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<SEC-DOCUMENT>0001178913-09-001820.txt : 20090805
<SEC-HEADER>0001178913-09-001820.hdr.sgml : 20090805
<ACCEPTANCE-DATETIME>20090805163641
ACCESSION NUMBER:		0001178913-09-001820
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20090805
FILED AS OF DATE:		20090805
DATE AS OF CHANGE:		20090805

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NOVA MEASURING INSTRUMENTS LTD
		CENTRAL INDEX KEY:			0001109345
		STANDARD INDUSTRIAL CLASSIFICATION:	OPTICAL INSTRUMENTS & LENSES [3827]
		IRS NUMBER:				000000000

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-30668
		FILM NUMBER:		09988638

	BUSINESS ADDRESS:	
		STREET 1:		PO BOX 266
		STREET 2:		011-972-8-938-7505
		CITY:			REHOVOT ISRAEL
		STATE:			L3
		ZIP:			76100
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>zk97075.htm
<TEXT>
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     <!-- Control Number: 97075                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Nova Measuring Istruments Ltd                                    -->
     <!-- Project Name:   6-K                                                              -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>6-K</TITLE>
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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">UNITED STATES </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>SECURITIES AND EXCHANGE COMMISSION</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">WASHINGTON, D.C. 20549 </FONT> </P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="4"><B>FORM 6-K</B> </FONT> </P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Report of Foreign
Private Issuer </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to Rule 13a-16
or 15d-16 of </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Securities Exchange Act
of 1934 </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>August 5, 2009 </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File No.:
000-30668 </FONT></P>

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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="5"><B>NOVA MEASURING INSTRUMENTS
LTD.</B> </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Translation of
registrant&#146;s name into English) </FONT></P>

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<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Weizmann Science Park</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Building 22, 2nd Floor</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Ness-Ziona 76100, Israel</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>+972 (8) 938-7505</B> </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Address
and telephone number of Registrant&#146;s principal executive offices) </FONT> </P>

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<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by
check mark whether the registrant files or will file annual reports </FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>under cover Form 20-F
or Form 40-F. </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Form 20-F <FONT size="3" face="Wingdings">x
</font> Form 40-F <FONT size="3" face="Wingdings">o
</font> </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark
whether the registrant is submitting this Form 6-K in paper as permitted by <BR>Regulation S-T Rule
101(b)(1): ____ </FONT></P>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the registrant by furnishing the information
<BR>contained in this form is also thereby furnishing the information to the
<BR>Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
</FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Yes <FONT size="3" face="Wingdings">o
</font> No <FONT size="3" face="Wingdings">x
</font> </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">If &#147;Yes&#148; is marked, indicate below the file number assigned to the registrant in </FONT> <BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE="2">connection with Rule
12g3-2(b): <B>N/A</B> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attached
hereto and incorporated by way of reference herein is a management&#146;s discussion and
analysis of financial condition and results of operations with respect to the quarter
ended June 30, 2009. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Report on Form 6-K is hereby incorporated by reference into Nova Measuring Instruments
Ltd.&#145;s registration statements on Form S-8, filed with the Securities and Exchange
Commission on the following dates: September 13, 2000 (File No. 333-12546); March 5, 2002
(File No. 333-83734); December 24, 2002 (File No. 333-102193, as amended by Amendment No.
1, filed on January 5, 2006); March 24, 2003 (File No. 333-103981); May 17, 2004 (three
files, File Nos. 333-115554, 333-115555, and 333-115556, as amended by Amendment No. 1,
filed on January 5, 2006); March 7, 2005 (File No. 333-123158); December 29, 2005 (File
No. 333-130745); September 21, 2006 (File No. 333-137491) and November 5, 2007 (File No.
333-147140) and into Nova Measuring Instruments Ltd.&#145;s registration statement on Form
F-3, filed with the Securities and Exchange Commission on May 11, 2007 (File No.
333-142834). </FONT></P>

<p align=center>
<font size=2></font></p>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. </FONT></P>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOVA MEASURING INSTRUMENTS LTD.</B><BR>(Registrant)<BR>
<BR>By: /s/ Gabi Seligsohn<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Gabi Seligsohn<BR>President &amp; Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By: /s/ Dror David<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Dror David<BR>Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<BR>



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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: August 5, 2009 </FONT></P>

<p align=center>
<font size=2></font></p>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>MANAGEMENT&#146;S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND <BR>RESULTS OF OPERATIONS </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>You should read the following
discussion in conjunction with our consolidated financial statements and related notes
contained in our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on March 30, 2009, as amended (the &#147;Annual Report&#148;) and other
financial information contained in our Report on Form 6-K filed with the Securities and
Exchange Commission on August 4, 2009. In addition to historical information, this
discussion may contain forward looking statements that involve risks, uncertainties and
assumptions that could cause actual results to differ materially from management&#146;s
expectations. Factors that could cause such differences include, but not limited to: our
dependency on a single integrated process control product line; the highly cyclical nature
of the markets we target; our inability to reduce spending during a slowdown in the
semiconductor industry; our ability to respond effectively on a timely basis to rapid
technological changes; risks associated with our dependence on a single manufacturing
facility; our dependency on a small number of large customers and small number of
suppliers and those other risks and factors described under the heading &#147;Risk
Factors&#148; in our Annual Report.</I> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are a worldwide leading designer, developer and producer of integrated process control
metrology systems and design, manufacture and sell leading edge stand-alone metrology used
in the manufacturing process of semiconductors. Metrology systems measure various thin
film properties and critical circuit dimensions during various steps in the semiconductor
manufacturing process, allowing semiconductor manufacturers to increase quality,
productivity and yields, lower their manufacturing costs and increase their profitability.
We supply our metrology systems to major semiconductor manufacturers worldwide, either
directly or through process equipment manufacturers. Of the 20 semiconductor manufacturers
that had the highest capital equipment expenditures in 2008, 17 use our systems. The
majority of our integrated metrology systems are sold to process equipment manufacturers.
These process equipment manufacturers integrate our metrology systems into their process
equipment which is then sold to the semiconductor manufacturers. Our systems were first
installed in 1995 and, since that time, we have sold more than 1,900 metrology<B>
</B>systems. We have always emphasized our integrated metrology solutions as this
continues to be an area where we have a leading position. In addition, in the past few
years we developed and started manufacturing stand-alone metrology systems as well. We
plan to leverage our technology, methods, metrology expertise and market position in the
integrated metrology field to expand our offerings of stand-alone metrology systems.
Today, both stand alone and integrated metrology solutions have reached a level of
maturity allowing semiconductor manufactures to choose how to use either technology and
make decisions based on merit specific to the process step in question, always balancing
between the amount of data attained and the use made of the data for capabilities such as
automated process control. Our long-term strategy is focused on advanced metrology and
process control solutions where our integrated process control products and stand alone
products are compatible or complementary and used in a customized way to meet specific
customer needs. The financial information below reflects the operations of the Company and
its subsidiaries on a consolidated basis. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Comparison of the Three
Months Ended June 30, 2009 and 2008</U> </FONT> </H1>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Revenues</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenues
for the second quarter ended June 30, 2009 decreased by 37.2% to $6.9 million, compared
to revenues of $11.1 million for the second quarter ended June 30, 2008. The decrease is
mainly attributed to overall decrease in demand for our integrated metrology products
resulting from an overall slow-down in the semiconductor industry.  </FONT></TD>
</TR>
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<BR>



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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cost
of revenues and gross margins</B> </FONT></TD>
</TR>
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<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Cost
of revenues consists of the labor, material and overhead costs of manufacturing our
systems, and the costs associated with our worldwide service and support infrastructure.
It also consists of inventory write-offs and provision for estimated future warranty
costs for systems we have sold.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
cost of revenues attributable to product sales in the second quarter of 2009 was $2.1
million, a decrease of $1.5 million, or 41.8%, compared to $3.5 million in the second
quarter of 2008. This decrease is mainly attributable to the relative decrease in product
revenues in the second quarter of 2009 and to our on-going cost reductions. As a
percentage of revenues, our cost of revenues attributable to product sales in the second
quarter of 2009 declined to 44.3% of product sales compared to 47.0% in the second
quarter of 2008 due to higher average selling prices as a result of direct sales and due
to our on-going cost reductions.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
cost of revenues attributable to services in the second quarter of 2009 was $2.1 million,
a decrease of $1.2 million, or 35.7%, compared to $3.3 million in the second quarter of
2008. This decrease is attributable to our on-going cost reductions to accommodate for
the decline in service revenues.  </FONT></TD>
</TR>
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<BR>

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Our
gross margin attributable to product revenues in the second quarter of 2009 increased to
55.7% of product sales, compared to 53. 0% in the second quarter of 2008 due to higher
average selling prices as a result of direct sales and due to reductions in costs.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
gross margin attributable to services revenue in the second quarter of 2009 was 10.4% of
services sales, compared to 9.6% of service sales in the second quarter of 2008. This
increase is attributable mainly to our on-going cost reductions.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Research
&amp;development expenses, net</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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Net
research and development expenses consist primarily of salaries and related expenses and
also include consulting fees, subcontracting costs, related materials and overhead
expenses, after offsetting conditional grants received or receivable from the Office of
the Chief Scientist (&#147;<U>OCS</U>&#148;). Our net research and development expenses
in the second quarter of 2009 were $1.2 million compared to $2.2 million in the second
quarter of 2009. This decrease is mainly attributed to our on-going cost reductions and
to higher OCS revenues in the second quarter of 2009. Net research and development
expenses represented 17.0% of our revenues in the second quarter of 2009, compared to
19.6% of our revenues in the second quarter of 2008.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Sales
and marketing expenses</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Sales
and marketing expenses are comprised of salaries and related costs for sales and
marketing personnel, related travel expenses, and overhead. They also include commissions
to our representatives and sales personnel. Our sales and marketing expenses in the
second quarter of 2009 were $1.3 million, a decrease of $0.7 million, or 36.7%, compared
to $2.0 million in the second quarter of 2008. The decrease in sales and marketing
expenses is mainly attributed to general cost reductions and to the decrease in
revenue-based commission payments. Sales and marketing expenses represented 18.6% and
18.4%, respectively, of our revenues in the second quarter of 2009 and second quarter of
2008.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>General
and administrative expenses</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
General
and administrative expenses are comprised of salaries and related expenses and other
non-personnel related expenses such as legal expenses. Our general and administrative
expenses in the second quarter of 2009 were $0.5 million, a decrease of $0.3 million, or
39.3%, compared to $0.8 million in the second quarter of 2008. General and administrative
expenses decreased to 6.9% of our revenues in the second quarter of 2009 compared to 7.2%
of our revenues in the second quarter of 2008. These decreases are attributed to our
on-going cost reductions.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Impairment
loss</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
three months ended June 30, 2008 include a one-time $0.6 million impairment of equipment
related to Hypernex assets and liabilities acquisition.  </FONT></TD>
</TR>
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<BR>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Comparison of the Six
Months Ended June 30, 2009 and 2008</U> </FONT> </H1>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Revenues</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Revenues
for the six months ended June 30, 2009 decreased by 46.9% to $12.7 million, compared to
sales of $23.9 million for the comparable period in 2008. This decrease is mainly
attributed to the overall decrease in demand for our integrated metrology products
resulting from an overall slow-down in the semiconductor industry.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Cost
of revenues</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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Cost
of revenues consists of the labor, material and overhead costs of manufacturing our
systems, and the costs associated with our worldwide service and support infrastructure.
It also consists of inventory write-offs and provisions for estimated future warranty
costs for systems we have sold.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
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<page>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
cost of revenues attributable to product sales in the six months ended June 30, 2009 was
$3.6 million, a decrease of $4.4 million, or 54.7%, compared to the six months ended June
30, 2008. As a percentage of product revenues, our cost of revenues in the six months
ended June 30, 2009 was 43.9% compared to 46.9% in the six months ended June 30, 2008.
These decreases are attributable to the decrease in product sales and to our on-going
cost reductions.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
cost of revenues attributable to services in the six months ended June 30, 2009 was $4.4
million, a decrease of $2.0 million, or 31.9%, compared to $6.4 million in the six months
ended June 30, 2008. This decrease is attributable to our on-going cost reductions to
accommodate for the decline in service revenues.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Our
gross margin attributable to product revenues in the six months ended June 30, 2009
increased to 56.1% of product sales compared to 53.2% in the six months ended June 30,
2008 due to higher average selling prices as a result of direct sales and due to
reductions in costs.  </FONT></TD>
</TR>
</TABLE>
<BR>

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Our
gross margin attributable to services revenues in the six months ended June 30, 2009
decreased to 1.0% of services sales compared to 5.6% of service sales in the six months
ended June 30, 2008. This decrease in gross margins is attributable to the decline in
service revenues.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Research
and development expenses, net</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Net
research and development expenses consist primarily of salaries and related expenses and
also include consulting fees, subcontracting costs, related materials and overhead
expenses, after offsetting conditional grants received or receivable from the OCS. Our
net research and development expenses in the six months ended June 30, 2009 were $3.0
million, a decrease of $1.1 million, compared to $4.1 million in the six months ended
June 30, 2008. This decrease is mainly attributed to our on-going cost reductions. Net
research and development expenses increased to 23.4% of our revenues in the six months
ended June 30, 2009 compared to 17.1% of our revenues in the six months ended June 30,
2008. This increase is due to the decrease in our revenues in the six months ended June
30, 2009, which was partially offset by the decrease in costs.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Sales
and marketing expenses</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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Sales
and marketing expenses are comprised of salaries and related costs for sales and
marketing personnel, related travel expenses, and overhead. They also include commissions
to our representatives and sales personnel. Our sales and marketing expenses in the six
months ended June 30, 2009 were $2.5 million, a decrease of $2.0 million, or 45.0%
compared to $4.5 million in the six months ended June 30, 2008. The decrease in sales and
marketing expenses is mainly attributed to general cost reductions and to the decrease in
revenue-based commission payments. Sales and marketing expenses represented 19.4% and
18.8%, respectively, of our revenues in the six months ended June 30, 2009 and six months
ended June 30, 2008.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>General
and administrative expenses</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
General
and administrative expenses are comprised of salaries and related expenses and other
non-personnel related expenses such as legal expenses. Our general and administrative
expenses in six months ended June 30, 2009 were $1.0 million, a decrease of $0.7 million
or 42.0% compared to $1.7 million in the six months ended June 30, 2008. This decrease in
mainly attributed to our on-going cost reductions. General and administrative expenses
represented 7.8% and 7.1% of our revenues in the six months ended June 30, 2009 and the
six months ended June 30, 2008, respectively.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><FONT size="2" face="Wingdings 2">&#151;</font> </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Impairment
loss</B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
six months ended June 30, 2008 include a one-time $0.6 million impairment of equipment
related to Hypernex assets and liabilities.  </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Liquidity and Capital
Resources</U> </FONT> </H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total cash reserves at the end of the
second quarter of 2009 amounted to $14.2 million, relative to $19.7 million at the end of
2008. The decrease in cash reserves during the six months ended June, 30 2009, is related
to our operating losses in this period as well as to the increase in accounts receivables
in parallel to payments of accounts payables and other current liabilities. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Working capital at the end of the
second quarter of 2009 amounted to $19.2 million relative to $20.2 million at the end of
2008. The decrease in working capital during the six months ended June, 30 2009, is
related mainly to our operating losses in this period. </FONT></P>

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