<PAGE>

                                   GASONICS



             GaSonics International Corporation 1997 Annual Report
<PAGE>

[Contains black box covering page.  Page is otherwise  blank]

<PAGE>

GaSonics International
is the world leader in
Integrated Clean-TM- solutions:
an expanding and
increasingly critical
phase of semiconductor
manufacturing.


                                                                              1


<PAGE>

Geometries are
shrinking.



[Graphic of arrow head]



As device geometries shrink below
 .25-MICRON-, the danger increases that 
unwanted materials can adversely affect
semiconductor performance and
production yield.


                                                                              2
<PAGE>
Wafers are
getting larger.



[Graphic of man w/blue circle]



Expanding wafer sizes dramatically
increase the number of finished
semiconductor devices that
can be damaged by interlayer
residues.


                                                                             3
<PAGE>

And the number
of layers
is increasing.



[Graphic of woman and colored circles]



As material layers increase,
the number and kind of potentially
damaging residues and unwanted
materials increase as well.


                                                                              4
<PAGE>

Removing unwanted
materials from the etched
wafer is a more challenging 
and fragmented process
than ever. GaSonics cuts
through the complexity with
advanced process technology
and integrated solutions.


                                                                              5
<PAGE>

GaSonics International
helps semiconductor
manufacturers achieve
fundamental goals: higher
yield, higher throughput,
reduced environmental
impact and lower cost
per wafer.


                                                                              6
<PAGE>

The fundamental
benefits of
Integrated Clean.


[Graphic of man with circle]

c - Cost

y - Yield

t - Throughput

e - Environmental Impact


                                                                              7
<PAGE>

Clean technologies
are proliferating.



[Graphic of woman and numbered boxes]



Manufacturing processes between etch
and deposition are proliferating as
existing processes fragment and new
ones emerge. GaSonics International
is meeting emerging challenges with
innovative clean technologies.


                                                                              8
<PAGE>

Readying Tomorrow's
Technologies


GaSonics International has been part of the semiconductor industry's growth 
and evolution since the beginning. The Company's products have been used to 
manufacture each new generation of the industry's cutting edge products, 
including every generation of advanced microprocessors. Today we continue to 
lead our served market with advanced technology, superior engineering and 
world-class service and support.

GaSonics International is a dominant player in the world market for 
photoresist removal equipment, used in the process step immediately following 
the etching of semiconductor wafers. From this leadership position GaSonics 
recognizes the challenges ahead. Processes for cleaning wafer surfaces, 
including photoresist removal, are becoming segmented as manufacturers 
introduce new materials. New cleaning processes must be developed to remove 
tougher residues from smaller areas. And all the process steps between etch 
and deposition must be managed more effectively to improve production yields 
and reduce the cost per wafer.

GaSonics International is now developing advanced process technologies to 
address these manufacturing challenges. With our long-term customer 
relationships, proven R&D expertise and established market position, GaSonics 
International continues to provide technology leadership in one of the 
world's most important industries.


                                                                             9
<PAGE>

Integrating Clean
Solutions Between Etch
and Deposition

Higher performance. Smaller size. Lower cost. To maintain the relentless pace 
of Moore's Law, semi-conductor manufacturers must continually increase their 
productivity. GaSonics International offers a key solution set with the 
introduction of Integrated Clean-TM-. With this initiative, we are extending 
our advanced photoresist removal technology and integrating it with new 
process technologies, to address more of our customers' needs for material 
removal between etch and deposition.

Until recently, wafer cleaning processes were physically separate, employed 
multiple user interfaces, and fought each other for space in crowded, 
expensive wafer fabrication facilities. Then GaSonics created the PEP-TM-
platform, the industry's first Integrated Clean solution for wafer 
manufacturing. The PEP system gives customers higher throughput, improved 
time to market, flexibility to mix and match different cleaning technologies 
in a single machine, and a graphical user interface that remains stable as 
new technologies are brought to the PEP platform.

Customers responded immediately to these important productivity benefits, 
making the PEP system the fastest-ramping new product in the Company's 
history. The PEP system also benefits GaSonics, because it reduces product 
development time for new 200 mm manufacturing solutions that fit into the PEP 
platform.

We are already applying our Integrated Clean philosophy to 300 mm wafers, 
expected to be an industry standard at the turn of the century. The result: 
the Millennia-TM- platform, designed to allow semiconductor manufacturers to 
operate even more productively in the new millennium.


                                                                              10
<PAGE>

GaSonics International
integrates clean
technologies.



[Graphic of woman dancing by numbered boxes]



GaSonics International leads the industry
with Integrated Clean solutions that
flexibly combine multiple process
technologies into compact, high-performance
platforms that enable
high-throughput manufacturing of future
generations of semiconductors.


                                                                              11
<PAGE>

GaSonics meets its
customers' needs,
worldwide.



[Graphic of man w/flag]



GaSonics International operates locally
in the world's important semiconductor
manufacturing countries, and continues
to build a world-class international
infrastructure.


                                                                              12
<PAGE>


Delivering Integrated
Clean Solutions to
a Global Market


GaSonics International complements its platform and technology leadership 
with an expanding international infrastructure that delivers the Company's 
solutions to customers around the world. Our international organization 
includes sales and service offices in strategic locations in Europe, Japan, 
Korea, Singapore, Taiwan and North America.

GaSonics International provides committed customer service both globally and 
locally. For example, our Strategic Spares Network is designed to deliver 
spare parts to any customer manufacturing site in the world in a matter of 
hours, not days. At the same time, GaSonics engineering personnel can be 
found at customer sites throughout the world, working day by day to 
implement, maintain and enhance the Company's solutions.

When VLSI Research Inc. asked 37,000 semiconductor manufacturing managers 
throughout the world to identify the suppliers that served them best last 
year, GaSonics International once again won the prestigious VLSI 10 BEST 
Award in its industry segment. This award recognizes the quality of the 
Company's technology, the reliability of its products, and the organization 
that delivers them.


                                                                              13

<PAGE>


To Our
Stakeholders



[Graphic of flag]


                    Fiscal 1997 was a productive year for GaSonics 
International despite the semiconductor industry's downturn. We have long 
been the technology leader in photoresist removal, the semiconductor 
manufacturing process step following etch, and during fiscal 1997 we began 
extending our capabilities further along the process spectrum that connects 
etch to deposition.

Our ability to integrate fragmented, complex process between etch and 
deposition is a significant benefit to our customers, which include most of 
the major microprocessor, DRAM and logic manufacturers around the world. As 
these companies approach the .18-MICRON- 300 mm era early in the next 
millennium, they are looking to us for technology leadership, productivity 
improvements and responsive global support. We're delivering all three, with 
our directional downstream technology, our development of integrated process 
platforms, and our world-class international infrastructure.

All three of these strategic advantages contributed to the strong market 
acceptance of our integrated PEP platform, which in fiscal 1997 became the 
fastest-ramping new product in the Company's history. In fact, the PEP system 
contributed 60% of total revenues in the fourth fiscal quarter, just one year 
after volume shipments began. The PEP system gives us a stable, common 
platform that accelerates our introduction of new technologies and 
capabilities. This in turn helps us enter new markets and increase 
productivity for our customers. We have already announced our next 
breakthrough platform, the Millennia system, which will integrate 
etch-to-deposition process steps in 300 mm manufacturing.


                                                                              14
<PAGE>

For the year, revenues were $121.3 million, the second-highest total in the 
Company's history behind the $127.0 million in revenues posted in fiscal 
1996. Fiscal year earnings were $5.2 million, or $0.36 per share, excluding a 
provision for an uncollectible account receivable and a gain on sale of stock 
of a third party. Net income, excluding the items mentioned previously, grew 
quarter over quarter throughout the year, and we continued to achieve 
excellent balance in our revenue mix, both geographically and between the 
logic and memory markets. We broadened our international market leadership by 
penetrating important new accounts, most notably in Taiwan, one of Asia's 
strongest and most stable regional markets, where we took the lead position 
for photoresist removal systems. We also kept up the pace of product 
development, to expand our opportunities as the overall semiconductor 
manufacturing equipment market shows signs of improvement.

Integrated Clean Solutions
Between Etch and Deposition

For our customers, integrated platforms enable higher manufacturing 
throughput, more effective use of limited space in fabrication facilities, 
and faster incorporation of new technology. Our PEP system delivers all these 
benefits for the fabrication of 200 mm wafers, and it is qualified for 
manufacturing processes down to .18-MICRON-. During fiscal 1997 we increased 
PEP throughput by 20% and added significant enhancements, including support 
for Standard Machine Interface (SMIF), as well as advanced automation 
techniques which improve factory utilization.

Our Millennia platform, introduced in the fourth fiscal quarter, is designed 
to distinguish us even more clearly as the Integrated Clean leader. The 
Millennia combines four different process stations sharing the same 
downstream microwave source and the same easy-to-use software interface. It's 
designed for the industry's highest-throughput 300 mm wafer manufacturing at 
and below .25-MICRON-. We anticipate that I300I, a semiconductor 
manufacturing consortium that includes more than a dozen of our customers, 
will qualify the Millennia platform for .25-MICRON- applications in 1998.

With common platforms, we now can mix and match process technologies to 
provide Integrated Clean solutions between etch and deposition. One of the 
defining features of GaSonics platforms is the reduction of toxic chemical 
processing in Integrated Clean solutions. This in turn reduces the 
environmental impact of semiconductor manufacturing and lowers the cost of 
doing business for our customers. I believe all GaSonics International 
stakeholders should be proud of this aspect of our work. Cleaner 
manufacturing is certainly good for our customers, and it's vital to the 
health of our planet.

Readying Tomorrow's
Technologies

The coming generations of semiconductors are challenging manufacturers at a 
fundamental level. Smaller device geometries, larger wafers, and more layers 
per wafer all put downward pressure on yield -- which translates directly to 
reduced profitability. GaSonics is delivering the advanced process 
technologies manufacturers need to achieve high yields in a complex, changing 
technological domain.

I have already mentioned our historic core competency in photoresist removal, 
an area where our down-stream microwave technology gives us an important edge 
over competitors employing less advanced plasma-based technologies. We 
provide our customers higher throughput and higher yields with photoresist 
removal, and we will continue to extend our mastery of this complex, 
fundamental process technology.


                                                                              15
<PAGE>

Many of the PEP systems we sold in fiscal 1997 included a chamber for 
post-etch residue removal, a process technology we anticipated would grow in 
importance as semiconductor manufacturing technology evolves below 
 .35-MICRON-. The higher density plasmas and more complex chemistries used in 
advanced etching require more effective cleaning before the subsequent 
deposition of a new wafer layer, and residue removal will continue to grow in 
importance as customers move through .25-MICRON- to .18-MICRON-. We expect 
that PEP revenues related to residue removal will continue to grow as a 
percentage of sales in fiscal 1998.

We're also preparing a set of emerging process technologies that we believe 
will become critical at .18-MICRON- -- an inflection point for new 
manufacturing materials and processes. One of the future challenges we are 
already addressing in the laboratory is the increasing depth of the extremely 
small holes, known as vias, in device interconnect layers. New process 
technologies will be required to clear vias of residues that impact yield and 
performance, and we are progressing well with several new techniques that 
address this need. I expect also that new manufacturing materials and 
processes will create opportunities for us to provide additional solutions 
for mask removal and preparation before deposition. During fiscal 1997, we 
established an advanced interconnect development group to focus on these and 
other market opportunities as they evolve.

Strengthening our International
Infrastructure

One of GaSonics International's greatest strengths lies in our existing 
relationships with customers around the world. Our platform and technology 
roadmaps are designed to meet our customers' existing and future needs; 
continued development of our international infrastructure enables us to meet 
those needs locally, on a global basis.

Our long-term strategy has always been to enter new geographic markets with 
distribution relationships and then to shift to direct operations when we are 
established in the region. In fiscal 1997, we reached that transition point 
in Korea, Singapore and Taiwan. In Japan, our successful liquid-crystal 
display (LCD) manufacturing equipment division is poised to take over 
Japanese sales and drive marketing of our semiconductor manufacturing systems 
as well; I expect this transition to be complete early in calendar 1998. The 
one exception to our direct distribution strategy continues to be Teltec 
GmbH, our German distributor of 26 years, which consistently delivers 
outstanding performance.

At the heart of GaSonics International's infrastructure is our R&D 
organization, which drives our platform and technology efforts. We plan to 
grow our R&D investment in absolute dollars over the next few years, and to 
aggressively recruit the engineering talent we will need to extend our 
existing technology leadership. Our outstanding R&D organization is well 
complemented by a worldwide service and support team that during the year 
helped GaSonics International earn two of our industry's highest awards.

For the second straight year we received the VLSI Research Inc. 10 BEST Award 
in our industry category. In addition, National Semiconductor Corporation 
presented us with its first-ever Gold Award in its Quest for Gold supplier 
quality program. I should point out that both awards acknowledge the quality 
of our service and support on an international basis. We were also pleased to 
receive recognition for the PEP 3510A, chosen by the editors of SEMICONDUCTOR 
INTERNATIONAL magazine as one of the year's best products. Congratulations to 
everyone who helped us earn these awards.


                                                                              16

<PAGE>

Looking Ahead

In fiscal 1998, we will aggressively drive the technology, platform and 
business execution roadmaps described earlier in this letter. I have stressed 
throughout the previous few years the importance of establishing sound and 
efficient business processes throughout the Company. In combination with 
strong management these processes help us stay focused on doing exactly what 
we have to do under whatever market conditions apply. In the coming year, we 
intend to focus on four key initiatives: extending our global leadership in 
the photoresist removal market; qualifying our integrated Millennia platform; 
developing new, next-generation Integrated Clean technologies; and converting 
to 100% direct operations in Japan.

I believe that in fiscal 1998, the market outlook should become clearer for 
our LCD systems and our innovative, vertical high-pressure (VHP) system. One 
potential opportunity lies in low thermal budget applications in the 
manufacture of high speed logic devices. Another opportunity for VHP lies in 
the manufacture of oxynitride transistor gates in .18-MICRON- 
semiconductors. This would constitute an entirely new market for the Company, 
but it's one I'm confident we have the technology to tackle effectively. Also 
in fiscal 1998, we anticipate continued revenue and earnings growth for our 
LCD business in Japan, based on the number of customers that have designed 
our systems into upcoming production processes.

Turning to the semiconductor market as a whole, we see the expansion in 
production capacity for logic devices that began in calendar 1997 continuing 
in 1998. We believe that the DRAM market will follow a year later. Based on 
our long experience with the cyclical semiconductor manufacturing market, we 
took our financial and organizational medicine early in the down cycle. Now 
we're ready, willing, and able to accelerate our growth and reap the rewards 
of our product and infrastructure investments. I want to thank all our 
customers, employees, vendors and stockholders for their support and 
contributions during this period, and I look forward to reporting to you on 
our progress in the coming year.

Sincerely,

/s/ DAVE TOOLE

DAVE TOOLE
President and
Chief Executive Officer

[Graphic of man in suit]


                                                                              17
<PAGE>

GaSonics International is
positioned to outpace
market growth.



[Graphic of man running in suit next to a clock]



As semiconductor manufacturing capacity
once again increases, GaSonics
International is ready to leverage its
strong customer relationships and
technology leadership.


                                                                              18
<PAGE>

With its platform / process
technologies and
business systems in place,
GaSonics International
continues to lead the
market for Integrated Clean
solutions between etch
and deposition.


                                                                              19
<PAGE>


Financial Statements



[Graphic of man in sitting on stool below an equation]


                                                                              20
<PAGE>

Selected Financial Data                               22

Management's Discussion and Analysis of
Financial Condition and Results of Operations         23

Consolidated Balance Sheets                           28

Consolidated Statements of Operations                 29

Consolidated Statements of Stockholders' Equity       30

Consolidated Statements of Cash Flows                 31

Notes to the Consolidated Financial Statements        32

Report of Independent Public Accountants              43


                                                                              21
<PAGE>

Selected Financial Data 

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                             Years ended September 30,
                                                      -------------------------------------------------------------------------
(in thousands, except per share amounts)                   1997          1996           1995            1994            1993
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>             <C>             <C>             <C>
Operations:

Net sales                                                $121,256      $127,043        $102,047        $66,590         $41,882

Gross margin                                               53,964        62,626          57,930         37,865          21,509

Operating income                                            2,780        12,370          19,942         14,450           5,777

Net income(1)(2)                                            3,007         8,930          16,126          9,890           3,512

Net income per share(1)(2)                               $   0.21      $   0.65        $   1.21        $  0.87         $  0.34

Balance Sheet:

Cash, cash equivalents and
  marketable securities                                  $ 24,884      $ 25,909        $ 36,599        $21,230         $ 1,217

Working capital                                            62,971        59,224          55,130         32,129           9,467

Total assets                                              104,382        96,430          85,367         43,682          20,083

Long-term debt, less current portion                           --            --              --             --           1,807

Stockholders' equity                                     $ 79,193      $ 72,689        $ 63,188        $33,370         $ 8,418
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarterly 1997
Unaudited (in thousands, except per share data)                             1st             2nd            3rd             4th
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C>             <C>             <C>
Net sales                                                              $ 29,686        $ 29,592        $30,126         $31,852

Gross margin                                                             12,662          13,187         13,574          14,541

Operating income (loss)                                                   1,374           1,735         (2,574)          2,245

Net income (loss)(1)                                                        929           1,281           (764)          1,561

Net income (loss) per share(1)                                         $   0.07        $   0.09        $ (0.06)        $  0.11

Price range per share                                              $6.88-$12.63   $10.25-$19.62   $8.13-$15.63   $12.63-$23.06
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarterly 1996
Unaudited (in thousands, except per share data)                             1st             2nd            3rd             4th
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>            <C>             <C>
Net sales                                                              $ 33,782        $ 36,997        $29,058         $27,206

Gross margin                                                             18,505          19,973         13,182          10,966

Operating income (loss)                                                   6,418           6,225            859          (1,132)

Net income (loss)(2)                                                      4,354           4,270            774            (468)

Net income (loss) per share(2)                                         $   0.32        $   0.32        $  0.06         $ (0.03)

Price range per share                                             $10.25-$24.50    $8.75-$13.88   $9.25-$15.13    $6.63-$11.00
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Net income for the third quarter and year ended September 30, 1997 
includes a $2.9 million or $0.20 per share after tax write-off of an 
uncollectible account receivable due from a customer in Thailand (See Note 2 
to the Consolidated Financial Statements) and also includes a non-operating 
after tax gain of approximately $790,000 or $0.05 per share realized from the 
sale of stock from a third party (see Note 8 of Notes to the Consolidated 
Financial Statements).

(2) Net income for the third quarter and year ended September 30, 1996 
includes a non-operating after tax gain of approximately $93,000 or $0.01 per 
share realized from the sale of stock from a third party (see Note 8 of Notes 
to the Consolidated Financial Statements).

STOCK AND DIVIDEND INFORMATION.  The Company has one class of stock 
outstanding, its Common Stock, which has a par value of $.001 per share. The 
Company's Common Stock is traded on The Nasdaq National Market under the 
symbol "GSNX." The price range per share is the highest and lowest closing 
prices as reported by The Nasdaq National Market.

    In October 1995, the Company declared a three-for-two stock split in the 
form of a 50% stock dividend paid on November 20, 1995. All share and per 
share amounts have been restated to give effect to the stock split.

    The Company has not paid cash dividends on its Common Stock since 
inception, and its Board of Directors presently plans to reinvest the 
Company's earnings in its business. Accordingly, it is anticipated that no 
cash dividends will be paid to holders of Common Stock in the foreseeable 
future. Additionally, certain financial covenants set forth in the Company's 
bank line of credit limit the Company's ability to pay cash dividends. On 
September 30, 1997, the Company had approximately 150 stockholders of record 
and approximately 3,219 beneficial stockholders.


                                                                              22
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations


With the exception of historical facts, the following Management's Discussion 
and Analysis of Financial Condition and Results of Operations contains 
forward-looking statements within the meaning of Section 21E of the 
Securities Exchange Act of 1934, as amended, including, but not limited to, 
future sales, gross margins, the anticipated increase in inventories and 
operating expenses and the sufficiency of financial resources to support 
operations, and are subject to the Safe Harbor provisions created by that 
statute. Such statements are based on current expectations that involve 
inherent risks and uncertainties, including those discussed below and under 
the heading "Additional Risk Factors" in the Company's 1997 Annual Report on 
Form 10-K and in the last paragraph of this Overview, that could cause actual 
results to differ materially from those expressed. Readers are cautioned not 
to place undue reliance on these forward-looking statements, which speak as 
of the date hereof. The Company undertakes no obligation to publicly release 
the results of any revisions to any forward-looking statements, which may be 
made to reflect events or circumstances after the date hereof or to reflect 
the occurrence of unanticipated events.

Overview

The Company is a leading developer and supplier of a portfolio of products 
and services used in the fabrication of advanced integrated circuits ("ICs") 
and flat panel displays ("FPDs"). The Company's products consist of 
photoresist removal systems, residual removal systems, isotropic etch systems 
and high-pressure furnaces for the semiconductor industry and low-pressure 
chemical vapor deposition systems ("LPCVD") for the flat panel display 
industry. In addition, the Company provides spare parts and upgrades, as well 
as maintenance and support services.

The Company's operating results have fluctuated significantly in the past and 
will fluctuate significantly in the future. The Company anticipates that 
factors continuing to affect its future operating results will include the 
cyclicality of the semiconductor industry and the markets served by the 
Company's customers, the timing of significant orders, patterns of capital 
spending by customers, the relative proportions of direct sales and sales 
through distributors, the proportion of international sales to net sales, 
changes in pricing by the Company, its competitors, customers or suppliers, 
market acceptance of new and enhanced versions of the Company's products, the 
mix of products sold, financial systems, procedures and controls, discounts, 
the timing of new product announcements and releases by the Company or its 
competitors, delays, cancellations or rescheduling of orders due to customer 
financial difficulties or otherwise, the Company's ability to produce systems 
in volume and meet customer requirements, the ability of any customer to 
finance its purchases of the Company's equipment, changes in overhead 
absorption levels due to changes in the number of systems manufactured, 
political and economic instability and lengthy sales cycles. Gross margins 
have varied and will continue to vary materially based on a variety of 
factors including the mix and average selling prices of systems sales, the 
mix of revenues, including service and support revenues, and costs associated 
with new product introductions and enhancements and the customization of 
systems. Furthermore, announcements by the Company or its competitors of new 
products and technologies could cause customers to defer purchases of the 
Company's existing systems, which would also materially adversely affect the 
Company's business, financial condition and results of operations. The 
Company has expended significant resources with respect to the development, 
and ramp up of production and commercial shipments of four products 
introduced in fiscal 1995, the Strata, the VHP, the PEP and the 2106 LPCVD. 
Gross margins in fiscal 1996 and 1997 decreased from the level attained in 
fiscal 1995, in part, due to startup inefficiencies associated with these 
introductions and sales, competitive pricing pressures, changes in product 
mix, from higher margin single chamber systems to lower margin dual chamber 
systems and an increase in lower margin products sold by the Company's LCD 
division in Japan, and other factors. In addition, sales and earnings for the 
last half of fiscal 1996 and for fiscal 1997 were materially adversely 
impacted by the current semiconductor business slowdown. While the Company 
has and is continuing to manage its expenses to partially offset this loss of 
income from the decline in revenue and gross margins, it is anticipated that 
this slowdown in the industry will continue into next fiscal year and will 
continue to have a material adverse affect on the Company's future revenues 
and operating results.


                                                                             23
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations


Results of Operations

The following table sets forth consolidated statements of operations data of 
the Company expressed as a percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                   Years ended September 30,
                                                -------------------------------
                                                 1997         1996       1995
-------------------------------------------------------------------------------
<S>                                              <C>         <C>         <C>
Net sales                                        100.0%      100.0%      100.0%
Cost of sales                                     55.5        50.7        43.2
-------------------------------------------------------------------------------
Gross margin                                      44.5        49.3        56.8
-------------------------------------------------------------------------------
Operating expenses:
  Non-recurring charges                             --          --          .6
  Provision for uncollectible account (Note 2)     3.7          --          --
  Research and development                        14.4        14.2        12.1
  Selling, general and administrative             24.1        25.4        24.6
-------------------------------------------------------------------------------
  Total operating expenses                        42.2        39.6        37.3
-------------------------------------------------------------------------------
Operating income                                   2.3         9.7        19.5
Other income (expense):
  Interest expense                                 (.1)         --          --
  Interest and other income                         .6         1.0         1.1
  Gain on sale of investment                       1.0          .1         4.6
-------------------------------------------------------------------------------
Income before provision for income taxes           3.8        10.8        25.2
Provision for income taxes                         1.3         3.8         9.4
-------------------------------------------------------------------------------
Net income                                         2.5%        7.0%       15.8%
-------------------------------------------------------------------------------
</TABLE>

NET SALES. Net sales consist of revenues from system sales, spare part and 
upgrade sales and maintenance. Net sales increased 24.5% from $102.0 million 
in fiscal 1995 to $127.0 million in fiscal 1996, and decreased 4.5% to $121.3 
million in fiscal 1997. During these periods, demand for the Company's 
photoresist removal systems, specifically the Company's new PEP dual chamber 
platform systems, increased as the Company's customers equipped new or 
expanded facilities, resulting in certain instances, in multiple system 
purchases by major customers, including new customers. The slight decline in 
revenue in fiscal 1997 was due primarily to the general slowdown in incoming 
orders experienced by the capital equipment industry since March 1996. This 
slowdown was first evident in a slowdown of equipment purchases by major 
North American IC manufacturers in the spring of 1996 and eventually spread 
to nearly all types of IC manufacturers in nearly all geographic regions.

As a result of the semiconductor business slowdown, the Company experienced 
significant delays of new orders and rescheduling of existing orders which 
materially adversely affected sales for the last half of fiscal 1996 and all 
of fiscal 1997. Sales of single chamber ash/strip products were significantly 
adversely impacted by the business slowdown, partially offset by a 
significant increase in sales of PEP dual chamber systems. Approximately 50% 
of the Company's fiscal 1997 revenues were from PEP products, including both 
the photoresist removal and the post etch residue removal systems, as 
compared to less than 10% in fiscal 1996.

International sales, which are predominantly to customers based in Europe and 
Asia Pacific, accounted for approximately 40%, 54% and 55% of total net sales 
in fiscal 1995, 1996 and 1997, respectively. The Company continued to invest 
significant resources in international markets, particularly in Japan, Korea, 
Singapore, Taiwan, France, Italy, Ireland, Israel and the United Kingdom 
during fiscal 1997 in an attempt to increase its global market


                                                                              24
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations


share. The Company's growth in international revenues in fiscal 1996 and 1997 
as compared to fiscal 1995 is due in part to the investments made in 
establishing a direct sales and service presence in Korea, Singapore, and 
Taiwan and increased sales of PEP systems. The Company's percentage of 
international sales may fluctuate from period to period, but the Company 
anticipates that international sales will continue to account for a 
significant portion of net sales in fiscal 1998. However, current Asian 
economic conditions may have a significant adverse impact on international 
revenues in fiscal 1998.

GROSS MARGIN. The Company's gross margin as a percentage of net sales was 
56.8% in fiscal 1995, 49.3% in fiscal 1996 and 44.5% in fiscal 1997. The 
decrease in gross margin for fiscal years 1996 and 1997 was attributable to 
several factors, including significantly lower sales volume of the Company's 
more mature, higher margin single chamber systems, underutilization of the 
manufacturing and field service and support operations due to the 
semi-conductor industry slowdown and increased revenues from lower margin new 
products including PEP systems and flat panel display equipment. The 
Company's flat panel display equipment has significantly lower gross margins 
than its photoresist removal systems. The Company's gross margin as a 
percentage of net sales has been affected by a variety of other factors, 
including the mix and average selling prices of products sold and the costs 
to manufacture, service and support new product introductions and 
enhancements. The Company expects that its gross margin will continue to be 
materially adversely impacted by inefficiencies associated with new product 
introductions, sales of lower margin PEP and flat panel display systems, 
competitive pricing pressures, the general slowdown in the semiconductor 
industry, the economic troubles currently being experienced by many Asian 
countries, including some of the Company's major markets such as Japan, Korea 
and Taiwan, changes in product mix and other factors including those referred 
to above. The Company, however, will continue to focus on its gross margin 
improvement programs, including the introduction of new value-added 
applications, features and options on the PEP systems, targeted cost 
reduction programs and controlled spending.

NON-RECURRING CHARGES. In the fourth quarter of fiscal 1995, the Company 
recorded a non-recurring charge of $575,000 for the write-off of in-process 
research and development associated with certain products acquired as part of 
the Company's acquisition of Tekisco, Ltd. ("Tekisco") as they had not 
achieved technological feasibility and, in management's opinion, had no 
probable alternative future use (see Note 4 of Notes to the Consolidated 
Financial Statements).

PROVISION FOR UNCOLLECTIBLE ACCOUNT. In the third quarter of fiscal 1997, the 
Company recorded an expense of $4.5 million related to the write-off of an 
uncollectible account receivable (see Note 2 of Notes to the Consolidated 
Financial Statements).

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily 
of salaries, project materials, consultant fees and other costs associated 
with the Company's research and development efforts. Research and development 
expenses as a percentage of net sales increased from 12.1% in fiscal 1995 to 
14.2% in fiscal 1996 and to 14.4% in fiscal 1997. In absolute dollars, 
research and development expenses increased from $12.3 million in fiscal 1995 
to $18.0 million in fiscal 1996 and decreased to $17.4 million in fiscal 
1997. The absolute dollar increase in fiscal year 1996 is primarily 
attributable to the hiring of additional personnel to support ongoing and new 
product development. The Company has maintained its research and development 
spending near pre-slowdown levels to continue critical programs, particularly 
the launch of the PEP platform and the support of the expanding number of 
available applications, development of the post etch residue removal 
applications, the development of the Millenia 300mm platform, the support of 
the LCD flat panel business and applications development of the VHP 
technology. The Company anticipates that research and development expenses 
will increase in absolute dollars in fiscal 1998 due, in part, to the 
anticipated significant continued investment in new product development.


                                                                              25
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative 
expenses increased from $25.1 million in fiscal 1995 to $32.3 million in 
fiscal 1996 and decreased to $29.3 million in fiscal 1997. As a percentage of 
net sales, selling, general and administrative expenses increased from 24.6% 
in fiscal 1995 to 25.4% in fiscal 1996 and decreased to 24.1% in fiscal 1997. 
Specifically, expenses increased in fiscal 1996 for employee and third-party 
commissions and overall employee compensation relating to the hiring of new 
personnel, principally in marketing and sales to support the expansion of 
operations in Europe and Asia Pacific. The decrease in selling, general and 
administrative expenses from fiscal 1996 to fiscal 1997 was principally due 
to lower third party commissions which are payable on a significant portion 
of the international sales and, to a lesser extent, to the reduction in 
headcount that occurred in the fourth quarter of fiscal 1996. Third party 
commissions can fluctuate significantly depending on the mix of domestic 
versus foreign sales in any period. The Company has built and is continuing 
to build a worldwide direct sales and support organization which is 
decreasing the Company's dependence on third party representatives for these 
services. Consequently, third party commissions in some regions have been 
eliminated or reduced. Although the Company has taken steps to manage its 
spending due to the uncertainties of the current business climate, it 
anticipates that the current level of selling, general, and administrative 
spending will increase in absolute dollars in fiscal 1998.

OTHER INCOME (EXPENSE). Other income and expense consists primarily of 
interest expense, interest income and gain on sale of stock of a third party. 
Interest and other income increased from fiscal 1995 to fiscal 1996 primarily 
due to interest income resulting from increased investments in marketable 
securities that resulted from the investment of proceeds received from the 
sale of Common Stock in the Company's secondary offering in March 1995. The 
increase in interest and other income from fiscal 1996 to fiscal 1997 was 
primarily due to the gain from the sale of stock of a third party offset in 
part by the decrease in interest income resulting from a significant use of 
cash during the first three quarters and increased interest expense 
pertaining to the borrowings by GaSonics International Japan K.K. under the 
credit facility.

Net income for fiscal 1995, fiscal 1996 and fiscal 1997 was favorably 
impacted by sales of a portion of the shares held by the Company in a 
corporation, which shares were received in exchange for technology and 
certain services rendered in fiscal 1990. The Company realized pretax gains 
in fiscal years 1995, 1996 and 1997 of approximately $4,700,000, $143,000 and 
$1,215,000, respectively, from these sales (see Note 8 of Notes to the 
Consolidated Financial Statements).

PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.3% in 
fiscal 1995 and 35.0% in fiscal years 1996 and 1997. The decrease in the tax 
rate for fiscal years 1996 and 1997 from fiscal 1995 resulted primarily from 
the benefit derived from the Company's foreign sales corporation due to the 
increase in international sales during fiscal 1996 and 1997 as compared to 
fiscal 1995, as well as from benefits derived from research and development 
credits and from tax exempt income from certain marketable securities. In the 
past, the Company has derived significant benefits from research and 
development tax credits, and, to the extent such credits may be unavailable 
to the Company in the future, the Company's effective tax rate could increase.

Liquidity and Capital Resources

During fiscal 1997, cash, cash equivalents and marketable securities 
decreased by $1.0 million to $24.9 million at September 30, 1997 from $25.9 
million at September 30, 1996. Operations provided cash of approximately $6.4 
million and $1.9 million in fiscal 1995 and 1997, respectively, and used cash 
of approximately $5.6 million in fiscal 1996. Investing activities utilized 
cash of approximately $7.4 million, $5.7 million and $5.9 million in fiscal 
1995, 1996 and 1997, respectively, for the acquisition of property and 
equipment including $2.4 million for the acquisition of Tekisco in 1995. 
Capital spending in fiscal years 1996 and 1997 included approximately $2.0 
million


                                                                              26
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

and $2.8 million, respectively, for the purchase and installation of a new 
management information system. Investing activities used cash of 
approximately $18.5 million in fiscal 1995 for the purchase of marketable 
securities and provided cash in fiscal 1996 and fiscal 1997 of approximately 
$13.4 million and $1.7 million, respectively. In fiscal 1995, financing 
activities provided $14.0 million principally related to the sale of Common 
Stock in the Company's secondary public offering in March 1995 and in 
connection with an employee stock purchase plan, and borrowings of $2.9 
million in connection with the Company's acquisition of Tekisco, partially 
offset by repurchases of Common Stock from an existing stockholder. Financing 
activities in fiscal 1996 and 1997 provided cash of $2.1 million and $3.9 
million, respectively, primarily from the sale of stock under the Company's 
employee stock purchase program. In fiscal 1997, financing activities also 
included the repayment of a loan by the Company's subsidiary, GaSonics 
International Japan K.K., to the Bank of Tokyo-Mitsubishi in the amount of 
$2.5 million and the acquisition of a new credit facility with the same bank. 
At September 30, 1997 borrowings under this agreement totaled $2.0 million 
(see Notes 5 and 6 of Notes to the Consolidated Financial Statements).

At September 30, 1997, the Company had working capital of approximately $63.0 
million. Accounts receivable increased to $28.3 million from $23.0 million at 
the end of fiscal 1996 primarily due to increased sales in the fourth quarter 
of fiscal 1997 compared to fiscal 1996 and longer credit terms related to 
receivables in Japan. Inventories remained relatively flat increasing from 
$26.8 million at the end of fiscal 1996 to $27.1 million at the end of fiscal 
1997. The Company expects future inventory levels to fluctuate from period to 
period, and believes that because of the relatively long manufacturing cycle 
of its equipment, its investment in inventories will continue to require a 
significant portion of working capital. As a result of such investment in 
accounts receivable inventories, the Company may be subject to an increasing 
risk of inventory obsolescence and accounts receivable write-offs, which could 
materially adversely affect the Company's operating results.

At September 30, 1997, the Company's principal sources of liquidity consisted 
of approximately $13.3 million of cash and cash equivalents, $11.6 million in 
marketable securities, and $20.0 million available under the Company's 
unsecured working capital line of credit with Union Bank which was entered 
into on March 4, 1997. A commercial letter of credit provision of $500,000 
and a foreign exchange contract provision of $1.0 million is also provided 
under the line of credit. Available borrowing under the credit line is 
reduced by the amount of outstanding letters of credit. This line of credit 
contains certain covenants, including covenants relating to financial ratios 
and tangible net worth which must be maintained by the Company. As of 
September 30, 1997, except for $69,193 outstanding under the letter of credit 
provision, there were no borrowings under this line, and management believes 
the Company was in compliance with its bank covenants. The line of credit 
bears interest at the lower of 1.5% above the bank's adjusted Libor-rate or 
at the bank's reference rate (8.5% at September 30, 1997) and expires in 
February 1998 (see Note 5 of Notes to the Consolidated Financial Statements). 
On May 1, 1997 the Company's wholly-owned Japanese subsidiary, GaSonics 
International Japan K.K., entered into a 300 million Japanese yen credit 
facility with the Bank of Tokyo-Mitsubishi against a promissory note which is 
secured by a letter of guarantee issued by the Company. The credit facility 
bears interest at 1.65% and expires in February 1998 (see Note 5 of Notes to 
the Consolidated Financial Statements). As of September 30, 1997, GaSonics 
International Japan K.K. had borrowed approximately 244 million Japanese yen 
(equivalent to approximately $2.0 million in U.S. dollars) under this credit 
facility.

The Company believes that anticipated cash flows from operations, funds 
available under its existing revolving line of credit, funds available under 
the credit facility and existing cash, cash equivalents and marketable 
securities will be sufficient to meet the Company's cash requirements during 
the next twelve months. Beyond the next twelve months, the Company may 
require additional equity or debt financing to address its working capital or 
capital equipment needs. There can be no assurance that additional financing 
will be available when required or, if available, will be on reasonable terms.


                                                                             27
<PAGE>

Consolidated Balance Sheets

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                                           September 30,
                                                                     -------------------------
(in thousands, except share data)                                       1997          1996
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>
Assets

Current assets:
  Cash and cash equivalents                                           $ 13,307       $11,774
  Marketable securities                                                 11,577        14,135
  Trade accounts receivable, net of allowance for
    doubtful accounts of $720 in 1997 and $611 in 1996                  28,315        23,032
  Inventories                                                           27,075        26,817
  Net deferred tax asset                                                 4,868         3,451
  Prepaid expenses and other current assets                              2,617         3,204
----------------------------------------------------------------------------------------------
    Total current assets                                                87,759        82,413
----------------------------------------------------------------------------------------------
Property and equipment:
  Furniture and fixtures                                                   758           741
  Machinery and equipment                                               16,602        10,807
  Leasehold improvements                                                 4,090         3,762
----------------------------------------------------------------------------------------------
                                                                        21,450        15,310
  Less -- accumulated depreciation and amortization                     (6,509)       (3,735)
----------------------------------------------------------------------------------------------
    Net property and equipment                                          14,941        11,575
----------------------------------------------------------------------------------------------
Deposits and other assets                                                1,682         2,442
----------------------------------------------------------------------------------------------
    Total assets                                                      $104,382       $96,430
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

Current liabilities:
  Note payable                                                        $     --       $ 2,455
  Borrowings under credit facility                                       2,036            --
  Accounts payable                                                       6,812         7,318
  Income taxes payable                                                   3,054         1,100
  Other accrued liabilities                                             12,886        12,316
----------------------------------------------------------------------------------------------
    Total current liabilities                                           24,788        23,189
----------------------------------------------------------------------------------------------
Long-term liabilities:
  Deferred rent                                                            401           552
Commitments (Note 9)
Stockholder's equity:
  Preferred stock, $0.001 par value: Authorized shares -- 2,000,000         --            --
  Common stock, $0.001 par value: Authorized shares -- 20,000,000
    Outstanding shares -- 13,916,101 and 13,472,276                         14            13
  Additional paid-in capital                                            35,833        31,400
  Subscription receivable                                                 (100)           --
  Unrealized gain on investments                                            --           902
  Note receivable from stockholder                                          --           (65)
  Retained earnings                                                     43,446        40,439
----------------------------------------------------------------------------------------------
    Total stockholders' equity                                          79,193        72,689
----------------------------------------------------------------------------------------------
    Total liabilities and stockholders' equity                        $104,382       $96,430 
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these 
consolidated financial statements.


                                                                              28
<PAGE>

Consolidated Statements of Operations
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                               Years ended September 30,
                                                      -------------------------------------------
(in thousands, except per share data)                     1997            1996           1995
-------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>
Net sales                                               $121,256        $127,043        $102,047
Cost of sales                                             67,292          64,417          44,117
-------------------------------------------------------------------------------------------------
  Gross margin                                            53,964          62,626          57,930
-------------------------------------------------------------------------------------------------
Operating expenses:
  Non-recurring charges                                       --              --             575
  Provision for uncollectible account (Note 2)             4,517              --              --
  Research and development                                17,410          18,006          12,346
  Selling, general and administrative                     29,257          32,250          25,067
-------------------------------------------------------------------------------------------------
  Total operating expenses                                51,184          50,256          37,988
-------------------------------------------------------------------------------------------------
  Operating income                                         2,780          12,370          19,942
Other income (expense):
  Interest expense                                           (91)            (64)            (10)
  Interest and other income, net                             722           1,289           1,095
  Gain on sale of investment                               1,215             143           4,700
-------------------------------------------------------------------------------------------------
  Income before provision for income taxes                 4,626          13,738          25,727
  Provision for income taxes                               1,619           4,808           9,601
-------------------------------------------------------------------------------------------------
Net income                                              $  3,007        $  8,930        $ 16,126
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Net income per share                                    $   0.21        $   0.65        $   1.21
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares      14,482          13,644          13,285
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these 
consolidated financial statements.


                                                                            29
<PAGE>

Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                Unrealized         Note
                                     Common Stock   Additional                     Gain on   Receivable                      Total
                                    ---------------    Paid-in   Subscription   Marketable         From   Retained   Stockholders'
(in thousands, except share data)   Shares   Amount    Capital     Receivable   Securities  Stockholder   Earnings          Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>             <C>    <C>               <C>       <C>            <C>      <C>             <C>
Balance, September 30, 1994     12,142,095      $12    $15,991             --           --        $(265)   $17,632         $33,370
  Issuance of common stock
    from secondary offering      1,110,000        1     12,494             --           --           --         --          12,495
  Issuance of common stock
    under employee stock
    purchase plan                  100,529       --        754             --           --           --         --             754
  Issuance of common stock
    under stock option plan         26,917       --        219             --           --           --         --             219
  Forgiveness of note 
    receivable from stockholder         --       --         --             --           --          100         --             100
  Unrealized gain on
    marketable securities               --       --         --             --        2,376           --         --           2,376
  Repurchase of common stock      (150,000)      --         (3)            --           --           --     (2,249)         (2,252)
  Net income                            --       --         --             --           --           --     16,126          16,126
----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995     13,229,541       13     29,455             --        2,376         (165)    31,509          63,188
  Issuance of common stock
    under employee stock
    purchase plan                  197,510       --      1,708             --           --           --         --           1,708
  Issuance of common stock
    under stock option plan         45,225       --        237             --           --           --         --             237
  Forgiveness of note receivable
    from stockholder                    --       --         --             --           --          100         --             100
  Change in unrealized gain
    on marketable securities            --       --         --             --       (1,474)          --         --          (1,474)
  Net income                            --       --         --             --           --           --      8,930           8,930
----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996     13,472,276       13     31,400             --          902          (65)    40,439          72,689
  Issuance of common stock
    under employee stock
    purchase plan                  138,325       --      1,348             --           --           --         --           1,348
  Issuance of common stock
    under stock option plan        305,500        1      3,085           (100)          --           --         --           2,986
  Forgiveness of note receivable
    from stockholder                    --       --         --             --           --           65         --              65
  Change in unrealized gain
    on marketable securities            --       --         --             --         (902)          --         --            (902)
  Net income                            --       --         --             --           --           --      3,007           3,007
----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997     13,916,101      $14    $35,833          $(100)          --           --    $43,446         $79,193
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these 
consolidated financial statements.


                                                                              30
<PAGE>

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                               Years ended September 30,
                                                         ----------------------------------
(in thousands)                                                1997        1996        1995
-------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>        <C>
Cash flows from operating activities:
  Net income                                               $ 3,007     $ 8,930    $ 16,126
  Adjustments to reconcile net income to net cash
    provided by (used for) operating activities:
    Depreciation and amortization                            2,773       2,901         770
    Provision for doubtful accounts                          4,637         242         179
    Forgiveness of note receivable from stockholder             65         100         100
    Write-off of in-process research and development            --          --         575
    Gift of stock to employees                                  --          --         111
  Changes in assets and liabilities:
    Accounts receivable, net                               (12,564)     (6,300)     (7,586)
    Inventories                                              2,387      (7,694)    (10,275)
    Prepaids and other current assets                         (830)     (3,479)     (1,581)
    Deposits and other assets                                  554      (1,697)       (123)
    Accounts payable                                          (505)        (26)      3,796
    Income taxes payable                                     1,954        (293)      1,077
    Accrued liabilities                                        570       2,260       3,242
    Deferred Rent                                             (151)        (69)        (43)
    Note payable                                                --        (439)         --
-------------------------------------------------------------------------------------------
      Net cash provided by (used for) operating activities   1,897      (5,564)      6,368
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Purchases of marketable securities                       (25,636)    (55,097)    (90,499)
  Proceeds from sales of marketable securities              27,292      68,492      71,970
  Purchases of property and equipment                       (5,935)     (6,979)     (4,965)
  Proceeds from sales of property and equipment                 --       1,254          --
  Payment for purchase of Tekisco, net of cash acquired         --          --      (2,409)
-------------------------------------------------------------------------------------------
      Net cash provided by (used for) investing activities  (4,279)      7,670     (25,903)
-------------------------------------------------------------------------------------------
Cash flows from financing ativities:
  Proceeds from note payable to bank                            --          --       2,894
  Payments of note payable to bank                          (2,455)         --          --
  Proceeds from borrowings under credit facility             2,036          --          --
  Proceeds from issuance of common stock                     4,334       2,073      13,357
  Repurchase of common stock from stockholder                   --          --      (2,252)
-------------------------------------------------------------------------------------------
      Net cash provided by financing activities              3,915       2,073      13,999
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents         1,533       4,179      (5,536)
Cash and cash equivalents at beginning of period            11,774       7,595      13,131
-------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                $ 13,307    $ 11,774     $ 7,595
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these 
consolidated financial statements.


                                                                           31
<PAGE>

Notes to the Consolidated Financial Statements
September 30, 1997

1. Organization and Operations of the Company

GaSonics International Corporation (the "Company") is a developer and 
supplier of products and services used in the fabrication of advanced 
integrated circuits ("semiconductors" or "ICs") and flat panel displays 
("FPDs"). The Company markets its products in the United States, Europe, and 
the Asia Pacific region primarily to large semiconductor and liquid crystal 
manufacturing concerns. The Company is subject to a number of risks 
including, but not limited to, volatility in the semiconductor markets and 
the related demand for semiconductor equipment and the risk of inventory 
obsolescence resulting from new product developments by competitors.

In October 1995, the Company declared a three-for-two stock split in the form 
of a 50% stock dividend paid on November 20, 1995. All common and common 
equivalent shares and per share amounts in the accompanying consolidated 
financial statements have been restated to give effect to the stock split.

2. Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include 
the accounts of the Company and its wholly-owned subsidiaries and branches 
after elimination of intercompany accounts and transactions.

USE OF ESTIMATES. The preparation of consolidated financial statements in 
conformity with generally accepted accounting principles requires management 
to make estimates and assumptions that affect the reported amounts of assets 
and liabilities and disclosures of contingent assets and liabilities at the 
date of consolidated financial statements and the reported amounts of 
revenues and expenses during the reporting period. Actual results could 
differ materially from those estimates.

FISCAL YEAR. The Company maintains a fifty-two/fifty-three week fiscal year 
cycle ending on the Saturday closest to September 30. Fiscal 1997, fiscal 
1996 and fiscal 1995 contain fifty-two weeks. For external reporting 
purposes, the Company indicates its fiscal period as ending on September 30.

CASH AND CASH EQUIVALENTS. For purposes of the Consolidated Statements of 
Cash Flows, the Company considers all highly liquid investments with an 
original maturity of 90 days or less to be cash equivalents.

Cash paid for interest, including amounts paid under capital lease 
obligations, and domestic and foreign income taxes was as follows (in 
thousands):

-----------------------------------------------------------
                               Years ended September 30,
                            -------------------------------
                             1997        1996        1995
-----------------------------------------------------------
Interest                     $ 94       $   41      $   10
Income taxes                 $625       $6,188      $8,732
-----------------------------------------------------------

The Company had one significant noncash transaction for the year ended 
September 30, 1997, related to the Submicron Technologies PLC (see 
Concentration of Credit Risk below) write-off of their uncollectible account. 
Noncash activity included a before tax bad debt of $4.5 million.

INVESTMENTS IN MARKETABLE SECURITIES. Pursuant to the provisions of Statement 
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain 
Investments in Debt and Equity Securities," the Company's investments are 
classified as available-for-sale and are stated at fair value. The Company's 
investments in debt securities mature at various dates through July 1999.

The fair value of available-for-sale securities was determined based on 
quoted market prices at the reporting date for the instruments.


                                                                              32
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

The components of available-for-sale securities by major security type as of 
September 30, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                    Aggregate             Gross
                                                         Amortized       Fair        Unrealized
                                                              Cost      Value     Holding Gains
------------------------------------------------------------------------------------------------
<S>                                                        <C>        <C>                  <C>
Fiscal 1997
Debt securities issued by states of the United States
  and political subdivisions of the states                 $15,750    $15,750              $ --
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------

Fiscal 1996
Corporate debt securities                                  $ 2,050    $ 2,050              $ --
Debt securities issued by states of the United States
  and political subdivisions of the states                  11,183     11,183                --
Equity securities                                               --        902               902
------------------------------------------------------------------------------------------------
                                                           $13,233    $14,135              $902
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>

Proceeds from sales of available-for-sale securities, excluding the Company's 
equity securities which are discussed in Note 8, were approximately $27.3 
million, $68.5 million and $72.0 million in fiscal 1997, 1996 and 1995, 
respectively. Gross realized gains on those sales were approximately $3,000, 
$22,000 and $12,000 in fiscal 1997, 1996 and 1995, respectively. The Company 
used specific identification as the cost basis in computing realized gains. 
The net unrealized holding gain on available-for-sale securities has been 
included as a separate component of stockholders' equity.

REVENUE RECOGNITION AND PRODUCT WARRANTY. Revenues from the Company's 
products are generally recognized upon shipment. The Company provides for the 
estimated costs of installation and warranty at the time revenue is 
recognized. Maintenance and service revenues account for less than 10% of net 
sales and are recognized as the related work is performed.

MAJOR CUSTOMERS. One customer accounted for 10%, 11% and 20% of net sales for 
each of fiscal years 1997, 1996 and 1995, respectively. Two other customers 
accounted for 11% of net sales in fiscal 1997.

SOFTWARE DEVELOPMENT COSTS. SFAS No. 86, "Accounting for the Costs of 
Computer Software to be Sold, Leased or Otherwise Marketed," requires the 
capitalization of certain computer software development costs incurred after 
technological feasibility is established. Amounts qualifying for 
capitalization under the statement are immaterial and have not been 
capitalized to date.

INVENTORIES. Inventories are stated at the lower of cost (first-in, 
first-out) or market and include material, labor and manufacturing costs. 
Inventory is valued at currently adjusted standards which approximate actual 
costs on a first-in, first-out basis.

The Company provides inventory reserves for excess, obsolete, damaged or lost 
inventory. The process of estimating required inventory reserves is 
judgmental and is based on a number of factors which require input and 
discussion among various members of management. Such factors include changes 
in customer demand, changes in technology and other economic factors.

Inventories consisted of the following (in thousands):

                                           September 30,
                                      ----------------------
                                          1997         1996
------------------------------------------------------------
Raw materials                          $13,919      $12,985
Work-in-process                          6,809        7,648
Finished goods                           6,347        6,184
------------------------------------------------------------
                                       $27,075      $26,817
------------------------------------------------------------
------------------------------------------------------------


                                                                            33
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are 
generally depreciated over the estimated useful lives of the assets (four to 
seven years) using the straight-line method. Leasehold improvements are 
amortized on a straight-line basis over the shorter of the useful lives of 
the assets or the remaining lease term. Assets acquired under capital leases 
are recorded at the present value of the related lease obligations and 
amortized on a straight-line basis over the related lease term.

OTHER ACCRUED LIABILITIES. Other accrued liabilities included the following 
(in thousands):

                                 September 30,
                             --------------------
                                1997         1996
-------------------------------------------------
-------------------------------------------------
Warranty                     $ 3,232      $ 2,916
Sales commissions              2,804        2,526
Employee compensation          3,236        2,514
Accrued purchase price            --        1,261
Other                          3,614        3,099
-------------------------------------------------
                             $12,886      $12,316
-------------------------------------------------
-------------------------------------------------


NET INCOME PER SHARE. Net income per share data has been computed using the 
weighted average number of shares of common stock and dilutive common 
equivalent shares from stock options computed using the treasury stock method.

FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's 
foreign subsidiaries is the U.S. dollar. Accordingly, foreign translation and 
exchange gains and losses, which have not been material, are reflected in the 
accompanying consolidated statements of operations.

CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject 
the Company to concentration of credit risk consist principally of temporary 
cash investments and trade receivables. The Company has cash investment 
policies that limit the amount of credit exposure to any one financial 
institution evaluated as highly creditworthy. Concentration of credit risk 
with respect to trade receivables exists because the Company's revenues are 
derived primarily from the sale of photoresist removal equipment to companies 
in the semiconductor industry. The Company performs ongoing credit 
evaluations of its customers and generally does not require collateral.

A write-off of accounts receivable was recorded in the third quarter of 
fiscal 1997 for the uncollectible account receivable due from SubMicron 
Technologies PLC in Thailand. The Company recorded a $4.5 million pre-tax 
charge to cover the unpaid balance on accounts receivable, less the value of 
the recovered equipment, which the Company anticipates reselling in the 
future.

RECLASSIFICATIONS. Certain prior year amounts have been reclassified to 
conform to the current year presentation.

EFFECT ON RECENT ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial 
Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" which 
requires disclosure of basic and diluted earnings per share and is effective 
for periods ending subsequent to December 15, 1997. The pro forma effect of 
adoption of SFAS No. 128 would be as follows:

----------------------------------------------------------------------------
                                                  Years ended September 30,
                                               -----------------------------
                                                 1997        1996       1995
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reported net income per share                   $0.21       $0.65      $1.21
Basic net income per share (pro forma)          $0.22       $0.67      $1.26
Diluted net income per share (pro forma)        $0.21       $0.65      $1.21
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                                                              34
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

In February 1997, the Financial Accounting Standards Board issued SFAS No. 
129, "Disclosure of Information about Capital Structures," which will be 
adopted by the Company in fiscal 1998. SFAS No. 129 requires companies to 
disclose certain information about their capital structure. The Company does 
not anticipate that SFAS No. 129 will have a material impact on its 
consolidated financial statement disclosures.

In June 1997, The Financial Accounting Standards Board issued SFAS No. 130, 
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information" both of which will be 
adopted by the Company in fiscal 1998. SFAS No. 130 requires companies to 
disclose certain information regarding the nature and amounts of 
comprehensive income included in the financial statements. SFAS No. 131 
requires companies to disclose certain information about operating segments 
within their business. The Company does not anticipate that SFAS No. 130, or 
SFAS No. 131, will have a material impact on its consolidated financial 
statement disclosures.

3. Geographic Area Data

The Company's operations by geographical area for the three years ended 
September 30, 1997 were as follows:

<TABLE>
<CAPTION>
                                   United                     Other
                                   States       Japan       Foreign       Eliminations      Consolidated
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>          <C>               <C>               <C>
1997
Net sales:
  Domestic                       $ 54,899      $7,829       $ 3,280           $     --          $ 66,008
  Exports Europe                   16,998          --            --                 --            16,998
  Exports Asia/Pacific             35,557          --            --                 --            35,557
  Exports Japan                     2,693          --            --                 --             2,693
  Intercompany                      1,916       1,155         7,046            (10,117)               -- 
---------------------------------------------------------------------------------------------------------
Total revenues                   $112,063      $8,984       $10,326           $(10,117)         $121,256
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Operating income                 $     67      $1,729       $   967           $     17          $  2,780
Identifiable assets              $ 95,003      $8,273       $ 2,302           $ (1,196)         $104,382
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

1996
Net sales:
  Domestic                       $ 58,967      $7,904       $ 1,791           $     --          $ 68,662
  Exports Europe                   23,788          --            --                 --            23,788
  Exports Asia/Pacific             30,554          --            --                 --            30,554
  Exports Japan                     4,039          --            --                 --             4,039
  Intercompany                      1,212       1,496         4,744             (7,452)               --
---------------------------------------------------------------------------------------------------------
Total revenues                   $118,560      $9,400       $ 6,535           $ (7,452)         $127,043
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Operating income (loss)          $ 12,037      $ (505)      $   835           $      3          $ 12,370
Identifiable assets              $ 86,458      $9,250       $ 1,935           $ (1,213)         $ 96,430
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

1995
Net sales:
  Domestic                       $ 60,845      $    8       $   201           $     --          $ 61,054
  Export Europe                    19,885          --            --                 --            19,885
  Export Asia/Pacific              18,832          --            --                 --            18,832
  Exports Japan                     2,276          --            --                 --             2,276
  Intercompany                         --          --           965               (965)               --
---------------------------------------------------------------------------------------------------------
Total revenues                   $101,838      $    8       $ 1,166           $   (965)         $102,047
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Operating income (loss)          $ 20,334      $ (539)      $   147           $     --          $ 19,942
Identifiable assets              $ 80,876      $4,040       $   451           $     --          $ 85,367
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              35
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

The Company's operations are structured to achieve consolidated objectives. 
As a result, significant interdependencies and overlaps exist among the 
Company's operating units. Accordingly, the revenue, operating income (loss) 
and identifiable assets shown for each geographic area may not be indicative 
of the amounts that would have been reported if the operating units were 
independent of one another.

Intercompany sales between areas are accounted for based on established 
intercompany sales prices.

Operating income (loss) is revenue less related costs and direct and 
allocated operating expenses, excluding interest and, for all areas except 
the United States, the unallocated portion of corporate expenses. United 
States operating income is net of corporate engineering and development and 
administrative expenses.

Corporate assets include assets maintained for general purposes, principally 
cash equivalents and marketable securities.

4. Acquisition of Tekisco

In August 1995, the Company purchased the net assets, intellectual property 
and all of the outstanding stock of Tekisco, Ltd., a Japanese-based supplier 
of low-pressure chemical vapor deposition systems for flat panel display 
manufacturing, which is now known as its Liquid Crystal Display ("LCD") 
division, for cash of approximately $2.4 million and contingent consideration 
of approximately $2.0 million. The contingent consideration was based on 
specified future events, including the attainment of certain sales levels and 
the provision of marketing and sales services to be provided by Kishimoto 
Sangyo Co. Ltd, the company from which Tekisco was acquired. In fiscal 1996, 
the Company determined that such contingencies were met or were likely to be 
met and recorded the full $2.0 million of the contingent consideration as 
goodwill. The related liability, net of amounts paid in fiscal 1996, was 
accrued at September 30, 1996. In February 1996, the LCD division was merged 
with the Company's wholly-owned subsidiary, GaSonics International Japan, K.K.

The acquisition was accounted for as a purchase, and the results of Tekisco 
from the date of acquisition forward have been recorded in the Company's 
consolidated financial statements. In connection with the acquisition, net 
intangibles of $3.1 million were acquired, including the $2.0 million 
contingent consideration recorded in fiscal 1996, of which $575,000 is 
reflected as a one time charge to operations for the write-off of in-process 
research and development that had not reached technological feasibility and, 
in management's opinion, had no probable alternative future use. The one time 
charge is reflected in the Company's consolidated statement of operations as 
a non-recurring charge within operating expenses in fiscal 1995. The 
remaining intangibles, net of accumulated amortization of approximately 
$815,000 and the write-off of in-process research and development of 
$575,000, are included in Deposits and other assets in the accompanying 
consolidated balance sheet and are being amortized over the useful life of 
five years. Amortization expense related to the amortization of the goodwill 
was $436,000, $210,000 and $0 for the years ended September 30, 1997, 1996 
and 1995, respectively, and is included in the accompanying Consolidated 
Statements of Operations.

The purchase price, including the amounts payable under the commission 
agreement, was allocated to the fair market value of net assets acquired as 
follows (in thousands):

------------------------------------------------------------------------------
Accounts receivable                                                     $   57
Inventory                                                                  176
Prepaid expenses                                                            46
Property and equipment, net                                              1,875
Other assets                                                                49
Intangibles, including in-process research and development               3,107
Accounts payable and accrued liabilities                                  (901)
------------------------------------------------------------------------------
  Net assets acquired                                                   $4,409
------------------------------------------------------------------------------
------------------------------------------------------------------------------


                                                                              36
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

The following unaudited pro forma information shows the results of operations 
for the twelve months ended September 30, 1995 as if the acquisition had 
occurred at the beginning of the period. The results are not necessarily 
indicative of what would have occurred had the acquisition actually been made 
at the beginning of the respective period presented or of future operations 
of the combined companies. The pro forma results for 1995 combine the 
Company's results for the twelve-month period ended September 30, 1995 with 
the results of Tekisco, for the same period through the date of acquisition. 
The following unaudited pro forma results include the straight-line 
amortization of intangibles over a period of five years.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                                             Year ended
(in thousands, except per share data)                                September 30, 1995
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
<S>                                                                            <C>
Revenue                                                                        $104,628
Net income                                                                     $ 15,286
Net income per share                                                           $   1.15
Weighted average common and common equivalent shares outstanding                 13,285
----------------------------------------------------------------------------------------
</TABLE>

5. Line of Credit Agreement and Credit Facility

The Company has an unsecured $20,000,000 revolving line of credit agreement 
(the "Agreement") with a bank which expires on February 27, 1998. There were 
no borrowings outstanding under the Agreement as of September 30, 1997. 
Borrowings bear interest at the lower of 1.5% above the bank's adjusted 
Libor-rate or at the bank's reference rate (8.5% at September 30, 1997). The 
line of credit agreement contains provisions that limit the ability of the 
Company to pay cash dividends and require the maintenance of specified levels 
of tangible net worth and certain financial ratios. Management believes the 
Company was in compliance with the financial covenants of the Agreement as of 
September 30, 1997.

Under the Agreement, the Company has a provision for foreign exchange 
contracts of up to $1.0 million, and may also request standby letters of 
credit not to exceed $500,000. As of September 30, 1997, there were letters 
of credit outstanding in the amount of $69,163.

In May 1997, the Company's wholly-owned subsidiary in Japan, GaSonics 
International Japan, K.K. entered into an agreement with the Bank of 
Tokyo-Mitsubishi to secure a credit facility to provide operating capital to 
fund operations. The credit facility provides for borrowings up to a maximum 
of 300 million Japanese yen (equivalent to approximately $2.5 million in U.S. 
dollars), and is secured by a letter of guarantee issued by the Company. The 
outstanding balance bears interest at 1.625% per annum and is due and payable 
on demand. This credit facility expires on February 27, 1998. At September 
30, 1997, borrowings under this credit facility agreement were approximately 
$2.0 million. The Company intends to enter into a new agreement or extend the 
term of the existing credit facility prior to the due date; however, there 
can be assurance that such financing will be available when required or, will 
be on reasonable terms.

6. Note Payable

In August 1995, the Company's wholly-owned subsidiary in Japan, GaSonics 
International Japan K.K. borrowed 270 million Japanese yen (equivalent to 
approximately $2.5 million in U.S. dollars as of September 30, 1996) to the 
Bank of Tokyo against a promissory note which was secured by a letter of 
guarantee issued by the Company. The loan carried an interest rate of 1.625% 
per annum and was due and payable on January 31, 1997. The primary purpose of 
the loan was to fund the purchase of Tekisco (see Note 4 -- Acquisition of 
Tekisco). In April 1997, the Company repaid the outstanding balance on the 
note.


                                                                            37
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

7. Income Taxes

The Company accounts for income taxes pursuant to the provisions of SFAS No. 
109, "Accounting for Income Taxes," which requires an asset and liability 
approach to accounting for income taxes.

The provision (credit) for income taxes consisted of the following (in 
thousands):

------------------------------------------------------------------------------
                                                  Years ended September 30,
                                              --------------------------------
                                                1997        1996        1995
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Current
  Federal                                     $1,509      $4,528     $ 8,464
  State                                          223         518       1,628
------------------------------------------------------------------------------
    Total current                              1,732       5,046      10,092
------------------------------------------------------------------------------
Deferred
  Federal                                        (98)       (211)       (437)
  State                                          (15)        (27)        (54)
------------------------------------------------------------------------------
    Total deferred                              (113)       (238)       (491)
------------------------------------------------------------------------------
  Provision for income taxes                  $1,619      $4,808     $ 9,601
------------------------------------------------------------------------------
------------------------------------------------------------------------------

The provision (benefit) for income taxes differs from the amount computed by 
applying the statutory Federal income tax rate of 35.0% in fiscal years 1997, 
1996 and 1995, as follows:

------------------------------------------------------------------------------
                                                  Years ended September 30,
                                              --------------------------------
                                                1997        1996        1995
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Statutory Federal tax rate                     35.0%       35.0%       35.0%
State income taxes, net                         3.6         4.0         4.8
Foreign operations                              1.7        (1.8)       (1.3)
Research and development credit                (5.5)       (2.7)       (2.2)
Tax exempt income                              (4.6)       (2.0)       (1.2)
Other                                           4.8         2.5         2.2
------------------------------------------------------------------------------
  Provision for income taxes                   35.0%       35.0%       37.3%
------------------------------------------------------------------------------
------------------------------------------------------------------------------

The major components of the net deferred tax asset are as follows (in 
thousands):

                                                           September 30,
                                                      -----------------------
                                                         1997           1996
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Inventory reserves                                     $2,833         $2,176
Accrued warranty                                        1,230          1,085
Deferred rent                                             155            207
Accrued vacation                                          327            256
Other temporary differences                               825            533
-----------------------------------------------------------------------------
Deferred tax asset                                      5,370          4,257
Deferred tax liabilities                                 (502)          (806)
-----------------------------------------------------------------------------
  Total net deferred tax asset                         $4,868         $3,451
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------


                                                                              38
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

8. Investment in IPEC

During fiscal 1990, the Company and Integrated Process Equipment Corporation 
(IPEC) entered into an agreement in which the Company received 294,600 shares 
of IPEC Class A common stock in exchange for certain services and technology. 
In fiscal 1997, 1996, and 1995, the Company sold 54,673, 5,000, and 136,927 
shares of IPEC common stock, respectively, and realized pretax gains of 
$1,215,000, $143,000, and $4,700,000, respectively, which are reported in 
Other income (expense) in the accompanying Consolidated Statements of 
Operations. As of September 30, 1997, the Company holds no shares of IPEC 
common stock.

9. Commitments

The Company leases its facilities and certain machinery and equipment under 
operating lease agreements that expire at various dates through June 2005. 
Minimum commitments under the non-cancelable leases as of September 30, 1997 
were as follows (in thousands):

-------------------------------------------------
Fiscal Year
  1998                                    $1,615
  1999                                     1,198
  2000                                       403
  2001                                        30
  2002                                        30
  Thereafter                                  90
-------------------------------------------------
                                          $3,366
-------------------------------------------------
-------------------------------------------------

Rent expense was approximately $2,113,000, $2,017,000 and $1,190,000 for the 
years ended September 30, 1997, 1996 and 1995, respectively.

The Company's lease agreement for one of its facilities provides for the 
deferral of three months cash rental payments in fiscal 1990 and subsequent 
scheduled rent increases. Rent expense under this agreement is being 
recognized on a straight-line basis over the term of the lease. The 
difference between the amounts paid and the amounts expensed is classified as 
deferred rent in the accompanying Consolidated Balance Sheets.

No new capital lease obligations were incurred in fiscal 1997 or 1996.

10. Incentive Stock Option Plans and Stock Purchase Plan

In November 1993, the Company's President and Chief Executive Officer (the 
"President") exercised options to purchase an aggregate of 566,665 shares of 
common stock at $0.60 per share, with a 5% interest bearing promissory note 
payable to the Company in the amount of $340,000. In January 1994, the Board 
of Directors authorized a special bonus program for the President, pursuant 
to which $100,000 of the principal of the promissory note would be forgiven 
upon his completion of each calendar year of service to the Company from 
January 1, 1994 through January 1, 1997. Accordingly, the promissory note has 
been amortized to compensation expense in the amounts of $65,000 for fiscal 
1997 and $100,000 in fiscal years 1996 and 1995, respectively. The promissory 
note was fully amortized at September 30, 1997.

1994 STOCK OPTION/STOCK ISSUANCE PLAN. In fiscal 1994, the Board adopted, and 
the stockholders subsequently approved, the 1994 Stock Option/Stock Issuance 
Plan (the "1994 Stock Option Plan") and authorized a total of 1,450,000 
shares for issuance under the Plan. The 1994 Stock Option Plan replaces the 
Company's 1985 Stock Option Plan and the Company's 1988 Stock Option Plan 
which have both been terminated. During fiscal years 1997 and 1996, the 
Company's Board of Directors authorized, and the stockholders subsequently 
approved, an additional 500,000 and 750,000 shares, respectively, for 
issuance under the Plan.


                                                                            39
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997 

The 1994 Stock Option Plan is divided into three separate components: i) the 
Discretionary Option Grant Program under which key employees (including 
officers) and consultants may, at the discretion of the Plan Administrator, 
be granted options to purchase shares of common stock at an exercise price 
not less than 85% of the fair market value of such shares on the grant date, 
ii) the Automatic Option Grant Program under which option grants will 
automatically be made at periodic intervals to the nonemployee Board members 
to purchase shares of common stock at an exercise price equal to 100% of the 
fair market value of the option shares on the grant date, and iii) the Stock 
Issuance Program under which key employees (including officers) and 
consultants may be issued shares of common stock directly, either through the 
purchase of such shares at a price not less than 85% of their fair market 
value at the time of issuance or as a bonus tied to the performance of 
services or the Company's attainment of financial objectives. In no event may 
the aggregate number of shares of common stock for which any individual 
participating in the 1994 Plan may be granted stock options and direct stock 
issuances exceed 825,000 shares over the term of the Plan. Options granted 
under the Discretionary and Automatic Option Grant Programs have a maximum 
term of ten years and generally vest over periods of one to five years from 
the date of grant, at the discretion of the Plan Administrator. For 1995 
there were 8,917 shares issued under the 1994 Stock Option Plan. There were 
no stock issuances in fiscal years 1997 and 1996.

In August 1996, holders of the Company's options were given the opportunity 
to exchange previously granted stock options for new common stock options. 
Option holders, excluding non-employee directors of the Company, who held an 
outstanding stock option with an exercise price in excess of $7.25 per share 
were granted a new option with an exercise price of $7.25 per share, the 
market price of the common stock on that date, in exchange for his or her 
higher-priced option. Each optionee was given the choice of accepting the new 
option with a new four year vesting schedule and having the higher-priced 
option canceled or rejecting the new option and retaining the higher-priced 
option with its original vesting schedule. Under the terms of the new 
options, one-quarter of the shares vest one year from the date of grant and 
the remaining shares vest in 36 monthly installments. Options to purchase 
416,725 shares were so exchanged.

Option and stock issuance activity under the 1994 Stock Option Plan was as 
follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                           Options Outstanding
                                          --------------------------------------------------------
                                                                                         Weighted
                                               Shares                                     Average
                                            Available     Number of            Price     Exercise
                                            For Grant        Shares        per Share        Price
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>          <C>                  <C>
Balance at September 30, 1994                 664,150       769,500    $ 7.17- $ 9.67       $ 7.92
  Stock issuances                              (8,917)           --                --           --
  Granted                                    (344,925)      344,925     10.67-  19.33        16.00
  Exercised                                        --       (18,000)     7.20-   8.67         7.81
  Canceled                                     40,675       (40,675)     7.20-  16.33         9.02
--------------------------------------------------------------------------------------------------
Balance at September 30, 1995                 350,983     1,055,750      7.17-  19.33        10.52
  Additional options authorized               750,000            --                --           --
  Granted                                  (1,002,325)    1,002,325      7.25-  20.00         8.63
  Exercised                                        --       (45,225)     9.13-  14.38         7.55
  Canceled                                    505,580      (505,580)     7.20-  20.00        13.43
--------------------------------------------------------------------------------------------------
Balance at September 30, 1996                 604,238     1,507,270      7.20-  20.00         8.37
  Additional options authorized               500,000            --                --           --
  Granted                                    (653,850)      653,850      6.88-  23.00         9.82
  Exercised                                        --      (305,500)     7.17-  13.25         8.04
  Canceled                                    349,559      (349,559)     7.20-  19.33        10.83
--------------------------------------------------------------------------------------------------
Balance at September 30, 1997                 799,947     1,506,061    $ 6.88- $23.00       $ 8.50
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>


                                                                              40
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

As of September 30, 1997, options to purchase 291,383 are vested and 
exercisable.

The following table summarizes the options outstanding under the 1994 Stock 
Option Plan as of September 30, 1997:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                             Options Outstanding                      Exercisable Options
                            ----------------------------------------------------------------------------------
                                                   Weighted
                                   Number           Average        Weighted            Number         Weighted
                              Outstanding         Remaining         Average       Exercisable          Average
                                    As of       Contractual        Exercise             As of         Exercise
Range of Exercise Prices         09/30/97              Life           Price           9/30/97            Price
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<S>                             <C>                    <C>           <C>              <C>               <C>
$6.88- $ 7.20                     236,130              6.73          $ 7.17            89,692           $ 7.20
 7.25                             595,292              8.87            7.25           132,655             7.25
 7.88-   8.67                     127,676              8.03            8.44            29,576             8.67
 8.88                             352,450              9.60            8.88                --               --
 9.17-  23.00                     194,513              8.59           13.31            39,460            10.34
$6.88- $23.00                   1,506,061              8.60          $ 8.50           291,383           $ 7.80
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>

1994 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1994 Employee Stock Purchase 
Plan (the "Purchase Plan") was adopted by the Board of Directors on January 
27, 1994 and approved by the stockholders in March 1994. The Purchase Plan is 
designed to allow eligible employees of the Company to purchase shares of 
common stock, at semiannual intervals, through their periodic payroll 
deductions under the Purchase Plan. The Company had initially reserved 
300,000 shares of Common Stock for issuance under the Purchase Plan. The 
Company's Board of Directors authorized, and the stockholders subsequently 
approved, an additional 400,000 shares of Common Stock under the Purchase 
Plan in each of fiscal years 1997 and 1996.

Participants in the Purchase Plan may purchase shares at 85% of the lower of 
i) the fair market value of the common stock on the participant's entry date 
into the offering period or ii) the fair market value on the semi-annual 
purchase date. The Purchase Plan will in all events terminate on December 31, 
2003.

Of the 1,100,000 shares reserved for the 1994 Employee Stock Purchase Plan, 
464,630 shares were purchased as of September 30, 1997.

STOCK BASED COMPENSATION EXPENSE. In October 1995, the Financial Accounting 
Standards Board issued SFAS No. 123, "Accounting for Stock-Based 
Compensation," which establishes a fair value based method of accounting for 
stock-based compensation plans and requires additional disclosures for those 
companies who elect not to adopt the new method of accounting. The Company 
adopted SFAS No. 123 in fiscal 1997, and in accordance with the provisions of 
SFAS No. 123, the Company applies APB Opinion 25 and related interpretations 
in accounting for its stock option and stock purchase plans.


                                                                            41
<PAGE>

Notes to the Consolidated Financial Statements, September 30, 1997

The Company's stock plans, as described above, are accounted for under APB 
Opinion No. 25, under which no compensation cost has been recognized. Because 
the FASB Statement No. 123 method of accounting has not been applied to 
options granted prior to October 1, 1995, the resulting pro forma 
compensation cost may not be representative of that to be expected in future 
years. Had compensation cost for these plans been determined consistent with 
Statement No. 123, the Company's consolidated net income and earnings per 
share would have been reduced to the following pro forma amounts:

-----------------------------------------------------------------------------
(in thousands, except per share data)                    1997            1996
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net income -- as reported                              $3,007          $8,930
Net income -- pro forma                                $1,325          $7,615
Earnings per share -- as reported                      $ 0.21          $ 0.65
Earnings per share -- pro forma                        $ 0.09          $ 0.56
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

The fair value of each option grant is estimated on the date of grant using 
the Black-Scholes option pricing model with the following assumptions:

-----------------------------------------------------------------------------
                                                        1997             1996
                                                -----------------------------
Dividend yield                                          0.0%             0.0%
Expected life of options from vest date            0.9 years        0.9 years
Expected stock volatility                              84.8%            84.8%
Risk-free interest rates                           5.6%-6.8%        5.4%-6.6%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

The weighted average fair value of option grants using the Black-Scholes 
option pricing model was $5.91 and $5.07 for the fiscal years ended September 
30, 1997 and 1996, respectively.


                                                                              42
<PAGE>

Report of Independent Public Accountants


TO GASONICS INTERNATIONAL CORPORATION:

We have audited the accompanying consolidated balance sheets of GaSonics 
International Corporation (a Delaware Corporation) and subsidiaries as of 
September 30, 1997 and 1996, and the related consolidated statements of 
operations, stockholders' equity and cash flows for each of the three years 
in the period ended September 30, 1997. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of GaSonics International 
Corporation and subsidiaries as of September 30, 1997 and 1996, and the 
results of their operations and cash flows for each of the three years in the 
period ended September 30, 1997 in conformity with generally accepted 
accounting principles.

/s/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP

San Jose, California
October 27, 1997


                                                                          43
<PAGE>

Corporate Information

BOARD OF DIRECTORS

Monte M. Toole
Chairman,
GaSonics International

Dave Toole
President and
Chief Executive Officer,
GaSonics International

Kenneth L. Schroeder
President, KLA-Tencor

F. Joseph Van Poppelen
The Van Poppelen Company


EXECUTIVE OFFICERS

Dave Toole
President and
Chief Executive Officer

Terry R. Gibson
Vice President, Finance, and
Chief Financial Officer

Avner Shelem
Vice President, General Manager,
Engineering and Operations

Bill Alexander
Vice President, World Wide Sales
and Field Operations


CORPORATE HEADQUARTERS

GaSonics International Corporation
2540 Junction Avenue
San Jose, CA 95134-1909
Telephone: 408-570-7000
Web: http://www.gasonics.com


THE ANNUAL MEETING

The Annual Meeting of stockholders
will be held on March 6, 1998 at
Techmart, 5201 Great America
Parkway, Santa Clara, California.
Those unable to attend the Annual
Meeting are invited to address
questions and comments to
Terry R. Gibson at the Company's
Corporate Headquarters.


FORM 10-K

Stockholders who wish to receive,
without charge, a copy of the
Company's 1997 Annual Report on
Form 10-K filed with the Securities
and Exchange Commission may do
so by writing to the Financial
Relations Board, 180 Montgomery
Street, Suite 940, San Francisco,
California, 94104.


STOCK MARKET INFORMATION

GaSonics International Common
Stock is traded on The Nasdaq
National Market System under the
symbol GSNX.

The following table gives trading
ranges for the Company's Common
Stock during fiscal 1997:

QUARTER                STOCK TRADING RANGE,
                                FISCAL 1997
-------------------------------------------
First                       $ 6.88 - $12.63
Second                      $10.25 - $19.62
Third                       $ 8.13 - $15.63
Fourth                      $12.63 - $23.06


TRANSFER AGENT & REGISTRAR

U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, CA 91204-2991
Telephone: 818-502-1404


INVESTOR RELATIONS COUNSEL

The Financial Relations Board
180 Montgomery Street, Suite 940
San Francisco, CA 94104
Telephone: 415-986-1591


INDEPENDENT AUDITORS

Arthur Andersen LLP
River Park Tower
333 West San Carlos Street,
Suite 1500
San Jose, CA 95110-2710


LEGAL COUNSEL

Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303


GaSonics-Registered Trademark- is a registered trademark of
GaSonics International Corporation
All other trademarks are the property
of their respective owners.

-C-1998 GaSonics International
Corporation.
All rights reserved.


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[GASONICS INTERNATIONAL LOGO]


GaSonics International Corporation
2540 Junction Avenue
San Jose, CA 95134-1909
Telephone: 408. 570.7000
Web: http://www.gasonics.com


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GaSonics International Corporation 1997 Annual Report



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