Year 2002 Annual Results

The Company reported total revenues for the year 2002 of $20.4 million, a 4% sequential decrease of revenues compared with 2001. Gross profit was $7.0 million (34% of revenues) in 2002, compared with gross profit of $4.7 million (22% of revenues) in 2001. Service revenues for the year 2002 were $5.9 million (29% of revenues).

        Net loss for the year was $(13.0) million, or $(0.88) per share, compared with net loss of $(16.9) million, or $(1.16) per share, in 2001. Year 2002 financial results include stock-based compensation expenses of approximately $1.1 million. Excluding these expenses, the net loss for the year was $(11.9) million, or $(0.80) per share.

        Research and development expenses relating to the development of a number of new process control systems for copper CMP, Photolithography and Etch, were $9.9 million (49% of revenues), as compared with $13.3 million (63% of revenues) in 2001. Operating expenses includes one time payment of $1.5 million for technology purchasing done in Q1 2002.

        Though significantly reduced from previous years, this high level of R&D expenditure reflects the Company’s continuing efforts to develop and introduce several novel integrated process control systems and their corresponding engineering systems for the major semiconductor processes, despite the current market slowdown.

        Sales & Marketing expenses were $6.9 million (34% of revenues), as compared with $6.9 million (32% of revenues) in 2001. These expenses represent the Company’s efforts to increase pentration of new products, to enhance the penetration into China and Asia-Pacific, along with focused efforts to boost collaboration with the leading process equipment manufacturers.

        Dr. Giora Dishon, President & CEO of Nova commented, “Year 2002 was a difficult year for Nova and for the industry. According to Dataquest, a leading market research company, total Wafer Front-end Equipment (WFE) declined 33% over 2001. However, we continued our efforts in developing and maturing several new process control systems based on our pioneering Integrated Process Control concept, a concept that has become a major trend in the semiconductor industry. As a result of these efforts we maintained our leading 70% market share position and increased revenues from Asia Pacific and China. About half of the sales were for 300mm systems, strenthening our position going forward when we expect these lines to pick the next upturn in the industry. In addition, we focused on building strategic allignment with the leading equipment suppliers along with increased cooperation and joint development efforts, such as the copper CMP process control. We are encouraged by having completed the Beta testing of the new Copper CMP system, the beginning of sales, and by the first sale of the NovaTrack, our Lithography (overlay and macro) IPC system. We believe that both systems will provide an upside opportunity to the Company.”