in customer demand, including the tendency of European sales to slow significantly
               in the third quarter of each year;

        *    the timing, cancellation or delay of customer orders and shipments;

        *    product development costs, including increased research, development, engineering and marketing
              expenses associated with our introduction of new products and product enhancements; and

        *    the levels of our fixed expenses, including research and development costs associated with product
              development, relative to our revenue levels.

        In light of these factors and the cyclical nature of the semiconductor industry, we expect to continue to experience significant fluctuations in quarterly and annual operating results.  Moreover, many of our expenses are fixed in the short-term which, together with the need for continued investment in research and development, marketing and customer support, limits our ability to reduce expenses quickly.   As a result, declines in net sales could harm our business and the price of our common stock could substantially decline.

Our revenue may vary significantly each quarter due to relatively small fluctuations in our unit sales

         During any quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems.   Our transparent film measurement systems range in average selling price from approximately $30,000 to $1.0 million per system, our opaque film measurement systems range in average selling price from approximately $900,000 to $2.0 million per system and our macro-defect detection systems range in average selling price from approximately $250,000 to $1.4 million per system.   Accordingly, a small change in the number of systems we sell may also cause significant changes in our operating results.   This, in turn, could cause fluctuations in the market price of our common stock.

Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline

        Variations in the length of our sales cycles could cause our revenues, and thus our business, financial condition and operating results, to fluctuate widely from period to period.  This variation could cause our stock price to decline.  Our customers generally take a long time to evaluate our film metrology systems and many people are involved in the evaluation process.  We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our systems in the semiconductor fabrication process.  The length of time it takes for us to make a sale depends upon many factors, including:

        *    the efforts of our sales force;

        *    the complexity of the customer's fabrication processes;

        *    the internal technical capabilities and sophistication of the customer;

        *    the customer's budgetary constraints; and

        *    the quality and sophistication of the customer's current metrology equipment.

        Because of the number of factors influencing the sales process, the period between our initial contact with a customer and the time when we recognize revenue from that customer, if ever, varies widely in length.  Our sales cycles, including the time it takes for us to build a product to customer specifications after receiving an order, typically range from six to 15 months. Sometimes our sales cycles can be much longer, particularly with customers in Japan.  During these cycles, we commit substantial resources to our sales efforts in advance of receiving any revenue, and we may never receive any revenue from a customer despite our sales efforts.

        If we do make a sale, our customers often purchase only one of our systems, and then evaluate its performance for a lengthy period before purchasing any more of our systems.  The number of additional products a customer purchases, if any, depends on many factors, including a customer's capacity requirements.  The period between a customer's initial purchase and any subsequent purchases can vary from six months to a year or longer, and variations in the length of this period could cause further fluctuations in our operating results and possibly in our stock price.

If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry we will lose market share to our competitors

        We operate in an industry that is subject to evolving industry standards, rapid technological changes, rapid changes in consumer demands and the rapid introduction of new, higher performance systems with shorter product life cycles.  To be competitive in our demanding market, we must continually design, develop and introduce in a timely manner new film metrology systems that meet the performance and price demands of semiconductor device manufacturers.   We must also continue to refine our current systems so that they remain competitive.  We expect to continue to make significant investments in our research and development activities.  We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in developing them, as not all research and development activities result in viable commercial products.   Any significant delay in releasing new systems could adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

Even if we are able to successfully develop new products, if these products do not gain general market acceptance we will not be able to generate revenues and recover our research and development costs

        Metrology and inspection product development is inherently risky because it is difficult to foresee developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate system design flaws.  Any new systems we introduce may not achieve a significant degree of market acceptance or, once accepted, may fail to sell well for a sustained period.

        We expect to spend a significant amount of time and resources developing new systems and refining our existing systems.  In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenue from the sale of those systems.  Our ability to commercially introduce and successfully market new systems is subject to a wide variety of challenges during the development cycle, including start-up bugs, design defects, and other matters that could delay introduction of these systems.  In addition, since our customers are not obligated by long-term contracts to purchase our systems, our anticipated product orders may not materialize, or orders that do materialize may be cancelled.  As a result, if we do not achieve market acceptance of new products, we may not be able to realize sufficient sales to recoup research and development expenditures.

Even if we are able to develop new products that gain market acceptance, sales of new products could impair our ability to sell existing products

        Competition from our new systems could have a negative effect on sales of our existing systems and the prices we could charge for these systems.  We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems.  This diversion of resources could have a further negative effect on sales of our current systems. 

If our relationships with our large customers deteriorate, our product development activities could be jeopardized

        The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers.  In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers.  Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities. If our current relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with important customers in the future, our long-term ability to produce commercially successful systems will be impaired.

Our ability to reduce costs is limited by our ongoing need to invest in research and development

        Our industry is characterized by the need for continual investment in research and development as well as customer service and support.  As a result of our need to maintain our spending levels in these areas, our operating results could be materially harmed if our revenues fall below expectations.  In addition, because of our emphasis on research and development and technological innovation, our operating costs may increase further in the future.

We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage

         Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent, trade secret and trademark law to protect that technology.  If we fail to adequately protect our intellectual property, it will be easier for our competitors to sell competing products.   We own or have licensed a number of patents relating to our transparent and opaque thin film metrology and macro-defect inspection systems, and have filed applications for additional patents.  Any of our pending patent applications may be rejected, and we may not in the future be able to develop additional proprietary technology that is patentable.  In addition, the patents we do own or that have been issued or licensed to us may not provide us with competitive advantages and may be challenged by third parties.  Third parties may also design around these patents.

        In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology.   We routinely enter into confidentiality agreements with our employees and other third parties.  However, in the event that these agreements may be breached, we may not have adequate remedies.  Our confidential and proprietary information and technology might also be independently developed by or become otherwise known to third parties.

Successful infringement claims by third parties could result in substantial damages, lost product sales and the loss of important intellectual property rights by us

        Our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties.  From time to time we may receive communications from third parties asserting that our products or systems infringe, or may infringe, the proprietary rights of these third parties.  These claims of infringement may lead to protracted and costly litigation which could require us to pay substantial damages or have the sale of our products or systems stopped by an injunction.   Infringement claims could also cause product or system delays or require us to redesign our products or systems, and these delays could result in the loss of substantial revenues.  We may also be required to obtain a license from the third party or cease activities utilizing the third party's proprietary rights.  We may not be able to enter into such a license or such license may not be available on commercially reasonable terms.  The loss of important intellectual property rights could therefore prevent our ability to sell our systems, or make the sale of such systems more expensive for us.

Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, has in the past resulted and may in the future result in costly and time-consuming litigation

        We may be required to initiate litigation in order to enforce any patents issued to or licensed by us, or to determine the scope or validity of a third party's patent or other proprietary rights.   In addition, we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights.  Any such litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties.

Our efforts to protect our intellectual property may be less effective in some foreign countries where intellectual property rights are not as well protected as in the United States

         In  2002, 2003, 2004 and the three months ended March 31, 2005, 40.6%, 65.4%, 69.1% and 67.3% of our revenue was derived from sales in foreign countries, including certain countries in Asia such as Taiwan, China, Korea, Singapore and Japan and certain Western European countries.  The laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement in such countries, some of which are countries in which we have sold and continue to sell systems.  For example, Taiwan is not a signatory of the Patent Cooperation Treaty, which is designed to specify rules and methods for defending intellectual property internationally.  The publication of a patent in Taiwan prior to the filing of a patent in Taiwan would invalidate the ability of a company to obtain a patent in Taiwan. Similarly, in contrast to the United States where the contents of patents remain confidential during the patent prosecution process, the contents of a patent are published upon filing which provides competitors an advance view of the contents of a patent application prior to the establishment of patent rights.  There is a risk that our means of protecting our proprietary rights may not be adequate in these countries.  For example, our competitors in these countries may independently develop similar technology or duplicate our systems.  If we fail to adequately protect our intellectual property in these countries, it would be easier for our competitors to sell competing products in those countries.

Our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products or cause us to reduce our prices

        The market for semiconductor capital equipment is highly competitive.  We face substantial competition from established companies in each of the markets we serve.  We principally compete with KLA-Tencor, Therma-Wave and August Technology.  We compete to a lesser extent with companies such as Dai Nippon Screen, Nanometrics, Sopra and Leica.  Each of our products also competes with products that use different metrology techniques.  Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.  As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products.  Moreover, there may be significant merger and acquisition activity among our competitors and potential competitors.  These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs.  Many of our customers and potential customers in the semiconductor device manufacturing industry are large companies that require global support and service for their semiconductor capital equipment.  While we believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers, some of our competitors have more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global semiconductor device manufacturers.

        Many of our competitors are investing heavily in the development of new systems that will compete directly with ours.   We have from time to time selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions.  We expect our competitors in each product area to continue to improve the design and performance of their products and to introduce new products with competitive prices and performance characteristics.  Such product introductions by our competitors would likely cause us to decrease the prices of our systems and increase the level of discounts we grant our customers.

Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win customers from our competitors even if our systems are superior to theirs

        We believe that once a semiconductor device manufacturer has selected one vendor's capital equipment for a production-line application, the manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor's equipment, for the life of the application.  Once a vendor's equipment has been installed in a production line application, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to switch to another vendor's equipment.  Accordingly, unless our systems offer performance or cost advantages that outweigh a customer's expense of switching to our systems, it will be difficult for us to achieve significant sales to that customer once it has selected another vendor's capital equipment for an application.

We must attract and retain key personnel with knowledge of semiconductor device manufacturing and metrology equipment to help support our future growth, and competition for such personnel in our industry is high

        Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, customer support, finance and manufacturing personnel.  The loss of any of these key personnel, who would be extremely difficult to replace, could harm our business and operating results.  During downturns in our industry, we have often experienced significant employee attrition, and we may experience further attrition in the event of a future downturn.  Although we have employment and noncompetition agreements with key members of our senior management team, including Messrs. McLaughlin, Loiterman and Roth, these individuals or other key employees may nevertheless leave our company.  We do not have key person life insurance on any of our executives. In addition, to support our future growth, we will need to attract and retain additional qualified employees.   Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees.

We manufacture all of our systems at a single facility, and any prolonged disruption in the operations of that facility could have a material adverse effect on our revenues

        We produce all of our systems in our manufacturing facility located in Ledgewood, New Jersey.  Our manufacturing processes are highly complex and require sophisticated and costly equipment and a specially designed facility.  As a result, any prolonged disruption in the operations of our manufacturing facility, whether due to technical or labor difficulties, destruction of or damage as a result of a fire or any other reason, could seriously harm our ability to satisfy our customer order deadlines.  If we cannot timely deliver our systems, our revenues could be adversely affected.

If we are unsuccessful in our transition from an independent distributor to a direct sales operation in Japan, our financial results and customer relationships could be adversely affected

        Historically, a portion of our sales in Japan have been made to an independent distributor, Tokyo Electron Limited (TEL).  In 2002, 2003, 2004 and the three months ended March 31, 2005, sales to TEL accounted for 6.8%, 9.5%, 5.8% and 0.7% of our revenues.  TEL previously served as our Japanese distributor for over twenty years.   Effective October 2004, we opened a new direct sales and support operation in Japan to offer our customers in Japan a direct link to us. We have entered into a transition arrangement with TEL that extends up to December 31, 2005. If we are unsuccessful with the transition of providing sales and services directly in Japan, our financial results and our ability to support our customers in Japan could be adversely affected.

Because we derive a significant portion of our revenues from sales in Asia, our sales and results of operations could be adversely affected by the instability of Asian economies

        Our sales to customers in Asian markets represented approximately 30.1%, 39.9%, 59.6% and 56.9% of our revenues in 2002, 2003, 2004 and the three months ended March 31,2005.  Countries in the Asia Pacific region, including Japan, Korea, China, Singapore and Taiwan, each of which accounted for a significant portion of our business in that region, have experienced currency, banking and equity market weaknesses in the past.  We expect that political or economic instability in the Asian markets we service could adversely affect our sales in future periods.

Due to our significant level of international sales, we are subject to operational, financial and political risks such as unexpected changes in regulatory requirements, tariffs, political and economic instability, outbreaks of hostilities, adverse tax consequences and difficulties in managing foreign sales representatives and foreign branch operations

        International sales accounted for approximately 40.6%, 65.4%, 69.1% and 67.3% of our revenues in 2002, 2003, 2004 and the three months ended March 31, 2005.  We anticipate that international sales will account for a significant portion of our revenue for at least the next five years.  Due to the significant level of our international sales, we are subject to material risks which include:

        Unexpected changes in regulatory requirements including tariffs and other market barriers.  The semiconductor device industry is a high-visibility industry in many of the European and Asian countries in which we sell our products.  Because the governments of these countries have provided extensive financial support to our semiconductor device manufacturing customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise taxes or other restrictions imposed by their governments on trade with United States companies such as ourselves.  Any such restrictions could lead to a reduction in our sales to customers in these countries.

        Political and economic instability.   We are subject to various global risks related to political and economic instabilities in countries in which we derive sales.  If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the U.S., such events may result in reduced demand for our products.  There is considerable political instability in Taiwan related to its disputes with China and in South Korea related to its disputes with North Korea.  In addition, several Asian countries, particularly Japan, have experienced significant economic instability.  An outbreak of hostilities or other political upheaval in Taiwan or South Korea, or an economic downturn in Japan, would likely harm the operations of our customers in these countries, causing our sales to suffer.  The effect of such events on our revenues could be material because we derive substantial revenues from sales to semiconductor device foundries in Taiwan such as TSMC and UMC, from memory chip manufacturers in South Korea such as Hynix and Samsung, and from semiconductor device manufacturers in Japan such as NEC and Toshiba.

        Difficulties in staffing and managing foreign branch operations.  During periods of tension between the governments of the United States and other countries, it is often difficult for United States companies such as ourselves to staff and manage operations in such countries.

Since a substantial portion of our revenues are derived from sales in other countries yet are denominated in U.S. dollars, we could experience a significant decline in sales or experience collection problems in the event the dollar becomes more expensive relative to local currencies

        A substantial portion of our international sales are denominated in U.S. dollars.  As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States.  Such conditions could negatively impact our international sales.  Foreign sales also expose us to collection risk in the event it becomes more expensive for our foreign customers to convert their local currencies into U.S. dollars.

Terrorist attacks and terrorist threats may disrupt our operations and negatively impact our revenues, costs and stock price

        The terrorist attacks in September 2001 in the United States and the U.S. response to these attacks and the resulting decline in consumer confidence has had a substantial adverse impact on the economy.  Any similar future events may disrupt our operations or those of our customers and suppliers.  In addition, these events have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence and spending in particular, which could harm our sales.  Any of these events could increase volatility in the U.S. and world financial markets, which could harm our stock price and may limit the capital resources available to us and our customers or suppliers.  This could have a significant impact on our operating results, revenues and costs and may result in increased volatility in the market price of our common stock.

We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner

        Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures.  To this end, we may choose to acquire new and complementary businesses, products, or technologies instead of developing them ourselves.  We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions.  We do not know if we will be able to complete any acquisitions, or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees.  Integrating any business, product or technology we acquire could be expensive and time-consuming, could disrupt our ongoing business and could distract our management.  If we are unable to integrate any acquired entities, products or technologies effectively, our business, financial condition and operating results will suffer.  In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private equity or debt financings.  In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that result in dilution to our stockholders.  In addition, any amortization of intangible assets, write-down of impaired assets or other assets or charges resulting from the costs of acquisitions could harm our business and operating results.

If we deliver systems with defects, our credibility will be harmed and the sales and market acceptance of our systems will decrease

        Our systems are complex and sometimes have contained errors, defects and bugs when introduced.  If we deliver systems with errors, defects or bugs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems.  Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers.  We have agreed to indemnify our customers in some circumstances against liability arising from defects in our systems.  Our product liability policy currently provides $1.0 million to $2.0 million of coverage per claim, depending on location of claim, with an overall umbrella limit of $4.0 million.  In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.

Provisions of our charter documents and Delaware law could discourage potential acquisition proposals and could delay, deter or prevent a change in control of our company

        Provisions of our certificate of incorporation and bylaws may inhibit changes in control of our company not approved by our board of directors.  These provisions also limit the circumstances in which a premium can be paid for the common stock, and in which a proxy contest for control of our board may be initiated.  These provisions provide for:

        *    a prohibition on stockholder actions through written consent;

        *    a requirement that special meetings of stockholders be called only by our chief executive officer or board of directors;

        *    advance notice requirements for stockholder proposals and director nominations by stockholders;

        *    limitations on the ability of stockholders to amend, alter or repeal our by-laws; and

        *    the authority of our board to issue, without stockholder approval, preferred stock with such terms as the board may determine.

         We will also be afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

        We are exposed to changes in interest rates primarily from our investments in certain available-for-sale securities. Our available-for-sale securities consist primarily of fixed income investments (U.S. Treasury and Agency securities and corporate bonds).  We continually monitor our exposure to changes in interest rates and credit ratings of issuers from our available-for-sale securities.  It is possible that we are at risk if interest rates or credit ratings of issuers change in an unfavorable direction.  The magnitude of any gain or loss will be a function of the difference between the fixed rate of the financial instrument and the market rate and our financial condition and results of operations could be materially affected.  Based on sensitivity analysis performed on our financial investments held as of March 31, 2005, an immediate adverse change of 10% in interest rates (e.g. 3.00% to 3.30%) would result in a $0.3 million decrease in the fair value of our available-for-sale securities.

Foreign Currency Risk

        We have branch operations in Taiwan, Singapore, China and Korea and wholly-owned subsidiaries in Europe and Japan, which are subject to currency fluctuations.  We have determined that the functional currency of our foreign operations is the local currency in our international operations, which incur most of their expenses in the local currency. These foreign branches and subsidiaries are limited in their operations and level of investment so that the risk of currency fluctuations is not material.  A substantial portion of our international sales are denominated in U.S. dollars and, as a result, we have relatively little exposure to foreign currency exchange risk with respect to sales.  As of October 1, 2004, substantially all our sales in Japan are denominated in Japanese yen.   From time to time, we may enter into forward exchange contracts to hedge a portion of, but not all, existing and anticipated foreign currency denominated transactions expected to occur within 12 months. The change in fair value of the forward contracts is recognized in the Consolidated Statements of Operations each reporting period.  As of March 31, 2005, we had one forward contract outstanding with a contract value of $1.4 million.  We do not use derivative financial instruments for trading or speculative purposes.

        The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures.  As of March 31, 2005, an evaluation was carried out under the supervision and with the participation of the Company's management, including the CEO and CFO.  Based on this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.

        There have been no significant changes in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

         Exhibit No.     Description

31.1             Certification of Paul F. McLaughlin, Chief Executive Officer, pursuant to Securities Exchange
                    Act Rule 13a-14(a).

31.2             Certification of  Steven R. Roth, Chief Financial Officer, pursuant to Securities Exchange Act
                    Rule 13a-14(a).

32.1             Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002, signed by Paul F. McLaughlin, Chief Executive Officer
                    of Rudolph Technologies, Inc.

32.2             Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002, signed by Steven R. Roth, Chief Financial Officer of
                    Rudolph Technologies, Inc.

I, Paul F. McLaughlin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rudolph Technologies, Inc.;
   
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
   
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

2. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

3. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
   
   
4. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

   1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
      
      
   2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT SECTION OF 2002

I, Steven R. Roth, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rudolph Technologies, Inc.;
   
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
   
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

2. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

3. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
   
   
4. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

   1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
      
      
   2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

I, Paul F. McLaughlin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rudolph Technologies, Inc. on Form 10-Q for the quarter ended March 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rudolph Technologies, Inc.