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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 September 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 /x/  No / /

As
of November 7, 2000, there were 12,601,375 shares of common stock outstanding.

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

|           |         | Description                                                                                                                                 |                                                                                       | Page
|---------- | ------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|PART I     |         | FINANCIAL INFORMATION                                                                                                                       |                                                                                       |     
|           | Item 1. |                                                                                                                                             | Financial Statements                                                                  |     
|           |         | Unaudited Balance Sheets as of September 30, 2000 and December 31, 1999                                                                     |                                                                                       | 3   
|           |         | Unaudited Statements of Income for the three months ended September 30, 2000 and 1999 and the nine months ended September 30, 2000 and 1999 |                                                                                       | 4   
|           |         | Unaudited Statements of Cash Flows for the nine months ended September 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 6. |                                                                                                                                             | Exhibits and Reports on Form 8-K                                                      |     
|SIGNATURES |         | 15                                                                                                                                         

2

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## 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

AUGUST TECHNOLOGY CORPORATION

BALANCE SHEETS

(Unaudited)

|                                     |                                                                                                                                  | September 30,
2000                         |           | December 31,
1999 |           
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ----------
|ASSETS                               |                                                                                                                                  |                                            |           |                   |           
|Current assets:                      |                                                                                                                                  |                                            |           |                   |           
|                                     | Cash and cash equivalents                                                                                                        |                                            | $         | 6,491,737         |           
|                                     | Short-term investments                                                                                                           |                                            |           | 17,985,808        |           
|                                     | Accounts receivable, less allowance for doubtful accounts of $121,545 and $45,000, respectively                                  |                                            |           | 6,213,596         |           
|                                     | Inventories                                                                                                                      |                                            |           | 8,163,568         |           
|                                     | Prepaid expenses and other current assets                                                                                        |                                            |           | 890,341           |           
|                                     | Deferred income taxes                                                                                                            |                                            |           | 106,200           |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total current assets                       |           |                   | 39,851,250
|Property and equipment, net          |                                                                                                                                  |                                            | 2,012,412 |                   |           
|Long-term investments                |                                                                                                                                  |                                            | 4,558,541 |                   |           
|Other assets                         |                                                                                                                                  |                                            | 92,500    |                   |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total assets                               |           | $                 | 46,514,703
|                                     |                                                                                                                                  |                                            |           |                   |           
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                  |                                            |           |                   |           
|Current liabilities:                 |                                                                                                                                  |                                            |           |                   |           
|                                     | Checks issued in excess of bank balance                                                                                          |                                            | $         |                  |           
|                                     | Short-term debt                                                                                                                  |                                            |           |                  |           
|                                     | Accounts payable                                                                                                                 |                                            |           | 3,481,245         |           
|                                     | Accrued compensation                                                                                                             |                                            |           | 887,694           |           
|                                     | Accrued liabilities                                                                                                              |                                            |           | 467,807           |           
|                                     | Accrued income taxes                                                                                                             |                                            |           | 428,217           |           
|                                     | Short-term accrued lease obligations                                                                                             |                                            |           | 45,455            |           
|                                     | Customer deposits                                                                                                                |                                            |           | 674,161           |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total current liabilities                  |           |                   | 5,984,579 
|Long-term accrued lease obligation   |                                                                                                                                  |                                            | 136,843   |                   |           
|Deferred income taxes                |                                                                                                                                  |                                            | 27,800    |                   |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total liabilities                          |           |                   | 6,149,222 
|                                     |                                                                                                                                  |                                            |           |                   |           
|Shareholders' equity:                |                                                                                                                                  |                                            |           |                   |           
|                                     | Common stock, $.01 par value, 42,000,000 shares authorized, 12,591,533 and 9,163,961 shares issued and outstanding, respectively |                                            |           | 125,915           |           
|                                     | Undesignated capital stock, 3,000,000 shares authorized, no shares issued or outstanding                                         |                                            |           |                  |           
|                                     | Additional paid-in capital                                                                                                       |                                            |           | 39,466,346        |           
|                                     | Deferred compensation related to stock options                                                                                   |                                            |           | (343,535          | )         
|                                     | Retained earnings                                                                                                                |                                            |           | 1,116,755         |           
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total shareholders' equity                 |           |                   | 40,365,481
|                                     |                                                                                                                                  |                                            |           |                   |           
|                                     |                                                                                                                                  | Total liabilities and shareholders' equity |           | $                 | 46,514,703
|                                     |                                                                                                                                  |                                            |           |                   |           

See accompanying notes to financial statements.

3

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AUGUST TECHNOLOGY CORPORATION

STATEMENTS OF INCOME

(Unaudited)

|                                             |                              | Three Months Ended September 30, |           | Nine Months Ended September 30, |          
|-------------------------------------------- | ---------------------------- | -------------------------------- | --------- | ------------------------------- | ---------
|
|Net revenues                                 |                              | $                                | 8,989,905 |                                 | $        
|Cost of revenues                             |                              |                                  | 3,518,640 |                                 |          
|                                             |                              |                                  |           |                                 |          
|                                             |                              | Gross profit                     |           |                                 | 5,471,265
|                                             |                              |                                  |           |                                 |          
|Selling, general and administrative expenses |                              |                                  | 2,844,694 |                                 |          
|Research and development expenses            |                              |                                  | 1,876,651 |                                 |          
|                                             |                              |                                  |           |                                 |          
|                                             |                              | Operating income                 |           |                                 | 749,920  
|                                             |                              |                                  |           |                                 |          
|Interest expense                             |                              |                                  |          |                                 |          
|Interest income                              |                              |                                  | 527,050   |                                 |          
|                                             |                              |                                  |           |                                 |          
|Income before provision for income taxes     |                              |                                  | 1,276,970 |                                 |          
|Provision for income taxes                   |                              |                                  | 395,861   |                                 |          
|                                             |                              |                                  |           |                                 |          
|Net income                                   |                              | $                                | 881,109   |                                 | $        
|                                             |                              |                                  |           |                                 |          
|Per share amounts:                           |                              |                                  |           |                                 |          
|                                             | Basic net income per share   |                                  | $         | 0.07                            |          
|                                             | Diluted net income per share |                                  | $         | 0.07                            |          

See
accompanying notes to financial statements.

4

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AUGUST TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                 |                                                                               | Nine months ended September 30,                                |                                          
|------------------------------------------------ | ----------------------------------------------------------------------------- | -------------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:            |                                                                               |                                                                |                                          
|                                                 | Net income                                                                    |                                                                | $                                        
|                                                 | Adjustments to reconcile net income to net cash used in operating activities: |                                                                |                                          
|                                                 |                                                                               | Depreciation and amortization                                  |                                          
|                                                 |                                                                               | Accrued lease obligation                                       |                                          
|                                                 |                                                                               | Provision for doubtful accounts                                |                                          
|                                                 |                                                                               | Amortization of deferred compensation related to stock options |                                          
|                                                 |                                                                               | Issuances of stock options to nonemployees                     |                                          
|                                                 |                                                                               | Deferred income taxes                                          |                                          
|                                                 |                                                                               | 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:            |                                                                               |                                                                |                                          
|                                                 | Net 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        |                                                                               |                                                                | 6,491,737                                
|Cash and cash equivalents at beginning of period |                                                                               |                                                                |                                         
|                                                 |                                                                               |                                                                |                                          
|Cash and cash equivalents at end of period       |                                                                               | $                                                              | 6,491,737                                
|                                                 |                                                                               |                                                                |                                          
|Supplemental cash flow information:              |                                                                               |                                                                |                                          
|                                                 | Cash paid for interest                                                        |                                                                | $                                        
|                                                 | Cash paid for income taxes, net of refunds                                    |                                                                | $                                        

See
accompanying notes to financial statements.

5

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AUGUST TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 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 September 30, 2000, and the operating results and cash flows for the nine months ended September 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 hereto 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:

September 30,
2000

December 31,
1999Billed receivables

$
5,816,516

$
2,707,727Unbilled receivables


518,625


455,5916,335,141


3,163,318Allowance for doubtful accounts


(121,545
)

(45,000
)Accounts receivable, net

$
6,213,596

$
3,118,318


Note 3Inventories

Inventories consisted of the following:

September 30,
2000

December 31,
1999Raw materials

$
4,339,208

$
988,147Work in process


1,095,737


514,786Finished goods


2,728,623


956,552Inventories

$
8,163,568

$
2,459,485


6

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Note 4Shareholders' Equity

Changes in shareholders' equity during the nine months ended September 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


35,866,409Exercises of employee stock options


103,555Issuances of stock options to nonemployees


38,854Amortization of deferred compensation related to stock options


75,256Net income


934,377Shareholders' equity balance at September 30, 2000

$
40,365,481


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 were common stock and 2,000,000 were 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 $35,866,409.

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 $5,524,200 from the exercise of the over allotment option.

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 for the periods presented in the statements of income.

|                                        |         | Three Months Ended September 30, |            | Nine Months Ended September 30,
|--------------------------------------- | ------- | -------------------------------- | ---------- | -------------------------------
|
|Net income                              |         | $                                | 881,109    |                                
|Weighted average common sharesbasic    |         |                                  | 12,591,077 |                                
|Effect of dilutive stock options        |         |                                  | 729,581    |                                
|                                        |         |                                  |            |                                
|Weighted average common sharesdilutive |         |                                  | 13,320,658 |                                
|                                        |         |                                  |            |                                
|Earnings per share:                     |         |                                  |            |                                
|                                        | Basic   |                                  | $          | 0.07                           
|                                        | Diluted |                                  | $          | 0.07                           

Note 6Leases

In connection with the Company's commitment in October 1999 to relocate to a new facility in February 2000, the Company recorded a lease
obligation in 1999 of $129,493 related to the estimated net remaining lease obligation on the facility being vacated. In August 2000, the Company subleased the vacated facility and recorded an
additional lease obligation of $106,088 due to the net remaining lease obligation being greater than originally estimated.

Note 7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.

Note 8New Accounting Pronouncement

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

8

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accepted accounting principles to revenue recognition in financial statements. 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 9Subsequent Events

In October 2000, the Company made a decision to discontinue the implementation of certain internal business automation software, which will require a
charge to earnings in the fourth quarter of 2000. The Company believes that the charge will not exceed $400,000.

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 September 30, 2000 compared to the three months ended September 30, 1999

Net Revenues.Net revenues increased $5.5 million, or 156.8%, to $9.0 million for the three months ended
September 30, 2000, from $3.5 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
183% over the same period in 1999.

Gross Profit.Gross profit increased to $5.5 million, or 60.9% of net revenues, for the three months ended
September 30, 2000, from $2.1 million, or 59.2% of net revenues, for the same period in 1999. The increase in gross margin percentage was primarily due to the growth in sales of NSX
systems, which have a higher gross margin than the Company's other products, and a stronger mix of higher margin system sales within the NSX series.

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 $1.5 million, or 110.8%, to $2.8 million, or 31.6% of net revenues, for the
three months ended September 30, 2000 from $1.3 million, or 38.5% of net revenues, for the same period in 1999. The increase in expense dollars was primarily related to the hiring of
additional sales and field service personnel, increased occupancy costs related to a new facility, higher international travel costs resulting from the Company's growth in Europe and Asia and costs
related to our increased presence at industry tradeshows. In addition, the Company recorded a one-time expense of $106,000, related to the net remaining lease obligation on a facility
vacated in February 2000. Selling, general and administrative expenses would have been $2.7 million, or 30.5% of net revenues had the expense not been incurred. 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.

In
October 2000, the Company made a decision to discontinue the implementation of certain internal business automation software, which will require a charge to earnings in the
fourth quarter of 2000. The Company believes that the charge will not exceed $400,000.

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

10

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development expenses increased $1.2 million, or 198.8%, to $1.9 million, or 20.9% of net revenues, for the three months ended September 30, 2000 from $628,000, or 17.9% of net
revenues, for the same period in 1999. The increase resulted from the hiring of additional engineers, the use of outside
services and the development of product prototypes as the Company continued to advance new product initiatives.

Interest Income.Interest income for the three months ended September 30, 2000 was $527,000, compared to none
for the same period in 1999. The interest income earned was the result of investing the net proceeds received from the Company's initial public offering (the "IPO") in June 2000.

Income Taxes.The provision for income taxes for the three months ended September 30, 2000 was $396,000, or an
effective tax rate of 31.0%, compared to a provision for income taxes of $10,000, or an effective tax rate of 11.7%, for the same period in 1999. The low effective income tax rate for 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 tax benefit of the Company's operating loss during the year
ended December 31, 1999.

Nine months ended September 30, 2000 compared to the nine months ended September 30, 1999

Net Revenues.Net revenues increased $12.5 million, or 142.9%, to $21.2 million for the nine months ended
September 30, 2000 from $8.7 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 158%
over the same period in 1999.

Gross Profit.Gross profit increased to $12.7 million, or 59.9% of net revenues, for the nine months ended
September 30, 2000, from $5.0 million, or 57.9% of net revenues, for the same period in 1999. The increase in gross margin percentage was primarily due to the growth in sales of NSX
systems, which have a higher gross margin than the Company's other products, and a stronger mix of higher margin system sales within the NSX series.

Selling, General and Administrative.Selling, general and administrative expenses increased $3.9 million, or
128.7%, to $6.9 million, or 32.6% of net revenues, for the nine months ended September 30, 2000 from $3.0 million, or 34.6% 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 and field service employees 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. In addition, the Company recorded a one-time expense of $106,000, related to the net remaining lease obligation on a facility vacated in
February 2000. Selling, general and administrative expenses would have been $6.8 million, or 32.1% of net revenues had the expense not been incurred. 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 increased $3.5 million, or 235.2%, to
$4.9 million, or 23.2% of net revenues, for the nine months ended September 30, 2000 from $1.5 million, or 16.8% of net revenues, for the same period in 1999. The increase
resulted from the hiring and recruiting of additional engineers, the use of outside services and the development of product prototypes as the Company continued to advance new product initiatives.

Interest Income.Interest income for the nine months ended September 30, 2000 was $591,000, compared to none for
the same period in 1999. The interest income earned was the result of investing the net proceeds received from the IPO in June 2000.

11

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Income Taxes.The provision for income taxes for the nine months ended September 30, 2000 was $422,000, or an
effective tax rate of 31.1%, compared to a provision for income taxes of $61,000, or an effective tax rate of 11.7%, for the same period in 1999. The low effective income tax rate for the nine months
ended September 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 September 30, 2000 the Company had cash and cash equivalents of $6.5 million, as compared to none at December 31, 1999. The increase
in cash and cash equivalents was primarily due to the $35.9 million of net proceeds received from the IPO completed on June 14, 2000, partially offset by the
purchase of $22.5 million in short-term and long-term investments, the re-payment of $4.2 million outstanding on the Company's line of credit at the
time of the IPO and the use of $2.7 million to fund daily operations.

As
of September 30, 2000 the Company had working capital of $33.9 million. Working capital increased $31.4 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, accrued
compensation, income taxes 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 nine months ended September 30, 2000, net cash used in operating activities was $4.0 million, which resulted primarily from increased
accounts receivable and inventories, partially offset by increased accounts payable and other accrued liabilities. Net cash used in investing activities was $24.0 million, including
$22.5 million used to purchase investments and $1.3 million used for additions to property and equipment. Net cash provided by financing activities was $34.5 million, including
$35.9 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 nine months ended September 30, 1999, net cash used in operating activities was $1.9 million, which resulted primarily from increased accounts receivable and
inventories, partially offset by increased accounts payable and other accrued liabilities. Net cash used in investing activities was $229,000 for additions to property and equipment. Net cash provided
by financing activities was $2.1 million primarily due to net proceeds of $2.0 million from the sale of 824,512 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

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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. 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 forward-looking statements. The Company's
forward looking statements generally relate to its growth strategies, financial results and product development activities. In particular, the Company's statement regarding an anticipated charge in
the fourth quarter of 2000 relating to its decision not to implement certain software is a forward-looking statement. The Company's statement regarding an anticipated charge in the fourth quarter, and
other forward looking statements by the Company, 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. For example, the charge to earnings anticipated in the fourth quarter may be subject to change as a result of actions by the vendor of
the software or other future developments. 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
September 30, 2000, 84% 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

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 $35.9 million. Offering expenses related to the IPO included an underwriting discount of $2.8 million and other
offering expenses of $961,000. The Company used $4.2 million of the net proceeds for the repayment of debt outstanding on a revolving line of credit and $2.7 million to fund daily
operations. A total of $22.5 million has been invested in short-term and long-term investments. None of the proceeds from the IPO was paid directly or indirectly to any
director or officer of the Company. The remaining unused proceeds will 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 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
|---------------------- |  | -----------------------------
|Date: November 7, 2000 |  | By:                          
|                       |  |                              
|Date: November 7, 2000 |  | By:                          
|                       |  |                              

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

EXHIBIT INDEX TO FORM 10-Q

|For Quarter Ended: |  | Commission File No.: 000-30637
|------------------ |  | ------------------------------
|September 30, 2000 |  |                               

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AUGUST TECHNOLOGY CORPORATION

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|Exhibit Number |  | Description                                                          
|-------------- |  | ---------------------------------------------------------------------
|10.1           |  | 1997 Stock Option Plan as Amended and Restated Through April 26, 2000
|27.1           |  | Financial Data Schedule                                              

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