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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                                ---------------

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<S>                                            <C>
          FOR THE FISCAL YEAR ENDED                       COMMISSION FILE NUMBER
             SEPTEMBER 30, 1999                                   0-22248
</TABLE>

                       GASONICS INTERNATIONAL CORPORATION
               (Exact name of Registrant as specified in charter)

<TABLE>
<S>                              <C>
           DELAWARE                  94-2159729
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
</TABLE>

                              2730 JUNCTION AVENUE
                           SAN JOSE, CALIFORNIA 95134
                                 (408) 570-7000
              (Address, including ZIP code, and telephone number,
       including area code, of Registrant's principal executive offices)

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:
                                  COMMON STOCK

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.  / /

    The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on December 13, 1999,
as reported on The Nasdaq National Market was approximately $145,062,256. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded from this computation
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

    As of December 13, 1999, the Registrant had outstanding 14,627,160 shares of
Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's Proxy Statement for the Registrant's Annual
Meeting of Stockholders to be held on March 10, 2000 are incorporated by
reference into Part III of this Report on Form 10-K.

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                                     PART I

ITEM 1. BUSINESS

THE COMPANY

    GaSonics International Corporation ("GaSonics" or the "Company") is a
leading global supplier of products and services for the dry photoresist and
residue removal segments of advanced integrated circuit ("IC") manufacturing.
The Company's products consist of photoresist removal systems, residue removal
systems, isotropic etch systems, and high pressure furnaces for the
semiconductor industry and low pressure chemical vapor deposition ("LPCVD") and
thermal annealing systems for the flat panel display ("FPD") industry. The
photoresist removal, residual removal and isotropic etch systems use proprietary
downstream plasma processing technology designed to increase yields in the
manufacture of advanced ICs. The Company markets and sells its products to many
leading IC manufacturers worldwide.

    The Company began operations in 1968, was incorporated in California in
March 1971 and reincorporated in Delaware in March 1994. In February 1991, the
Company acquired Branson International Plasma Corporation, a manufacturer of
photoresist removal equipment. In August 1995, the Company acquired
Tekisco, Ltd. of Tokyo, Japan, a manufacturer of LPCVD and thermal annealing
equipment for the manufacture of FPDs.

    The Company's principal executive offices are located at 2730 Junction
Avenue, San Jose, California 95134. The Company's telephone number is
(408) 570-7000 and worldwide website address is http://www.gasonics.com.

INDUSTRY BACKGROUND

    Over the past decade, rapid growth in the worldwide market for advanced ICs
and IC-related products has increased the demand for semiconductor manufacturing
equipment. In the highly sophisticated IC fabrication process, the Company's
products influence a large number of complex and repetitive processing steps,
including deposition, photolithography and etch. Deposition involves the
creation of a layer of either electrically insulating or electrically conductive
material on the surface of a wafer. The photolithography process then imprints
device features, using a photomask on a light sensitive polymer (photoresist).
After the photoresist is developed, an etch process selectively removes the
deposited material from the portions of the wafer surface not covered by the
imprinted pattern. Prior to processing additional layers on the wafer, the
photoresist and post-etch residues from the previous layer must be carefully
removed in order to create a clean and functional foundation for deposition of
the next layer. These processes between etch and deposition, often referred to
as "photoresist removal" or "ashing" and "post residue removal," have become
increasingly difficult as device geometries have shrunk to less than 1/700th the
size of a human hair.

    Today's advanced IC devices incorporate dozens of layers and use a variety
of materials in fabrication. After each layer, the resist and residue removal
process is repeated; as chips increase in capability, numbers of layers and
residue removal steps increase correspondingly. For example, a typical one
megabit Dynamic Random Access Memory chip ("DRAM") requires 11 masking and
subsequent photoresist removal steps. By comparison, a 64 megabit DRAM requires
20 to 25 masking and photoresist removal steps. As line geometries, or feature
sizes, of an IC continue to decrease to below 0.25 microns, wafer cleanliness
becomes increasingly important yet more difficult. New materials such as copper,
low K dielectrics (low dielectric constant materials) and deep ultraviolet
photolithography ("DUV") resists, will complicate photoresist removal and
preparation of the wafer surface for subsequent masking steps. As a result of
these trends, the Company believes that the number and complexity of photoresist
and residue removal systems per production line of advanced ICs will increase
along with the need for application-specific processes.

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    In the 1970's, photoresist was usually removed by immersing ICs into large
liquid chemical baths ("wet chemistry processing"). In the early 1980's, dry
chemistry processing used gases to remove the photoresist and began to replace
wet chemistry processing for those advanced processing steps that wet chemistry
processing was unable to complete or added too many defects (particles). Dry
chemical processing has grown as an alternative with potentially significant
cost-of-ownership savings as compared with wet chemical processing, especially
for complex ICs with feature sizes of 1.0 micron and below. Wet chemical
processing also poses environmental concerns associated with chemical storage,
handling, disposal and operator safety. In the fabrication of advanced ICs, wet
chemical processing for photoresist removal is now typically used only for
noncritical cleaning steps after the application of a dry process. In
traditional dry chemical plasma processing, plasma is created and the wafer is
exposed to the plasma in a single chamber in order to remove the residual
photoresist. However, because certain plasma elements can damage the wafer,
direct exposure can result in reduced yield.

THE GASONICS SOLUTION

    Addressing the photoresist removal needs of advanced IC manufacturers,
GaSonics pioneered in 1986 an advanced dry chemical process technology known as
"downstream microwave plasma." This technology separates the area for plasma
creation from that in which the wafer is exposed, thus shielding the wafer from
potential plasma damage while facilitating the chemical reaction. From there,
the Company has evolved a complex mix of product and technology to meet the
challenges of decreased line geometries, increased wafer sizes, new materials
and a series of difficult-to-remove residues. Called Integrated Clean: Solutions
between Etch and Deposition, these advanced photoresist and residue removal
technologies are believed by GaSonics to be critical for the manufacture of
advanced ICs at acceptable yields and costs. Yield, operating costs, throughput,
reliability, uptime and system cost are key components of an IC manufacturer's
total cost-of-ownership. The Company believes that downstream microwave and the
recently introduced RF process capabilities can impact each of these factors,
offering advanced IC manufacturers a simplified process solution with
cost-of-ownership benefits. Furthermore, GaSonics' platform technology combines
a high degree of reliability, serviceability, and overall equipment
effectiveness to offer additional cost-of-ownership benefits.

THE GASONICS STRATEGY

    In order to maintain its leadership position in advanced dry chemical
processing equipment for dry photoresist and residue removal, GaSonics business
strategy is designed to:

    ENHANCE STRATEGIC CUSTOMER RELATIONSHIPS.  The Company believes that its
long-standing relationships with many leading worldwide IC manufacturers are
critical to ensure its position as a leading supplier of photoresist removal
equipment for semiconductor fabrication. The Company intends to continue to
focus its resources on its key customers in order to develop future process
equipment and to lower the customers' total cost-of-ownership for photoresist
removal equipment. As part of this focus, the Company believes that providing
dedicated personnel at key customer facilities enables relationships, assists in
the design of new fabrication process equipment, and positions GaSonics as a
principal supplier of volume equipment orders.

    FOCUS ON CAPITAL PRODUCTIVITY.  By increasing yields in the manufacture of
advanced ICs, the Company believes its proprietary downstream microwave
processing technology offers customers cost-of-ownership advantages over wet
chemical processing and traditional dry chemical processing. For example,
consumable chemicals used in wet chemical processing of larger diameter wafers
generally increase the cost-of-ownership. Additionally, the Company believes
that its downstream technology offers better yields than traditional wet
chemical processes through reduced damage and contamination. The Company
believes these advantages position it as a preferred provider of lower
cost-of-ownership solutions, and the Company intends to introduce additional
cost-effective products and product enhancements, including a new platform for
300mm wafers which further enhances capital productivity.

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    CAPITALIZE ON ADVANCED WAFER FABRICATION TRENDS.  The Company's products
address the worldwide market opportunity for advanced photoresist removal
equipment created by wafer fabs manufacturing eight-inch wafers with near 0.18
micron line geometries. The Company believes that the yield benefits from dry
chemical processes in general and GaSonics' downstream processing technology, in
particular, increase significantly at line geometries of 0.18 micron and below.
GaSonics was one of the first companies to target the advanced photoresist
removal market by transitioning from traditional batch processing to a single
wafer processing and it currently has an installed base of approximately 775
systems in the eight-inch market. The Company also is currently developing
products for the 300 millimeter marketplace as it emerges.

    PENETRATE ASIA/PACIFIC MARKET.  The Asia/Pacific market for IC processing
equipment represents more than one-half of the worldwide market. The Company has
been successful with large customers in Korea, Singapore, Taiwan and Japan, and
intends to continue to invest significant resources to further penetrate the
Asia/Pacific market, particularly Taiwan and Japan. Japanese process equipment
manufacturers have typically dominated that market with traditional dry chemical
systems that process multiple wafers in a single batch. Since advanced IC
manufacturers who use larger diameter wafers are increasingly adopting single
wafer processing, the Company believes its single wafer systems, which
incorporate advanced dry chemical processing techniques, may be well-positioned
to compete in Japan. Taiwan dominates the market for foundry fab capacity. Due
to the volume of IC shipments, Taiwan purchases a significant portion of the
world's capital semiconductor manufacturing equipment. According to VLSI and
Dataquest, in the year 2000, Taiwan is expected to be the second largest market
for capital equipment after the United States.

    TARGET NEW SYSTEMS AND APPLICATIONS.  The Company believes that its strong
customer relationships and technology leadership will enable it to develop new
systems and target applications for specific customer needs. The Company's
Performance Enhancement Platform ("PEP") system, illustrates that strategy. PEP
systems are dual chamber systems designed to increase throughput and optimize
clean room space. The system is designed to allow a mix-and-match option
allowing photoresist removal, residue removal or a combination of both process
chambers on one platform. In addition, PEP's advanced, flexible operating system
with graphical user interface allows for easy addition of new chamber and system
features to continuously improve the product's process capability. This
flexibility enables the PEP to span multiple generations of device manufacturing
needs and to support a growing portfolio of process capabilities.

    For 300mm wafers, the Company has devised a unique platform that further
increases capital productivity over the dual chamber PEP. It consists of a novel
4 process chamber platform that utilizes in-chamber loadlocks to provide what we
believe is the highest throughput system available for bulk ash. It is designed
to incorporate our Iridia technology (developed on the 200 mm PEP system) to
meet customers' advanced resist and residue removal needs below 0.18 micron.
Furthermore, this new platform is expandable and is designed to accept new
chamber/process technologies as they are developed.

GASONICS TECHNOLOGY

MICROWAVE DOWNSTREAM PROCESSING.

    GaSonics' proprietary microwave downstream processing technology for dry
chemical processing has been a key element in establishing product demand.

    In addition to separating the plasma source from the wafer exposure area
("downstream"), the Company's processing technology incorporates microwave
plasma generation. The Company believes that microwave frequency introduced for
semiconductor manufacturing by GaSonics in 1986, has become the preferred source
for plasma creation because it produces a higher concentration of neutral
species and fewer damaging ions than the alternative, radio frequency ("RF")
plasma. Thus, the

                                       4
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Company believes its products have higher removal rates with less damage and can
operate at lower temperatures than competitive products that utilize RF energy
alone.

    In 1999 Gasonics introduced the PEP Iridia chamber which incorporated a RF
plasma source in addition to the proprietary microwave downstream plasma source.
The combination of these technologies allows the Iridia to address the emerging
applications of Post Metal and Post Via Clean with increased yield and lower
costs. Today, these etching processes are typically completed by costly wet
chemical process steps. The Company believes that IC manufacturers will soon
replace wet chemical processes or high cost etching steps with more
cost-effective downstream dry plasma processes.

    To meet the challenges of a marketplace increasing in complexity, GaSonics
has broadened its offerings of solutions which remove unwanted materials between
the etch process and subsequent deposition with the introduction of the PEP
Iridia. The Company's twenty-five years of experience and its technology
leadership in dry photoresist removal have facilitated its development of
Integrated Clean. The critical process steps between etch and deposition,
specifically those that involve the removal of unwanted materials, prepare the
wafer surface for a better device connection. These materials, which may be
organic, inorganic, metallic or particulate in nature, can impact device
performance, reliability and yield if they are not removed. GaSonics' core
business enables this critical process sequence, which includes photoresist
removal and residue removal. These steps complete the preceding etch step and
prepare the wafer for the subsequent deposition.

    The Iridia broadens the portfolio of photoresist removal and clean
applications that can be performed in a PEP system. Processes are designed for
current 0.18 micron design rules and extendible to deep sub-micron applications.
Changes in device materials have driven GaSonics to explore a wider range of
process chemistries. New features such as a 6-MFC gas box to provide more gases
for process chemistries and the exploration of water vapor delivery are examples
of how GaSonics is committed to working to further extending the Iridia's
performance to solve new issues facing the IC industry.

    The PEP Iridia system is the only system capable of performing controlled,
high-temperature photoresist removal and low-temperature clean and etch in a
single chamber. Reliable and repeatable dual-temperature capability is critical
due to the varying requirements for residue removal and high dose implant
stripping (HDIS) processes. Because they are very temperature sensitive, residue
removal processes must be performed at low temperature. In contrast, processes
such as HDIS require a low-temperature process, followed by a high-temperature
bulk photoresist removal process. While competing systems on the market perform
dual temperature processes, they are unable to control wafer temperature during
all process steps. If temperatures are allowed to get too high in certain phases
of the process, Titanium (Ti) and Titanium Nitride (TiN) structure loss may
occur.

    At the heart of the Iridia system is a universal chamber designed to accept
a temperature-controlled directional downstream plasma (DDP) platen or a
downstream microwave platen. The plasmas can be applied either independently or
simultaneously for enhanced removal rates. Through a modular design
architecture, the Iridia can be configured for increased flexibility to address
a range of process applications. It may also be configured for a more select
group of applications to enhance cost-of-ownership advantages when running
volume production.

HIGH PRESSURE THERMAL PROCESSING

    The Company introduced the concept of applying high pressure to IC thermal
processing with the introduction of its high-pressure furnace product. In IC
fabrication, there are a number of process steps that involve the exposure of
the wafer to high temperature for an extended period of time. The combination of
time and temperature is known as the "thermal budget" of a device. The Company
believes that the reduction of thermal budget in the fabrication of advanced
integrated circuits is becoming increasingly important as feature sizes continue
to decrease. The introduction of high

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pressure into the process allows the process designer to reduce the process
temperature, reduce the processing time or reduce both, thus reducing the
thermal budget and damage or yield loss.

    A new key application of high pressure that will generally effect the
advanced device industry is in the manufacture of gate dielectrics of 0.25
micron and less. As device speeds increase, the gate dielectrics must get
thinner. At 0.25 micron, current silicon dioxide gate dielectric technology is
no longer acceptable. The Company has demonstrated a solution with the
successful fabrication of sub 0.25 micron devices using high-pressure nitrided
gate dielectric technology on customer devices. This provides the Company with a
key enabling high-pressure technology for future device generations.

PRODUCTS

    The Company's major product line consists of advanced dry chemical
processing equipment for photoresist removal. The Company also offers advanced
dry chemical processing equipment for post-etch residue removal and isotropic
etching, as well as high pressure furnace systems and low-pressure chemical
vapor deposition equipment used for flat panel display manufacturing. In
addition, the Company provides upgrades, maintenance and spare parts for both
current and previous generation products.

DRY CHEMICAL PROCESSING SYSTEMS

    PHOTORESIST REMOVAL.  The Company's dry chemical downstream processing
systems are designed to provide advanced IC manufacturers with lower
cost-of-ownership solutions for photoresist removal. This product line is
currently comprised of the Aura 1000, the Aura 2000-LL, the Aura 3010, the
L3510, the PEP Ash and the PEP Iridia. All of these products incorporate the
Company's proprietary microwave downstream processing technology and the Iridia
augments that with RF plasma technology and are designed for these products to
be used in the fabrication of ICs with feature sizes of 0.18 microns and below.
The throughput rates range from approximately 45 to 80 wafers per hour for
single chamber systems and up to 140 wafers per hour for dual chamber systems,
depending upon wafer size and customer application. System purchase prices range
from approximately $150,000 to $950,000.

    The Company introduced its high productivity platform, the PEP, in late
1995. A dual chamber platform with a proprietary wafer handler and high yield
photoresist removal capability, the PEP was designed to deliver a lower cost per
wafer pass while providing yield advantage with GaSonics' downstream microwave
processing. GaSonics introduced photoresist removal chambers for the PEP
platform in 1995, and the residue removal chambers were introduced in 1996. In
1997 the Company introduced the PEP 3010 which transferred the chamber
technology from the successful Aura 3010 to the PEP platform. In 1998 the
chamber technology from the AE2000LL was transferred to the PEP as the PEP 3600
chamber. This chamber is targeted at wafer residue removal applications that
required high concentrations of Fluorine gas. The PEP 3600 chamber included a
greatly improved microwave source which the Company believes improved both the
process results on the wafer and source reliability resulting in improved tool
cost-of-ownership. The Iridia was launched at Semicon West in July 1999 and can
accommodate multiple plasma sources that address additional processing needs.
The PEP represents the Company's migration to a platform strategy, which offers
flexibility and customization of single wafer processing on an integrated
platform.

    Sales of dry chemistry processing equipment for photoresist removal and post
etch residue removal accounted for approximately 53%, 62% and 69% of the
Company's net sales in fiscal years 1999, 1998 and 1997, respectively.

    POST ETCH RESIDUE REMOVAL.  Post etch residue removal is the process after
etch and after photoresist removal. This process involves the removal of
unwanted materials from the surface of the wafer.

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    The PEP Ash system has proven effective at removing some of these residues
with the addition of low concentrations of Fluorine gases. In addition, a
modular clean chamber configured on the PEP becomes a PEP Iridia tool. This
chamber is specifically designed to accommodate large concentrations of Fluorine
gas which is sometimes needed for removing more difficult residues which form
after metal and oxide etch. The clean chamber has been qualified for production
at several fabs for this process. It has also demonstrated the ability to remove
post-oxide etch residue.

HIGH PRESSURE FURNACE SYSTEMS

    The Company pioneered the high-pressure furnace technology in 1977 with the
HiPox system and sold over 150 systems to more than 30 semiconductor
manufacturers worldwide. In fiscal 1995, the Company introduced its second
generation high-pressure furnace, the VHP. The VHP system is intended to satisfy
the traditional HiPox customers' needs while providing a state of the art tool
needed to meet the more stringent thermal budget requirements of advanced IC
manufacturers. The first such application is in high-speed communication devices
utilizing silicon germanium (SiGe). The Company has established itself in this
business with repeat orders for the VHP from a leading supplier of these
devices. With the establishment of VHP utility in the SiGe business, the recent
successes in ultra thin gate materials and the promise shown in several other
areas under development, the Company sees growth potential for the use of high
pressure technology in future generations of semiconductor devices.

LOW-PRESSURE CHEMICAL VAPOR DEPOSITION AND THERMAL ANNEALING SYSTEMS

    In August 1995, the Company acquired its liquid crystal display ("LCD")
division in Japan (formerly called Tekisco, Ltd.), one of Japan's leading
manufacturers of low-pressure chemical vapor deposition and thermal annealing
systems used for flat panel display manufacturing. Established in 1990, LCD
began shipments of its proprietary LPCVD and anneal systems for
polysilicon-on-glass applications for flat panel displays in 1991. LPCVD and
anneal systems have been sold to a number of leading Japanese and Korean flat
panel display manufacturers. The Company believes that the acquisition of LCD
has expanded its market presence in Japan. The Company believes that the
equipment needs of flat panel or liquid crystal manufacturers and semiconductor
manufacturers are similar and appear to be converging as the wafers used in IC
manufacturing continue to increase in size.

SPARE PARTS, SERVICE AND SUPPORT

    GaSonics provides a series of products including spare parts, retrofit and
upgrade kits, contract and billable service, and training designed to support or
enhance the capability of its installed base of systems. Revenue from these
sources accounted for approximately 39%, 24% and 20% of the Company's total net
sales in fiscal 1999, 1998 and 1997, respectively. As both the industries'
technology and the Company's systems have become more sophisticated, the Company
believes that its customers will increasingly rely on its expertise for service
and support. Since the installed base of the Company's equipment continues to
grow, the Company believes that service and support revenue will continue to
account for a significant portion of its future revenue.

CUSTOMERS

    The Company sells its products to leading IC manufacturers and flat panel
display manufacturers located throughout the United States, Europe and the
Asia/Pacific. In fiscal 1999, Intel accounted for approximately 23% of net
sales. Intel and Motorola accounted for approximately 20% and 11% of fiscal 1998
net sales, respectively. In fiscal 1997, Samsung and Promos Technologies each
accounted for approximately 11% of net sales and Intel accounted for
approximately 10% of net sales. The Company expects that sales of its products
to large customers, including those listed above, will continue to

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account for a high percentage of its net sales in the foreseeable future. None
of the Company's customers has entered into a long-term agreement requiring it
to purchase the Company's products. Moreover, sales to certain of the Company's
customers have decreased as those customers have completed or delayed purchasing
requirements for new or expanded fabrication facilities. Although the
composition of the group comprising the Company's largest customers has varied
from year to year, the loss of a significant customer or any reduction in orders
by any significant customer, including reductions due to customer departures
from traditional buying patterns, market, economic or competitive conditions in
the semiconductor industry or in the industries that manufacture products
utilizing integrated circuits, could materially adversely affect the Company's
business, financial condition and results of operations.

SALES, SERVICE AND CUSTOMER SUPPORT

    The Company believes its sales, service, applications and customer support
organizations are critical to its success in establishing and maintaining
long-term customer relationships and provide the Company with a competitive
advantage in the process equipment market. These relationships are of paramount
importance in the semiconductor capital equipment market, as the Company
believes that once a semiconductor manufacturer has selected a particular
supplier's products for delivering a technology solution, that the manufacturer
will frequently attempt to consolidate its other capital equipment requirements
with the same supplier for related process applications. The Company's sales,
service and applications organizations develop close working relationships with
customers in order to identify their current and future semiconductor equipment
requirements and to assist customers in overcoming their technology challenges
as they move to fabricating increasingly more complex devices. As a result, the
Company believes it is well positioned to successfully develop, market and
service products that provide advanced semiconductor manufacturers enabling
technology solutions.

    The Company markets, sells and services its products domestically and
internationally primarily through its marketing and direct sales and customer
support organizations, including service, applications and logistics personnel.
The Company has subsidiaries in the U.K., Ireland, France, Germany, Israel,
Korea and Japan, and branch offices in Italy, Singapore and Taiwan and has
staffed these subsidiaries and branches with sales, service, technical support,
applications engineering and logistics personnel. The Company maintains three
third party representatives to sell and service its products. The Company has
four United States sales and service centers located in Austin, Texas; Orlando,
Florida; Mesa, Arizona; and East Fishkill, New York in addition to its corporate
headquarters in San Jose, California.

    The Company's field service and applications engineering personnel based
throughout the United States, Europe and Asia/Pacific, directly support domestic
and international equipment installations, process development, training, spare
parts logistics, warranty service and post-warranty contract service. The
Company's field service engineers include dedicated site-specific engineers
contracted by certain customers.

    The Company generally offers standard warranty terms for two years on parts
and labor on equipment sales. The Company also offers service contracts to its
customers for continued maintenance of systems that are not covered by warranty.

    In support of its numerous field support centers located throughout the
world, the Company also maintains a headquarters-based customer satisfaction
organization. This organization includes a customer response center (CRC),
advanced technical/product support, technical publications, product training,
global field resource planning and spare parts logistics and planning. The
customer satisfaction organization is coordinated by the on-site CRC which has
round the clock hot-line and on-call personnel and direct access to
manufacturing, engineering and other resources to meet urgent and routine
requests. The CRC, working in concert with the Company's field sales, service,
applications and

                                       8
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customer support centers, links customers with the Company's most advanced
technical problem solving expertise with the overall goal of providing quality
products and services which meet or exceed customer's expectations.

    To provide customers with rapid access to replacement service parts, the
Company has strategically placed inventory in sales and service centers,
customers' sites, and distribution hubs in locations with a significant
installed base. These satellite or mini-stock rooms are located in several
European and Asian countries and in the eastern, central and western regions of
the United States. In addition, the stock room at the Company's headquarters in
San Jose, California keeps buffer inventory to support offsite stock rooms in
case of unexpectedly high level demand from customers.

    The Company has increased and continues to increase its sales, service,
applications and customer support presence in Asia/Pacific. The Company intends
to continue investing significant resources to further penetrate the
Asia/Pacific market. The Company's goal is to develop knowledgeable local sales,
service, applications and customer support resources throughout the region to
increase communication between the Company and Asia/Pacific semiconductor
manufacturers, reduce response times for sales and support inquiries, and
co-develop next generation processes.

    In August 1995, the Company acquired its LCD division in Japan from
Kishimoto Sangyo Co. Ltd. of Tokyo, Japan. The LCD division is a manufacturer of
LPCVD and thermal annealing equipment used for the manufacture of flat panel
displays ("FPD's"). FPDs are important components of portable computing and
telecommunications devices. FPD or liquid crystal display manufacturing utilizes
very similar processes to IC processing. Approximately 90% of the advanced FPDs
produced worldwide are manufactured in Japan. This acquisition was intended to
enable GaSonics to continue to penetrate this market and to further establish
the credibility of GaSonics as a supplier in Japan. In fiscal 1998, the Company
established a direct presence in Japan for sales, maintenance and service of the
Company's photoresist and residue removal business to better serve its Japanese
customers.

BACKLOG

    The Company schedules production of its systems based upon backlog, informal
customer commitments and general economic forecasts for its targeted markets.
Backlog includes only those customer orders for systems for which the Company
has accepted purchase order numbers and assigned shipment dates within twelve
months as well as orders for spare parts and service and support of systems. The
Company's backlog for its systems, spare parts and service and support was
approximately $21.1 million and $9.2 million as of September 30, 1999 and 1998,
respectively. The year-to-year increase is due primarily to the slow upturn in
the semiconductor industry that began in fiscal 1999. Historically, the
Company's backlog has fluctuated significantly primarily as a result of the
cyclical nature of construction and equipping of new IC fabrication facilities.
The equipment requirements of new fabrication facilities cannot be determined
with accuracy and, therefore, the Company's backlog at any certain date is not
necessarily indicative of future sales. In addition, the Company's backlog at
any particular date is not necessarily representative of actual sales for any
succeeding period. Orders are often received and shipped in the same quarter,
system delivery schedules can change and have changed, cancellations and
rescheduled system orders can occur and have occurred, all orders are subject to
cancellation, deferral or rescheduling by the customer with limited or no
penalties, and there are potential delays, and there have been delays, in system
shipments. The Company has in the past experienced, and will likely continue to
experience, cancellations, deferrals and rescheduling of product orders.

MANUFACTURING

    The Company's manufacturing strategy is to produce high quality,
cost-effective, and reliable systems and assemblies to support on-going and
growing requirements for more environmentally

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friendly semiconductor processing equipment. In order to provide the best added
value to its customers and to preserve standards in performance, the Company is
placing emphasis on in-house system integration and test activities that require
proprietary core technology or specialized knowledge and is increasing its
outsourcing of routine fabrication and assembly to strategic suppliers. For
example, the Company allows certain subcontrators to use equipment and
documented techniques on the company site to fabricate proprietary
subassemblies. This strategy is successfully being deployed to provide
quartzware, controllers, cables, and harnesses. The performance of
subcontractors is monitored through a supply management program to ensure that
they comply with quality and on-time expectations. In addition, a formalized
reliability system has been put in place to further strengthen the quality of
the Company's products.

    The Company's principal manufacturing activities include assembly and test
work conducted at the Company's facility in San Jose, California and in Atsugi
City, Japan for the LPCVD and thermal annealing business. Assembly includes
subassembly and final assembly. Class 10 clean rooms simulating a fab
environment are available to provide equipment performance demos to customers.

    The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company has to apply for special permits whenever new
regulated materials are introduced to the premises and comply with applicable
ordinances for handling toxic and hazardous materials for ongoing activities.
The Company believes that it is currently in compliance in all material respects
with such regulations and that it has obtained all necessary environmental
permits to conduct its business. Nevertheless, the failure to comply with
current or future regulations could result in substantial fines being imposed on
the Company, suspension of production, alteration of its manufacturing process
or cessation of operations. Such regulations could require the Company to
acquire expensive remediation equipment or to incur substantial expenses to
comply with environmental regulations. Any failure by the Company to control the
use, disposal or storage of, or adequately restrict the discharge of, hazardous
or toxic substances could subject the Company to significant liabilities. To
ensure that manufacturing and engineering activities are conducted with
heightened awareness on safety and compliance to regulations regarding the use
of toxic or other hazardous substances, training programs are conducted on a
year round basis for existing and new employees.

    To measure and improve customer satisfaction with the Company's products and
service, metrics are developed and measured on a weekly or monthly basis, such
as cycle time, quality, installation discrepancies, on-time deliveries,
backorders, employee flexibility, and productivity.

RESEARCH AND DEVELOPMENT

    The markets for semiconductor manufacturing equipment, including the markets
that utilize the Company's equipment, are characterized by rapid technological
development and product innovation. The Company intends to continue to commit
substantial resources to research and development in both dry chemistry
processing, high pressure thermal processing and LPCVD and thermal annealing for
the flat panel display market for both the existing major equipment sets and for
new products.

    In order to maintain its long-term relationships with existing customers,
the Company works to continuously improve its existing products and develop new
products and technologies. Customers with large installed bases increasingly
require their suppliers to improve existing products with respect to
cost-of-ownership, reliability, and process capability to meet their future
needs in order to avoid the long qualifying evaluations required with new
equipment, which can be costly and risky. The Company's goal is to continue to
develop new products and technologies to meet the changing needs of the market
place. The Company's research and development for product improvement and new
product development includes in-house validation tests of major hardware and
software changes as well as

                                       10
<PAGE>
detailed process characterization in the Company's clean rooms using a well
defined product development protocol. The Company recognizes that increased
sophistication in the operation, diagnostics and testing of present day advanced
semiconductor equipment is necessary and has worked to incorporate these needs
into its product development roadmap.

    Historically, the Company has devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. For fiscal 1999, 1998 and 1997,
total research and development expenditures were approximately $17.7 million,
$20.5 million, and $17.4 million, respectively, and represented approximately
28% of the Company's total net sales in fiscal 1999, 20% of total net sales in
fiscal 1998 and 14% of total net sales in fiscal 1997.

COMPETITION

    The semiconductor capital equipment industry is intensely competitive. A
substantial investment is required by customers to install and integrate capital
equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular supplier's products, the
manufacturer often relies for a significant period of time upon that equipment
for the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same supplier.
Accordingly, it is difficult for the Company to sell to a particular customer
for a significant period of time if that customer selects a competitor's
product. The Company currently has only one principal product line and
experiences intense competition worldwide from a number of leading foreign and
domestic manufacturers, including Canon, Applied Materials, Inc., Eaton
Corporation, Lam Research Corporation, Matrix Semiconductor Systems, Inc.,
Mattson Technology, Inc., Plasma Systems and MC Electronics, some of which have
substantially greater installed bases and greater financial, marketing,
technical and other resources than the Company. The Company believes that the
semiconductor equipment industry will continue to be subject to increased
consolidation which will increase the number of larger more powerful companies
in the industry sector in which the Company competes. Certain of the Company's
competitors have announced the introduction of, or have introduced or acquired,
competitive products that offer enhanced technologies and improvements. For
example, Applied Materials and Lam Research have modules on their products which
remove photoresist using dry chemistry processing and, therefore, compete with
the Company's products. The Company expects its competitors to continue to
develop, enhance or acquire competitive products that may offer improved price
or performance features. New product announcements, introductions and
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's systems in addition to
intense price competition or otherwise could make the Company's systems or
technology obsolete or noncompetitive. In addition, by virtue of its reliance on
sales of advanced dry chemistry processing equipment, the Company could be at a
disadvantage compared to certain competitors that offer more diversified product
lines. The Company also believes competition will continue from current and new
suppliers employing other technologies, such as wet chemistry, traditional dry
chemistry and other techniques, as such competitors attempt to extend the
capabilities of their existing products. Increased competitive pressure has led
and may continue to lead to reduced demand and lower prices for the Company's
products, thereby materially adversely affecting the Company's business,
financial condition and results of operations.

    The principal competitive elements in dry chemistry processing for
photoresist and residue removal and etching are technological innovation, total
cost-of-ownership of the systems, including yield, price, product performance
and throughput capability, quality, and reliability, and customer service and
support. Although the Company believes that it competes favorably in these
areas, competitive product introductions could cause a decline in sales or loss
of market acceptance of the Company's existing products. In addition, by virtue
of its reliance on sales of advanced dry chemistry processing equipment,

                                       11
<PAGE>
the Company could be at a disadvantage compared to certain competitors that
offer more diversified product lines.

    The Company believes that to remain competitive it will have to commit
significant financial resources to develop new product features and
enhancements, to introduce next generation photoresist and residue removal
products on a timely basis, and to maintain customer service and support centers
worldwide. In marketing its products, the Company will face competition from
suppliers employing new technologies in order to extend the capabilities of
competitive products beyond their current limits or increase their productivity.
In addition, increased competitive pressure could lead to intensified price-
based competition, resulting in lower prices and margins, which would materially
adversely affect the Company's business, financial condition and operating
results.

    In addition, Japanese IC process equipment manufacturers dominate the market
for certain types of integrated circuits which use the Company's systems.
Japanese manufacturers are well established in the Japanese process equipment
market, making it difficult for non-Japanese manufacturers to penetrate the
Japanese market. Furthermore, Japanese semiconductor manufacturers have extended
their influence outside of Japan by licensing products and process technologies
to non-Japanese semiconductor manufacturers. Such licenses could result in a
recommendation to use certain semiconductor capital equipment manufactured by
Japanese companies. The Company has not established itself as a major competitor
in the Japanese market and there can be no assurance that the Company will be
able to achieve significant sales to Japanese IC manufacturers or compete
successfully in the future.

    LCD's competitors in the LPCVD market include Japan-based companies and
Japan-based joint ventures such as Applied Komatsu, Koyo Lindbergh and ULVAC.
These competitors manufacture alternative technology systems and they could, at
any time, enter the Company's markets with improved technology or with systems
that are directly competitive with those of the Company's LCD division. Late in
fiscal 1995, the Company acquired its LCD division in Japan, but to date, this
has not enabled the Company to significantly penetrate the photoresist removal
market in Japan. As a relatively recent entrant, the Company is at a distinct
competitive disadvantage in the Japanese market compared to leading Japanese
suppliers, many of which have long-standing collaborative relationships with
Japanese semiconductor manufacturers.

INTELLECTUAL PROPERTY RIGHTS

    The Company holds United States patents, corresponding foreign patents and
patent applications covering various aspects of its products and processes.
Where appropriate, the Company intends to file additional patent applications on
inventions resulting from its ongoing research and development and manufacturing
activities to strengthen its intellectual property rights. In addition, the
Company owns several trademarks including the Company's name "GaSonics" and
others applicable to certain of its products. Nevertheless, the Company relies
primarily on innovation, technological expertise and marketing abilities of its
employees rather than patent, trademark, copyright or other intellectual
property rights protection.

    Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not develop similar technology independently. There can be
no assurance that any of the Company's pending patent applications will be
issued or that foreign intellectual property laws will protect the Company's
intellectual property rights. Patents issued to the Company could be challenged,
invalidated or circumvented and the rights granted thereunder may not provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.

                                       12
<PAGE>
    As is typical in the semiconductor industry, the Company occasionally
receives notices from third parties alleging infringement claims. Although there
currently are no pending material claims or lawsuits against the Company
regarding any possible infringement claims, there can be no assurance that
infringement claims by third parties or claims for indemnification by the
Company's customers resulting from infringement claims will not be asserted in
the future against the Company or that such assertions, if proven to be true,
will not materially adversely affect the Company's business, financial condition
and results of operations. If any such claims are asserted against the Company,
the Company may seek to obtain a license under the third party's intellectual
property rights if available on reasonable terms or at all. Any such license
would increase the Company's expenses and could cause a material adverse effect
on the Company's business, financial condition and results of operations. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or enforce its proprietary rights. Litigation, even if unsuccessful,
could be extremely expensive and time consuming and could materially adversely
affect the Company's business, financial condition and results of operations.

EMPLOYEES

    At September 30, 1999, the Company had approximately 404 full-time
employees. The Company believes its future success will depend in large part on
its ability to attract and retain highly skilled and motivated employees. None
of the employees of the Company is covered by a collective bargaining agreement.
The Company considers its relationships with its employees to be good.

ITEM 2. PROPERTIES

    The Company maintains its headquarters in San Jose, California in two leased
facilities, aggregating approximately 117,500 square feet, which contain general
administration and finance, marketing and sales, customer service and support,
manufacturing and research and development. These two facilities have separate
leases, both of which expire on December 31, 2001.

    The Company also leases four sales and support offices in the United States
in Austin, Texas; Mesa, Arizona; Orlando, Florida and East Fishkill, New York
under leases expiring within one to three years. Additionally, the Company
leases sales and support offices in Korea, Japan, Scotland, Singapore, Taiwan
and Israel. Lease terms for these offices vary from two to ten years.

    The Company also leases two facilities in Japan totaling approximately
34,000 square feet, which are dedicated to the Company's LCD division. One of
the facilities, totaling approximately 20,000 square feet, is used for
administration, marketing and sales, customer service and support, manufacturing
and research and development. The lease on this facility expires September 30,
2000, with an option to extend the lease for an additional three years. It is
currently anticipated that the Company will exercise its option to extend the
lease on this facility. The other facility in Japan, totaling approximately
14,000 square feet, was acquired in December 1995 to expand LCD production
capability. The lease on this facility expires December 31, 2001.

    The Company believes that its existing facilities will adequately meet its
anticipated requirements for the next twelve months and that suitable additional
or substitute space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

    The Company is not a party to any material litigation.

                                       13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of security holders during the Company's
fiscal fourth quarter ended September 30, 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

    The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME                                          AGE                           POSITION
----                                        --------   ---------------------------------------------------
<S>                                         <C>        <C>
Asuri Raghavan............................     46      Chief Executive Officer, President and Director
Jerauld Cutini............................     40      Senior Vice President of Marketing and Business
                                                       Development
Bill Alexander............................     43      Vice President, Worldwide Sales and Field
                                                       Operations
Graham Hills..............................     50      Vice President, Chief Technical Officer
John Villadsen............................     47      Vice President, Manufacturing Operations
</TABLE>

    ASURI RAGHAVAN joined the Company in April 1998 as Chief Executive Officer
and President. Mr. Raghavan was formerly employed by Kulicke and Soffa
Industries, Inc. ("Kulicke") from June 1980 to October 1985 and from
November 1988 to March 1998 where he most recently served as President of the
Equipment Group. From 1993 to 1995 he served as Vice President of the wire
bonding business and from 1995 to 1997 served as Senior Vice President of
Marketing. From 1991 to 1993, Mr. Raghavan was Vice President of Strategic
Development and from 1988 to 1991 was Director of Marketing for the Equipment
Group. From 1985 to 1988, Mr. Raghavan was employed by American Optical
Corporation where he held the position of Vice President of Research and
Technology. From 1980 to 1985, Mr. Raghavan held various engineering, marketing
and product development positions with Kulicke.

    JERAULD CUTINI joined the Company as Senior Vice President of Marketing and
Business Development in October 1999. In 1990, Mr. Cutini co-founded OnTrak
Systems and from 1990 to 1997 served as the Company's Executive Vice President
of Marketing, Sales and Customer Service until the company was acquired by Lam
Research Corporation in 1997. Following the acquisition, Mr. Cutini served as
President of OnTrak, a wholly-owned subsidiary of Lam Research until 1999. From
1988 to 1990 he served as an Account Manager for Applied Materials, Inc. and
from 1980 to 1988 he served as a Field Service Engineer, Product Marketing
Engineer and Sales Engineer for Silicon Valley Group.

    BILL ALEXANDER joined the Company as Vice President, Worldwide Sales and
Field Operations in August 1997. Prior to joining GaSonics, Mr. Alexander was
employed by Tencor Corporation (now KLA-Tencor Corporation) from November 1996
to August 1997 where he served as Vice President of Asia-Pacific Operations.
From 1993 to 1996 he first served as Director of Asia Operations and later as
Vice President of International Operations with Watkins-Johnson Company and from
1990 to 1993 held senior sales and marketing positions at Lam Research
Corporation. From 1981 to 1990, Mr. Alexander held various management positions
with Watkins-Johnson Company, Innovus Corporation, VLSI Technology and FMC
Corporation.

    GRAHAM HILLS joined the Company as Vice President and Chief Technical
Officer in June 1999. Prior to joining GaSonics, Dr. Hills was employed by Lam
Research Corporation since August 1996 where he served as Vice President of
Dielectric Etch Technology and Engineering from January 1998 to June 1999 and
Senior Director of Dielectric Etch Technology from August 1996 to January 1998.
From 1995 to 1996, Dr. Hills was employed by Applied Materials Corporation where
he served as Director of Silicon Etch Product Unit; Director of Technology from
1991 to 1996 and a senior technology staff member and an account technology
manager from 1989 to 1991. From 1984 to 1989 Dr. Hills served on the technical
staff of ATT, Bell Laboratories, was an Assistant Professor at the University of
North

                                       14
<PAGE>
Carolina from 1978 to 1984 and did postdoctoral work at the Rice University and
NRC, Canada from 1974 to 1977.

    JOHN VILLADSEN joined GaSonics in September 1999 as Vice President of
Manufacturing Operations. Mr. Villadsen was previously employed by
Watkins-Johnson Company from 1982 to 1999 and from April 1998 to September 1999
held the position of Vice President of Customer Service and Manufacturing and
from May 1995 to April 1998 served as Director of Assembly and Test for the
Semiconductor Equipment Group. From 1982 to 1985 he held various manufacturing
management positions for the Microwave Products Division of Watkins-Johnson.

    The executive officers serve at the discretion of the Board of Directors,
until their successors are appointed. No family relationships exist among the
Company's executive officers.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS

    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 following table sets forth the range of highest and lowest
closing sales prices for the periods indicated as reported by The Nasdaq
National Market. These prices do not include retail markups, markdowns, or
commissions.

<TABLE>
<CAPTION>
FISCAL 1999                                                     HIGH       LOW
-----------                                                   --------   --------
<S>                                                           <C>        <C>
First Quarter...............................................   $ 9.50     $ 3.56
Second Quarter..............................................    13.75       7.88
Third Quarter...............................................    15.06      10.88
Fourth Quarter..............................................    17.56      13.00

FISCAL 1998
------------------------------------------------------------
First Quarter...............................................   $22.81     $ 8.75
Second Quarter..............................................    14.88       9.75
Third Quarter...............................................    12.63       6.94
Fourth Quarter..............................................     8.13       3.44
</TABLE>

    The Company has not paid cash dividends on its common stock since inception,
and its Board of Directors presently plans to reinvest any Company earnings in
its business. Additionally, certain financial covenants set forth in the
Company's bank line of credit agreement limit the Company's ability to pay cash
dividends. As of December 15, 1999, the Company had approximately 113
stockholders of record and approximately 2,589 beneficial stockholders.

                                       15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                         YEARS ENDED SEPTEMBER 30,
                                            ----------------------------------------------------
                                              1999       1998       1997       1996       1995
                                            --------   --------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>        <C>
OPERATIONS:
Net sales.................................  $ 64,279   $100,430   $121,256   $127,043   $102,047
Gross margin..............................    24,385     41,304     53,964     62,626     57,930
Operating income (loss)...................   (15,357)    (9,597)     2,780     12,370     19,942
Net income (loss) (1,2,3,4)...............   (14,082)    (5,713)     3,007      8,930     16,126
Net income (loss) per share--Basic
  (1,2,3,4)...............................  $  (0.98)  $  (0.41)  $   0.22   $   0.67   $   1.26
Net income (loss) per share--Diluted
  (1,2,3,4)...............................  $  (0.98)  $  (0.41)  $   0.21   $   0.65   $   1.23

BALANCE SHEET:
Cash, cash equivalents and marketable
  securities..............................  $ 27,757   $ 32,338   $ 24,884   $ 25,909   $ 36,599
Working capital...........................    49,575     59,735     62,971     59,224     55,130
Total assets..............................    84,208     97,216    104,382     96,430     85,367
Stockholders' equity......................  $ 61,623   $ 75,408   $ 79,193   $ 72,689   $ 63,188
</TABLE>

<TABLE>
<CAPTION>
                                                            1ST        2ND        3RD        4TH
                                                          --------   --------   --------   --------
                                                                          UNAUDITED
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>        <C>        <C>        <C>
QUARTERLY 1999
Net sales...............................................  $10,022    $13,215    $17,902    $23,140
Gross margin............................................    2,152      4,557      7,622     10,054
Operating income (loss).................................   (7,194)    (6,241)    (1,983)        61
Net income (loss) (2)...................................   (6,879)    (5,978)    (1,622)       397
Net income (loss) per share--Basic (2)..................    (0.49)     (0.42)     (0.11)      0.03
Net income (loss) per share--Diluted (2)................  $ (0.49)   $ (0.42)   $ (0.11)   $  0.03
</TABLE>

<TABLE>
<CAPTION>
                                                            1ST        2ND        3RD        4TH
                                                          --------   --------   --------   --------
                                                                          UNAUDITED
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                       <C>        <C>        <C>        <C>
QUARTERLY 1998
Net sales...............................................  $32,851    $27,616    $23,595    $16,368
Gross margin............................................   15,436     12,688      7,169      6,011
Operating income (loss).................................    2,878        130     (6,711)    (5,895)
Net income (loss) (1)...................................    2,009        228     (4,202)    (3,748)
Net income (loss) per share--Basic (1)..................     0.14       0.02      (0.30)     (0.26)
Net income (loss) per share--Diluted (1)................  $  0.14    $  0.02    $ (0.30)   $ (0.26)
</TABLE>

------------------------
(1) Net loss for the third quarter ended June 30, 1998 and fourth quarter and
    year ended September 30, 1998 includes after tax charges of approximately
    $644,000 or $0.05 per share, $482,000 or $0.03 per share and $1.1 million or
    $0.08 per share, respectively, for costs related to reductions in force
    completed in June and September 1998.

(2) Net loss for the first quarter ended December 31, 1998 and year ended
    September 30, 1999 included an after tax charge of approximately $407,000 or
    $0.03 per share for costs related to a reduction in force.

(3) Net loss for the third quarter ended June 30, 1997 and net income for the
    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 of Notes to the Consolidated Financial
    Statements).

(4) Net income for the fiscal year ended September 30, 1997 and 1996 includes a
    non-operating after tax gain of approximately $790,000 and $93,000 or $0.05
    and $0.01 per share, respectively, realized from the sale of stock from a
    third party (see Note 10 of Notes to the Consolidated Financial Statements).

                                       16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.

    The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may be deemed to contain 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, product
development, operating expense levels, and the sufficiency of financial
resources to support future 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" 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 currently has only one principal product line and 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 continue to 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 including the recent, prolonged and severe downturn in
the worldwide semiconductor industry, the timing of significant orders, patterns
of capital spending by customers, the proportion of international sales to net
sales, changes in pricing by the Company, its competitors, customers or
suppliers, market acceptance the Company's products, the mix of products sold,
financial systems, procedures and controls, credit terms, 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. The Company's 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, overhead absorption levels, utilization of field
service and support resources, 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. Gross margin as a percentage of net sales
in fiscal 1999 has decreased from fiscal 1998 and fiscal 1998 gross margin as a
percentage of net sales has decreased from fiscal 1997 principally due to an
increased underabsorption of manufacturing overhead and underutilization of the
field service and support infrastructure resulting from lower revenues due to
the prolonged and severe worldwide semiconductor business slowdown that has
occurred during these periods. In addition, gross margin in fiscal 1998 was
negatively impacted by approximately $2.5 million of charges to increase
reserves for potentially excess and obsolete inventory.

                                       17
<PAGE>
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,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net sales...................................................   100.0%     100.0%     100.0%
Cost of sales...............................................    62.1       58.9       55.5
                                                               -----      -----      -----
Gross margin................................................    37.9       41.1       44.5
                                                               -----      -----      -----
Operating expenses:
  Costs associated with reduction in force (1),(2)..........      .6        1.7         --
  Provision for uncollectible account (3)...................      --         --        3.7
  Research and development..................................    27.5       20.4       14.4
  Selling, general and administrative.......................    33.7       28.6       24.1
                                                               -----      -----      -----
  Total operating expenses..................................    61.8       50.7       42.2
                                                               -----      -----      -----
Operating income (loss).....................................   (23.9)      (9.6)       2.3
Other income (expense):
  Interest expense..........................................      --         --        (.1)
  Interest and other income.................................     2.0        1.1         .6
  Gain on sale of investment (4)............................      --         --        1.0
                                                               -----      -----      -----
Income (loss) before provision (credit) for income taxes....   (21.9)      (8.5)       3.8
Provision (benefit) for income taxes........................      --       (2.8)       1.3
                                                               -----      -----      -----
Net income (loss)...........................................   (21.9)%     (5.7)%      2.5%
                                                               =====      =====      =====
</TABLE>

    NET SALES.  Net sales consist of revenues from system sales, spare part and
upgrade sales and maintenance and support. Net sales in fiscal 1999 of
$64.3 million decreased 36% from $100.4 million in fiscal 1998 and decreased 47%
from $121.3 million in fiscal 1997. The severe worldwide business slowdown in
the semiconductor industry, which resulted in many IC manufacturers in nearly
all geographic regions reducing and delaying capital equipment purchases, is the
principal reason for the decrease in sales from year to year. This industry
slowdown was largely due to a DRAM supply and demand imbalance, depressed DRAM
pricing and the poor economic climate in Asia and Japan. Additionally, logic and
microprocessor manufacturers were adversely impacted by price decreases
resulting from low cost personal computers ("PCs"). As a result of the above,
the Company experienced lost orders, delays in receiving new orders and
rescheduling or cancellations of previously ordered equipment by North America
and Asian customers, in particular, which materially adversely affected sales
for all of fiscal 1997, fiscal 1998 and fiscal 1999. However, beginning in
fiscal 1999, the industry climate began to slowly improve and sequential
improvement in quarter to quarter sales began in the second fiscal quarter and
continued throughout the balance of fiscal 1999. Assuming the global
semiconductor industry continues to recover, the Company anticipates that
quarter to quarter sales for at least the first half of fiscal 2000 will
increase moderately compared to the fourth quarter of fiscal 1999.

    International sales, which are predominantly to customers based in Europe,
Japan and Asia/Pacific, accounted for approximately 46%, 45% and 55% of total
net sales in fiscal 1999, 1998 and 1997, respectively. Sales to customers in
North America were 54% of total net sales in fiscal 1999 compared to 55% in
fiscal 1998 and 45% in fiscal 1997. In Europe, sales decreased to 20% of total
net sales in fiscal 1999 from 24% in fiscal 1998 and increased from 16% of total
net sales in fiscal 1997. The decrease in European net sales for fiscal 1999
from fiscal 1998 can be attributed primarily to the lack of investment in new
fabrication facilities or expansions during fiscal 1999. For Japan and
Asia/Pacific,

                                       18
<PAGE>
sales increased to 26% of total net sales in fiscal 1999 from 21% in fiscal 1998
and decreased from 38% in fiscal 1997. The decrease in the Japan and
Asia/Pacific sales in fiscal 1999 and fiscal 1998 from fiscal 1997 is
attributable primarily to the financial crisis in parts of that region and a
significant sale in Thailand recorded early in fiscal 1997 that was written-off
in the third quarter of fiscal 1997 as an uncollectible account receivable (see
Note 2 of Notes to Consolidated Financial Statements). The Company continued to
invest significant resources in international markets, particularly in Japan,
Singapore, Taiwan, and the United Kingdom during fiscal 1999 in an attempt to
increase its global market share. The Company's percentage of international
sales will continue to 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 2000.

    GROSS MARGIN.  The Company's gross margin as a percentage of net sales was
37.9% in fiscal 1999, 41.1% in fiscal 1998 and 44.5% in fiscal 1997. The
decrease in gross margin for fiscal years 1999 and 1998 primarily reflects the
impact of the Company's under-absorbed manufacturing overhead and under
utilization of its field service and support infrastructure resulting from lower
overall net sales. The decrease also resulted from lower sales volume of the
Company's more mature, higher margin single chamber systems as well as
competitive pricing pressures. Additionally, gross margin in fiscal 1998 was
negatively impacted by approximately $2.5 million of charges to increase
reserves for potentially excess manufacturing and spare parts inventory
resulting from the reduction in product demand and for certain obsolete finished
units. The charge related to finished units was for certain older generation
single chamber products which have not met sales expectations. This reserve was
also driven partially by the success of the Company's Performance Enhancement
Platform (PEP) in that customers have transitioned to the multi-chamber PEP
platform faster than anticipated resulting in reduced demand for single chamber
systems. 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 multi-chamber and flat panel display
systems, competitive pricing pressures, the semiconductor industry climate, the
economic troubles still being experienced by many countries in Asia, including
companies in some of the Company's major markets such as Japan and Korea,
changes in product mix and other factors. The Company 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. The Company expects that its gross
margin rates during fiscal 2000 will be slightly higher as compared to prior
year comparable periods due to higher sales levels resulting in increased
overhead absorption and better utilization of field service and support
resources.

    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).

    COSTS ASSOCIATED WITH REDUCTION IN FORCE.  In fiscal 1999 and 1998, the
Company reduced its workforce in response to market conditions and recorded a
charge of $407,000 and $1.7 million, respectively, primarily for costs of
severance compensation and consolidation of facilities. As of September 30, 1999
approximately $1.9 of the $2.1 million has been paid and approximately $198,000
remains on the Company's books as an accrual.

    RESEARCH AND DEVELOPMENT (R&D).  The Company's R&D expenses as a percentage
of net sales increased to 27.5% in fiscal 1999 from 20.4% in fiscal 1998 and
from 14.4% in fiscal 1997 due in large part to significantly lower sales volume.
In absolute dollars, R&D expenses for fiscal 1999 decreased to $17.7 million
from $20.5 million in fiscal 1998 and increased slightly from $17.4 million in
fiscal 1997. The $2.8 million decrease in R&D spending in fiscal 1999 compared
to fiscal 1998 is due to the cumulative impact of three reductions in force that
occurred in the second half of fiscal 1998 and the first quarter of fiscal year
1999, a charge of $500,000 recorded in fiscal 1998 related to accelerated

                                       19
<PAGE>
write-downs of certain older generation applications development equipment and
consulting charges and, due to the reprioritization of engineering projects.
Partially offsetting the above was a $1.8 million charge recorded in the second
quarter of fiscal 1999 primarily for the accelerated write-off of equipment
produced and used in connection with the Company's first generation 300mm
product development program. This equipment which consisted primarily of 300mm
tools produced for test, demonstration and evaluation had significantly declined
in value since the Company has now transitioned to the next generation of 300mm
product development.

    The increase in R&D spending in fiscal 1998 from fiscal 1997 is primarily
attributable to the development of several new product and process capabilities
for advanced photoresist and advanced clean applications utilizing the Company's
PEP platform and for the development of a 300mm platform. Expenses for fiscal
1998 also included the $500,000 in charges mentioned above for the accelerated
write-downs of certain older generation development equipment and consulting
charges.

    The Company continues to focus its R&D efforts on areas where it believes it
may be able to gain market share. In particular, the Company has focused its R&D
spending on programs to support the expanding number of available applications
that target our integrated clean strategy, the development of the 300mm
platform, the support of the LCD flat panel business and applications
development of the VHP technology. In June 1999, the Company formally introduced
the PEP Iridia which is a leading-edge solution targeting the growing market for
application-specific photoresist and wafer cleaning steps. The Company
anticipates that R&D spending in absolute dollars for fiscal 2000 will be
slightly higher when compared to fiscal 1999 excluding the $1.8 million
write-off discussed above. This increase will likely be due primarily to the
fact that the Company was on a reduced work schedule for the first half of
fiscal 1999, the Company increased salaries in the fourth quarter of fiscal 1999
and scheduled salary increases in the second quarter of fiscal 2000 and, a 53
week fiscal year 2000 compared to a 52 week fiscal year 1999.

    SELLING, GENERAL AND ADMINISTRATIVE (SG&A).  The Company's SG&A expenses in
fiscal 1999 decreased to $21.6 million from $28.7 million in fiscal 1998 and
from $29.3 million in fiscal 1997. As a percentage of net sales, SG&A expenses
increased to 33.7% from 28.6% in fiscal 1998 and from 24.1% in fiscal 1997 due
to significantly lower sales volume. The spending decrease in fiscal 1999
compared to fiscal 1998 results in part from charges taken in the third quarter
of fiscal 1998 for the consolidation of the Company's San Jose, California
operations of approximately $300,000 and for the write-down of older generation
demonstration and evaluation equipment of approximately $700,000. The balance of
the decrease primarily results from the cumulative impact of the Company's three
reductions in force and lower third party sales commissions on international
sales. For approximately the last three years, the Company has built a worldwide
direct sales and support organization which has decreased the Company's
dependence on third party representatives for these services. Consequently,
third party commissions in all but three regions have been eliminated, partially
offset by increased expenses related to the hiring of and other expenses
associated with building the Company's direct sales and support organizations.
SG&A expenses in fiscal 1998 were lower than fiscal 1997 primarily due to
reductions in force that occurred in the third and fourth quarter of fiscal
1998, reduced work schedules and shutdown days during fiscal 1998 and lower
third party sales commission on international sales. These expense reductions
were partially offset by the $700,000 equipment write-down mention above.

    The Company currently anticipates that SG&A expenses for fiscal 2000 will
increase from fiscal 1999 due to the Company's reduced work schedule for much of
fiscal 1999, salary increases, hiring and other related expenses needed to
support anticipated increases in business activities during fiscal 2000.

    OTHER INCOME (EXPENSE).  Other income and expense generally consists of
interest expense, interest income, currency translation gains and losses,
royalty income and gains on sales of stock of a third party. Interest expense of
approximately $42,000, $26,000 and $91,000 was incurred by the Company in fiscal
1999, 1998 and 1997, respectively, primarily as a result of borrowings under a
short-term credit

                                       20
<PAGE>
facility from the Bank of Tokyo-Mitsubishi by the Company's wholly-owned
Japanese subsidiary, GaSonics International Japan K.K. As of September 30, 1999,
borrowings under this loan agreement were approximately 297 million yen, which
is equivalent to approximately $2.8 million. The increase in interest and other
income in fiscal 1999 from fiscal 1998 primarily reflects an increase in
interest income received principally from the Company's short-term investments.
This increase resulted from a change in the Company's investment portfolio early
in fiscal 1999 from tax exempt securities to taxable securities since the
Company is not incurring a tax liability due to its net operating losses. This
increase was partly offset by a decrease in interest income received on a
combined decrease of cash, cash equivalents and marketable securities that were
used to fund operating and investing activities. The increase in interest and
other income in fiscal 1998 from fiscal 1997 is primarily due to royalty income
received in connection with the sale of the Company's industrial plasma cleaning
products and services business that was sold in July 1997. In fiscal 1999 and
1998 royalty income was $342,000 and $350,000, respectively. There was no
royalty income recorded in fiscal 1997.

    Foreign exchange currency translations were a net loss for fiscal 1999, 1998
and 1997 of approximately $140,000, $52,000 and $52,000, respectively. The
increase in the loss from fiscal 1998 to fiscal 1999 primarily reflects currency
translation impact of a strengthening U.S. dollar against the Japanese Yen that
has occurred during 1999.

    Net income for fiscal 1997 was favorably impacted by sales of shares held by
the Company in a third party corporation, which shares were received in exchange
for technology and certain services rendered in fiscal 1990. The Company
realized pretax gains in fiscal year 1997 of approximately $1,215,000 from this
sale (see Note 10 of Notes to the Consolidated Financial Statements). There was
no such gains recorded in fiscal 1998 or fiscal 1999 as the last shares were
sold in fiscal 1997.

    PROVISION FOR INCOME TAXES/BENEFITS.  The Company did not record a provision
for tax benefits related to the year ended September 30, 1999 net loss because
the net loss cannot be carried back to offset previous amounts of taxable
income. The tax loss and other tax benefits will be carried forward and will be
available to offset certain future tax liabilities. The Company does not
anticipate recording these tax benefits until returning to profitability. The
Company had an effective tax benefit rate of 33.0% in fiscal 1998 and an
effective tax rate of 35% in fiscal year 1997. The Company recognized a tax
benefit in fiscal 1998 due to a carry back of current net operating losses to
prior periods.

LIQUIDITY AND CAPITAL RESOURCES

    During fiscal 1999 cash, cash equivalents and marketable securities
decreased by $4.6 million to $27.8 million at September 30, 1999 from
$32.3 million at September 30, 1998. Operations used cash of approximately
$4.1 million in fiscal 1999 and provided cash of $9.5 million and $1.9 million
in fiscal 1998 and 1997, respectively. Investing activities used cash of
approximately $1.5 million, $4.0 million and $5.9 million in fiscal 1999, 1998
and 1997, respectively for the acquisition of equipment. Capital spending in
fiscal years 1997 included approximately $2.8 million for the purchase and
installation of a new management information system. Investing activities for
the purchase and sale of marketable securities provided cash of approximately
$6.7 million in fiscal 1999, used cash of approximately $6.1 million in fiscal
1998 and provided cash in fiscal 1997 of approximately $1.7 million.

    Financing activities in fiscal 1999, 1998 and 1997 provided cash of
approximately $1.0 million, $2.0 million and $3.9 million, respectively, from
the sale of stock under the Company's employee stock purchase and stock option
plans. In addition, $716,000 and $80,000 was provided in fiscal 1999 and fiscal
1998, respectively, from borrowings by the Company's Japanese subsidiary,
GaSonics International Japan K.K., under its line of credit facility with the
Bank of Tokyo-Mitsubishi (BTM). In fiscal 1999, financing activities used cash
of approximately $2.6 million for the open-market repurchase of 200,000 shares
of the Company's Common Stock and in fiscal 1997, used cash of approximately
$2.5 million to repay a loan by GaSonics International Japan K.K. to BTM and
acquired a new credit facility with the

                                       21
<PAGE>
same bank. At September 30, 1999 borrowings under this the line of credit
agreement with BTM totaled $2.8 million (see Note 8 of Notes to the Consolidated
Financial Statements).

    At September 30, 1999, the Company had working capital of approximately
$49.6 million. Accounts receivable increased to $19.0 million at the end of
fiscal 1999 from $15.0 million at the end of fiscal 1998 primarily due to higher
sales in the fourth quarter of fiscal 1999 compared to the same period in fiscal
1998. Inventories decreased to $16.5 million at the end of fiscal 1999 compared
to $20.8 million at the end of fiscal 1998 due principally to the reductions in
excess inventories. 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 inventories, the Company may be subject to an increasing risk
of inventory obsolescence, which could materially adversely affect the Company's
operating results.

    At September 30, 1999, the Company's principal sources of liquidity
consisted of approximately $16.9 million of cash and cash equivalents,
$10.9 million in marketable securities, and $20.0 million available under the
Company's unsecured working capital line of credit with Union Bank of California
which was renewed on June 30, 1999 and expires on March 31, 2000. A commercial
letter of credit provision of $500,000 is also provided under the line of
credit. This line of credit bears interest at the bank's LIBOR rate plus 1.25%
per annum. Available borrowing under the credit line is reduced by the amount of
outstanding letters of credit. As of September 30, 1999, except for $69,193
outstanding under the letter of credit provision, there were no borrowings under
this line. 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, 1999, the Company was in compliance with its
bank covenants. The Company's wholly-owned Japanese subsidiary, GaSonics
International Japan K.K., has a credit facility with the Bank of
Tokyo-Mitsubishi with an available credit line of 300 million Japanese yen
which, as of September 30, 1999, is equivalent to approximately $2.9 million
U.S. dollars. This credit facility was renewed on October 1, 1999, bears
interest at a rate of 1.375% per annum, is secured by a Letter of Guarantee
issued by the Company and expires on March 31, 2000. As of September 30, 1999,
GaSonics International Japan K.K. had borrowed 297 million yen under this credit
facility, which is equivalent to approximately $2.8 million as of that date. See
Note 8 of Notes to the Consolidated Financial Statements.

    The Company believes that its existing cash, cash equivalents, marketable
securities and available lines of credit at September 30, 1999 are 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 achieve 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.

YEAR 2000 READINESS DISCLOSURE

    The Year 2000 compliance issue (in which systems do not properly recognize
date sensitive information when the year changes to 2000) creates certain risks
for the Company. To address the issue, the Company assembled a task force to
assure that the products and systems supplied to the Company and the products
the Company supplies to its customers, are Year 2000 compliant and to review and
assess internal software, data management, accounting, manufacturing and
operational systems to ensure that they do not malfunction as a result of the
Year 2000 date transition.

    The Company is working with its significant suppliers and has prepared a
contingency plan to address the possibility that one or more suppliers may not
be able to provide Year 2000 compliant products or services in a timely manner.
The Company's contingency plans address alternative solutions including
alternative sources for such products or services. With respect to compliance of
the products the Company supplies to its customers, the Company has adhered to
Year 2000 test case scenarios

                                       22
<PAGE>
established by SEMATECH, an industry group comprised of U.S. semiconductor and
semiconductor equipment manufacturers. There can be no assurance that the
Company's products do not contain, and will not continue to contain, undetected
errors associated with Year 2000 date functions that may result in material
costs to the Company, including increased repair and warranty costs and costs
incurred in litigation due to any such defects.

    The Company relies heavily on its existing application software and
operating systems for its internal operations. If internal data management,
accounting and/or manufacturing or operational software and systems do not
adequately or accurately process or manage day or date information beyond the
year 1999, there could be a material adverse impact on the Company's operations.
The Company's failure to ensure Year 2000 compliance of its internal systems may
cause disruption in the Company's automated accounting, financial planning, data
management and manufacturing operations which could have a material effect on
the Company's short-term ability to manage its day-to-day operations in an
efficient, cost-effective and reliable manner. Assessment and corrective
measures were conducted in parallel. These assessment and corrective measures
encompassed all significant categories of systems used by the Company, including
data management, accounting, manufacturing, sales, human resources and
operational software and systems. The Company's assessment, corrective measures
and contingency planning to resolve all material internal programs and systems
is completed.

    In connection with the Company's assessment and corrective measures, both to
ensure that the operating systems accompanying its products and that its
internal products and systems, are Year 2000 compliant, the Company has replaced
some software and systems and upgraded others where appropriate. Where the
Company cannot upgrade certain components of its current products, the Company
has replaced non-compliant operating systems with systems demonstrated to be
Year 2000 compliant in both new products and installed products. With respect to
products no longer offered by the Company but still in use, the Company has
offered, for a fee, to upgrade to make Year 2000 compliant those products that
are upgradable and has offered alternative solutions for those products that are
not upgradable. With respect to products and systems supplied to the Company for
use internally, the Company has upgraded all material non-compliant products and
systems and, where necessary or where no reasonable upgrade is available,
replaced such non-compliant products and systems with products and systems
demonstrated to be Year 2000 compliant.

    The Company has identified for its customers the corrective measures
necessary to ensure that its installed products are Year 2000 compliant,
including compliance of third-party products (such as software) incorporated
into the Company's installed products. In this regard, the Company is incurring,
and will continue to incur throughout calendar 1999, various expenses to provide
customer support regarding Year 2000 issues, and certain of such expenses are
expected to be passed on to the Company's customers. The Company's failure to
ensure, at all or in a timely or reasonable manner, that its products are Year
2000 compliant may cause disruption in the customer's ability to derive expected
productivity from those products or to integrate the products fully and
functionally into certain automated manufacturing environments and, therefore,
could lead to increased customer dissatisfaction, increased warranty and repair
costs and claims for lost productivity or business by customers, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

    The Company estimates that the costs directly related to addressing Year
2000 issues, will be between $1.2 and $1.5 million, of which approximately
$1.2 million had been spent as of September 30, 1999.

                                       23
<PAGE>
    There can be no assurance that the Company's current products do not contain
undetected errors or defects associated with year 2000 date functions that may
result in material costs to the Company, including repair costs, warranty costs
and costs incurred in litigation due to any such defects. Additionally, there
can be no assurance that unexpected delays or problems, including the failure to
ensure Year 2000 compliance by systems and products supplied to the Company by a
third party, will not have a material adverse effect on the Company's financial
performance, or the competitiveness or customer acceptance of its products. The
Company could be subject to litigation in the event that any of its products,
including third party components, are not Year 2000 compliant, which could be
substantial and costly. The Company's current understanding of expected costs is
subject to change as the Company's review continues and does not include
potential costs related to customer claims, or internal software and hardware
replaced in the normal course of business where installation otherwise may be
accelerated to provide solutions to Year 2000 compliance issues.

    Although the Company is unaware of any material operational issues or costs
associated with preparing its internal systems for the year 2000 as of this
date, there can be no assurance that the Company will not experience serious
unanticipated negative consequences and/or material costs, including a material
disruption in the Company's operations, caused by undetected errors or defects
in the technology used in its internal operating systems, which are composed
predominantly of third party software and hardware technology.

ADDITIONAL RISK FACTORS

SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS

    The Company's operating results have fluctuated significantly in the past
and will continue to 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, particularly the recent prolonged, severe worldwide
semiconductor slowdown, the timing and terms of significant orders, patterns of
capital spending by customers, the proportion 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, inventory
obsolescence, accounts receivable write-offs, 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
throughout the world, particularly in the Asia/Pacific region, and lengthy sales
cycles. The Company's 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 the 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. For example, the Company has experienced and expects to
continue to experience decreased sales of its single chamber products due to the
introduction of the PEP (dual-chamber) systems. The Company's gross margin and
overall gross margin rate has sharply declined from the level attained in prior
years, in part, due to an increased under absorption of manufacturing overhead
and under utilization of the field service and support infrastructure resulting
from lower net sales, changes in product mix from fewer higher margin rate and
mature single chamber products to lower margin rate dual chamber products,
start-up inefficiencies associated with new products, competitive pricing
pressures, products sold by the

                                       24
<PAGE>
Company's liquid crystal display manufacturing equipment (LCD) division in
Japan, and other factors. Additionally, the Company's sales and earnings for
approximately the last two years were materially adversely affected by the
worldwide semiconductor business slowdown. Beginning in fiscal 1999, the
industry showed signs of an initial recovery and the Company's revenues improved
sequentially quarter to quarter beginning with the second quarter of fiscal
1999. Although the Company currently anticipates that revenues for at least the
first two quarters of fiscal 2000 will increase moderately from the level
achieved in the fourth quarter of fiscal 1999, there can be no assurance that
the Company will be able to increase or even maintain its sales at current
levels.

LIMITED SYSTEM SALES; BACKLOG

    The Company derives a substantial portion of its sales from the sale of
systems which typically range in price from approximately $150,000 to $950,000
for its photoresist and post-etch residue removal systems and up to
approximately $2.0 million or more for many of its other products. As a result,
the timing of revenue recognition for even a single transaction has had and
could continue to have a material adverse effect on the Company's sales and
operating results. The Company's backlog at the beginning of a quarter typically
does not include all sales required to achieve the Company's sales objectives
for that quarter. Moreover, all customer purchase orders are subject to
cancellation or rescheduling by the customer with limited or no penalties and,
therefore, backlog at any particular date is not necessarily representative of
actual sales to be expected for any succeeding period. The Company has in the
past experienced, and expects to continue to experience, cancellations and
rescheduling of orders. As a result, the Company's net sales and operating
results for a quarter depend upon the Company obtaining orders for systems to be
shipped in the same quarter in which the order is received. The Company's
business and financial results for a particular period could be materially
adversely affected if an anticipated order for even one system is not received
in time to permit shipment during such period. Furthermore, most of the
Company's quarterly net sales have recently been realized near the end of the
quarter. A delay in a shipment near the end of a particular quarter due, for
example, to an unanticipated shipment rescheduling, to cancellations or
deferrals by customers, to unexpected manufacturing difficulties experienced by
the Company, additional customer configuration requirements or to supply
shortages, may cause net sales in a particular quarter to fall significantly
below the Company's expectations and may materially adversely affect the
Company's operating results for any such quarter. In addition, significant
investments in research and development, capital equipment and customer service
and support capability worldwide have resulted in significant fixed costs which
the Company has not been and will not be able to reduce rapidly if sales goals
for a particular period are not met. Because the Company builds its systems
according to forecast, a reduction in customer orders or backlog will lead to
excess inventory and possibly inventory obsolescence, increased costs and
reduced margins which could materially adversely effect the Company's business,
financial condition and results of operations. The impact of these and other
factors on the Company's operating results in any future period cannot be
forecasted accurately. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

CYCLICALITY OF SEMICONDUCTOR INDUSTRY

    The Company's business depends in significant part upon capital expenditures
by manufacturers of semiconductor devices, including manufacturers that are
opening new or expanding existing fabrication facilities which, in turn, depend
upon the current and anticipated market demand for such devices and products
utilizing such devices. The semiconductor industry is highly cyclical and
historically has experienced periods of oversupply, resulting in significantly
reduced demand for capital equipment, including systems manufactured and
marketed by the Company. Beginning in 1996, the worldwide semiconductor industry
has experienced a severe cyclical downturn, which extended throughout 1998.
During this period, the Company has experienced significant cancellations and
delays of new orders and rescheduling of existing orders that have materially
adversely affected the Company's financial

                                       25
<PAGE>
results. In early 1999, the industry began what appears to be a slow recovery.
The Company can give no assurance that it will be able to increase or even
maintain its current level of sales. Additionally, the Company anticipates that
a significant portion of new orders will depend upon demand from IC
manufacturers building or expanding large fabrication facilities, and there can
be no assurance that such demand will exist in the near future or at all. See
"Business--Industry Background."

HIGHLY COMPETITIVE INDUSTRY

    The semiconductor capital equipment industry is intensely competitive. A
substantial investment is required by customers to install and integrate capital
equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular supplier's product, the
manufacturer often relies for a significant period of time upon that equipment
for the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same supplier.
Accordingly, it is difficult for the Company to sell to a particular customer
for a significant period of time once that customer selects a competitor's
product. The Company currently has only one principal product line and
experiences intense competition worldwide from a number of foreign and domestic
manufacturers, including Canon, Applied Materials, Inc., Eaton Corporation, Lam
Research Corporation, Matrix Semiconductor Systems, Inc., Mattson
Technology, Inc., Plasma Systems and MC Electronics, some of which have
substantially greater installed bases and greater financial, marketing,
personnel, technical and other resources than the Company. The Company believes
that the industry will continue to be subject to increased consolidation which
will increase the number of larger more powerful companies in the industry
sector in which the Company competes. Certain of the Company's competitors have
announced the introduction of, or have introduced or acquired, competitive
products that offer enhanced technologies and improvements. For example, Applied
Materials and Lam Research have modules on their products which remove
photoresist using dry chemical processing and, therefore, compete with the
Company's products. The Company expects its competitors to continue to develop,
enhance or acquire competitive products that may offer improved price or
performance features. New product announcements, introductions and enhancements
by the Company's competitors could cause a significant decline in sales or loss
of market acceptance of the Company's systems in addition to intense price
competition or could otherwise make the Company's systems or technology obsolete
or non-competitive. In addition, by virtue of its reliance on sales of advanced
dry chemistry processing equipment, the Company could be at a disadvantage
compared to certain competitors that offer more diversified product lines. The
Company believes that it will continue to face competition from current and new
suppliers employing other technologies, such as wet chemistry, traditional dry
chemistry and other techniques, as such competitors attempt to extend the
capabilities of their existing products. Increased competitive pressure has led
and may continue to lead to reduced demand and lower prices for the Company's
products, thereby materially adversely affecting the Company's business,
financial condition and operating results. There can be no assurance that the
Company will be able to compete successfully in the future.

    The Company believes that to remain competitive it will have to commit
significant financial resources to develop new product features and
enhancements, to introduce next generation photoresist and residue removal
products on a timely basis, and to maintain customer service and support centers
worldwide. In marketing its products, the Company will face competition from
suppliers employing new technologies in order to extend the capabilities of
competitive products beyond their current limits or increase their productivity.
In addition, increased competitive pressure could lead to intensified price-
based competition, resulting in lower prices and margins, which would materially
adversely affect the Company's business, financial condition and operating
results.

    Competitors of the Company's LCD division in Japan include Japan-based
companies and Japan-based joint ventures such as Applied Komatsu, Koyo Lindbergh
and ULVAC. These competitors manufacture alternative technology systems and are
well established in Japan and they could, at any

                                       26
<PAGE>
time, enter the Company's markets with improved technology or with systems that
are directly competitive with those of the Company's LCD division. Late in
fiscal 1995, the Company acquired its LCD division in Japan, but to date, this
has not enabled the Company to significantly penetrate the photoresist removal
market in Japan. Japanese IC process equipment manufacturers dominate the market
for certain types of integrated circuits which use the Company's systems.
Japanese manufacturers are well established in the Japanese process equipment
market, making it difficult for non-Japanese manufacturers to penetrate the
Japanese market. Furthermore, Japanese semiconductor manufacturers have extended
their influence outside of Japan by licensing products and process technologies
to non-Japanese semiconductor manufacturers. Such licenses could result in a
recommendation to use certain semiconductor capital equipment manufactured by
Japanese companies. The Company has not established itself as a major competitor
in the Japanese market and there can be no assurance that the Company will be
able to achieve significant sales to Japanese IC manufacturers or compete
successfully in the future. See "Business--Competition."

DEPENDENCE ON KEY CUSTOMERS

    Historically, the Company has sold a significant proportion of its systems
in any particular period to a limited number of customers. Sales to the
Company's ten largest customers in fiscal 1999, 1998 and 1997 accounted for
approximately 69%, 64%, and 66% of net sales, respectively. In fiscal 1999,
Intel accounted for greater than 10% of net sales. Intel and Motorola accounted
for greater than 10% of fiscal 1998 net sales. In fiscal 1997, Samsung, Promos
Technologies and Intel each accounted for greater than 10% of net sales. The
Company expects that sales of its products to relatively few large customers
will continue to account for a high percentage of net sales in the foreseeable
future. None of the Company's customers has entered into a long-term agreement
requiring it to purchase the Company's products. Moreover, sales to certain of
its customers have decreased as those customers have completed or delayed
purchasing requirements for new or expanded fabrication facilities. Although the
composition of the group comprising the Company's largest customers has varied
from year to year, the loss of a significant customer or any reduction in orders
from any significant customer, including reductions due to customer departures
from recent buying patterns, market, economic or competitive conditions in the
semiconductor industry or in the industries that manufacture products utilizing
ICs, has materially adversely affected and could in the future materially
adversely affect the Company's business, financial condition and results of
operations. The Company's ability to increase or maintain current sales levels
in the future will depend, in part, upon its ability to obtain orders from new
customers as well as the financial condition and success of its customers and
the general economy, of which there can be no assurance. See
"Business--Customers."

EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH

    Since 1993, the Company has significantly increased the scale of its
operations to support sales levels and, despite recent layoffs, has generally
expanded its operations to address critical infrastructure requirements,
including the hiring of additional personnel, commencement of independent
operations in the United Kingdom, Ireland, France, Germany, Italy, Korea, Japan,
Singapore, Taiwan and Israel and significant investments in research and
development to support product development.

    The past growth in the Company's sales and expansion in the scope of its
operations has placed a considerable strain on its management, financial and
other resources and has required the Company to initiate an extensive
reevaluation of its operating and financial systems, procedures and controls.
The Company implemented new management information, manufacturing and cost
accounting systems during the second quarter of fiscal 1997 and continues to
upgrade and implement new management systems, particularly in the area of
inventory control, to better enable it to manage its business. There can be no
assurance, however, that any existing or new systems, procedures or controls
will be adequate

                                       27
<PAGE>
to support the Company's operations or that its new systems will be implemented
in a cost-effective and timely manner.

RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION

    The semiconductor manufacturing industry is subject to rapid technological
change and new product introductions and enhancements. The Company's ability to
be competitive will depend in large part upon its ability to develop new and
enhanced systems and to introduce these systems at competitive prices and in a
timely and cost effective manner to enable customers to integrate the systems
into their operations either prior to or upon commencement of volume product
manufacturing. In addition, new product introductions or enhancements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Increased competitive pressure
has led to intensified price-based competition resulting in lower prices and
margins, which has and could continue to materially adversely affect the
Company's business, financial condition and results of operations. Any success
of the Company in developing, introducing and selling new and enhanced systems
depends upon a variety of factors including product selection, timely and
efficient completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, effective sales and
marketing and product performance in the field. In particular, the Company's
future performance will depend in part upon the successful commercialization of
the VHP, LPCVD systems and 300mm systems. There can be no assurance that any
such product will achieve significant revenues, if any, or enhance the Company's
profitability. Because new product development commitments must be made well in
advance of sales, new product decisions must anticipate both the future demand
for the type of ICs under development by leading IC manufacturers and the
equipment required to produce such ICs. There can be no assurance that the
Company will be successful in selecting, developing, manufacturing and marketing
new products or in enhancing existing products and any failure could have a
material adverse effect on the Company's business, financial condition and
results of operations.

    Because of the large number of components in, and the complexity of, the
Company's systems, significant delays can occur between a system's initial
introduction and the commencement of volume production. As is typical in the
semiconductor capital equipment market, the Company has experienced delays from
time to time in the introduction of, and certain technical, quality and
manufacturing difficulties with, certain of its systems and enhancements and may
continue to experience delays and technical and manufacturing difficulties in
future introductions or volume production of new systems or enhancements. The
Company's inability to complete the development or meet the technical
specifications of any of its new systems or enhancements or to manufacture and
ship these systems or enhancements in volume and in a timely manner would
materially adversely affect the Company's business, financial condition and
results of operations as well as its customer relationships. In addition, the
Company may incur substantial unanticipated costs to ensure the functionality
and reliability of its future product introductions early in the product's life
cycle. If new products have reliability or quality problems, the Company may
experience decreased sales, loss of customers, reduced orders or higher
manufacturing costs, increased costs, delays in collecting accounts receivable
and additional service and warranty expenses, any of which could materially
adversely affect the Company's business, financial condition and results of
operations. See"Business--Research and Development."

LENGTHY SALES CYCLE

    Sales of the Company's systems depend, in significant part, upon the
decision of a prospective customer to increase manufacturing capacity through
the expansion of existing fabrication facilities or the opening of new
facilities, which typically involves a significant capital commitment. The
Company often experiences delays in finalizing system sales following initial
system qualification while the customer evaluates and receives approvals for the
purchase of the Company's systems and completes a

                                       28
<PAGE>
new or expanded facility. Due to these and other factors, the Company's systems
typically have a lengthy sales cycle during which the Company may expend
substantial funds and management effort which may not ultimately lead to actual
sales. The Company believes that the length of the sales cycle will continue to
increase as certain of its customers centralize purchasing decisions into one
decision making entity and continue to be cautious in their purchase decisions
due to the recent severe downturn in the semiconductor market, which is expected
to intensify the evaluation process and require additional sales and marketing
expenditures by the Company. Lengthy sales cycles subject the Company to a
number of significant risks, including obsolescence and fluctuations and
non-predictability of operating results, over which the Company has little or no
control.

RISKS ASSOCIATED WITH THE ASIA/PACIFIC MARKET

    The Company believes that increased penetration of the Asia/Pacific market,
particularly Japan and Taiwan, will be essential to its future financial
performance. To date, the Company has sold relatively few systems to Japanese
semiconductor manufacturers. Sales in Japan accounted for approximately 7% of
the Company's total net sales in fiscal 1999, 4% of total net sales in fiscal
1998 and 9% of total net sales in fiscal 1997. The Japanese semiconductor market
(including fabrication plants operated outside of Japan by Japanese
semiconductor manufacturers) represents a substantial percentage of the
worldwide semiconductor manufacturing capacity, and has been difficult for
non-Japanese companies to penetrate. Furthermore, the licensing of products and
process technologies by Japanese semiconductor manufacturers to non-Japanese
semiconductor manufacturers has resulted in recommendations to use certain
semiconductor capital equipment manufactured by Japanese companies. Late in
fiscal 1995, the Company acquired its LCD division in Japan, but to date, this
has not enabled the Company to significantly penetrate the photoresist removal
market in Japan. As a relatively recent entrant, the Company is at a distinct
competitive disadvantage in the Japanese market compared to leading Japanese
suppliers, many of which have long-standing collaborative relationships with
Japanese semiconductor manufacturers. In addition, since 1992, Japanese
semiconductor manufacturers have substantially reduced their levels of capital
spending on new fabrication facilities and equipment, particularly over the past
two years due to the overall downturn in the Japanese economy and the severe
downturn in the worldwide semiconductor market, thereby, further increasing
competitive pressures in the Japanese market. Although the Company is investing
significant resources, and has established a direct presence in Japan, which has
and will significantly increase operating expenses, there can be no assurance
that the Company will be able to achieve significant sales to the Japanese
semiconductor market, which failure could materially adversely affect the
Company's business, financial condition and results of operations.

    Taiwan currently represents approximately 17% of the worldwide demand for
capital semiconductor equipment and this percentage is expected to increase in
the future. The success of the Company will, in part, be dependent upon its
ability to succeed in this very competitive marketplace. Currently, the
Company's primary competitors in the Taiwan bulk ash market are Mattson, Plasma
Systems Taiwan (PST) and Kokusai, Ramco (KEM). The Company's sales in Taiwan
accounted for approximately 9% of the Company's total net sales in fiscal 1999
and 12% of total net sales in fiscal 1998 and in fiscal 1997. See
"Business--Sales, Service and Customer Support."

INTERNATIONAL SALES

    International sales accounted for 46%, 45%, and 55% of net sales in fiscal
years 1999, 1998 and 1997, respectively. The Company has established independent
operations in the United Kingdom, Ireland, France, Italy, Germany, Korea, Japan,
Singapore, Taiwan and Israel. The Company anticipates that international sales
will continue to account for a significant portion of net sales. International
sales are subject to certain risks, including unexpected changes in regulatory
requirements, difficulty in satisfying existing regulatory requirements,
exchange rates, foreign currency fluctuations, tariffs and

                                       29
<PAGE>
other barriers, political and economic instability, potentially adverse tax
consequences, natural disasters, outbreaks of hostilities, difficulties in
accounts receivable collection, extended payment terms, difficulties in managing
distributors or representatives and difficulties in staffing and managing
foreign subsidiary and branch operations. The Company is also subject to the
risks associated with the imposition of legislation and import and export
regulations. The Company cannot predict whether tariffs, quotas, duties, taxes
or other charges or restrictions will be implemented by the United States, Japan
or any other country upon the importation or exportation of the Company's
products in the future. There can be no assurance that these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Sales, Service and Customer Support."

INTELLECTUAL PROPERTY RIGHTS

    Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not develop similar technology independently. There can be
no assurance that any of the Company's pending patent applications will be
issued or that foreign intellectual property laws will protect the Company's
intellectual property rights. Patents issued to the Company could be challenged,
invalidated or circumvented and the rights granted thereunder may not provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.

    As is typical in the semiconductor industry, the Company occasionally
receives notices from third parties alleging infringement claims. Although there
currently are no pending material claims or lawsuits against the Company
regarding any possible infringement claims, there can be no assurance that
infringement claims by third parties or claims for indemnification by the
Company's customers resulting from infringement claims will not be asserted in
the future against the Company or that such assertions, if proven to be true,
will not materially adversely affect the Company's business, financial condition
and results of operations. If any such claims are asserted against the Company,
the Company may seek to obtain a license under the third party's intellectual
property rights if available on reasonable terms or at all. Any such license
would increase the Company's expenses and could cause a material adverse effect
on the Company's business, financial condition and results of operations. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or enforce its proprietary rights. Litigation, even if unsuccessful,
could be extremely expensive and time consuming and could materially adversely
affect the Company's business, financial condition and results of operations.

SOLE OR LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS; COMPLEXITY IN
  MANUFACTURING PROCESS

    Certain components, subassemblies and services necessary for the manufacture
of the Company's systems are obtained from a sole supplier or a limited group of
suppliers. Specifically, the Company relies on three companies for supply of the
robotics, two other companies for microwave power supplies, two companies for
platens, one company for magnetrons and one company for microwave applicators
used in its products. The Company's LCD division in Japan is heavily dependent
on one key supplier for quartz fabrication used in its LPCVD and thermal
annealing systems. The Company is exploring alternative sources or technology to
provide back-up for critical materials when the primary suppliers are unable to
deliver. In addition, the Company has been establishing longer term contracts
with these suppliers to mitigate the potential risks of inadequate supply of
required components and control over pricing and timely delivery of components
and subassemblies. However, the Company is relying increasingly on outside
vendors to manufacture certain components and subassemblies. The Company's
reliance on sole or a limited group of suppliers and the Company's increasing
reliance on

                                       30
<PAGE>
subcontractors involve several risks, including a potential inability to obtain
an adequate supply of required components and reduced control over pricing and
timely delivery of components and subassemblies. Because the manufacture of
certain of these components and subassemblies is an extremely complex process
and requires long lead times, there can be no assurance that delays or shortages
caused by suppliers will not occur in the future. Certain of the Company's
suppliers have relatively limited financial and other resources. Any inability
to obtain adequate deliveries or any other circumstance that would require the
Company to seek alternative sources of supply or to manufacture such components
internally could significantly delay the Company's ability to ship its products,
which could damage relationships with current and prospective customers and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--
Manufacturing."

FUTURE ACQUISITIONS

    In the future, the Company may pursue acquisitions of additional product
lines, technologies or businesses. Future acquisitions by the Company may result
in potentially dilutive issuances of equity securities, incurrence of debt and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, the Company is inexperienced in
negotiating, effecting and assimilating such acquisitions and all acquisitions
involve numerous risks, including difficulties in the assimilation of the
operations, technologies, personnel and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience,
and the potential loss of key employees of the acquired company. From time to
time, the Company has engaged in preliminary discussions with third parties
concerning potential acquisitions of product lines, technologies and businesses;
however, there are currently no agreements with respect to any such acquisition.
In the event that such an acquisition does occur, there can be no assurance that
such an acquisition will not have a material adverse effect on the Company's
business, financial condition or results of operations.

DEPENDENCE ON KEY PERSONNEL

    The Company's financial performance will depend in significant part upon the
continued contributions of its officers and key personnel, many of whom would be
difficult to replace. The loss of any key person could have a material adverse
effect on the business, financial condition and results of operations of the
Company. The Company's future operating results depend in part upon its ability
to attract and retain other qualified management, engineering, financial and
accounting, technical, marketing and sales and support personnel for its
operations. Competition for such personnel is intense, particularly in the San
Francisco Bay Area where the Company is based, and there can be no assurance
that the Company will be successful in attracting or retaining such personnel.
The failure to attract or retain such persons could materially adversely affect
the Company's business, financial condition and results of operations.

ENVIRONMENTAL REGULATIONS

    The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. Nevertheless, the
failure to comply with current or future regulations could result in substantial
fines being imposed on the Company, suspension of production, alteration of its
manufacturing process or cessation of operations. Such regulations could

                                       31
<PAGE>
require the Company to acquire expensive remediation equipment or to incur
substantial expenses to comply with environmental regulations. Any failure by
the Company to control the use, disposal or storage of, or adequately restrict
the discharge of, hazardous or toxic substances could subject the Company to
significant liabilities and could result in a material adverse effect on the
Company's business, financial condition and results of operations.

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

    As of September 30, 1999, the Company's officers, directors and members of
their families who may be deemed affiliates of such persons beneficially owned
approximately 20% of the Company's outstanding shares of Common Stock.
Accordingly, these stockholders will be able to significantly influence the
election of the Company's directors and the outcome of corporate actions
requiring stockholder approval, such as mergers and acquisitions, regardless of
how other stockholders of the Company may vote. Such a high level of ownership
by such persons or entities may have a significant effect in delaying, deferring
or preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. Certain provisions of
the Company's Certificate of Incorporation, 1994 Stock Option/Stock Issuance
Plan, Bylaws and Delaware law may also discourage certain transactions involving
a change in control of the Company. In addition to the foregoing, the ability of
the Company's Board of Directors to issue preferred stock without further
stockholder approval could have the effect of delaying, deferring or preventing
a change in control of the Company.

VOLATILITY OF STOCK PRICE

    The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, sales of the Company's Common Stock into the market place, failure to
meet or changes in analysts' expectations, general conditions in the
semiconductor industry or the worldwide economy, natural disasters, outbreaks of
hostilities, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in patents or other
intellectual property rights and developments in the Company's relationships
with its customers and suppliers could cause the price of the Company's Common
Stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market in general, and the market for shares of small capitalization
stocks such as the Company's, in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Moreover, in recent years the stocks of many companies in
the semiconductor capital equipment business, including the stock of the
Company, have declined substantially due to the worldwide semiconductor
downturn. There can be no assurance that the market price of the Company's
Common Stock will not continue to experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's performance.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

INTEREST RATE RISK

    The Company's exposure to market risk for change in interest rates relates
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default
risk, market risk and reinvestment risk.

    The Company mitigates default risk by investing in safe and high-credit
quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating

                                       32
<PAGE>
of any investment issuer, guarantor or depository. The portfolio includes only
marketable securities with active secondary or resale markets to ensure
portfolio liquidity.

    The table below presents principal amounts and related weighted average
interest rates by date of maturity for the Company's investment portfolio (in
thousands):

<TABLE>
<CAPTION>
                                                                  FISCAL YEARS
                                                         ------------------------------
                                                           2000       2001       2002
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Cash equivalents and short-term investments
  Fixed rate short-term investments....................  $23,001      $ 0        $ 0
  Average interest rate................................   5.37%       N/A        N/A
</TABLE>

                                       33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       GASONICS INTERNATIONAL CORPORATION
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                                1999        1998
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 16,858    $ 14,698
  Marketable securities.....................................    10,899      17,640
  Trade accounts receivable, net of allowance for doubtful
    accounts of $654 in 1999 and $840 in 1998...............    18,986      15,026
  Inventories...............................................    16,523      20,822
  Net deferred tax asset....................................     5,697       5,697
  Prepaid expenses and other current assets.................     3,197       7,437
                                                              --------    --------
    Total current assets....................................    72,160      81,320
                                                              --------    --------
Property and equipment:
  Furniture and fixtures....................................       426         786
  Machinery and equipment...................................    21,160      20,099
  Leasehold improvements....................................     4,076       4,023
                                                              --------    --------
                                                                25,662      24,908
Less--accumulated depreciation and amortization.............   (14,396)    (10,098)
                                                              --------    --------
    Net property and equipment..............................    11,266      14,810
                                                              --------    --------
Deposits and other assets...................................       782       1,086
                                                              --------    --------
    Total assets............................................  $ 84,208    $ 97,216
                                                              ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Borrowings under credit facility..........................  $  2,832    $  2,116
  Accounts payable..........................................     5,691       4,008
  Income taxes payable......................................     4,616       4,038
  Other accrued liabilities.................................     9,446      11,423
                                                              --------    --------
    Total current liabilities...............................    22,585      21,585
                                                              --------    --------
Long-term liabilities:
  Deferred rent.............................................        --         223
Commitments (Note 12)
Stockholders' 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--14,382,629 and 14,169,227...........        14          14
  Additional paid-in capital................................    40,623      37,661
  Treasury stock............................................    (2,639)         --
  Subscription receivable...................................       (26)         --
  Retained earnings.........................................    23,651      37,733
                                                              --------    --------
    Total stockholders' equity..............................    61,623      75,408
                                                              --------    --------
    Total liabilities and stockholders' equity..............  $ 84,208    $ 97,216
                                                              ========    ========
</TABLE>

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

                                       34
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEARS ENDED SEPTEMBER 30,
                                                              ------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)                           1999       1998       1997
-------------------------------------                         --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $ 64,279   $100,430   $121,256
Cost of sales...............................................    39,894     59,126     67,292
                                                              --------   --------   --------
  Gross margin..............................................    24,385     41,304     53,964
                                                              --------   --------   --------
Operating expenses:
  Costs associated with reduction in force (Note 5).........       407      1,681         --
  Provision for uncollectible account (Note 2)..............        --         --      4,517
  Research and development..................................    17,696     20,493     17,410
  Selling, general and administrative.......................    21,639     28,727     29,257
                                                              --------   --------   --------
  Total operating expenses..................................    39,742     50,901     51,184
                                                              --------   --------   --------
  Operating income (loss)...................................   (15,357)    (9,597)     2,780
Other income (expense):
  Interest expense..........................................       (42)       (26)       (91)
  Interest and other income, net............................     1,317      1,096        722
  Gain on sale of investment................................        --         --      1,215
                                                              --------   --------   --------
  Income (loss) before provision (benefit) for income
    taxes...................................................   (14,082)    (8,527)     4,626
  Provision (benefit) for income taxes......................        --     (2,814)     1,619
                                                              --------   --------   --------
Net income (loss)...........................................  $(14,082)  $ (5,713)  $  3,007
                                                              ========   ========   ========
Net income (loss) per share--Basic..........................  $  (0.98)  $  (0.41)  $   0.22
                                                              ========   ========   ========
Net income (loss) per share--Diluted........................  $  (0.98)  $  (0.41)  $   0.21
                                                              ========   ========   ========
Weighted average common shares--Basic.......................    14,316     14,039     13,635
                                                              ========   ========   ========
Weighted average common and common equivalent
  shares--Diluted...........................................    14,316     14,039     14,209
                                                              ========   ========   ========
</TABLE>

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

                                       35
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                UNREALIZED      NOTE
                                COMMON STOCK        ADDITIONAL                   GAIN ON     RECEIVABLE                   TOTAL
                            ---------------------    PAID-IN     SUBSCRIPTION   MARKETABLE      FROM       RETAINED   STOCKHOLDERS'
                              SHARES      AMOUNT     CAPITAL      RECEIVABLE    SECURITIES   STOCKHOLDER   EARNINGS      EQUITY
                            ----------   --------   ----------   ------------   ----------   -----------   --------   -------------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                         <C>          <C>        <C>          <C>            <C>          <C>           <C>        <C>
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
Issuance of common stock
  under employee stock
  purchase plan...........     189,177      --         1,198           --            --           --            --         1,198
Issuance of common stock
  under stock option
  plan....................      63,949      --           630          100            --           --            --           730
Net Loss..................          --      --            --           --            --           --        (5,713)       (5,713)
                            ----------     ---       -------        -----         -----         ----       --------     --------
Balance, September 30,
  1998....................  14,169,227      14        37,661           --            --           --        37,733        75,408
Issuance of common stock
  under employee stock
  purchase plan...........     171,753      --         1,131           --            --           --            --         1,131
Issuance of common stock
  under stock option
  plan....................     241,649      --         1,831          (26)           --           --            --         1,805
Stock repurchase..........    (200,000)     --        (2,639)          --            --           --            --        (2,639)
Net Loss..................          --      --            --           --            --           --       (14,082)      (14,082)
                            ----------     ---       -------        -----         -----         ----       --------     --------
Balance, September 30,
  1999....................  14,382,629     $14       $37,984        $ (26)        $  --         $ --       $23,651      $ 61,623
                            ----------     ---       -------        -----         -----         ----       --------     --------
</TABLE>

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

                                       36
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEARS ENDED SEPTEMBER 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(14,082)  $ (5,713)  $  3,007
  Adjustments to reconcile net income (loss) to net cash
    provided by (used for) operating activities:
    Depreciation and amortization...........................     4,993      3,970      2,773
    Provision for doubtful accounts.........................       180        120      4,637
    Forgiveness of note receivable from stockholder.........        --         --         65
    Write-off of fixed assets...............................        62        173         --
Changes in assets and liabilities:
  Accounts receivable.......................................    (4,140)    13,168    (12,564)
  Inventories...............................................     4,299      6,254      2,387
  Prepaid expenses and other current assets.................     4,240     (5,650)      (830)
  Deposits and other assets.................................       304        596        554
  Accounts payable..........................................     1,683     (2,804)      (505)
  Income taxes payable......................................       578        984      1,954
  Accrued liabilities.......................................    (1,977)    (1,464)       570
  Deferred rent.............................................      (223)      (178)      (151)
                                                              --------   --------   --------
    Net cash provided by (used for) operating activities....    (4,083)     9,456      1,897
                                                              --------   --------   --------
Cash flows from investing activities:
  Purchases of marketable securities........................   (79,370)   (67,114)   (25,636)
  Proceeds from sales of marketable securities..............    86,111     61,051     27,292
  Purchases of property and equipment.......................    (1,511)    (4,011)    (5,935)
                                                              --------   --------   --------
    Net cash provided by (used for) investing activities....     5,230    (10,074)    (4,279)
                                                              --------   --------   --------
Cash flows from financing activities:
  Payments of note payable to bank..........................        --         --     (2,455)
  Proceeds from borrowings under credit facility............       716         80      2,036
  Repurchases of common stock...............................    (2,639)        --         --
  Proceeds from issuance of common stock....................     2,936      1,929      4,334
                                                              --------   --------   --------
    Net cash provided by financing activities...............     1,013      2,009      3,915
                                                              --------   --------   --------
Net increase in cash and cash equivalents...................     2,160      1,391      1,533
Cash and cash equivalents at beginning of period............    14,698     13,307     11,774
                                                              --------   --------   --------
Cash and cash equivalents at end of period..................  $ 16,858   $ 14,698   $ 13,307
                                                              ========   ========   ========
</TABLE>

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

                                       37
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1999

1. ORGANIZATION AND OPERATIONS OF THE COMPANY:

    GaSonics International Corporation (the "Company") is a leading global
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. See "Additional Risk Factors."

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 1999, fiscal 1998 and fiscal
1997 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 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             YEARS ENDED SEPTEMBER 30,
                                                        ------------------------------------
                                                          1999          1998          1997
                                                        --------      --------      --------
<S>                                                     <C>           <C>           <C>
Interest..............................................    $140          $ 25          $ 94
Income taxes..........................................    $590          $224          $625
</TABLE>

    The Company had one significant non-cash 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. Non-cash
activity included a before tax bad debt expense of $4.5 million.

                                       38
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

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. Material unrealized gains and losses are recorded as a
separate component of stockholders' equity, net of tax. The Company's
investments in debt securities mature at various dates through July 2000.

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

    The components of available-for-sale securities by major security type as of
September 30, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        GROSS
                                                                          AGGREGATE   UNREALIZED
                                                              AMORTIZED     FAIR       HOLDING
FISCAL 1999                                                     COST        VALUE       GAINS
-----------                                                   ---------   ---------   ----------
<S>                                                           <C>         <C>         <C>
Debt securities issued by the United States Government and
  agencies of the United States Government..................   $23,001     $23,001    $      --

FISCAL 1998
------------------------------------------------------------
Debt securities issued by states of the United States And
  political subdivisions of the states......................   $25,774     $25,774    $      --
</TABLE>

    Proceeds from sales of available-for-sale securities were approximately
$86.1 million, $61.1 million and $27.3 million in fiscal 1999, 1998 and 1997,
respectively. Gross realized gains on those sales were approximately $27,500,
$8,000 and $3,000 in fiscal 1999, 1998 and 1997, respectively. The Company used
specific identification as the cost basis in computing realized gains.

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
approximately 15% of net sales and are recognized as the related work is
performed.

MAJOR CUSTOMERS

    One customer accounted for approximately 23%, 20% and 10% of net sales for
each of fiscal years 1999, 1998 and 1997, respectively. Two other customers each
accounted for approximately 11% of net sales in fiscal 1997. There was one other
customer in fiscal 1998 that accounted for approximately 11% of net sales.

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

                                       39
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

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):

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                            -------------------
                                                              1999       1998
                                                            --------   --------
<S>                                                         <C>        <C>
Raw materials.............................................  $ 7,784    $12,547
Work-in-process...........................................    5,409      2,254
Finished goods............................................    3,330      6,021
                                                            -------    -------
                                                            $16,523    $20,822
                                                            =======    =======
</TABLE>

PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost and are generally depreciated over
the estimated useful lives of the assets (four to ten 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):

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                             -------------------
                                                               1999       1998
                                                             --------   --------
<S>                                                          <C>        <C>
Warranty...................................................   $2,252    $ 3,213
Sales commissions..........................................    1,056        805
Employee compensation......................................    3,538      3,744
Other......................................................    2,600      3,661
                                                              ------    -------
                                                              $9,446    $11,423
                                                              ======    =======
</TABLE>

                                       40
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

NET INCOME (LOSS) PER SHARE

    Net income (loss) per share data has been computed using the weighted
average number of shares of common stock outstanding for the Basic net income
(loss) per share calculation, and using the weighted average number of shares of
common stock and common stock equivalent shares calculated under the treasury
stock method for the Diluted net income (loss) per share calculation.

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 resold during fiscal 1998.

RECLASSIFICATIONS

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

                                       41
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities. It establishes accounting and reporting standards for
derivative instruments including standalone instruments, such as forward
currency exchange contracts and interest rate swaps or embedded derivatives and
requires that these instruments be marked-to-market on an ongoing basis. These
market value adjustments are to be included either in the income statement or
stockholders' equity, depending on the nature of the transaction. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. The effect of SFAS No. 133 is not expected to be material
to the Company's financial statements.

                                       42
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

3. GEOGRAPHIC AREA DATA:

    The Company's operations by geographical area for the three years ended
September 30, 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
                                             UNITED                OTHER
                                             STATES     JAPAN     FOREIGN    ELIMINATIONS   CONSOLIDATED
                                            --------   --------   --------   ------------   ------------
<S>                                         <C>        <C>        <C>        <C>            <C>
1999
Net sales:
  Domestic................................  $ 34,727    $4,692    $ 3,794      $     --       $ 43,213
  Exports Europe..........................     5,004        --         --            --          5,004
  Exports Asia/Pacific....................    16,357        --         --            --         16,357
  Exports Japan...........................      (295)       --         --            --           (295)
  Intercompany............................     3,805     1,767      6,726       (12,298)            --
                                            --------    ------    -------      --------       --------
Total revenues............................  $ 59,598    $6,459    $10,520      $(12,298)      $ 64,279
                                            ========    ======    =======      ========       ========
Operating income (loss)...................  $(15,060)   $ (149)   $   143      $   (291)      $(15,357)
Identifiable assets.......................  $ 76,006    $6,492    $ 3,432      $ (1,722)      $ 84,208
                                            ========    ======    =======      ========       ========
1998
Net sales:
  Domestic................................  $ 55,294    $3,753    $ 3,596      $     --       $ 62,643
  Exports Europe..........................    21,360        --         --            --         21,360
  Exports Asia/Pacific....................    15,121     1,111         --            --         16,232
  Exports Japan...........................       195        --         --            --            195
  Intercompany............................     2,303     1,675      7,649       (11,627)            --
                                            --------    ------    -------      --------       --------
Total revenues............................  $ 94,273    $6,539    $11,245      $(11,627)      $100,430
                                            ========    ======    =======      ========       ========
Operating income (loss)...................  $(10,728)   $  378    $   755      $     (2)      $ (9,597)
Identifiable assets.......................  $ 88,100    $7,541    $ 3,007      $ (1,432)      $ 97,216
                                            ========    ======    =======      ========       ========
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
                                            ========    ======    =======      ========       ========
</TABLE>

    The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's various operations. Accordingly, the revenue, operating income (loss)
and identifiable assets shown for each geographic area may not be

                                       43
<PAGE>
                       GASONICS INTERNATIONAL CORPORATION

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

3. GEOGRAPHIC AREA DATA: (CONTINUED)

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.  SEGMENT REPORTING

    In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect the Company's results of operations or financial
position, but did affect the disclosure of segment information. The Company is
organized on the basis of products and services. All of the Company's business
units have been aggregated into one operating segment. The Company's service
business is a separate operating segment; however, this segment does not meet
the quantitative thresholds as prescribed in SFAS No. 131. As a result, in the
opinion of management, no additional operating segment information is required
to be disclosed.

5.  CHARGES TAKEN DURING THE FISCAL YEAR

    The twelve month period ended September 30, 1998 included pre-tax charges of
approximately $1.7 million, related to costs of reductions in force completed in
June 1998 and September 1998 and costs of facility consolidations. As of
September 30, 1999, $1.5 million of the $1.7 million has been paid and $175,000
remains on the Company's books as an accrual. Also included in the twelve month
period ended September 30, 1998 are pre-tax charges of approximately
$4.0 million, related primarily to reserves for potential excess inventory and
accelerated write-downs of certain demonstration equipment. The twelve month
period ended September 30, 1999 included pre-tax charges of approximately
$407,000, related to costs of a reduction in force completed in December 1998.
As of September 30, 1999, $384,000 of the $407,000 has been paid and $23,000
remains on the Company's books as an accrual.

6.  COMPREHENSIVE INCOME

    Effective December 31, 1998 the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. For the twelve months ended
September 30, 1999 and 1998, there were no material items of comprehensive
income (loss), thus comprehensive income for these periods did not differ
materially from net income as reported in the accompanying financial statements.

                                       44
<PAGE>
7. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EARNINGS PER SHARE
CALCULATION

    Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings (loss) per common share were computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during this period. Diluted earnings (loss) per common share for the
twelve months ended September 30, 1999, 1998 and 1997, were calculated using the
treasury stock method to compute the weighted average common stock outstanding.
As a result, the Company's reported earnings per share for fiscal year 1997 was
restated. There has been no impact on reported earnings per share data when
compared to basic and diluted earnings per share calculated under the provisions
of SFAS No. 128 for the twelve month period ended September 30, 1997.

<TABLE>
<CAPTION>
                                                                                        PER SHARE
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999                  LOSS         SHARES      AMOUNT
----------------------------------------------              ------------   ----------   ---------
<S>                                                         <C>            <C>          <C>
Net loss..................................................  $(14,082,000)

BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders...............................  $(14,082,000)  14,316,000    $(0.98)
</TABLE>

<TABLE>
<CAPTION>
                                                                                        PER SHARE
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998                  LOSS         SHARES      AMOUNT
----------------------------------------------              ------------   ----------   ---------
<S>                                                         <C>            <C>          <C>
Net loss..................................................  $ (5,713,000)

BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders...............................  $ (5,713,000)  14,039,000    $(0.41)
</TABLE>

<TABLE>
<CAPTION>
                                                                                        PER SHARE
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997                 INCOME        SHARES      AMOUNT
----------------------------------------------              ------------   ----------   ---------
<S>                                                         <C>            <C>          <C>
Net income................................................  $  3,007,000

BASIC INCOME PER SHARE
Income available to common stockholders...................  $  3,007,000   13,635,000    $ 0.22

Effect of dilutive securities:
Options issued to purchase common stock...................                    574,000

DILUTIVE INCOME PER SHARE
Income available to common stockholders...................  $  3,007,000   14,209,000    $ 0.21
</TABLE>

8. LINE OF CREDIT AGREEMENT AND CREDIT FACILITY:

    The Company has an unsecured $20,000,000 revolving line of credit agreement
(the "Agreement") with Union Bank of California which expires on March 31, 2000.
There were no borrowings outstanding under the Agreement as of September 30,
1999. Under the line of credit, all borrowings bear interest at the bank's LIBOR
rate plus 1.25% per annum. The line of credit agreement contains certain
covenants, including covenants relating to financial ratios, profitability and
tangible net worth which must be maintained by the Company. In June 1999 Union
Bank of California renewed the Loan Agreement to provide a profitability
covenant that the Company may not incur losses in two consecutive quarters after
December 31, 1999. The Company was in compliance with the financial covenants of
the Agreement as of September 30, 1999.

    Under the Agreement, the Company has a provision for standby letters of
credit not to exceed $500,000. As of September 30, 1999, there were letters of
credit outstanding in the amount of $69,163. Available borrowing under the
credit line is reduced by any amounts outstanding under the letter of credit
provision.

                                       45
<PAGE>
8. LINE OF CREDIT AGREEMENT AND CREDIT FACILITY: (CONTINUED)

    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 $2.9 million in U.S. dollars as of
September 30, 1999), and is secured by a Letter of Guarantee issued by the
Company. The outstanding balance bears interest at 1.375% per annum and is due
and payable on demand. This credit facility expires on March 31, 2000. At
September 30, 1999, borrowings under this credit facility agreement were
297 million Japanese yen, which is equivalent to approximately $2.8 million U.S.
dollars as of that date. 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.

9. INCOME TAXES:

    The Company accounts for income taxes using an asset and liability approach.

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

<TABLE>
<CAPTION>
                                                      YEARS ENDED SEPTEMBER 30,
                                                    ------------------------------
                                                      1999       1998       1997
                                                    --------   --------   --------
<S>                                                 <C>        <C>        <C>
CURRENT
  Federal.........................................  $    --    $(2,773)    $1,509
  State...........................................       --        130        223
                                                    -------    -------     ------
    Total current.................................       --     (2,643)     1,732
                                                    -------    -------     ------
DEFERRED
  Federal.........................................       --       (149)       (98)
  State...........................................       --        (22)       (15)
                                                    -------    -------     ------
    Total deferred................................       --       (171)      (113)
                                                    -------    -------     ------
Provision (benefit) for income taxes..............  $    --    $(2,814)    $1,619
                                                    =======    =======     ======
</TABLE>

    The provision (benefit) for income taxes differs from the amount computed by
applying the statutory Federal income tax rate, as follows:

<TABLE>
<CAPTION>
                                                      YEARS ENDED SEPTEMBER 30,
                                                    ------------------------------
                                                      1999       1998       1997
                                                    --------   --------   --------
<S>                                                 <C>        <C>        <C>
Statutory Federal tax rate........................    (35.0)%    (35.0)%     35.0%
State income taxes, net...........................     (3.8)        --        3.6
Foreign operations................................      4.2        3.2        1.7
Research and development credit...................     (1.0)      (3.0)      (5.5)
Tax exempt income.................................     (1.3)      (3.1)      (4.6)
Valuation allowance...............................     44.1         --         --
Other.............................................     (7.2)       4.9        4.8
                                                    -------    -------     ------
  Provision (benefit) for income taxes............     (0.0)%    (33.0)%     35.0%
                                                    =======    =======     ======
</TABLE>

                                       46
<PAGE>
9. INCOME TAXES: (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Inventory reserves..........................................   $4,605     $3,268
Accrued warranty............................................      859      1,237
Deferred rent...............................................       17         87
Accrued vacation............................................      299        274
Net operating loss carryforwards............................    3,153         --
Valuation allowance for deferred assets.....................   (6,215)        --
State tax carryovers........................................    1,186        512
Other temporary differences.................................    1,793      1,189
                                                               ------     ------
Deferred tax asset..........................................    5,697      6,567
Deferred tax liabilities....................................       --       (870)
                                                               ------     ------
  Total net deferred tax asset..............................   $5,697     $5,697
                                                               ======     ======
</TABLE>

10. 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 commons stock in exchange for certain services and technology. In
fiscal 1997, the Company sold 54,673 shares of IPEC common stock and realized an
after tax gain of $790,000 which was reported in other income and (expense) in
the accompanying Consolidated Statements of Operations. As of September 30,
1997, the Company held no shares of IPEC common stock.

11. STOCK REPURCHASE PROGRAM

    On December 16, 1998, the Company's Board of Directors authorized a stock
repurchase program. Under this program 500,000 shares of its Common Stock may be
repurchased by the Company in the open market, from time-to-time at market
prices not to exceed $15.00 per share using available cash. As of September 30,
1999, the Company had repurchased 200,000 shares of common stock in the open
market at an aggregate cost of approximately $2.6 million.

                                       47
<PAGE>
12. 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, 1999
were as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S>                                                           <C>
2000........................................................  $2,764
2001........................................................   2,282
2002........................................................     675
2003........................................................      32
2004........................................................      32
Thereafter..................................................      23
                                                              ------
                                                              $5,808
                                                              ======
</TABLE>

    Rent expense was approximately $2,235,000, $2,263,000 and $2,113,000 for the
years ended September 30, 1999, 1998 and 1997, 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 1999 or 1998.

13. INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN:

    In November 1993, the Company's then 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 replaced the Company's 1985 Stock Option Plan and the
Company's 1988 Stock Option Plan which have both been terminated. During fiscal
years 1998 and 1997, the Company's Board of Directors authorized, and the
stockholders subsequently approved, an additional 400,000 and 500,000 shares,
respectively, for issuance under the Plan. During fiscal 1999, there were no new
shares authorized.

    The 1994 Stock Option Plan is divided into three separate components:
i) the Discretionary Option Grant Program under which key employees (including
officers and directors) 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,

                                       48
<PAGE>
13. INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN: (CONTINUED)

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 directors) 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. There were no stock issuances under the 1994 Stock
Option Plan in fiscal years 1999, 1998 and 1997.

    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.

    In November 1998, 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 $5.625 per
share were granted a new option with an exercise price of $5.625 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 960,131 shares were so
exchanged.

                                       49
<PAGE>
13. INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN: (CONTINUED)

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

<TABLE>
<CAPTION>
                                                 SHARES                           WEIGHTED
                                               AVAILABLE                          AVERAGE
                                               FOR GRANT    NUMBER OF SHARES   EXERCISE PRICE
                                               ----------   ----------------   --------------
<S>                                            <C>          <C>                <C>
Balance at September 30, 1996................     604,238       1,507,270          $ 8.37
  Additional options authorized..............     500,000              --              --
  Granted....................................    (653,850)        653,850            9.82
  Exercised..................................          --        (305,500)           8.04
  Canceled...................................     349,559        (349,559)          10.83
                                               ----------      ----------
Balance at September 30, 1997................     799,947       1,506,061            8.50
  Additional options authorized..............     400,000              --              --
  Granted....................................    (872,150)        872,150            9.27
  Exercised..................................          --         (63,949)           7.83
  Canceled...................................     221,973        (221,973)           9.04
                                               ----------      ----------
Balance at September 30, 1998................     549,770       2,092,289            9.08
  Granted....................................  (1,398,731)      1,398,731            7.86
  Exercised..................................          --        (241,649)           7.60
  Canceled...................................   1,278,341      (1,278,341)           9.83
                                               ----------      ----------
Balance at September 30, 1999................     429,380       1,971,030          $ 7.91
                                               ==========      ==========
</TABLE>

    The following table summarizes the options outstanding under the 1994 Stock
Option Plan as of September 30, 1999:

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                                 EXERCISABLE OPTIONS
                        ---------------------------------                    -------------------------------
                            NUMBER           WEIGHTED                            NUMBER
                         OUTSTANDING         AVERAGE           WEIGHTED       EXERCISABLE        WEIGHTED
      RANGE OF              AS OF           REMAINING          AVERAGE           AS OF           AVERAGE
   EXERCISE PRICES      SEPT. 30, 1999   CONTRACTUAL LIFE   EXERCISE PRICE   SEPT. 30, 1999   EXERCISE PRICE
---------------------   --------------   ----------------   --------------   --------------   --------------
<S>                     <C>              <C>                <C>              <C>              <C>
$ 3.59--$ 5.62              875,681            9.11             $ 5.57            6,375           $ 3.73
  6.88--  7.20              168,819            6.88               7.17           98,126             7.20
  7.25--  7.25              284,222            6.86               7.25          208,918             7.25
  7.88--  8.88              202,433            7.14               8.41          120,499             8.52
  9.17-- 12.12              277,500            9.30              11.87           25,739             9.59
 12.75-- 16.00              162,375            9.42              14.90           11,708            13.23
                          ---------                                             -------
$ 3.59--$16.00            1,971,030            8.44             $ 7.91          471,365           $ 7.81
</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 semi-annual
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.

                                       50
<PAGE>
13. INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN: (CONTINUED)

    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,
826,235 shares were purchased as of September 30, 1999.

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.

    The Company's stock plans, as described above, are accounted for under APB
Opinion No. 25. 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:

<TABLE>
<CAPTION>
                                                             1999       1998       1997
                                                           --------   --------   --------
                                                                   (IN THOUSANDS,
                                                               EXCEPT PER SHARE DATA)
<S>                                                        <C>        <C>        <C>
Net income (loss)--as reported...........................  $(14,082)  $(5,713)    $3,007
Net income (loss)--pro forma.............................  $(17,424)  $(7,682)    $1,325
Earnings (loss) per share--Basic--as reported............  $  (0.98)  $ (0.41)    $ 0.22
Earnings (loss) per share--Diluted--as reported..........  $  (0.98)  $ (0.41)    $ 0.21
Earnings (loss) per share--Basic--pro forma..............  $  (1.22)  $ (0.55)    $ 0.10
Earnings (loss) per share--Diluted--pro forma............  $  (1.22)  $ (0.55)    $ 0.09
</TABLE>

    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:

<TABLE>
<CAPTION>
                                                     1999         1998         1997
                                                  ----------   ----------   ----------
<S>                                               <C>          <C>          <C>
Dividend yield..................................       0.0%         0.0%         0.0%
Expected life of options from vest date.........  0.9 Years    0.9 Years    0.9 years
Expected stock volatility.......................      83.5%        84.3%        84.8%
Risk-free interest rates........................  4.3%-5.9%    4.3%-6.0%    5.6%-6.8%
</TABLE>

    The weighted average fair value of option grants using the Black-Scholes
option pricing model was $4.48, $5.55 and $5.91 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.

14. EMPLOYEE BENEFIT PLANS:

    The Company maintains a 401(k) benefit plan covering all employees meeting
certain requirements. The plan includes a deferred compensation arrangement
permitting elective contributions to be made by the participants. Company
contributions are made at the discretion of the Board of Directors. Company
contributions were approximately $437,000, $506,000 and $476,000 in fiscal 1999,
1998 and 1997, respectively.

                                       51
<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, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1999. These financial statements and the
schedules referred to below 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, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended September 30, 1999 in conformity with generally accepted accounting
principles.

    Our audit was made for the purpose of forming an opinion on the financial
statements taken as a whole. The schedule listed in the index under item
14(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

San Jose, California
October 27, 1999

                                       52
<PAGE>
                                    PART III

    Certain information required by Part III is omitted from this Report in that
the Registrant intends to file with the Commission a definitive proxy statement
within 120 days after the end of its fiscal year pursuant to Regulation 14A for
its Annual Meeting of Stockholders to be held March 10, 2000 (the "Proxy
Statement") and the information included therein is incorporated herein by
reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information concerning the Company's directors required by this Item is
incorporated by reference from the section captioned "Election of Directors" in
the Proxy Statement. The information required by this item relating to the
Company's executive officers is included under the caption "Executive Officers
of the Registrant" in Part I of this Report on Form 10-K. Information regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is incorporated by reference from the section captioned "Compliance
with Section 16(a) of the Exchange Act" in the proxy statement.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by this Item is incorporated by reference from the
Proxy Statement under the caption "Executive Compensation and Related
Information".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this Item is incorporated by reference from the
Proxy Statement under the caption "Election of Directors" and "Ownership of
Securities".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this Item is incorporated by reference from the
Proxy Statement under the caption "Certain Transactions".

                                       53
<PAGE>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

    (a) The following documents are filed as part of this Report on Form 10-K:

       (1) Financial Statements

    The following consolidated financial statements of GaSonics International
Corporation are included in Part II, Item 8:

<TABLE>
<CAPTION>
                                                                PAGE
                                                               NUMBER
                                                              --------
<S>                                                           <C>
Consolidated Balance Sheets--September 30, 1999 and 1998....    34
Consolidated Statements of Operations
  --Years Ended September 30, 1999, 1998 and 1997...........    35
Consolidated Statements of Stockholders' Equity
  --Years Ended September 30, 1999, 1998 and 1997...........    36
Consolidated Statements of Cash Flows
  --Years Ended September 30, 1999, 1998 and 1997...........    37
Notes to Consolidated Financial Statements..................  38-51
Report of Independent Public Accountants....................    52

(2) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts..............    58
</TABLE>

    Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the financial statements or related notes.

       (3) Exhibits

    The following exhibits are referenced or included in this report:

<TABLE>
<CAPTION>
EXHIBIT                                         DESCRIPTION
-------                 ------------------------------------------------------------
<C>                     <S>
       2.1(1)           Form of Agreement and Plan of Merger between Gasonics
                        International Corporation, a California corporation, and the
                        Registrant
       2.2(1)           Stock Purchase Agreement dated February 28, 1991 between
                        Emerson Electric Company and the Registrant
       2.3(5)           Asset Purchase Agreement dated as of July 30, 1995 among the
                        Registrant, GaSonics International Japan, K.K., Tekisco,
                        Inc. and Kishimoto Sangyo Co. Ltd.
       2.4(5)           Stock Purchase Agreement dated as of July 30, 1995 between
                        the Registrant and Kishimoto Sangyo Co. Ltd.
       2.5(5)           Commission Agreement dated as of July 30, 1995 between the
                        Registrant and Kishimoto Sangyo Co. Ltd.
       3.1(1)           Certificate of Incorporation of the Registrant
       3.2(1)           Bylaws of the Registrant
       3.3(10)          Amended and Restated Bylaws of the Registrant
       4.1(1)           Form of Common Stock Certificate
      10.1(1)           Form of Indemnification Agreement between the Company and
                        each of its officers and directors
      10.2(13)          1994 Stock Option/Stock Issuance Plan and forms of
                        agreements thereunder, as amended and restated effective
                        April 17, 1998
      10.3(11)          1994 Employee Stock Purchase Plan, as amended and restated
                        effective December 17, 1996
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT                                         DESCRIPTION
-------                 ------------------------------------------------------------
<C>                     <S>
      10.4(1)           Form of Light Industrial Lease between Teachers Insurance
                        and Annuity Association of America and the Registrant for
                        office space at 2730 Junction Avenue, San Jose, California
      10.5(1)           Promissory Note dated November 10, 1993 in the principal
                        amount of $339,999.60 issued by Dave Toole in favor of the
                        Registrant
      10.6(1)           Credit Agreement dated August 6, 1993 between Union Bank of
                        California, a California banking corporation, International
                        Plasma Corporation and the Registrant
      10.7(2)           Business Loan Agreement dated April 28, 1994 between
                        Registrant and Union Bank of California, a California
                        banking corporation and related Promissory Note
      10.8(3)           Lease Agreement dated November 14, 1994 between Registrant
                        and Realtech Properties I, L.P.
      10.9(4)           Loan Agreement dated April 19, 1995 between Registrant and
                        Union Bank of California, a California banking corporation
      10.10(4)          Lease Agreement dated June 5, 1995 between Registrant and
                        Orchard Investment Company
      10.11(6)          Underwriting Agreement dated March 21, 1994 by and among the
                        Registrant, the underwriters named therein and the selling
                        stockholders named therein
      10.12(7)          Underwriting Agreement dated March 9, 1995 by and among the
                        Registrant, the underwriters named therein and the selling
                        stockholders named therein
      10.13(8)          Continuing Guarantee Agreement dated July 31, 1995, executed
                        by the Registrant in favor of the Bank of Tokyo, Ltd.
      10.14(12)         Loan Agreement dated May 1, 1997 between Registrant and Bank
                        of Tokyo-Mitsubishi
      10.15(13)         Loan Agreement dated March 23, 1998 between Registrant and
                        Union Bank of California, a California banking corporation
      10.16(13)         Asuri Raghavan Employment Agreement
      10.17(15)         Loan Agreement dated June 30, 1999 between Registrant and
                        Union Bank of California, a California banking corporation
      10.18(15)         Graham W. Hills Employment Agreement
      10.19             John Villadsen Employment Agreement
      10.20             Jerauld J. Cutini Employment Agreement
      16.1(1)           Letter from Ernst & Young dated March 8, 1994 regarding the
                        change in the Certifying Accountant of the Registrant
      21.1              List of Subsidiaries of the Registrant
      23.1              Consent of Independent Public Accountants
      24.1              Power of Attorney (Included on signature page)
      27                Financial Data Schedule
</TABLE>

------------------------

(1) Incorporated by reference to identically numbered exhibits included in
    Registrant's Registration Statement on Form S-1 (File No. 33-74872) declared
    effective with the Securities and Exchange Commission on March 21, 1994.

(2) Incorporated by reference to identically numbered exhibit included in
    Registrant's Report on Form 10-Q for the quarter ended June 30, 1994.

(3) Incorporated by reference to an exhibit in Registrant's Report on Form 10-Q
    for the quarter ended December 31, 1994.

(4) Incorporated by reference to exhibits included in Registrant's Report on
    Form 10-Q for the quarter ended June 30, 1995.

(5) Incorporated by reference to exhibits filed with Registrant's Current Report
    on Form 8-K filed with the Securities and Exchange Commission on August 24,
    1995.

                                       55
<PAGE>
(6) Incorporated by reference to an exhibit in Registrant's Registration
    Statement on Form S-1 (File No. 33-74872) declared effective with the
    Securities and Exchange Commission on March 21, 1994.

(7) Incorporated by reference to an exhibit in Registrant's Registration
    Statement on Form S-1 (File No. 33-89636) declared effective with the
    Securities and Exchange Commission on March 9, 1995.

(8) Incorporated by reference to exhibits filed with the Registrant's Annual
    Report on Form 10-K for the year ended September 30, 1995.

(9) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended March 31, 1996.

(10) Incorporated by reference to exhibits filed with the Registrant's Annual
    Report on Form 10-K for the year ended September 30, 1996.

(11) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended March 31, 1997.

(12) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended June 30, 1997.

(13) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended March 31, 1998.

(14) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended June 30, 1998.

(15) Incorporated by reference to an exhibit included in Registrant's Report on
    Form 10-Q for the quarter ended June 30, 1999.

(b) Reports on Form 8-K.

    No reports on Form 8-K were filed during the fourth quarter ended
September 30, 1999.

(c) Exhibits. See list of exhibits under (a) (3) above.

(d) Financial Statement Schedules. See list of schedules under (a) (2) above.

                                       56
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
Date: December 23, 1999                                GASONICS INTERNATIONAL CORPORATION

                                                       By:              /s/ ASURI RAGHAVAN
                                                            -----------------------------------------
                                                                          Asuri Raghavan
                                                               PRESIDENT & CHIEF EXECUTIVE OFFICER
</TABLE>

                               POWER OF ATTORNEY

    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David Toole and Asuri Raghavan, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to the Report on Form 10-K and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated below:

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                   DATE
                      ---------                                   -----                   ----
<C>                                                    <S>                          <C>
                   /s/ DAVE TOOLE                      Chairman of the Board of
     -------------------------------------------         Directors                  December 23, 1999
                     Dave Toole

                 /s/ MONTE M. TOOLE                    Vice Chairman of the Board
     -------------------------------------------         of Directors               December 23, 1999
                   Monte M. Toole

                                                       Chief Executive Officer,
                 /s/ ASURI RAGHAVAN                      President and Director
     -------------------------------------------         (Principal Executive       December 23, 1999
                   Asuri Raghavan                        Officer)

                 /s/ JOHN E. ARNOLD                    Corporate Controller
     -------------------------------------------                                    December 23, 1999
                   John E. Arnold

              /s/ KENNETH L. SCHROEDER                 Director
     -------------------------------------------                                    December 23, 1999
                Kenneth L. Schroeder

             /s/ F. JOSEPH VAN POPPELEN                Director
     -------------------------------------------                                    December 23, 1999
               F. Joseph Van Poppelen

               /s/ KENNETH M. THOMPSON                 Director
     -------------------------------------------                                    December 23, 1999
                 Kenneth M. Thompson
</TABLE>

                                       57
<PAGE>
                                                                     SCHEDULE II

                       GASONICS INTERNATIONAL CORPORATION
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              BALANCE AT                       CHARGED TO                 BALANCE
                                             BEGINNING OF   CHARGED TO COSTS     OTHER                    AT END
DESCRIPTIONS                                    PERIOD        AND EXPENSES      ACCOUNTS    DEDUCTIONS   OF PERIOD
------------                                 ------------   ----------------   ----------   ----------   ---------
<S>                                          <C>            <C>                <C>          <C>          <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Years ended September 30,:
  1997.....................................     $  611           $4,637          $2,645       $7,173      $  720
  1998.....................................     $  720           $  120          $   --       $   --      $  840
  1999.....................................     $  840           $  180          $   --       $  366      $  654

INVENTORY RESERVES
Years ended September 30,:
  1997.....................................     $2,235           $1,725          $   --       $1,138      $2,822
  1998.....................................     $2,822           $3,352          $   --       $1,752      $4,422
  1999.....................................     $4,422           $1,498          $   --       $  805      $5,115
</TABLE>

                                       58