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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 000-30637

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AUGUST TECHNOLOGY CORPORATION(Exact name of Registrant as specified in its charter)

Minnesota(State or other jurisdiction of
incorporation or organization)

41-1729485(I.R.S. Employer
Identification No.)4900 West 78th Street
Bloomington, MN(Address of principal executive offices)

55435(Zip Code)


(952) 820-0080(Registrant's telephone number, including area code)

N/A(Former name, former address, and former fiscal year, if changed since last report.)

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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 / /  No /x/

As
of August 10, 2000, there were 12,591,083 shares of common stock outstanding.

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## 

AUGUST TECHNOLOGY CORPORATION       FORM 10-Q       TABLE OF CONTENTS       FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000

|           |         | Description                                                                                                                      |                                                                                       | Page
|---------- | ------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|PART I     |         | FINANCIAL INFORMATION                                                                                                            |                                                                                       |     
|           | Item 1. |                                                                                                                                  | Financial Statements                                                                  |     
|           |         | Unaudited Balance Sheets as of June 30, 2000 and December 31, 1999                                                               |                                                                                       | 3   
|           |         | Unaudited Statements of Income for the three months ended June 30, 2000 and 1999 and the six months ended June 30, 2000 and 1999 |                                                                                       | 4   
|           |         | Unaudited Statements of Cash Flows for the six months ended June 30, 2000 and 1999                                               |                                                                                       | 5   
|           |         | Unaudited Notes to Financial Statements                                                                                          |                                                                                       | 6   
|           | Item 2. |                                                                                                                                  | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|           | Item 3. |                                                                                                                                  | Qualitative and Quantitative Disclosures about Market Risk                            |     
|PART II    |         | OTHER INFORMATION                                                                                                                |                                                                                       |     
|           | Item 2. |                                                                                                                                  | Changes in Securities and Use of Proceeds                                             |     
|           | Item 4. |                                                                                                                                  | Submission of Matters to a Vote of Security Holders                                   |     
|           | Item 6. |                                                                                                                                  | Exhibits and Reports on Form 8-K                                                      |     
|SIGNATURES |         | 16                                                                                                                              
|           |         |                                                                                                                                  |                                                                                       |     

2

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## 

PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

AUGUST TECHNOLOGY CORPORATION       BALANCE SHEETS       (Unaudited)

|                                     |                                                                                                                                  | June 30,
2000                              |           | December 31,
1999 |           
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ----------
|ASSETS                               |                                                                                                                                  |                                            |           |                   |           
|Current assets:                      |                                                                                                                                  |                                            |           |                   |           
|                                     | Cash and cash equivalents                                                                                                        |                                            | $         | 23,612,840        |           
|                                     | Short-term investments                                                                                                           |                                            |           | 7,425,652         |           
|                                     | Accounts receivable, less allowance for doubtful accounts of $90,045 and $45,000, respectively                                   |                                            |           | 5,988,072         |           
|                                     | Inventories, net                                                                                                                 |                                            |           | 5,604,892         |           
|                                     | Prepaid expenses and other current assets                                                                                        |                                            |           | 526,174           |           
|                                     | Deferred income taxes                                                                                                            |                                            |           | 83,700            |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total current assets                       |           |                   | 43,241,330
|Property and equipment, net          |                                                                                                                                  |                                            | 1,588,904 |                   |           
|Long-term investments                |                                                                                                                                  |                                            | 992,767   |                   |           
|Other assets                         |                                                                                                                                  |                                            | 106,000   |                   |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total assets                               |           | $                 | 45,929,001
|                                     |                                                                                                                                  |                                            |           |                   |           
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                  |                                            |           |                   |           
|Current liabilities:                 |                                                                                                                                  |                                            |           |                   |           
|                                     | Checks issued in excess of bank balance                                                                                          |                                            | $         |                  |           
|                                     | Short-term debt                                                                                                                  |                                            |           |                  |           
|                                     | Accounts payable                                                                                                                 |                                            |           | 3,850,973         |           
|                                     | Accrued compensation                                                                                                             |                                            |           | 637,865           |           
|                                     | Accrued liabilities                                                                                                              |                                            |           | 310,694           |           
|                                     | Accrued income taxes                                                                                                             |                                            |           | 43,907            |           
|                                     | Short-term accrued lease obligations                                                                                             |                                            |           | 37,770            |           
|                                     | Customer deposits                                                                                                                |                                            |           | 1,326,912         |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total current liabilities                  |           |                   | 6,208,121 
|Long-term accrued lease obligation   |                                                                                                                                  |                                            | 40,448    |                   |           
|Deferred income taxes                |                                                                                                                                  |                                            | 27,800    |                   |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total liabilities                          |           |                   | 6,276,369 
|                                     |                                                                                                                                  |                                            |           |                   |           
|Shareholders' equity:                |                                                                                                                                  |                                            |           |                   |           
|                                     | Common stock, $.01 par value, 42,000,000 shares authorized, 12,590,501 and 9,163,961 shares issued and outstanding, respectively |                                            |           | 125,905           |           
|                                     | Undesignated capital stock, 3,000,000 shares authorized, no shares issued or outstanding                                         |                                            |           |                  |           
|                                     | Additional paid-in capital                                                                                                       |                                            |           | 39,664,258        |           
|                                     | Deferred compensation related to stock options                                                                                   |                                            |           | (373,177          | )         
|                                     | Retained earnings                                                                                                                |                                            |           | 235,646           |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total shareholders' equity                 |           |                   | 39,652,632
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total liabilities and shareholders' equity |           | $                 | 45,929,001
|                                     |                                                                                                                                  |                                            |           |                   |           

See
accompanying notes to financial statements.

3

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AUGUST TECHNOLOGY CORPORATION       STATEMENTS OF INCOME       (Unaudited)

|                                             |                              | Three Months Ended |           | Six Months Ended |  
|-------------------------------------------- | ---------------------------- | ------------------ | --------- | ---------------- | -
|
|Net revenues                                 |                              | $                  | 7,696,402 |                  | $
|Cost of revenues                             |                              |                    | 3,094,196 |                  |  
|                                             |                              |                    |           |                  |  
|                                             | Gross profit                 |                    |           | 4,602,206        |  
|Selling, general and administrative expenses |                              |                    | 2,218,186 |                  |  
|Research and development expenses            |                              |                    | 1,858,011 |                  |  
|                                             |                              |                    |           |                  |  
|                                             | Operating income             |                    |           | 526,009          |  
|Interest expense                             |                              |                    | (59,140   | )                |  
|Interest income                              |                              |                    | 64,128    |                  |  
|                                             |                              |                    |           |                  |  
|Income before provision for income taxes     |                              |                    | 530,997   |                  |  
|Provision for income taxes                   |                              |                    | 26,236    |                  |  
|                                             |                              |                    |           |                  |  
|Net income                                   |                              | $                  | 504,761   |                  | $
|                                             |                              |                    |           |                  |  
|Per share amounts:                           |                              |                    |           |                  |  
|                                             | Basic net income per share   |                    | $         | 0.05             |  
|                                             | Diluted net income per share |                    | $         | 0.05             |  

See
accompanying notes to financial statements.

4

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## 

AUGUST TECHNOLOGY CORPORATION       STATEMENTS OF CASH FLOWS       (Unaudited)

|                                                 |                                                                               | Six months ended                             |                                          
|------------------------------------------------ | ----------------------------------------------------------------------------- | -------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:            |                                                                               |                                              |                                          
|                                                 | Net income                                                                    |                                              | $                                        
|                                                 | Adjustments to reconcile net income to net cash used in operating activities: |                                              |                                          
|                                                 |                                                                               | Depreciation                                 |                                          
|                                                 |                                                                               | Amortization of deferred compensation        |                                          
|                                                 |                                                                               | Provision for doubtful accounts              |                                          
|                                                 |                                                                               | Issuance of stock options to nonemployees    |                                          
|                                                 |                                                                               | Changes in operating assets and liabilities: |                                          
|                                                 |                                                                               |                                              | Accounts receivable                      
|                                                 |                                                                               |                                              | Inventories                              
|                                                 |                                                                               |                                              | Prepaid expenses and other current assets
|                                                 |                                                                               |                                              | Accounts payable                         
|                                                 |                                                                               |                                              | Accrued income taxes                     
|                                                 |                                                                               |                                              | Other accrued liabilities                
|                                                 |                                                                               |                                              | Customer deposits                        
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|Cash flows from investing activities:            |                                                                               |                                              |                                          
|                                                 | Purchases of short-term investments                                           |                                              |                                          
|                                                 | Purchases of long-term investments                                            |                                              |                                          
|                                                 | Purchases of property and equipment                                           |                                              |                                          
|                                                 | Investment in other assets                                                    |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|Cash flows from financing activities:            |                                                                               |                                              |                                          
|                                                 | Net proceeds from issuances of common stock                                   |                                              |                                          
|                                                 | Proceeds from (payments of) short-term debt, net                              |                                              |                                          
|                                                 | Checks issued in excess of bank balance                                       |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|                                                 |                                                                               |                                              |                                          
|Net increase in cash and cash equivalents        |                                                                               |                                              | 23,612,840                               
|Cash and cash equivalents at beginning of period |                                                                               |                                              |                                         
|                                                 |                                                                               |                                              |                                          
|Cash and cash equivalents at end of period       |                                                                               | $                                            | 23,612,840                               
|                                                 |                                                                               |                                              |                                          
|Supplemental cash flow information:              |                                                                               |                                              |                                          
|                                                 | Cash paid for interest                                                        |                                              | $                                        
|                                                 | Cash paid for income taxes                                                    |                                              | $                                        

See
accompanying notes to financial statements.

5

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## 

AUGUST TECHNOLOGY CORPORATION       NOTES TO FINANCIAL STATEMENTS       JUNE 30, 2000       (unaudited)

Note 1Basis of Presentation

The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations. In the opinion of the management of August Technology Corporation (the "Company"), the financial statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position at June 30, 2000, and the operating results and cash flows for the six months ended June 30, 2000 and 1999. The
results of operations of the interim periods are not necessarily indicative of the results of operations that may be expected for any other period or for the year as a whole. These financial
statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1999 included in the Company's S-1
Registration Statement, as amended, filed with the Securities and Exchange Commission on June 14, 2000.

Note 2Accounts Receivable

Accounts receivable consisted of the following:

June 30,
2000

December 31,
1999Billed receivables

$
5,135,637

$
2,707,727Unbilled receivables


942,480


455,5916,078,117


3,163,318Allowance for doubtful accounts


(90,045
)

(45,000
)Accounts receivable, net

$
5,988,072

$
3,118,318


Note 3Inventories

Inventories consisted of the following:

June 30,
2000

December 31,
1999Raw materials

$
3,164,175

$
988,147Work in process


853,718


514,786Finished goods


1,586,999


956,552Inventories

$
5,604,892

$
2,459,485


6

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Note 4Shareholders' Equity

Changes in shareholders' equity during the six months ended June 30, 2000 were as follows:

Shareholders' equity balance at December 31, 1999

$
3,347,030Issuances of common stock in conjunction with:Initial public offering, net of expenses


36,062,880Exercises of employee stock options


102,317Issuances of stock options to nonemployees


32,700Amortization of deferred compensation related to stock options


54,437Net income


53,268Shareholders' equity balance at June 30, 2000

$
39,652,632


On
March 10, 2000, the Board of Directors authorized an increase in the number of authorized shares of capital stock from 12,000,000 shares, $.01 par value, to 30,000,000
shares, of which 28,000,000 are common stock and 2,000,000 are undesignated. All shares have a par value of $.01 per share solely for
the purpose of a statute or regulation imposing a tax or fee based upon the capitalization of the corporation. The shareholders approved the increase on April 14, 2000. On April 26, 2000
in connection with a 3-for-2 stock split, the Board of Directors increased the number of authorized shares of capital stock to 45,000,000, of which 42,000,000 are common stock
and 3,000,000 are undesignated.

On
April 14, 2000, the shareholders approved an increase in the number of shares available for issuance under the 1997 Option Plan from 1,125,000 shares to 2,250,000 shares.

On
April 26, 2000, the Company effected a three-for-two split of its common stock whereby each two shares of common stock were exchanged for three
shares of common stock. All share and per share data appearing in these financial statements and notes hereto have been retroactively adjusted for this split.

On
June 14, 2000, the Company sold 3,300,000 shares of its common stock at a price of $12.00 per share in an initial public offering (the "IPO"). The net proceeds from the
offering, after deducting the underwriting discounts and offering expenses, was $36,062,880.

7

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Note 5Earnings Per Share

The following information presents the Company's computation of basic and diluted earnings per share ("EPS") for the periods presented in the statements of
income.

Net
Income

Weighted
Average
Shares

Per Share
AmountThree months ended June 30, 2000:Basic EPS

$
504,761

9,836,611

$
0.05Effect of dilutive stock options




767,345Diluted EPS

$
504,761

10,603,956

$
0.05Three months ended June 30, 1999:Basic EPS

$
183,839

8,361,760

$
0.02Effect of dilutive stock options




379,447Diluted EPS

$
183,839

8,741,207

$
0.02Six months ended June 30, 2000:Basic EPS

$
53,268

9,500,686

$
0.01Effect of dilutive stock options




749,303Diluted EPS

$
53,268

10,249,989

$
0.01Six months ended June 30, 1999:Basic EPS

$
388,806

8,342,380

$
0.05Effect of dilutive stock options




300,169Diluted EPS

$
388,806

8,642,549

$
0.04


Note 6Contingencies

On April 18, 2000, the Company sent an e-mail to all 108 employees that summarized a program under discussion with the underwriters through
which employees of the company would be allowed to purchase shares in the Company's IPO. The e-mail asked employees to consider whether they wanted to participate in the program if it were
made available. At the Company's request, the underwriters
reserved 56,600 of the shares offered in the IPO for employees who participated in the program, and each employee purchased between 100 and 3,500 shares. The e-mail may have violated
Section 5 of the Securities Act and consequently any employees that purchased shares in the IPO could have the right to bring an action against the Company to rescind their purchases and
recover damages from the Company. If the company has violated the Securities Act by sending the e-mail, the Company could incur a liability of approximately $679,000, assuming that the
shares have no value at the time of rescission. The Company's liability may be greater if employees purchased additional shares in the IPO outside of the program.

8

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Note 7New Accounting Pronouncements

In June 2000, the SEC staff issued Staff Accounting Bulletin No. 101B, which deferred the required implementation date of Staff Accounting
Bulletin No. 101 ("SAB 101"), as amended by SAB 101A. SAB 101, as amended, summarizes certain views of the SEC staff in applying generally accepted accounting principles to revenue recognition
in financial statements. Implementation of SAB 101 by the Company was previously required in the quarter beginning April 1, 2000. Subject to SAB 101B, required implementation of SAB 101 has
been deferred to the quarter beginning October 1, 2000. The Company does not expect SAB 101 to have an impact on its financial condition or results of operations.

Note 8Subsequent Events

On July 13, 2000, the Company's underwriters in the IPO, Needham & Company, Inc., Adams, Harkness & Hill, Inc., and A.G.
Edwards & Sons, Inc., exercised their over-allotment option to purchase, from selling shareholders, 495,000 shares of common stock at the same price to the public, and with
the same underwriting discount as the IPO. Because the shares were purchased from selling shareholders, the Company received no proceeds from the exercise of the over-allotment option.

On
August 10, 2000, the Company extended the term of its revolving credit line (the "Credit Facility") with its bank through May 31, 2002. There was no change to the
availability under the Credit Facility. The financial covenants under the Credit Facility were revised to eliminate the limitation on capital expenditures. Financial covenants with respect to the
Company's tangible net worth and net income plus depreciation and amortization and default provisions, including provisions related to nonpayment of principal and interest, bankruptcy and default
under other debt agreements, remain in place. At June 30, 2000 there was no balance outstanding under the Credit Facility.

9

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## 

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

Overview

August Technology Corporation (the "Company") is a worldwide leader in the design, manufacture, marketing and service of automated micro defect inspection
systems used in the manufacture of semiconductor devices. The Company's NSX series, which incorporates the Company's proprietary software, automated materials handling capabilities and expertise in
machine vision technology automates one of the last remaining manually performed tasks in semiconductor manufacturing. Typically, manufacturers rely on people using microscopes to detect defects in
sample lots, which is an inefficient and error-prone inspection process. The Company's systems automate the inspection process, allowing manufacturers to inspect 100% of their wafers or die, as well
as providing powerful information that manufacturers can use to increase yield and productivity. The Company has sold these systems worldwide to many of the major semiconductor manufacturing
companies.

The
following discussion of the Company's financial condition and results of operations should be read in conjunction with the audited financial statements of the Company and the
notes thereto included in the Company's form S-1 Registration Statement, as amended, filed with the Securities and Exchange Commission on June 14, 2000.

Results of Operations

Three months ended June 30, 2000 compared to the three months ended June 30, 1999

Net Revenues.Net revenues increased $4.6 million, or 149.9%, to $7.7 million for the three months ended
June 30, 2000, from $3.1 million for the same period in 1999. The increase in net revenues was due primarily to the continued growth in sales of the NSX systems, which increased 167%
over the same period in 1999.

Gross Profit.Gross profit increased to $4.6 million, or 59.8% of net revenues, for the three months ended
June 30, 2000, from $1.7 million, or 55.2% of net revenues, for the same period in 1999. The increase in gross margin percentage was primarily due to an improved product mix with a
higher proportion of NSX system sales, which have a higher gross margin than our other products, and lower costs of materials as a result of improved purchasing programs with vendors.

Selling, General and Administrative.Selling, general and administrative expenses are primarily comprised of salaries,
commissions, employee benefits and facility costs. Selling, general and administrative expenses increased $1.2 million, or 124.2%, to $2.2 million, or 28.8% of net revenues, for the
three months ended June 30, 2000 from $989,000, or 32.1% of net revenues, for the same period in 1999. The increase in expense dollars was primarily due to the hiring and recruiting of
additional sales, field service and administrative employees to support the Company's domestic and international growth, higher international travel costs resulting from the Company's growth in Europe
and Asia and increased occupancy costs related to a new facility. The decrease as a percentage of revenues is primarily due to revenues increasing at a faster rate than the increase in selling,
general and administrative expenses.

Research and Development.Research and development expenses consist primarily of salaries and related expenses of
employees engaged in research, design and development activities. They also include consulting fees, prototype equipment expenses and the cost of related supplies. Research and development expenses
increased $1.4 million, or 284.6%, to $1.9 million, or 24.1% of net revenues, for the three months ended June 30, 2000 from $483,000, or 15.7% of net revenues, for the same period
in 1999. The increase in expenses resulted from the hiring and recruiting of additional engineers, the use of outside services and the development of new product prototypes as the Company continued to
pursue new product initiatives.

10

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Income Taxes.The provision for income taxes for the three months ended June 30, 2000 was $26,000, or an
effective tax rate of 4.9%, compared to a provision for income taxes of $24,000, or an effective tax rate of 11.7%, for the same period in 1999. The low effective income tax rates, compared to the
federal statutory rate of 35% plus state and local taxes, is due to a valuation allowance being recorded against
the entire tax benefit of the Company's operating loss during the three months ended March 31, 2000 and a portion of the Company's operating loss during the year ended December 31, 1999.

Six months ended June 30, 2000 compared to the six months ended June 30, 1999

Net Revenues.Net revenues increased $7.0 million, or 133.6%, to $12.2 million for the six months ended
June 30, 2000 from $5.2 million for the same period in 1999. The increase in net revenues was due primarily to the continued growth in sales of the NSX systems, which increased 144% over
the same period in 1999.

Gross Profit.Gross profit increased to $7.2 million, or 59.2% of net revenues, for the six months ended
June 30, 2000, from $3.0 million, or 57.0% of net revenues, for the same period in 1999. The increase in gross margin percentage was primarily due to an improved product mix with a
higher proportion of NSX system sales, which have a higher gross margin than our other products, and lower costs of materials as a result of improved purchasing programs with vendors.

Selling, General and Administrative.Selling, general and administrative expenses increased $2.4 million, or
143.2%, to $4.1 million, or 33.3% of net revenues, for the six months ended June 30, 2000 from $1.7 million, or 32.0% of net revenues, for the same period in 1999. The increase in
expense was primarily due to the hiring and recruiting of additional sales, field service employees and administrative employees to support the Company's domestic and international growth, increased
occupancy costs related to a new facility and higher international travel costs resulting from the Company's growth in Europe and Asia.

Research and Development.Research and development expenses increased $2.2 million, or 262.4%, to
$3.0 million, or 25.0% of net revenues, for the six months ended June 30, 2000 from $840,000, or 16.1% of net revenues, for the same period in 1999. The increase in expenses resulted
from the hiring and recruiting of additional engineers, the use of outside services and the development of new product prototypes as the Company continued to pursue new product initiatives.

Income Taxes.The provision for income taxes for the six months ended June 30, 2000 was $26,000, or an effective
tax rate of 33.0%, compared to a provision for income taxes of $52,000, or an effective tax rate of 11.7%, for the same period in 1999. The low effective income tax rate for the six months ended
June 30, 1999, compared to the federal statutory rate of 35% plus state and local taxes, is due to a valuation allowance being recorded against a portion of the Company's operating loss during
the year ended December 31, 1999.

Liquidity and Capital Resources

Cash and Cash Equivalents and Working Capital

As of June 30, 2000 the Company had cash and cash equivalents of $23.6 million, as compared to none at December 31, 1999. The increase in
cash and cash equivalents was primarily due to the $36.1 million of net proceeds received from the Company's initial public offering (the "IPO") completed on June 14, 2000, partially
offset by the purchase of $8.4 million in short-term and long-term investments and the re-payment of $4.2 million outstanding on the Company's line of
credit at the time of the IPO.

11

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As of June 30, 2000 the Company had working capital of $37.0 million. Working capital increased $34.5 million from $2.5 million at December 31,
1999. The improvement in working capital was due to the net proceeds received from the IPO and increased accounts receivable and inventories, partially offset by increased accounts payable and
customer deposits. The Company believes that existing working capital, anticipated cash flows from operations and its line of credit will be adequate to satisfy projected operating and capital
requirements through the foreseeable future. However, to the extent the Company grows more rapidly than expected, the Company may need additional cash to finance its operating and investing
activities.

Cash Flows

During the six months ended June 30, 2000, net cash used in operating activities was $1.8 million, which resulted primarily from increased
accounts receivable and inventories, partially offset by increased accounts payable and customer deposits. Net cash used in investing activities was $9.3 million, including $8.4 million
used to purchase investments and $797,000 used for additions to property and equipment. Net cash provided by financing activities was $34.7 million, including $36.1 million of net
proceeds
received from the sale of 3,300,000 shares of common stock in the IPO, partially offset by the re-payment of $1.2 million of debt.

During
the six months ended June 30, 1999, net cash used in operating activities was $1.6 million, which resulted primarily from increased accounts receivable and
inventories. Net cash used in investing activities was $191,000 for additions to property and equipment. Net cash provided by financing activities was $1.8 million primarily due to increased
borrowings under the Company's line of credit and to net proceeds of $500,000 from the sale of 210,750 shares of common stock to outside investors.

Fluctuations in Quarterly Results of Operations

The Company's operating results have historically been subject to significant quarterly and annual fluctuations. The Company anticipates that factors affecting
future operating results will include the timing of significant orders, the timing of new product announcements and releases by the Company or its competitors, patterns of capital spending by
customers, market acceptance of new or enhanced versions of products and pricing changes. In addition, the timing and level of the Company's research and development expenditures could cause quarterly
results to fluctuate. A substantial portion of the Company's annual revenues comes from sales to a relatively small number of customers. The Company's revenues and operating results for a period may
be affected by the timing of orders received or orders shipped during a period.

Impact of Accounting Standards

In June 2000, the SEC staff issued Staff Accounting Bulletin No. 101B, which deferred the required implementation date of Staff Accounting
Bulletin No. 101 ("SAB 101"), as amended by SAB 101A. SAB 101, as amended, summarizes certain views of the SEC staff in applying generally accepted accounting principles to revenue
recognition in financial statements. Implementation of SAB 101 by the Company was previously required in the quarter beginning April 1, 2000. Subject to SAB 101B, required implementation of SAB
101 has been deferred to the quarter beginning October 1, 2000. The Company does not expect SAB 101 to have an impact on its financial condition or results of operations.

Cautionary Factors That May Affect Future Results

Certain statements made in this Quarterly Report on Form 10-Q, as well as oral statements made by the Company from time to time, which are
prefaced with words such as "expects", "anticipates", "believes", "projects", "intends", "plans" and similar words and other statements of similar sense, are

12

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forward-looking statements. The Company's forward looking statements generally relate to its growth strategies, financial results and product development activities. These statements are based on the
Company's current expectations and estimates as to prospective events and circumstances, which may or may not be in the Company's control and as to which there can be no firm assurances given. These
forward-looking statements, like any other forward-looking statements, involve risks and uncertainties known and unknown, and may be affected by inaccurate assumptions, including, among others, those
discussed in the "Risk Factors" section of the Company's Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission on June 14, 2000.
These risks and uncertainties could cause actual results to differ materially from those projected or anticipated. The Company disclaims any obligation to subsequently revise forward-looking
statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

The Company's exposure to market risk for changes in interest rates relates primarily to its investments in cash equivalents and short-term and
long-term securities (the "Investment Portfolio"). The Company does not use derivative financial instruments in the Investment Portfolio. All investments are placed with high credit
quality issuers and by policy, the Company is averse to principal loss, ensuring the safety and preservation of the invested funds by limiting default risk, market risk and reinvestment risk. As of
June 30, 2000, 96% of the Investment Portfolio consisted of government securities and corporate commercial paper and bonds with maturities of one year or less. The Company is not exposed to
market risk from fluctuations in foreign currency exchange rates because all systems are sold in U.S. dollars.

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## 

PART IIOTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

(a) Between
June 15, 2000 and July 14, 2000, the Company sold an aggregate of 46,782 shares of common stock for $25,520 to four employees upon the
exercise of stock options. The sales of common stock were exempt from registration under Rule 701 of the Securities Act of 1933, as amended.

(b) The
Company's registration statement filed on form S-1 under the Securities Act (File No. 333-32692) for its Initial Public
Offering (the "IPO") became effective on June 14, 2000. The Company registered and sold 3,300,000 shares of common stock for an aggregate offering price of $39.6 million. The managing
underwriters for the IPO were Needham & Company, Inc., Adams, Harkness & Hill, Inc. and A.G. Edwards & Sons, Inc.

The
Company received net proceeds from the IPO of $36.1 million. Offering expenses related to the IPO included an underwriting discount of $2.8 million and other
offering expenses of $765,000. The Company used $4.2 million of the net proceeds for the repayment of debt outstanding on a revolving line of credit. The remaining proceeds were invested in
cash equivalents and short-term and long-term investments. None of the proceeds from the IPO were paid directly or indirectly to any director or officer of the Company. The
proceeds are expected to be used for general corporate purposes, including research and development, working capital, capital expenditures and for potential acquisitions of complementary products,
technologies or businesses. There are no current commitments or agreements with respect to any acquisitions.

On
July 13, 2000, the managing underwriters exercised their over-allotment option to purchase, from selling shareholders, 495,000 shares of common stock at the same
price to the public and with the same underwriting discount as the IPO. The selling shareholders received, in the aggregate, net proceeds of $5.5 million from the exercise of the over-allotment
option.

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

The annual meeting of the Company's shareholders was held on April 14, 2000.

The
shareholders elected all nominees for Director, pursuant to the following votes:

For

Against

Abstain

Broker
Non-VotesJeff O'Dell

8,937,928





229,041Michael Wright

8,937,928





229,041Brad Slye

8,937,928





229,041Tom Verburgt

8,937,928





229,041Jim Bernards

8,937,928





229,041Mark Harless

8,937,928





229,041Roger Gower

8,937,928





229,041


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The shareholders ratified the Board of Directors' increase in the number of authorized shares of capital stock from 12,000,000 shares, $.01 par value, to 30,000,000 shares, of which
28,000,000 are common stock and 2,000,000 are undesignated, pursuant to the following votes:

For

Against

Abstain

Broker
Non-Votes8,937,928





229,041


The
shareholders adopted the 2000 Employee Stock Purchase Plan, pursuant to the following votes:

For

Against

Abstain

Broker
Non-Votes8,937,928





229,041


The
shareholders approved the amended and restated Articles of Incorporation, pursuant to the following votes:

For

Against

Abstain

Broker
Non-Votes8,937,928





229,041


The
shareholders approved the amended and restated Bylaws, pursuant to the following votes:

For

Against

Abstain

Broker
Non-Votes8,937,928





229,041


The
shareholders approved an increase in the number of shares available for issuance under the 1997 Option Plan from 1,125,000 shares to 2,250,000 shares pursuant to the following
votes:

For

Against

Abstain

Broker
Non-Votes8,937,928





229,041


Item 6. Exhibits and Reports on Form 8-K





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## 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                       |  | AUGUST TECHNOLOGY CORPORATION
|---------------------- |  | -----------------------------
|Dated: August 10, 2000 |  | By:                          
|Dated: August 10, 2000 |  | By:                          

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