<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   Form 10-Q


(Mark one)

X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-  ACT OF 1934
   For the period ended January 3, 1999 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 333-29871

                               THERMA-WAVE, INC.
            (Exact name of Registrant as specified in its charter)


              DELAWARE                                    94-3000561
    [State or other jurisdiction of                    [I.R.S. Employer 
     incorporation or organization]                  Identification Number]

         1250 Reliance Way
         Fremont, California                                94539
[Address of principal executive offices]                  [Zip Code]

                                (510) 490-3663
              Registrant's telephone number, including area code

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 and 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 the number of shares of the issuer's class of common stock, as of the
latest practical date:


              Class                         Outstanding as of January 31, 1999
-------------------------------------------------------------------------------
  Class A Common stock, $.01 par value                    9,073,532
  Class B Common stock, $.01 par value                    1,118,092
  Class L Common stock, $.01 par value                    1,008,170
<PAGE>
 
                               THERMA-WAVE, INC.
                                   FORM 10-Q

                                     INDEX


<TABLE> 
<CAPTION> 
<S>                                                                          <C>
Part I. Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements
 
        Condensed Consolidated Balance Sheets
          December 31, 1998 and March 31, 1998                                3
 
        Condensed Consolidated Statements of Operations
          Three and nine months ended December 31, 1998 and 1997              4
 
        Condensed Consolidated Statements of Cash Flows
          Nine months ended December 31, 1998 and 1997                        5
 
        Notes to Unaudited Condensed Consolidated Financial Statements        6

Item 2. Management's Discussion and Analysis of
        Financial Condition and Results of Operations                        11

Part II. Other Information
 
Item 1. Legal Proceedings                                                    18
 
Item 2. Changes in Securities and Use of Proceeds                            18
 
Item 3. Defaults upon Senior Securities                                      18
 
Item 4. Submission of Matters to a Vote of Security Holders                  18
 
Item 5. Other Information                                                    18
 
Item 6. Exhibits and Reports on Form 8-K                                     19
 
Signatures                                                                   20
</TABLE>

                                       2
<PAGE>
 
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements


                               THERMA-WAVE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                        December 31,                 March 31,
                                                                            1998                       1998
                                                                  ---------------------       --------------------
                              ASSETS
 
Current assets:
<S>                                                               <C>                         <C>
 Cash and cash equivalents                                                    $  12,648                   $ 20,422
 Accounts receivable, net                                                        15,453                     22,098
 Inventories                                                                     18,453                     21,292
 Other current assets                                                             8,054                      7,938
                                                                  ---------------------       --------------------
           Total current assets                                                  54,608                     71,750
 
 Property and equipment, net                                                      4,636                      6,241
 Deferred financing costs, net                                                    8,752                      9,956
 Other assets                                                                     1,934                      1,815
                                                                  ---------------------       --------------------
           Total assets                                                       $  69,930                   $ 89,762
                                                                  =====================       ====================
 
           LIABILITIES AND STOCKHOLDERS' EQUITY
                 (NET CAPITAL DEFICIENCY)
Current liabilities:
 Accounts payable                                                             $   2,986                   $  4,019
 Other current liabilities                                                       18,820                     24,383
                                                                  ---------------------       --------------------
           Total current liabilities                                             21,806                     28,402
 Long term debt                                                                 115,000                    115,000
 Other liabilities                                                                2,263                      2,835
                                                                  ---------------------       --------------------
           Total liabilities                                                    139,069                    146,237
 
Commitments and contingencies
 
Mandatorily redeemable preferred stock                                           15,139                     14,515
 
Stockholders' equity (net capital deficiency)
 Common stock - Class A                                                              91                         91
 Common stock - Class B                                                              11                         13
 Common stock - Class L                                                              10                         10
 Additional paid-in capital                                                      21,324                     21,363
 Notes receivable from stockholders                                                (241)                      (288)
 Accumulated deficit                                                           (104,429)                   (90,424)
 Currency translation adjustment                                                 (1,044)                    (1,755)
                                                                  ---------------------       --------------------
            Total stockholders' equity (net capital deficiency)                 (84,278)                   (70,990)
                                                                  ---------------------       --------------------
            Total liabilities and stockholders' equity (net                   
             capital deficiency)                                              $  69,930                   $ 89,762
                                                                  =====================       ====================
</TABLE>

    See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                               THERMA-WAVE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                           Three months ended                     Nine months ended
                                               December 31,                           December 31,
                                    ---------------------------------     ----------------------------------
                                          1998               1997               1998                1997
                                    --------------     --------------     --------------      --------------
<S>                                 <C>                <C>                <C>                 <C>
Net revenue                                $17,161            $29,664           $ 47,603             $86,155
Cost of revenue                              8,957             14,573             26,819              40,974
                                    --------------     --------------     --------------      --------------
Gross margin                                 8,204             15,091             20,784              45,181
 
Operating expenses:
 Research and development                    3,095              5,103             11,617              14,677
 Selling, general and administrative         4,501              6,520             13,634              18,294
 Recapitalization and other
  non-recurring expenses                         -                300                  -               4,188
 Expenses relating to operating                                                    
  cost improvements                              -                  -              1,057                   -
                                    --------------     --------------     --------------      --------------
        Total operating expenses             7,596             11,923             26,308              37,159
                                    --------------     --------------     --------------      --------------
 
Operating income (loss)                        608              3,168             (5,524)              8,022
 
Other income (expense):
 Interest expense                           (3,542)            (3,581)           (10,491)             (9,362)
 Interest income                               141                208                518                 548
 Other, net                                    171               (100)               115                (101)
                                    --------------     --------------     --------------      --------------
                                            (3,230)            (3,473)            (9,858)             (8,915)
                                    --------------     --------------     --------------      --------------
Loss before income taxes                    (2,622)              (305)           (15,382)               (893)
Benefit for income taxes                      (341)              (119)            (2,001)               (347)
                                    --------------     --------------     --------------      --------------
Net loss                                    (2,281)              (186)           (13,381)               (546)
 
Accretion of preferred stock
 dividend                                      208                208                624                 532
                                    --------------     --------------     --------------      --------------
Net loss available to common                                                   
 stockholders                              $(2,489)           $  (394)          $(14,005)            $(1,078)
                                    ==============     ==============     ==============      ==============
 
</TABLE>


    See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                               THERMA-WAVE, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                Nine months ended
                                                                                  December 31,
                                                                 --------------------------------------------
                                                                          1998                     1997
                                                                 -------------------      -------------------
<S>                                                              <C>                      <C>
Operating activities:
  Net loss                                                                  $(13,381)                $   (546)
  Adjustments to reconcile net loss to net cash (used in)
   provided by operating activities:
   Depreciation and amortization                                               3,422                    2,581
   Amortization of deferred financing costs                                    1,204                      989
   Non-cash recapitalization and related expenses                                  -                    3,888
   Non-cash expenses relating to operating cost improvements                     100                        -
   Loss on disposal of property and equipment                                      -                      400
   Changes in assets and liabilities:
     Accounts receivable                                                       6,645                   (2,542)
     Inventories                                                               1,629                   (3,928)
     Other assets                                                                (90)                  (1,642)
     Other liabilities                                                        (7,184)                   4,142
                                                                 -------------------      -------------------
      Net cash (used in) provided by operating activities                     (7,655)                   3,342
 
Investing activities:
  Purchases of property and equipment                                           (323)                  (2,634)
  Other                                                                         (428)                  (1,059)
                                                                 -------------------      -------------------
      Net cash used in investing activities                                     (751)                  (3,693)
 
Financing activities:
  Issuance of Senior Notes                                                         -                  115,000
  Repayment of notes payable                                                       -                  (26,934)
  Redemption of common stock                                                       -                  (96,900)
  Proceeds from issuance of common stock                                           7                   20,169
  Deferred financing costs                                                         -                  (11,212)
  Other                                                                          (86)                      (3)
                                                                 -------------------      ------------------- 
      Net cash provided by (used in) financing activities                        (79)                     120
                                                                 -------------------      ------------------- 
 Effect of exchange rate changes on cash                                         711                     (683)
                                                                 -------------------      -------------------
 Net decrease in cash and cash equivalents                                    (7,774)                    (914)
                                                                 -------------------      -------------------
 Cash and cash equivalents at beginning of period                             20,422                   16,741
                                                                 -------------------      -------------------
 Cash and cash equivalents at end of period                                 $ 12,648                 $ 15,827
                                                                 ===================      ===================
 
 Supplementary disclosures:
  Cash paid for interest                                                    $ 12,407                 $  6,495
                                                                 ===================      ===================
  Cash paid for taxes                                                       $    293                 $  2,825
                                                                 ===================      ===================
</TABLE>


    See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                               THERMA-WAVE, INC.
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.  Basis of Presentation

    The accompanying unaudited condensed consolidated financial statements have
    been prepared pursuant to the rules and regulations of the Securities and
    Exchange Commission and include the accounts of Therma-Wave, Inc. and its
    wholly owned subsidiaries (collectively "Therma-Wave" or the "Company").
    Certain information and footnote disclosures, normally included in financial
    statements prepared in accordance with generally accepted accounting
    principles, have been condensed or omitted pursuant to such rules and
    regulations. In the opinion of the Company, the financial statements reflect
    all adjustments, consisting of normal recurring adjustments, necessary for a
    fair presentation of the financial position at December 31, 1998, the
    operating results for the three and nine months ended December 31, 1998 and
    1997 and the cash flows for the nine months ended December 31, 1998 and
    1997. These financial statements and notes should be read in conjunction
    with the Company's audited financial statements and notes thereto for the
    year ended March 31, 1998.

    The results of operations for the interim periods are not necessarily
    indicative of the results of operations that may be expected for any other
    period or for the fiscal year, which ends on April 4, 1999.

    The third fiscal quarters of 1999 and 1998 and the fiscal year 1998 ended on
    January 3, 1999, January 4, 1998 and April 5, 1998, respectively. For
    presentation purposes, the accompanying financial statements have been shown
    as ending on the last day of the month.

    In accordance with generally accepted accounting principles, earnings per
    share information is not presented since the Company does not have publicly
    held common stock.

2.  Inventories

    Inventories are summarized as follows (in thousands):

<TABLE> 
<CAPTION> 
                               December 31, 1998              March 31, 1998
                         --------------------------    -------------------------
<S>                      <C>                           <C>
 
Purchased materials                         $ 8,338                      $ 9,958
Systems in process                            4,718                        7,146
Finished systems                              5,397                        4,188
                         --------------------------    -------------------------
                                            $18,453                      $21,292
                         ==========================    =========================
</TABLE>

                                       6
<PAGE>
 
3.  Recapitalization

    In December 1996, the Board of Directors approved the Recapitalization
    Agreement (the "Recapitalization Agreement"). Pursuant to the
    Recapitalization Agreement, which closed on May 16, 1997, the Company: (i)
    redeemed from Toray Industries, Inc., ("Toray") and Shimadzu Corporation
    ("Shimadzu") approximately 86.6% of its outstanding capital stock for $96.9
    million; (ii) converted its remaining outstanding capital stock of 6.1
    million shares to newly issued shares of preferred stock and common stock;
    (iii) repaid substantially all of its outstanding borrowings of
    approximately $26.9 million; (iv) canceled its receivable from Toray and
    Shimadzu of $1.4 million which was recorded as a reduction of additional
    paid-in capital; and (v) paid the estimated fees and expenses of
    approximately $11.2 million related to the Recapitalization. In order to
    finance the transactions effected by the Recapitalization Agreement, the
    Company: (i) issued $115.0 million in aggregate principal amount of senior
    notes in a private debt offering; (ii) received an equity contribution of
    approximately $20.0 million in cash from an investor group, including
    investment funds associated with Bain Capital, Inc. ("Bain"), and members of
    the Company's senior management team; and (iii) converted equity securities
    of Toray and Shimadzu having a value of $15.0 million into newly issued
    shares of preferred stock and common stock.

    Immediately after the Recapitalization, the outstanding equity securities of
    the Company consisted of 9,073,532 shares of Class A Common; 1,334,875
    shares of Class B Common; 1,008,170 shares of Class L Common; and 748,738
    shares of Preferred Stock. The shares of Class A Common and Class L Common
    each entitle the holder thereof to one vote per share on all matters to be
    voted upon by the stockholders of the Company and are otherwise identical,
    except that the shares of Class L Common are entitled to a preference over
    the Class A Common with respect to any distribution by the Company to
    holders of its capital stock equal to the original cost of such share
    ($19.085) plus an amount which accrues on a daily basis at a rate of 12% per
    annum, compounded annually. The Class B Common is identical to the Class A
    common except that the Class B Common is nonvoting and is convertible into
    Class A Common at any time following an initial public offering by the
    Company at the option of the holder thereof. The Preferred Stock has a
    liquidation preference of $18.40 per share and is convertible into one share
    of Class A Common at the option of the holder thereof. Dividends on the
    Preferred Stock accrue at a rate of 6.0% per annum. The Preferred Stock has
    a scheduled redemption on May 17, 2007, and is otherwise redeemable by the
    Company at any time from time to time after an initial public offering by
    the Company. The Preferred Stock entitles the holder thereof to one vote for
    each share of Class A Common issuable upon conversion of such Preferred
    Stock.

4.  Financing Arrangements

    The $115.0 million of senior notes ("Notes") issued to finance the
    Recapitalization are senior unsecured obligations of the Company and will
    mature on May 15, 2004. Interest on the Notes accrue at the rate of 10.625%
    per annum and is payable semiannually in cash on each May 15 and November
    15, commencing on November 15, 1997, to registered holders at the close of
    business on May 1 and November 1, respectively, immediately preceding the

                                       7
<PAGE>
 
    applicable interest payment date. The Notes are not entitled to the benefit
    of any mandatory sinking fund and are redeemable at the Company's option in
    whole at any time or in part from time to time, on and after May 15, 2001,
    upon not less than 30 nor more than 60 days notice, at specified redemption
    prices. At any time, or from time to time, on or prior to May 15, 2000, the
    Company may, at its option, use the net cash proceeds of one or more equity
    offerings to redeem up to 40% of the aggregate principal amount of Notes
    originally issued at a redemption price equal to 110.625% of the principal
    amount thereof plus accrued and unpaid interest.

    In connection with the Recapitalization Agreement, the initial purchasers of
    the $115.0 million of Notes were granted certain exchange and registration
    rights. Based upon the terms of such agreement, the Company issued new notes
    with substantially identical terms as the old notes except that the new
    notes are registered under the Securities Act and therefore do not bear
    legends restricting their transfer.

    In conjunction with the Recapitalization, the Company entered into the
    Credit Agreement among Therma-Wave, Inc., various lending institutions, and
    Bankers Trust Company, as Agent (the "Bank Credit Facility"), which provided
    for a revolving credit facility of $30.0 million. During the quarter ended
    June 30, 1998, the Company entered into the First Amendment to the Credit
    Agreement among Therma-Wave, Inc., various lending institutions, and Bankers
    Trust Company, as Agent (the "Amended Bank Credit Facility"), to have its
    borrowing availability subject to a borrowing base formula, which provides a
    maximum revolving credit facility of $30.0 million, and to make certain
    necessary adjustments to the financial tests and covenants contained therein
    in light of current market conditions. The Company may borrow amounts under
    the Amended Bank Credit Facility to finance its working capital requirements
    and other general corporate purposes. The Amended Bank Credit Facility
    requires the Company to meet certain financial tests and contains covenants
    customary for this type of financing. At December 31, 1998, there was $3.5
    million of an outstanding letter of credit and unused borrowing capacity
    under the Amended Bank Credit Facility of $21.7 million.

5.  Expenses Relating to Operating Cost Improvements

    On June 22, 1998, the Company announced and implemented an operating cost
    improvement program aimed at bringing operating expenses in line with the
    Company's current operating environment. These efforts are in response to
    the continued cutbacks in capital equipment investment by semiconductor
    manufacturers. As a result of the implementation of this program, the
    Company recorded a charge of $582,000 during the first quarter of fiscal
    year 1999, of which $406,000 related to severance and related charges,
    $76,000 of vacated leased facilities and $100,000 of certain excess
    operating assets. During the second quarter, the Company recorded a charge
    of $475,000, which related primarily to severance and related charges.

                                       8
<PAGE>
 
6.  Comprehensive Income

    In June 1997, the Financial Accounting Standards Board ("FASB") issued
    Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
    Comprehensive Income." The statement established standards for the reporting
    and display of comprehensive income and its components. However, the
    adoption of this statement had no impact on the Company's net income (loss)
    or stockholders' equity (net capital deficiency). SFAS 130 requires
    unrealized gains or losses on the Company's available-for-sale securities
    and foreign currency translation adjustments, which have been consistently
    included in stockholders' equity (net capital deficiency) and excluded from
    net income (loss), to be included in comprehensive income (loss). The
    primary difference between net income (loss) and comprehensive income (loss)
    for the Company is due to currency translation adjustments. Prior year
    financial statements have been reclassified to conform to the requirements
    of SFAS 130.

    During the three months ended December 31, 1998 and 1997, comprehensive loss
    amounted to approximately $1,663,000 and $716,000, respectively. During the
    nine months ended December 31, 1998 and 1997, comprehensive loss amounted to
    approximately $12,670,000 and $1,229,000, respectively.

7.  Recently Issued Accounting Statements

    In June 1997, the Financial Accounting Standards Board ("FASB") issued
    Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
    about Segments of an Enterprise and Related Information." SFAS No. 131
    establishes new requirements for the annual reporting of information
    regarding operating segments, products, services, geographic areas and major
    customers. The Company will adopt SFAS No.131 effective March 31, 1999.

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
    Instruments and Hedging Activities." SFAS No. 133 establishes a new model
    for accounting for derivatives and hedging activities and supercedes and
    amends a number of existing accounting standards. SFAS No. 133 requires that
    all derivatives be recognized in the balance sheet at their fair market
    value, and the corresponding derivative gains or losses be either reported
    in the statement of operations or as a deferred item depending on the type
    of hedge relationship that exists with respect to such derivative. The
    Company currently does not hold any derivative instruments that will be
    affected by the adoption of SFAS No. 133.

8.  Commitments and Contingencies

    On September 14, 1998, the Company was named in a patent infringement suit
    by KLA-Tencor Corporation ("KLA-Tencor"). KLA-Tencor alleged that their
    patented thin-film thickness measuring technology is being used in metrology
    equipment sold by the Company. KLA-Tencor is seeking damages and an
    injunction to stop the sale of equipment using its technology. The Company
    believes that its products do not infringe any of the claims of 

                                       9
<PAGE>
 
    KLA-Tencor's patent and that their infringement allegations are unfounded.
    The Company intends to defend its position vigorously and expects to prevail
    in its counterclaims against KLA-Tencor.

    On October 26, 1998, the Company announced an action against KLA-Tencor for
    patent infringement. The suit was filed as a counterclaim in the
    infringement action initiated by KLA-Tencor. The suit seeks damages for
    patent infringement and a permanent injunction against any future infringing
    activity by KLA-Tencor, or by any third party working in conjunction with
    KLA-Tencor. The counterclaim also seeks a declaratory judgment that KLA-
    Tencor's patent, which the Company was alleged of infringing, is invalid and
    not infringed by any of the Company's devices.

    There can be no assurances, however, that the Company will prevail in any
    patent litigation. The Company believes that the outcome of any resultant
    litigation will not have a material adverse effect on the Company's
    financial condition.

                                       10
<PAGE>
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations


When used in this discussion, the words "expects", "anticipates" and similar
expressions are intended to identify forward-looking statements.  Such forward-
looking statements are subject to a number of risks and uncertainties that could
cause actual results to differ materially from the statements made. The Company
has experienced and expects to continue to experience significant fluctuations
in its quarterly results. The Company's expense levels are based, in part, on
expectations of future revenues.  If revenue levels in a particular quarter do
not meet expectations, operating results are adversely affected.  A variety of
factors could have an influence on the level of the Company's revenues in a
particular quarter.  These factors include the cyclical nature of the
semiconductor industry, the timing of the receipt of orders from major
customers, customer cancellations or delay of shipments, specific feature
requests by customers, production delays or manufacturing inefficiencies,
exchange rate fluctuations, management decisions to commence or discontinue
product lines, the Company's ability to design, introduce and manufacture new
products on a cost effective and timely basis, the introduction of new products
by the Company or its competition, the timing of research and development
expenditures, and expenses attendant to acquisitions, strategic alliances and
the future development of marketing and service capabilities.

General

The Company develops, manufactures, markets and services process control
metrology systems for use in the manufacture of semiconductors.  The Company's
process control metrology systems are principally used to measure ion
implantation and thin film deposition and removal.  The Company has developed
two major lines of process control metrology systems: (i) the Therma-Probe
system and (ii) the Opti-Probe system.  The Therma-Probe system, introduced in
1985, utilizes the Company's proprietary thermal wave technology and is the
predominant nondestructive process control metrology system used to measure the
critical ion implantation process on product wafers in the fabrication of
semiconductors.  The Opti-Probe system, introduced in 1992, significantly
improved upon existing thin film metrology systems by successfully integrating
different measurement technologies into one system and utilizing the Company's
proprietary optical technologies.  According to Dataquest, a leading industry
analysis group, the Opti-Probe system captured the number one market share
position in 1997.

The Company's third quarters of fiscal years 1999 and 1998 ended on January 3,
1999 and January 4, 1998, respectively. For presentation purposes, any reference
herein to such periods refer to the periods ended December 31 of such fiscal
year.

                                       11
<PAGE>
 
Results of Operations

The following table summarizes Therma-Wave's unaudited historical results of
operations as a percentage of net revenues for the periods indicated.  The
historical financial data for the three  and nine months ended December 31, 1998
and 1997 were derived from the Company's unaudited consolidated financial
statements which, in the opinion of the Company, reflect all adjustments
(consisting of normal recurring adjustments) necessary for the fair presentation
of the financial position and operating results for such periods.

<TABLE>
<CAPTION>
                                              Three months ended                    Nine months ended
                                                 December 31,                          December 31,
                                      --------------------------------     ---------------------------------
Statement of Operations Data:              1998               1997              1998               1997
                                      --------------     -------------     --------------     --------------
 
<S>                                   <C>                <C>               <C>                <C>
Net revenue                                    100.0%            100.0%             100.0%             100.0%
Cost of revenue                                 52.2              49.1               56.3               47.6
                                      --------------     -------------     --------------     --------------
Gross margin                                    47.8              50.9               43.7               52.4
Operating expenses:
 Research and development                       18.1              17.2               24.4               17.0
 Selling, general and administrative            26.2              22.0               28.6               21.2
 Recapitalization and other                                                             
  non-recurring expenses                           -               1.0                  -                4.9
 Expenses relating to operating cost                                                                       
  improvements                                     -                 -                2.2                  -
                                      --------------     -------------     --------------     --------------
Operating income (loss)                          3.5              10.7              (11.5)               9.3
 Interest expense                              (20.6)            (12.1)             (22.0)             (10.8)
 Interest income                                 0.8               0.7                1.1                0.6
 Other, net                                      1.0              (0.3)               0.2               (0.1)
                                      --------------     -------------     --------------     --------------
Loss before income taxes                       (15.3)             (1.0)             (32.2)              (1.0)
Benefit for income taxes                        (2.0)             (0.4)              (4.2)              (0.4)
                                      --------------     -------------     --------------     --------------
Net loss                                      (13.3)%            (0.6)%            (28.0)%             (0.6)%
                                      ==============     =============     ==============     ==============
</TABLE>

Net revenues for the three months ended December 31, 1998 and 1997 were $17.2
and $29.7 million, respectively.  Net revenues for the nine months ended
December 31, 1998 and 1997 were $47.6 and $86.2 million, respectively.  Compared
to the corresponding period of fiscal 1998, net revenues decreased $12.5 million
or 42.1% for the three month period ended December 31, 1998, and decreased $38.6
million or 44.7% for the nine month period ended December 31, 1998. Gross margin
percentages for the three months ended December 31, 1998 and 1997 were 47.8% and
50.9%, respectively. Gross margin percentages for the nine months ended December
31, 1998 and 1997 were 43.7% and 52.4%, respectively.  Compared to the
corresponding period of fiscal 1998, the gross margin percentages decreased by
3.1 and 8.7 percentage points for the three and nine month periods ended
December 31, 1998, respectively.  The declines in revenues and gross margin are
attributed to the current downturn in the global semiconductor industry due
primarily to excess DRAM capacity and a slowdown in product demand as a result
of lower than expected sales of high-end personal computers and the economic
conditions in the Asia Pacific 

                                       12
<PAGE>
 
region. This slowdown has caused the semiconductor industry to reduce both
purchases of semiconductor manufacturing equipment and construction of new
fabrication facilities.

Research and development expenses were $3.1 million and $5.1 million for the
three months ended December 31, 1998 and 1997, respectively, and $11.6 million
and $14.7 million for the nine months ended December 31, 1998 and 1997,
respectively. Compared to the corresponding period of fiscal 1998, research and
development expenses decreased $2.0 million, or 39.3% for the three months ended
December 31, 1998.  Compared to the corresponding period of fiscal 1998,
research and development expenses decreased $3.1 million, or 20.8% for the nine
months ended December 31, 1998.  Research and development expenses relating to
the new OP5000 and 300 millimeter products have decreased from prior periods as
the projects near completion. Although the Company is in a current downturn, the
Company believes that technical leadership is essential to its success and
expects to continue to commit significant resources to research and development
projects.

Selling, general and administrative expenses were $4.5 million and $6.5 million
for the three months ended December 31, 1998 and 1997, respectively and $13.6
million and $18.3 million for the nine months ended December 31, 1998 and 1997,
respectively.  Compared to the corresponding period of fiscal 1998, selling,
general and administrative expenses decreased $2.0 million, or 31.0% for the
three months ended December 31, 1998.  Compared to the corresponding period of
fiscal 1998, selling, general and administrative expenses decreased $4.7
million, or 25.5% for the nine months ended December 31, 1998.  The decrease in
selling, general and administrative expenses is due primarily to the decrease in
sales commissions and the decrease in headcount as a result of the operating
cost improvement program described below.

On June 22, 1998, the Company announced and implemented an operating cost
improvement program aimed at bringing operating expenses in line with the
Company's current operating environment.  These efforts are in response to the
continued cutbacks in capital equipment investment by semiconductor
manufacturers.  As a result of the implementation of this program, the Company
recorded a charge of $582,000 during the first quarter of fiscal year 1999, of
which $406,000 related to severance and related charges, $76,000 of vacated
leased facilities and $100,000 of certain excess operating assets.  During the
second quarter, the Company recorded a charge of $475,000, which related
primarily to severance and related charges.

Recapitalization and other non-recurring expenses for the three and nine months
ended December 31, 1997 were $0.3 million and $4.2 million, respectively,
consisted mainly of non-cash charges related to the arrangements for the
Company's executive officers in connection with the Recapitalization.

Interest expense for the three months ended December 31, 1998 and 1997 were $3.5
million and $3.6 million, respectively. Interest expense for the nine months
ended December 31, 1998 and 1997 were $10.5 million and $9.4 million,
respectively.  The increased interest expense from the prior fiscal year is
attributed to the additional debt incurred as part of the Recapitalization.

                                       13
<PAGE>
 
For the three months ended December 31, 1998 and 1997, the Company recorded a
benefit for income taxes of $341,000 and $119,000, respectively.  For the nine
months ended December 31, 1998 and 1997, the Company recorded a benefit for
income taxes of $2,001,000 and $347,000, respectively.  The Company's tax
benefit for the periods ended December 31, 1998 reflect the expected tax benefit
rate of 13% for the fiscal year based upon the Company's loss carryback
potential.

Net loss for the three months ended December 31, 1998 and 1997 were $2,281,000
and $186,000, respectively.  Net loss for the nine months ended December 31,
1998 and 1997 was $13,381,000 and $546,000, respectively.  The increased loss is
due to the factors described above.

Liquidity and Capital Resources

The Company's principal liquidity requirements are for working capital,
consisting primarily of accounts receivable, inventories, capital expenditures
and debt service.  Historically, the Company has funded its operating activities
principally from working capital and working capital lines of credit.

Cash flow (used in) provided by operating activities was ($7.7) million and $3.3
million for the nine months ended December 31, 1998 and 1997, respectively.  The
decrease in cash flow from operating activities from the prior year period is
mainly due to the increase in the net loss for the reasons described above.
This decrease was partially offset by a lower investment in working capital and
by the prior year non-cash expenses.

Purchases of property and equipment were $0.3 million and $2.6 million for the
nine months ended December 31, 1998 and 1997, respectively.

In May 1997, the Company issued $115.0 million in aggregate principal amount of
senior notes to finance the Recapitalization, including the repayment of notes
payable and redemption of common stock.

In conjunction with the Recapitalization, the Company entered into the Credit
Agreement among Therma-Wave, Inc., various lending institutions, and Bankers
Trust Company, as Agent (the "Bank Credit Facility").  The Bank Credit Facility
provides for borrowings of up to $30.0 million for working capital and other
general corporate purposes, and bears interest, at the Company's option, at (i)
the Base Rate (as defined in the Bank Credit Facility) plus 1.75% or (ii) the
Eurodollar Rate (as defined in the Bank Credit Facility) plus 3.00%.  The
Company's borrowings under the Bank Credit Facility are secured by substantially
all of the Company's assets and a pledge of substantially all of the capital
stock of the Company's domestic subsidiaries and 65% of the capital stock of the
Company's first-tier foreign subsidiaries.  The Bank Credit Facility matures on
May 16, 2002.  During the quarter ended June 30, 1998, the Company entered into
the First Amendment to the Credit Agreement among Therma-Wave, Inc., various
lending institutions, and Bankers Trust Company, as Agent (the "Amended Bank
Credit Facility"), to have its borrowing availability subject to a borrowing
base formula, which provides a maximum 

                                       14
<PAGE>
 
revolving credit facility of $30.0 million, and to make certain necessary
adjustments to the financial tests and covenants contained therein in light of
current market conditions. The Company may borrow amounts under the Amended Bank
Credit Facility to finance its working capital requirements and other general
corporate purposes. The Amended Bank Credit Facility requires the Company to
meet certain financial tests and contains covenants customary for this type of
financing. At December 31, 1998, there was $3.5 million of an outstanding letter
of credit and unused borrowing capacity under the Amended Bank Credit Facility
of $21.7 million.

The Company's principal sources of funds are cash on hand ($12.6 million as of
December 31, 1998) and borrowings available under the Amended Bank Credit
Facility.  The Company believes that these funds will provide the Company with
sufficient liquidity and capital resources for the Company to meet its current
and future financial obligations, as well as to provide funds for the Company's
working capital needs, capital expenditures and other needs.  No assurance can
be given, however, that this will be the case.  Depending upon its
profitability, the Company may require additional equity or debt financing to
meet its working capital requirements or to fund its research and development
activities.  There can be no assurance that additional financing will be
available when required or, if available, will be on terms satisfactory to the
Company.  The Company's future operating performance and ability to service or
refinance the senior notes and to repay, extend or refinance the Amended Bank
Credit Facility will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.

Impact of Currency Exchange Rates

Foreign exchange rate fluctuations have historically not had a significant
impact on the Company's results of operations since the Company's export sales
are denominated in United States dollars.  Due to the unpredictability of
currency exchange rates, there can be no assurance that the Company will not
experience negative currency translation adjustments in the future, nor can the
Company predict the effect of exchange rate fluctuations upon future operating
results.

Factors that May Affect Results

Current Slowdown and Volatility in the Semiconductor Equipment Industry

The Company's business depends and will depend in the future upon the capital
equipment expenditures of semiconductor manufacturers, which, in turn depend on
the current and anticipated market demand for integrated circuits and products
utilizing integrated circuits.  In addition, the Company's business depends upon
the new construction of semiconductor fabrication facilities and, as to existing
fabrication facilities, enhancements to improve yields.  The semiconductor
industry has been cyclical in nature and historically has experienced periodic
downturns.  The semiconductor industry is presently experiencing a downturn due
primarily to excess DRAM capacity and a slowdown in product demand as a result
of lower than expected sales of high-end personal computers and the economic
conditions in the Asia Pacific region.  This slowdown has caused the
semiconductor industry to reduce both purchases of semiconductor manufacturing
equipment and construction of new fabrication facilities.  These 

                                       15
<PAGE>
 
conditions have adversely affected the Company's results of operations for the
first three quarters of Fiscal 1999, and bookings, revenues and operating
results will continue to be adversely affected as long as the current downturn
in the semiconductor industry continues. Even during periods of reduced
revenues, in order to remain competitive, the Company will be required to invest
in research and development and to maintain extensive ongoing worldwide customer
service and support capability, which could adversely affect its financial
results.

Global Market Risks

Because a significant portion of the Company's revenue is from sales outside the
United States, the Company's results can be significantly affected by weak
economic conditions in the foreign markets in which the Company distributes its
products.  Companies in the Asia Pacific region, including Japan, Korea and
Taiwan which accounts for a significant portion of the Company's business in
that region, have continued to experience weaknesses in their currency, banking
and equity markets. These weaknesses are currently affecting demand for the
Company's products.  The Company expects these conditions will continue to
impact its results of operations for at least the next two quarters.

Year 2000

Many computer systems used by the Company and its suppliers may not properly
recognize a date using "00" as the Year 2000.  This could result in
system/program failure or logic errors that would disrupt normal business
activities.  The Company has established a formal project with a project office
and project team to address this issue and achieve Year 2000 (Y2K) readiness.

The project is focused on four key readiness areas: 1) Internal Infrastructure
Readiness, addressing internal hardware and software, and non-information
technology systems; 2) Supplier Readiness, addressing the preparedness of those
suppliers providing material incorporated into the Company's products; 3)
Product Readiness, addressing product functionality; and 4) Customer Readiness,
addressing customer support and transactional activity.

For each readiness area, the Company is systematically performing a global risk
assessment, conducting testing and remediation (renovation and implementation),
developing contingency plans to mitigate unknown risk, and communication with
employees, suppliers, customers and other third party business partners to raise
awareness of the Year 2000 problem.

Internal Infrastructure Readiness Program.  The Company is conducting an
assessment of internal applications and computer hardware.  Some software
applications have been made Year 2000 compliant, and resources have been
assigned to address other applications based on their criticality and the time
required to make them Year 2000 compliant.  All software remediation is
scheduled to be completed no later than March 1999.  The Year 2000 compliance
evaluation of hardware, including network fabric, telecommunications equipment,
workstations and other items is nearing completion.

                                       16
<PAGE>
 
In addition to applications and information technology hardware, the Company is
testing and developing remediation plans for facilities and other operations.

Supplier Readiness Program.  This program focuses on minimizing the risks
associated with suppliers in two areas: 1) a supplier's business capability to
continue providing products and services; and, 2) a supplier's product
integrity.  The Company has identified and contacted key suppliers based on
their relative risks in these two areas.  To date, the Company has received
responses, most of which indicate that the suppliers are in the process of
developing remediation plans, from the majority of its key suppliers.  Based on
the Company's assessment of each supplier's progress to adequately address the
Year 2000 issue, the Company will develop a supplier action list and contingency
plans.

Product Readiness Program.  This program focuses on identifying and resolving
Year 2000 issues existing in the Company's products.  The program encompasses a
number of activities including testing, evaluation, engineering, and
manufacturing implementation.  The Company has adopted the Sematech Year 2000
Readiness Testing Scenarios as the baseline for product testing.  Customers are
being notified of known risk areas and proposed remediation plans.  The Company
plans to make Year 2000 retrofits available to customers during the third
quarter of fiscal year 1999.  A contingency team will be available to assist
customers experiencing difficulties with the Company's products.

Customer Readiness Program.  This program is focused on customer support,
including the coordination of retrofit activity, and developing contingency
plans where appropriate, as well as the ability of the Company's customers to
continue to conduct business with the Company.  This program is in the process
of being developed.

The Company estimates that total Year 2000 costs will not be material to the
Company, with the majority of costs to be incurred during the next five fiscal
quarters.  The Company is continuing its assessments and developing alternatives
that will necessitate refinement of this estimate over time.  There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the programs described in this section.

Since the programs described in this section are ongoing, all potential Year
2000 complications have not yet been identified.  Therefore, the potential
impact of these complications on the Company's financial condition and results
of operations cannot be determined at this time.  If computer systems used by
the Company or its suppliers, product integrity of products provided to the
Company by suppliers, or the software applications or hardware used in systems
manufactured or sold by the Company, fail or experience significant difficulties
related to the Year 2000, the Company's results of operations and financial
condition could be materially affected.

                                       17
<PAGE>
 
Part II. Other Information

Item 1. Legal Proceedings

    On September 14, 1998, the Company was named in a patent infringement suit
    by KLA-Tencor Corporation ("KLA-Tencor"). KLA-Tencor alleged that KLA-Tencor
    patented thin-film thickness measuring technology is being used in metrology
    equipment sold by the Company. KLA-Tencor is seeking damages and an
    injunction to stop the sale of equipment using its technology. The Company
    believes that the Company's products do not infringe any of the claims of
    KLA-Tencor's patent and that their infringement allegations are unfounded.
    The Company intends to defend its position vigorously and expects to prevail
    in its counterclaims against KLA-Tencor.

    On October 26, 1998, the Company announced an action against KLA-Tencor for
    patent infringement. The suit was filed as a counterclaim in the
    infringement action initiated by KLA-Tencor described above. The suit seeks
    damages for patent infringement and a permanent injunction against any
    future infringing activity by KLA-Tencor, or by any third party working in
    conjunction with KLA-Tencor. The counterclaim also seeks a declaratory
    judgment that KLA-Tencor's patent, which the Company was alleged of
    infringing, is invalid and not infringed by any of the Company's devices.

    There can be no assurances, however, that the Company will prevail in any
    patent litigation. The Company believes that the outcome of any resultant
    litigation will not have a material adverse effect on the Company's
    financial condition.

Item 2. Changes in Securities and Use of Proceeds

    None.

Item 3. Defaults Upon Senior Securities

    None.

Item 4. Submission of Matters to a Vote of Security Holders

    None.

Item 5. Other Information
 

                                       18
<PAGE>
 
Item 6. Exhibits and Reports on Form 8-K

      (a)        Exhibits

<TABLE> 
<CAPTION> 
      Exhibit
      Number                        Description
      ------                        -----------
      <S>                           <C>
       3.1                          Restated Certificate of Incorporation of Therma-Wave, Inc. (1)
       3.2                          Amended and Restated By-Laws of Therma-Wave, Inc. (1)
      27.1                          Financial Data Schedule
</TABLE> 
      ________
         (1)  Incorporated by reference to the same numbered exhibit to the
              Company's Registration Statement on Form S-4 (Registration No. 
              333-29871).


      (b)        Reports on Form 8-K

      The Company did not file any reports on Form 8-K for the quarter ended
      December 31, 1998.

                                       19
<PAGE>
 
                                  SIGNATURES

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.


                               THERMA-WAVE, INC.
                                 (Registrant)



                              /s/ L. RAY CHRISTIE
                     -------------------------------------
                                L. RAY CHRISTIE
                            Chief Financial Officer
              (as Registrant and as Principal Accounting Officer)

                               February 11, 1999

                                       20