<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 July 5, 1998 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 August 2, 1998
------------------------------------------------------------------------------
Class A Common stock, $.01 par value                 9,073,532
Class B Common stock, $.01 par value                 1,156,741
Class L Common stock, $.01 par value                 1,008,170
<PAGE>
 
                               THERMA-WAVE, INC.
                                   FORM 10-Q

                                     INDEX


Part I. Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements
 
        Condensed Consolidated Balance Sheets
          June 30, 1998 and March 31, 1998                                   3
 
        Condensed Consolidated Statements of Operations
          Three months ended June 30, 1998 and 1997                          4
 
        Condensed Consolidated Statements of Cash Flows
          Three months ended June 30, 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                       10
 
Part II. Other Information
 
Item 1. Legal Proceedings                                                   16
 
Item 2. Changes in Securities and Use of Proceeds                           16
 
Item 3. Defaults upon Senior Securities                                     16
 
Item 4. Submission of Matters to a Vote of Security Holders                 16
 
Item 5. Other Information                                                   16
 
Item 6. Exhibits and Reports on Form 8-K                                    16
 
Signatures                                                                  17

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


                               THERMA-WAVE, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)
                                  (Unaudited)
<TABLE> 
<CAPTION>
                                                                    June 30,        March 31,
                                                                      1998            1998
                                                                  -----------      -----------
                              ASSETS
<S>                                                               <C>              <C>
Current assets:
 Cash and cash equivalents                                           $ 16,609         $ 20,422
 Accounts receivable, net                                              14,924           22,098
 Inventories                                                           21,813           21,292
 Other current assets                                                   8,091            7,938
                                                                  -----------      -----------
           Total current assets                                        61,437           71,750

 Property and equipment, net                                            5,795            6,241
 Deferred financing costs, net                                          9,560            9,956
 Other assets                                                           1,846            1,815
                                                                  -----------      -----------
           Total assets                                              $ 78,638         $ 89,762
                                                                  ===========      ===========
                                                                                   
           LIABILITIES AND STOCKHOLDERS' EQUITY                                     
               (NET CAPITAL DEFICIENCY)                                            
Current liabilities:                                                               
 Accounts payable                                                    $  2,499         $  4,019
 Other current liabilities                                             20,948           24,383
                                                                  -----------      -----------
           Total current liabilities                                   23,447           28,402
 Long term debt                                                       115,000          115,000
 Other liabilities                                                      2,757            2,835
                                                                  -----------      -----------
           Total liabilities                                          141,204          146,237
                                                                                   
Commitments and contingencies                                                      
                                                                                   
Mandatorily redeemable preferred stock                                 14,721           14,515
                                                                                   
Stockholders' equity (net capital deficiency)                                      
 Common stock  Class A                                                     91               91
 Common stock  Class B                                                     13               13
 Common stock  Class L                                                     10               10
 Additional paid-in capital                                            21,363           21,363
 Notes receivable from stockholders                                      (288)            (288)
 Accumulated deficit                                                  (96,720)         (90,424)
 Currency translation adjustment                                       (1,756)          (1,755)
                                                                  -----------      -----------
            Total stockholders' equity (net capital deficiency)      (77,287)         (70,990)
                                                                  -----------      -----------
            Total liabilities and stockholders' equity (net                        
             capital deficiency)                                     $ 78,638        $ 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
                                                               June 30,
                                                  ----------------------------------
                                                       1998               1997
                                                  ---------------     --------------
 
 
<S>                                               <C>                 <C>
Net revenue                                               $15,246            $28,205
Cost of revenue                                             8,979             13,263
                                                  ---------------     --------------
 Gross margin                                               6,267             14,942
 
Operating expenses:
 Research and development                                   4,598              4,488
 Selling, general and administrative                        4,633              5,026
 Recapitalization and other non-recurring 
  expenses                                                                     2,888
 Expenses relating to operating cost 
  improvements                                                582                  -
                                                  ---------------     --------------
        Total operating expenses                            9,813             12,402
                                                  ---------------     --------------
  
Operating income                                           (3,546)             2,540
 
Other income (expense):
 Interest expense                                          (3,499)            (2,193)
 Interest income                                              206                169
 Other, net                                                  (161)                (5)
                                                  ---------------     --------------
                                                           (3,454)            (2,029)
                                                  ---------------     --------------
Income (loss) before income taxes                          (7,000)               511
Provision (benefit) for income taxes                         (910)               200
                                                  ---------------     --------------
Net income (loss)                                          (6,090)               311
 
Accretion of preferred stock dividend                         206                116
                                                  ---------------     --------------

Net income (loss) attributable to common
 stockholders                                             $(6,296)           $   195
                                                  ===============     ==============
</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>
                                                                              Three months ended
                                                                                   June 30,
                                                                 --------------------------------------------
                                                                         1998                     1997
                                                                 -------------------      -------------------
<S>                                                                <C>                      <C>
Operating activities:
  Net income (loss)                                                          $(6,090)                $    311
  Adjustments to reconcile net income (loss) to net 
   cash used by operating activities:
   Depreciation and amortization                                               1,088                    1,036
   Amortization of deferred financing costs                                      396                        -
   Non-cash recapitalization and related expenses                                  -                    2,888
   Non-cash expenses relating to operating cost improvements                     100                        -
   Changes in assets and liabilities:
     Accounts receivable                                                       7,174                   (3,889)
     Inventories                                                                (944)                  (1,841)
     Other assets                                                               (204)                    (356)
     Other liabilities                                                        (5,053)                     882
                                                                 -------------------      -------------------
       Net cash used by operating activities                                  (3,533)                    (969)

Investing activities:
  Purchases of property and equipment                                           (181)                    (780)
  Other                                                                          (69)                  (1,159)
                                                                 -------------------      -------------------
       Net cash used in investing activities                                    (250)                  (1,939)

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                                           -                   18,728
  Deferred financing costs                                                         -                  (11,077)
  Other                                                                          (30)                   1,367
                                                                 -------------------      -------------------
       Net cash provided by (used in) financing activities                       (30)                     184
 
 Net decrease in cash and cash equivalents                                    (3,813)                  (2,724)
 Cash and cash equivalents at beginning of period                             20,422                   16,741
                                                                 -------------------      -------------------
 Cash and cash equivalents at end of period                                  $16,609                 $ 14,017
                                                                 ===================      ===================
 
 Supplementary disclosures:
  Cash paid for interest                                                     $ 6,119                 $    238
                                                                 ===================      ===================
  Cash paid for taxes                                                        $    51                 $    165
                                                                 ===================      ===================
</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 only of normal recurring adjustments, necessary
    for a fair presentation of the financial position at June 30, 1998, and the
    operating results and cash flows for the three months ended June 30, 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 first fiscal quarters of 1999 and 1998 and the fiscal year 1998 ended on
    July 5, 1998, July 6, 1997 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):

                            June 30, 1998          March 31, 1998
                          -----------------      ------------------
Purchased materials            $ 9,682                $ 9,958
Systems in process               6,419                  7,146
Finished systems                 5,712                  4,188
                          -----------------      ------------------
                               $21,813                $21,292
                          =================      ==================

                                       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 the earlier of (i) June 30,
    1998; or (ii) 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 will 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

                                       7
<PAGE>
 
    the close of business on May 1 and November 1, respectively, immediately
    preceding the 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 June 30, 1998, there was $3.5
    million of an outstanding letter of credit and unused borrowing capacity
    under the Amended Bank Credit Facility of $22.5 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, of which $406,000 relates to
    severance and related charges, $76,000 of vacated leased facilities and
    $100,000 of certain excess operating assets.



 .

                                       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. 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
    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 foreign currency translation
    adjustments. Prior year financial statements have been reclassified to
    conform to the requirements of SFAS 130.

    During the first quarter of 1998 and 1997, comprehensive income (loss)
    amounted to approximately $(6,091,000) and $26,000, 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.

                                       9
<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 risk that factors which allowed the Company to
experience relatively good performance in industry downturns may not protect the
Company in future downturns, 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
improves 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 first quarters of fiscal years 1999 and 1998 ended on July 5, 1998
and July 6, 1997, respectively. For presentation purposes, any reference herein
to such periods refer to the periods ended June 30 of such fiscal year.

                                       10
<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 months ended June 30, 1998 and 1997 were
derived from the Company's unaudited consolidated financial statements which, in
the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for the fair presentation of the financial
condition and results of operations for such periods.

<TABLE>
<CAPTION>
                                                            Three months ended
                                                                 June 30,
                                                   ---------------------------------
Income Statement Data:                                   1998               1997
                                                   --------------     --------------
<S>                                                <C>                <C>
Net revenue                                                 100.0%             100.0%
Cost of revenue                                              58.9               47.0
                                                   --------------     --------------
 
Gross margin                                                 41.1               53.0
Operating expenses:
Research and development expenses                            30.2               15.9
Selling, general and administrative                          30.4               17.8
Recapitalization and other non-recurring expenses               -               10.3
Operating cost improvements                                   3.8                  -
                                                   --------------     --------------
Operating income                                            (23.3)               9.0
Interest expense                                            (22.9)              (7.8)
Interest income                                               1.3                0.6
Other, net                                                   (1.0)                 -
                                                   --------------     --------------
Income (loss) before income taxes                           (45.9)               1.8
Provision (benefit) for income taxes                         (5.9)               0.7
                                                   --------------     --------------
Net income (loss)                                         (40.0) %               1.1%
                                                   ==============     ==============
</TABLE>


Net revenues for the three months ended June 30, 1998 and 1997 were $15.2 and
$28.2 million, respectively.  Compared to the corresponding periods of fiscal
1998 and 1997, net revenues decreased $13.0 million or 45.9% for the three month
period ended June 30, 1998.  This is 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 region.  This
slowdown has caused the semiconductor industry to reduce both purchases of
semiconductor manufacturing equipment and construction of new fabrication
facilities.

Gross margin percentages for the three months ended June 30, 1998 and 1997 were
41.1% and 53.0%, respectively.  Compared to the corresponding periods of fiscal
1998 and 1997, the gross margin percentage decreased by 11.9 percentage points
due to decreased revenues as a result of the downturn in the global
semiconductor industry and continued expenditures primarily related to customer
service.  The Company believes that these expenditures are important to maintain
and strengthen the Company's competitive position.

                                       11
<PAGE>
 
Research and development expenses were $4.6 million and $4.5 million for the
three months ended June 30, 1998 and 1997.  Research and development expenses as
a percentage of net revenues for the three months ended June 30, 1998 and 1997
were 30.2% and 15.9%, respectively.  Compared to the corresponding periods of
fiscal 1998, research and development expenses increased $0.1 million, or 2.5%.
Although the Company is in a current downturn, the Company continues to make
significant investments in research and development, particularly relating to
the new OP5000 and 300 millimeter products, in order to continue to maintain and
strengthen its competitive position.

Selling, general and administrative expenses were $4.6 million and $5.0 million
for the three months ended June 30, 1998 and 1997.  Selling, general and
administrative expenses as a percentage of net revenues for the three months
ended June 30, 1998 and 1997 were 30.4% and 17.8%, respectively.  Compared to
the corresponding periods of fiscal 1998, selling, general and administrative
expenses decreased $0.4 million, or 7.8%.  The increase as a percentage of
revenues for the period ended June 30, 1998 is a result of decreased revenues.
The decrease in selling, general and administrative expenses is due primarily to
the decrease in sales commissions and reduced advertising and promotion
spending.

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, of which $406,000 relates to severance and
related charges, $76,000 of vacated leased facilities and $100,000 of certain
excess operating assets. 

Recapitalization and other non-recurring expenses for the three months ended
June 30, 1997 was $2.9 million 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 June 30, 1998 and 1997 were $3.5
million and $2.2 million, respectively.  This increased interest expense is
attributed to the additional debt incurred as part of the Recapitalization.

For the three months ended June 30, 1998 and 1997, the Company recorded a
benefit (provision) for income taxes of $910,000 and $(200,000), respectively.
The Company's tax benefit of $910,000 for the three months ended June 30, 1998
reflects the expected tax benefit rate of 13% for the fiscal year.

Net loss for the three months ended June 30, 1998 was $6.1 million as compared
with net income of $0.3 million for the three months ended June 30, 1997 due to
the abovementioned factors.

                                       12
<PAGE>
 
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 operating activities was $3.5 million and $1.0 million for the
three months ended June 30, 1998 and 1997, respectively.  The increase in cash
flow used in operating activities from fiscal year 1998 to 1999 is mainly due to
the decrease in net income primarily due decreased revenues and higher interest
expense associated with borrowings used to finance the Recapitalization.  This
decrease was partially offset by a lower investment in working capital and by
the increase in non-cash recapitalization and other non-recurring expenses.

Purchases of property and equipment were $0.2 million and $0.8 million for the
three months ended June 30, 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 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 June 30, 1998, there
was $3.5 million of an outstanding letter of credit and unused borrowing
capacity under the Amended Bank Credit Facility of $22.5 million.

The Company's principal sources of funds are cash on hand ($16.6 million as of
June 30, 1998) and borrowings 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

                                       13
<PAGE>
 
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 conditions have
adversely affected the Company's results of operations for the first quarter 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

                                       14
<PAGE>
 
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 recently
experienced 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 may not properly recognize a date
using "00" as the year 2000 (Year 2000).  This could result in system/program
failures or logic errors that would disrupt normal business activities.  The
Company is in the process of identifying and modifying or replacing computer
systems that potentially subject the Company to risk.

  In addition, certain software programs used to operate systems manufactured
and sold by the Company may not be Year 2000 compliant.  The Company is
currently notifying its customers of its plans on evaluating such software
programs to determine if they are Year 2000 ready.

  The Company has initiated communications with suppliers to raise their
awareness of the Year 2000 issue and to determine the extent to which the
Company is vulnerable to their failure to remediate their own Year 2000 issues.
The Company cannot reasonably predict the degree to which its suppliers will be
successful in mitigating the potential negative effects of the Year 2000 date-
recognition problem.

  If computer systems used by the Company or its suppliers, or the software
applications used in systems manufactured and sold by the Company, fail or
experience significant difficulties, the Company's results of operations could
be materially affected.  At this time, the Company cannot reasonably estimate
the cost of its Year 2000 compliance program.

                                       15
<PAGE>
 
Part II. Other Information

Item 1. Legal Proceedings

    None.

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

    In July 1998, Anthony W. Lin resigned from the position of Chief Financial
    Officer of the Company and as a member of the Board of Directors.
    Additionally, in July 1998, Charlotte Holland resigned from the position of
    Vice President of Finance of the Company. In August 1998, Martin Schwartz
    became the President and Chief Operating Officer of the Company and a member
    of the Board of Directors and Ray Christie became the Chief Financial
    Officer of the Company.

Item 6. Exhibits and Reports on Form 8-K

    (a)   Exhibits

    Exhibit
    Number      Description
    ------      -----------

     3.1        Restated Certificate of Incorporation of Therma-Wave, Inc. (1)
     3.2        Amended and Restated By-Laws of Therma-Wave, Inc. (1)
    10.1        First Amendment to the Credit Agreement among Therma-Wave, Inc.,
                various lending institutions, and Bankers Trust Company, as
                Agent.
    27.1        Financial Data Schedule
 
    _______
      (1)  Incorporated by reference to the same numbered exhibit to the 
           Company's Registration Statement on Form S-4 (Registration No.
           333-29871)

                                       16
<PAGE>
 
    (a)   Reports on Form 8-K

    The Company filed a report on Form 8-K on July 22, 1998 and an amendment on
    Form 8-K/A on July 27, 1998 to record the change in certifying accountants.





                                  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)

                                August 13, 1998

                                       17