SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
      Act of 1934 for the Year Ended December 31, 1999.

[ ]   TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act
      of 1934 for the transition period from ______ to ______.

                          COMMISSION FILE NO. (0-16577)

                             CYBEROPTICS CORPORATION
             -------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        MINNESOTA                                           41-1472057
---------------------------------                      -------------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification No.)

      5900 Golden Hills Drive
      MINNEAPOLIS, MINNESOTA                                    55416
------------------------------------------                -----------------
(Address of principal executive offices)                      (Zip Code)


                                 (763) 542-5000
             -------------------------------------------------------
              (Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Exchange Act:
                                                      Common Stock, no par value

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 March 27, 2000, the aggregate market value of the registrant's Common
Stock, no par value, held by nonaffiliates of the registrant was $164,806,529
(based on the closing sale price of common stock as of March 27, 2000 as quoted
on the Nasdaq National Market).

As of March 27, 2000, there were 5,091,004 shares of the registrant's Common
Stock, no par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The responses to items 10, 11, 12 and 13 herein are incorporated by reference to
certain information in the Company's Definitive Proxy Statement for its Annual
Meeting of Shareholders to be held May 19, 2000.

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

<PAGE>


CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS.

         The following Annual Report on Form 10-K contains various "forward
looking statements" within the meaning of federal securities laws. These forward
looking statements represent management's expectations or beliefs concerning
future events, including statements regarding anticipated product introductions,
changes in markets, customers and customer order rates, expenditures in research
and development, growth in revenue, taxation levels, the effects of pricing, and
the ability to continue to price foreign transactions in US currency. These, and
other forward looking statements made by the Company, must be evaluated in the
context of a number of factors that may affect the Company's financial condition
and results of operations, including, but not limited to, the following:

         *     Approximately 54% of the Company's product sales in 1999 were of
               one sensor product line to original equipment manufacturers
               ("OEM's") of component placement machines in the surface mount
               industry.
         *     The cyclical nature of capital expenditures in the surface mount
               electronics industry.
         *     Approximately 49% of the Company's sales in 1999 were to two OEM
               customers, the loss of whom, or reduction of purchases from whom,
               would have significantly adverse effects.
         *     The significant portion of the Company's revenue (approximately
               77% of sales in 1999) that is derived from export sales.
         *     The technology for the manufacture of circuit boards changes
               rapidly and could cause some of the Company's current products,
               or products currently under development, to become obsolete.
         *     The degree to which the Company is successful in protecting its
               technology and enforcing its technology rights in the United
               States and other countries.
         *     The Company contracts for a substantial portion of its
               manufacturing.
         *     Many of the components used in the Company's products must be
               ordered with significant lead times that could cause interruption
               of manufacturing if not available.
         *     There are a number of significant new product introductions
               planned for fiscal 2000, which if delayed, could have an impact
               on planned shipment levels.
         *     The Company made three acquisitions in 1999, and their successful
               integration will have a significant impact on future operating
               performance.
         *     The ability of the Company to successfully develop in-process
               technology acquired as part of acquisitions into viable products.

         These and other risks that could effect the Company's operations, are
         discussed in more detail in Exhibit 99 to this Form 10-K.


                                       -2-
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                                     PART I.


ITEM 1. DESCRIPTION OF BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

         CyberOptics Corporation (the "Company" or "CyberOptics") designs,
manufactures and markets intelligent, non-contact sensors and integrated
systems. Utilizing proprietary laser, optics and machine vision technology,
combined with advanced software and electronics, the Company's products enable
manufacturers to increase operating efficiencies, product yields and quality by
measuring the characteristics and placement of components both during and after
manufacturing processes. The Company was founded in 1984 by Dr. Steven Case, a
professor at the University of Minnesota, to commercialize technology for
non-contact three-dimensional sensing systems. Since 1992, the Company focused
development on new technology and products designed primarily for applications
in the electronics industry.

         Most of the products developed and sold by the Company are currently
for applications in the surface mount technology ("SMT") electronic circuit
board assembly equipment market, including the measurement of screen printed
solder paste, the inspection of circuit boards after component placement, the
alignment of electronic components and the measurement of electronic component
lead coplanarity during automated assembly of circuit boards. The Company's
operations have been significantly affected by the market acceptance of several
sensors, the LaserAlign and the Laser Lead Locator, manufactured for OEMs during
the past eight years. Generating $3.2 million or less than 40% of revenue in
1992, these sensors contributed over $25.1 million or approximately 63% of
revenue in 1999. The Company has also introduced new system products for the SMT
assembly equipment market, including the CyberSentry ("Sentry") system, during
this period that contributed to revenue growth.

         The Company's operations during the past three years have been heavily
influenced by market conditions in worldwide microelectronics markets, and
particularly in the SMT segment of these markets. Following a soft
microelectronics equipment market in 1996, the market recovered in 1997,
resulting in increased sales of the LaserAlign and Laser Lead Locator products.
The Company also introduced a new version of its Sentry System in 1997 and
broadened distribution of the laser section microscope ("LSM") resulting in
increased sales. The healthy microelectronics market continued through the
second quarter of 1998. Nevertheless, by the end of the second quarter of 1998,
another softening of the global electronics market, together with weak economic
conditions in Japan and Asia (the largest markets for the Company's OEM sensor
products) resulted in lower sales compared to the prior year through the second
quarter of 1999. During the third and fourth quarters of 1999, global
microelectronic markets, including those in Japan and Asia, have significantly
strengthened resulting in increased levels of shipments into the SMT market. The
Company anticipates that the strengthening of the SMT equipment market will
continue into 2000 resulting in a higher rate of revenue growth than in any of
the last three years.

         In order to expand the breadth of product offerings in the SMT
equipment market, and to expand into the semiconductor fabrication equipment
market, the Company acquired two companies in the second quarter of 1999. Kestra
Ltd., a development stage UK company acquired in April 1999 for approximately
$11.4 million, had two automated inspection machines under development that,
when completed, would potentially allow the Company to provide inspection
equipment for virtually every stage of the SMT production process. Neither
machine had been completed at the time of acquisition and one remains under
development. The assets of HAMA Laboratories, Inc. a California company acquired
in May of 1999 for approximately $7.0 million, had developed and was selling
semiconductor wafer mapping and alignment sensors and had several new products
under development. Both acquisitions were accounted for as purchases and the
company recorded $6.5 million and $771,000 of expense with respect to Kestra and
HAMA representing the portion of the purchase price attributable to the value of
the unproven research and development that was in process on the acquisition
date. These charges were responsible for the net loss recorded in 1999.


                                       -3-
<PAGE>


         In February, 1998, the Company retained Steven M. Quist as President, a
CyberOptics Board member since 1991 and previously the President of Rosemount
Inc. Steven K. Case, Chairman of the Company, refocused his efforts on overall
product direction and on strategic relationships. In addition, during 1998 the
Company added a number of senior management personnel in order to provide the
infrastructure to improve its position to manage future growth. During 1999, the
Company reorganized its senior management group placing Michael D. Wetle,
previously the VP and general manager of its SMT Systems product group, as the
VP and general manager of its Semiconductor product group, and placing Bruce E.
Batten, previously VP and general manager of its Industrial Measurement product
group, as the VP of global sales and customer engineering. In addition, during
January of 2000, Michael S. Willey was retained as the senior VP and general
manager of SMT Systems.

OPERATIONS AND PRODUCTS

         CyberOptics develops, manufactures and sells intelligent, non-contact
sensors and systems for process control and inspection. The Company's products
are used primarily in the electronics industry and enable manufacturers to
increase operating efficiencies, product yields and quality. In addition to
proprietary hardware designs that combine precision optics, various light
sources, and multiple detectors, the Company's products incorporate high
value-added software that controls the hardware and filters and converts raw
data into application specific information. Software represents a significant
portion of the CyberOptics research and development effort and distinguishes
CyberOptics' intelligent sensors and systems from simpler data-gathering
products.

         The Company's operations, and its product offerings, are divided into
three product groups: The OEM Sensors, SMT Systems and Semiconductor.

OEM SENSORS

         The OEM Sensor product group, which has generated the majority of the
Company's sales during the past three years, sells sensor level products for
incorporation into the products of original equipment manufacturers, primarily
in the SMT circuit board assembly equipment surface mount industry. The Company
works closely with its OEM customers to integrate sensors into their equipment
for resale.

OEM SENSOR PRODUCTS

         Two sensors, the LaserAlign and the Laser Lead Locator, account for a
majority of the Company's product sales and the vast majority of sales in the
OEM Sensors product group. These sensors are sold for incorporation into
component placement machines used in the surface mount production line that are
manufactured by a number of different OEM customers. Sales of these products
(primarily LaserAlign) to Juki Corporation and Philips Electronics N.V.,
however, accounted for approximately 15% and 34% of the Company's revenue in
1999, and approximately 30% and 27% of the Company's revenue in 1998.
Accordingly, the Company's revenues and operations are currently heavily
influenced by the level of purchases from these customers and by the health of
the SMT production industry in which they function.

         LASERALIGN. After solder paste has been inspected and measured,
extremely small surface mount components known as "chip" caps and resistors are
placed on the solder pads by component placement machines. CyberOptics'
LaserAlign sensors are incorporated into the heads of component placement
machines to ensure accurate component placement at high production speeds.
Various high-speed component placement machines utilize between one and sixteen
LaserAlign sensors per machine.

         LaserAlign integrates an intelligent sensor, composed of a laser,
optics and detectors with a microprocessor and software for making specific
measurements. LaserAlign quickly and accurately aligns each component as it is
being transported by the pick-and-place arm for surface mount assembly. Using
non-contact technology, LaserAlign facilitates orientation and placement of
components at much higher speeds than can be achieved using conventional
component centering systems.


                                      -4-
<PAGE>


         The LaserAlign sensor is offered in several different configurations to
satisfy the requirements of the different machines on which it is used. The
latest version of the LaserAlign technology is being introduced in a custom
sensor for Juki in the first half of 2000. Revenue from shipment of LaserAlign
sensors has been a principal contributor to the growth of the Company during the
past five years and accounted for 54%, 59% and 43% of the Company's revenue in
the years ended December 31, 1999, 1998, 1997, respectively.

         LASER LEAD LOCATOR. Following placement of the smallest leadless
components, more sophisticated components, including microprocessor chips, are
applied to the printed circuit boards by fine pitch component placement
machines. Many of these components have leads on all sides that are soldered to
the circuit board. Since all of these surface mount leads must make contact with
the solder paste, lead coplanarity is a critical quality factor. Misaligned,
bent or damaged leads will result in missed connections, open circuits and
ultimately a defective end product.

         The Laser Lead Locator ensures the coplanarity of component leads. The
Laser Lead Locator, which is incorporated directly into fine pitch component
placement machines, inspects components immediately before placement on the
circuit board to identify defective or damaged leads and determines if all lead
tips lie within the same plane. Components meeting these parameters are placed
on the printed circuit board. Parts falling outside the specified tolerances are
rejected before placement, saving both time and money.

         Sales of the Laser Lead Locator constituted approximately 4%, 7% and
17% of the Company's overall revenues during the years ended December 31, 1999,
1998 and 1997, respectively. One significant OEM customer ceased purchases of
the Laser Lead Locator in 1998 and has adopted an alternative technology.
Accordingly, the Company anticipates continued lower sales of this product in
the foreseeable future.

         SPECIALITY PRODUCTS. A substantial number of circuit boards are made
with through-hole technology using high speed drills to fabricate printed
circuit boards. These drills are highly automated and contain multiple drill
heads that cannot be constantly monitored by attendants. CyberOptics
manufactures two process control sensors for measuring characteristics of drill
bits used in drilling holes in printed circuit boards. The first of these, the
ADM, was completed in the third quarter of 1989 and is used to ensure that drill
bits are not damaged and that holes are drilled with the proper size. The second
sensor, the LTC, was completed in May 1990 and is used to detect broken drill
bits so that all of the preprogrammed holes in the circuit board are properly
drilled. Both sensors are sold under an exclusive arrangement to an OEM of
drilling machines for incorporation into its products.

SMT SYSTEMS

         The SMT Systems product group sells complete stand-alone measurement
systems used in the SMT assembly equipment industry for quality control and
in-line inspection. These systems are sold directly to the end-user customer who
uses them in the production line or along side a production line to maintain
process and quality control. Products sold include the Company's proprietary
sensors as well as substantial, off the shelf, translation or robotics hardware
and complete computer systems or processors with a substantial internally
developed software component.

SMT SYSTEMS PRODUCTS

         SE 200 (FORMERLY CYBERSENTRY 2000). The SE 200 system measures the
deposition of solder paste after the first step in the SMT assembly process.
Because of the small size of the components that must be placed on each pad of
solder paste and the density of components placed on the circuit board, a
significant amount of SMT assembly problems are related to the quality of solder
paste deposition. Misplaced solder paste or excess or inadequate amounts of
paste can lead to improper connections or bridges between leads causing an
entire circuit board to malfunction.


                                      -5-
<PAGE>


         Introduced in its first commercial format in the first quarter of 1995,
the SE 200 system is designed to be installed in existing automated production
lines and to strike a balance between inspection of 100% of each circuit board
and the off-line bench top measurement tools used in quality control
laboratories. The SE 200 incorporates a sensor extended on a mechanical robot
arm over the production line that measures the height, area and volume of
critical solder paste pads. The SE 200 can be retrofitted and integrated into
most SMT production lines, providing real time quality control immediately after
a printed circuit board leaves the screen printer and before component placement
commences.

         Shipments of the SE 200 product accounted for approximately 18%, 16%,
and 17% of the Company's revenue for the years ended December 31, 1999, 1998,
and 1997, respectively.

         SE 300. During early 1997, the Company introduced an improved version
of the SE 200 capable of performing measurement tasks at a more rapid speed.
However, as the SE 200 was still not able to inspect 100% of the circuit board,
the Company began development efforts on the SE 300, which has significantly
greater speed, accuracy and resolution which allows it to measure the smallest
chip scale packages and micro ball array component sites. The SE 300 was
introduced at a trade show in March 2000, and it is anticipated to be available
for sale in the third quarter of 2000.

         LSM 300 (FORMERLY AUTOLSM). The Laser Section Microscope (LSM 300) is a
low cost instrument for making height and registration measurement of screen
printed solder paste during the assembly of surface mount circuit boards. One of
the principal advantages of the LSM 300 is its ease of use--unskilled operators
can make non-contact measurements with only minimal training. In February 1999,
the Company introduced the LSM 300 in its current version which includes
enhancements over its predecessor including AutoMeasure(TM) for automatic height
measurement, a redesigned user interface, and a high resolution monitor for
improved image quality.

         KS 100. During the fourth quarter of 1999 the Company released for sale
the first Automated Optical Inspection (AOI) product using in-process technology
purchased from Kestra. This product inspects the circuit board after component
placement and before reflow to determine whether components have been placed
correctly. The principal advantage of the KS 100 is the ease of use provided the
operator compared to other AOI machines and the low level of false calls. The KS
100 has a significantly higher software component than previous SMT systems
products and operates on a less sophisticated mechanical platform. There are no
KS 100 revenues reflected in the Company's financial stateements as of December
31, 1999.

         FC 200 (FORMERLY FIRSTCHECK). The Company acquired all rights to the
FirstCheck, a manual off-line first article inspection tool, in February 1999.
Consisting of a scanner, a PC and proprietary software, this instrument scans a
printed circuit board and compares the image that is captured to graphical data
representing a "golden" example in order to confirm the location, shape and
orientation of components on a circuit board after the reflow oven. This product
has not been made available for sale, due to additional development required to
add functionality prior to release. It is anticipated that development will be
completed and the FC 200 will be introduced in late 2000 or early 2001.

SEMICONDUCTOR

         The semiconductor product group was formed during 1999 with the
acquisition of certain assets of HAMA Laboratories, Inc. The Company is building
a business that supplies OEM laser sensors to the semiconductor wafer robotic
handling equipment market. This business develops, manufactures and sells sensor
level products for incorporation into the products of OEM's, primarily in the
semiconductor equipment market. In this business, the Company works closely with
its OEM customers to integrate sensors into their equipment for resale.

         Also included in this product group are general industrial measurement
products. These products incorporate laser sensors designed to precisely
measure, without contact, the distance to a point and critical dimensions on an
object. The industrial measurement products are used in a broad array of
applications in a number of different industries. Included among these
applications are measurement of the thickness of resistive inks applied in the
manufacture of hybrid electronic circuits and encapsulent thickness of
microelectronic packages.


                                      -6-
<PAGE>


         The Company has made a strategic decision to exit the industrial
measurement market and to divest system level products in order to focus on the
SMT and semiconductor markets. The Company will continue to manufacture and sell
industrial measurement sensors and sell them on an OEM basis through the OEM
sensor product group. The Company sold the Cobra laser profiling system product
line in November 1999 and the Vantage laser profiling product line in March
2000.

SEMICONDUCTOR PRODUCTS

         WAFER MAPPING AND ALIGNMENT SENSORS. Through HAMA Sensors, the Company
manufactures and sells laser based reflective sensors that improve the
performance of robotic wafer handling equipment. During the fabrication process,
semiconductor wafers are stored in slotted cassettes during transport to various
workstations. Robotic equipment removes the wafers from the cassettes and
inserts them into a fabrication tool. The Company's wafer mapping sensors
inspect for the presence of wafers in the cassettes and determines if the wafer
is properly located in the cassette to avoid damage to the wafer by inserting
the next wafer into the same slot.

         DRS RANGE SENSORS. The Company's first commercial product was a range
sensor known as a point range sensor or "PRS" The Company developed and
introduced Digital Range Sensor (DRS) in late 1997, a new generation of sensors,
designed to replace the PRS product line. The Company currently offers three DRS
sensors are equivalent to the seven sensors formerly sold in the PRS line with
resolution equal to the best sensors of the PRS line. The DRS is currently sold
with a control board and software that is compatible with Windows 95 or Windows
NT. The Company will continue to sell DRS sensors on an OEM basis for the
foreseeable future.

         COBRA. The CyberScan Cobra, introduced in 1997 is a low cost single
axis laser profiling system. The Cobra consists of a DRS sensor that is
translated across a part to produce a profile or cross section. Using the
supplied software the user can make height, length angle, and other
two-dimensional measurements. It is controlled through a simple Windows
interface and a separate Pentium based computer. This product line was sold
during November 1999. The Company will continue to sell DRS sensors on an OEM
basis to the company that purchased the Cobra product line.

         VANTAGE. The Company introduced the CyberScan Vantage System in June of
1998. The Vantage incorporates the DRS laser sensor and an electro-mechanical
stage to precisely profile complex surfaces in two and three dimensions. This
product line was sold during March 2000. The Company will continue to sell DRS
sensors on an OEM basis to the company that purchased the Vantage product line.


MARKETS AND CUSTOMERS

         The vast majority of the Company's products are sold into the
microelectronics manufacturing market, particularly the portion servicing
manufacturers doing SMT circuit board assembly. The value of automation is high
in this market because the products produced have high unit costs and are
manufactured at speeds too high for effective human intervention. Moreover, the
trend in these industries toward smaller devices with higher circuit densities
and smaller circuit paths requires manufacturing and testing equipment capable
of extremely accurate alignment and multidimensional measurement such as
achieved using non-contact optical sensors. Customers in these industries,
moreover, also employ knowledgeable engineers who are competent to work with
computer-related equipment. The Company's LaserAlign and Laser Lead Locator
products are sold to OEMs serving this market and the SE 200 and LSM 300 solder
paste measurement systems are sold to electronic assembly manufacturers in this
market.


                                       -7-
<PAGE>


         The Company's semiconductor products are sold in the semiconductor
capital equipment market, which are used in the manufacture of semiconductor
devises. This market has many of the same characteristics as SMT
microelectronics and requires non-contact optical measurement tools to enable
the production of more complex, higher density and smaller semiconductor
devises. The Company's wafer mapping and alignment sensors are sold to OEM's
serving this market. The Company's wafer mapping sensors will become
increasingly critical to this market when the use of 300 millimeter
semiconductor wafers becomes more widespread.

         The Company sells its products worldwide to many of the leading
manufacturers of electronic circuit assembly equipment and semiconductor capital
equipment. The Company maintains a foreign development office in the UK, but has
not had sales originating from geographies other than the United States. In
2000, sales of the KS 100 system will be originating in the UK. The following
table sets forth the percentage of the Company's total sales revenue represented
by total export sales (sales for delivery to countries other than the United
States, including sales delivered through distributors) by location during the
past three years:

                                             Year Ended December 31,
                                          1999        1998        1997
                                        --------    --------    --------
         Asia......................        30%         44%         50%
         Europe....................        42%         34%         17%
         Other (1).................         5%          4%          2%

(1)      Includes export sales in North America, primarily export sales to
         Canada and Mexico.

See Note 8 to the Company's Consolidated Financial Statements contained in item
8 of this Form 10-K.

         All of the Company's export sales are negotiated, invoiced and paid in
United States dollars. Accordingly, although changes in exchange rates do not
effect the Company's revenue and income per unit, they can influence the
willingness of customers to purchase units. The poor economic conditions in Asia
have affected the buying patterns of one of the Company's largest single OEM
customers, as well as several other customers in Japan. Although most of the
products sold by these OEM customers are for re-export to America and Europe,
the significant decrease in capital purchases by their end-user customers in
Asia has effected sales and contributed to the relative decrease in
concentration of sales in Asia during 1999 and 1998.

SALES AND MARKETING

         The Company sells its products through a combination of direct sales
staff and independent representatives and distributors. The Company maintains a
direct sales staff at its headquarters in Minneapolis, Minnesota and in its
subsidiary locations in California and the UK that call on large house accounts
and that sell to OEM customers. The Company also has agreements with 13
representatives and distributors in North and South America who focus primarily
on products sold to end-users. Most sales to international end-users of sensors
and systems are made through 18 representatives and distributors covering Europe
and the Pacific Rim.

         The Company markets its products through appearances at industry trade
shows, advertising in industry journals, articles published in industry and
technical journals and on the Internet. In addition, the Company's strategic
relationships with customers serve as highly visible references.

BACKLOG

         CyberOptics products are typically shipped two weeks to four months
after the receipt of an order. Since 1993, however, certain OEM customers have
placed orders for delivery over as many as 12 months. Product backlog was $11.4
million at December 31, 1999, as compared to $5.7 million at December 31, 1998
and $8.7 million at December 31, 1997. Approximately $7.6 million of the 2000
backlog is deliverable in the first quarter of 2000 with the remaining $3.8
million deliverable in the remainder of 2000. Although the Company's business is
generally not of a seasonal nature, its sales may vary based on the capital
procurement practices in the electronics and semiconductor industries. The
Company's scheduled backlog at any time may vary significantly based on the
timing of orders from OEM customers. Accordingly, backlog may not be an accurate
indicator of the Company's performance in the future.


                                       -8-
<PAGE>


RESEARCH AND DEVELOPMENT

         The Company differentiates its products primarily on the basis of its
unique technology and on the Company's ability to synthesize several different
technical disciplines to address industry needs. CyberOptics was founded by
research scientists and has retained relationships with academic institutions to
ensure that the most current information on technological developments is
obtained. In addition, the Company actively seeks ongoing strategic customer
relationships with leading product innovators in the markets it serves and
actively investigates the needs of, and seeks input from, these customers to
identify opportunities to improve manufacturing processes. The Company provides
direct interaction between its engineers and scientists and these key accounts
to ensure adoption of current technologies. In some instances, the Company
provides the outsourced research and development for these customers through
funded development contracts that provide the customer with an exclusive selling
period but allows the Company to retain technology and distribution rights.

         CyberOptics believes that continued and timely development of new
products and enhancements to existing products is essential to maintaining its
competitive position. The Company has committed and expects to continue to
commit substantial resources to its research and development effort, which plays
a critical role in maintaining and advancing its position as a leading provider
of optical sensors and systems. CyberOptics' research and development efforts
during 1999 were primarily directed at developing the SE 300, the KS 100 and the
latest version of the LaserAlign technology. During 2000, CyberOptics intends to
continue to expend significant sums on completion of the SE 300, on completing
developmnent of the second product acquired from Kestra for solder joint
inspections and on varous OEM sensor products including another version of the
LaserAlign technology. There can be no assurances that such efforts, or any
other research and development efforts of the Company, will be successful in
producing products that respond effectively to technological changes or new
product announcements by others.

         Research and development expenses were $9.2 million, $7.0 million, and
$6.3 million for the years ended December 31, 1999, 1998 and 1997, respectively.
These amounts represented 23%, 19% and 18% of revenues, respectively. The
Company anticipates that research and development expenditures will continue at
approximately 18% to 20% of revenue in 2000. Research and development expenses
consist primarily of salaries, project materials and other costs associated with
CyberOptics' ongoing product development and enhancement efforts. Research and
development resource utilization is centrally managed based on market
opportunities and the status of individual projects.

MANUFACTURING

         Much of the Company's product manufacturing, consisting primarily of
circuit board manufacturing, component placement and soldering, lens
manufacturing and machined and fabricated metal parts production, is contracted
with outside suppliers. Company personnel inspect incoming parts, assemble
sensor heads, calibrate and perform final quality control testing of finished
products. The Company believes that its products are not suited for the large
production runs that would justify the capital investment necessary for complete
internal manufacturing. OEM sensor and SMT systems products are assembled by a
central manufacturing group.

         A variety of components used in the Company's products are available
only from single sources and involve relatively long order cycles, in some cases
over one year. Although the Company has located alternative sources for most of
such components, use of those alternative components could require substantial
rework of the Company's product designs, resulting in periods during which it
could not satisfy customer orders. Further, although the Company believes it has
identified alternative assembly contractors for most of its subassemblies, an
actual change in such contractors would likely require a period of training and
test. Accordingly, an interruption in a supply relationship or the production
capacity of one or more of such contractors could result in the Company's
inability to deliver one or more products for a period of several months. To
help prevent delays in the shipment of its products, the Company maintains in
inventory, or on scheduled delivery from suppliers, what it believes to be a
sufficient amount of certain components based on forecasted demand (forecast
extends a minimum of 6 months).


                                       -9-
<PAGE>


COMPETITION

         Although the Company believes that its products are unique, competitors
offer technologies and systems that are capable of certain of the visual
inspection and alignment functions performed by the Company's products. The
Company faces competition from a number of companies in the machine vision,
image processing and inspection systems market, some of which are larger and
have greater financial resources.

         The Company's OEM Sensor products face competition in the market for
OEM component placement machines primarily from manufacturers of vision (camera
and software based) systems. Potential competitors in these markets include
Cognex Corporation, Robotic Visions Systems, Inc., and ICOS Vision Systems, NV.
Competition in this market is based on speed, flexibility, cost and ease of
control. In addition, the Company's products compete with systems developed by
OEMs using their own design staff for incorporation into their products. The
Company's OEM Sensor products have historically competed favorably on the basis
of these factors, and particularly on the basis of speed and cost. Nevertheless,
advances in terms of speed by vision systems have reduced some of the advantages
of the Company's products in some configurations. The Company has introduced
newer configurations adapted by several customers that it believes allow its
sensors, and the component placement machines in which they are incorporated, to
compete favorably based on the speed and accuracy of their performance, and
their price.

         The Company's SMT System products compete primarily in the market for
3-D solder paste inspection. The competitor in this market is primarily GSI
Lumonics, Inc. (SVS division). In addition, some manufacturers of screen
printing equipment provide optional 2-D solder paste inspection, and other
machine vision companies (AOI companies) have started offering 2-D and 3-D
solder paste inspection products. The Company believes that it currently
competes effectively in this market on the basis of, performance, ease of
installation and use, and price.

         The Company's KS 100 product faces competition from over 40 AOI
companies, the most significant being MV Technologies, Ltd and Orbotech, GmbH.
The Company believes that the technology used in the KS 100 is differentiated
from the competition and that it will compete effectively in this market based
on measurement accuracy, ease of use and the low rate of false calls.

         The Company's semiconductor products face competition in the wafer
mapping and alignment market primarily from manufacturers of through beam
sensors. Potential competitors in this market include Banner Engineering
Corporation, Omron, Ltd (Japan) and Keyence, Ltd (Japan). The Company believes
that its sensors compete favorably in this market based on performance and the
unique reflective mode of operations. In addition, as the next generation of
semiconductor wafers become more widely accepted (300 millimeter), changes in
the configuration of wafer transport cassettes will not allow for through beam
sensors to be used for mapping.

         Although the Company believes its current products offer several
advantages in terms of price and suitability for specific applications and
although the Company has attempted to protect the proprietary nature of such
products, it is possible that any of the Company's products could be duplicated
by other companies in the same general market.

EMPLOYEES

         As of December 31, 1999, the Company had 216 full-time and 8 part-time
worldwide employees, including 37 in sales and marketing and customer support,
77 in manufacturing, purchasing and production engineering, 80 in research and
development and 30 in finance, administration and information services. Of these
employees, 197 are located at the corporate headquarters in Minneapolis and 27
are located at subsidiary locations (17 in the UK and 10 in California). To
date, the Company has been successful in attracting and retaining qualified
technical personnel, although there can be no assurance that this success will
continue. None of the Company's employees are covered by collective bargaining
agreements or are members of a union.


                                      -10-
<PAGE>


PROPRIETARY PROTECTION

         The Company relies on the technical expertise and know-how of its
personnel and trade secret protection, as well as on patents, to maintain its
competitive position. The Company attempts to protect its intellectual property
by restricting access to its proprietary methods by a combination of technical
and internal security measures. In addition, the Company makes use of
non-disclosure agreements with customers, consultants, suppliers and employees.
Nevertheless, there can be no assurance that any of the above measures will be
adequate to protect the proprietary technology of the Company.

         The Company holds fourteen United States patents on a number of its
technologies, including those used in its Laser Lead Locator, LaserAlign and DRS
products. Some of the patents relate to equipment such as pick and place
machines, into which the Company's OEM products are integrated. In addition, the
Company has several patent applications, both U.S. and foreign, pending. The
Company protects the proprietary nature of its software primarily through
copyright and license agreements, but also through close integration with its
hardware offerings. It is the Company's policy to protect the proprietary nature
of its new product developments whenever they are likely to become significant
sources of revenue. No guarantee can be given that the Company will be able to
obtain patent or other protection for other products.

         As the number of its products increases and the functionality of those
products expands, the Company believes that it may become increasingly subject
to attempts to duplicate its proprietary technology and to infringement claims.
In addition, although the Company does not believe that any of its products
infringe the rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company in the future or that any
such assertion will not require the Company to enter into a royalty arrangement
or result in litigation.

GOVERNMENT REGULATION

         All of the Company's products which contain lasers are classified as
either Class I, Class II or Class IIIb Laser Products under applicable rules and
regulations of the Center for Devices and Radiological Health ("CDRH") of the
Food and Drug Administration. Such regulations generally require a
self-certification procedure pursuant to which a manufacturer must file with the
CDRH with respect to each product incorporating a laser device, periodic
reporting of sales and purchases and compliance with product labeling standards.
The Company's lasers are generally not harmful to human tissue, but could result
in injury if directed into the eyes of an individual or otherwise misused. The
Company is not aware of any incident involving injury or a claim of injury from
its laser devices and believes that its sensors and sensor systems comply with
all applicable laws for the manufacture of laser devices.

ITEM 2. PROPERTIES

         The Company leases a 70,000 square foot mixed office and warehouse
facility built to its specifications in Golden Valley, Minnesota, which
functions as its corporate headquarters and primary manufacturing facility. The
lease, which is on a triple net basis for a ten year term (from May 1996) with
two three year renewal options, provides for rental payments at approximately
$7.50 per square foot initially, increasing to $8.50 per square foot. The
Company, which holds an option to lease adjoining space, anticipates that the
property will be adequate for its needs for the foreseeable future. HAMA and
Kestra lease office and warehouse facilities in the UK and California. The
Kestra lease expires in June 2013 and the HAMA lease expires in September 2004.


ITEM 3. LEGAL PROCEEDINGS

         The Company is not currently subject to any material pending or
threatened legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted during the fourth quarter of 1999.


                                      -11-
<PAGE>


PART II.

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

         The Company's common stock is traded on the Nasdaq National Market. The
following table sets forth, for the fiscal periods indicated, the high and low
quotations for the Company's common stock as reported by the Nasdaq National
Market. These prices do not reflect adjustments for retail markups, markdowns or
commissions.

                                     1999                       1998
                            ----------------------     ----------------------
            Quarter            High         Low           High         Low
         ---------------    ---------    ---------     ---------    ---------
         First                $20.81       $11.75        $27.00       $16.25
         Second                16.25        10.50         28.00        13.13
         Third                 18.50        14.75         14.25        10.00
         Fourth                28.06        17.06         16.75         8.25

         As of March 24, 2000, the Company estimates that there were 250 holders
of record of the Company's common stock and approximately 4,000 beneficial
holders. The Company has never paid a dividend on its common stock. Dividends
are payable at the discretion of the Board of Directors out of funds legally
available therefor. The board has no current intention of paying dividends,
although it may pay dividends in the future.

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR FINANCIAL SUMMARY
CyberOptics Corporation
(In thousands, except per share information)

<TABLE>
<CAPTION>
Year Ended December 31             1999(1)       1998        1997        1996        1995
<S>                               <C>          <C>         <C>         <C>         <C>
Revenues                          $ 39,627     $ 36,636    $ 35,120    $ 28,062    $ 30,518
Income (loss) from Operations       (5,932)       3,184       4,588         885       6,457
Net Income (loss)                   (5,496)       3,669       4,597       2,180       4,831
Net Income (loss) per Share:
    Basic                            (1.10)        0.71        0.88        0.39        1.04
    Diluted                          (1.10)        0.69        0.83        0.38        0.95

Cash and Marketable Securities    $ 23,101     $ 38,502    $ 41,027    $ 37,309    $ 39,864
Working Capital                     28,260       32,308      36,236      32,395      28,722
Total Assets                        51,464       55,177      57,445      50,316      54,740
Stockholders' Equity                46,504       51,433      53,293      47,468      50,737
</TABLE>

(1) 1999 results include a $1.42 per share, net of tax, non-recurring charge for
acquired in-process research and development.


                                      -12-
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Statements in this management discussion and analysis of financial
condition and results of operations and elsewhere in this Form 10-K that are not
based on historical fact are forward looking and involve certain risks and
uncertainties, including but not limited to the factors set forth in exhibit 99
to this Form 10-K.


GENERAL BUSINESS AND STRATEGIC OVERVIEW:

         CyberOptics Corporation designs and manufactures intelligent sensors
and systems for high-precision, non-contact dimensional measurement and process
control. Utilizing proprietary laser, machine vision and optics technology
combined with advanced software and electronics, the Company's products enable
manufacturers to increase operating efficiencies, product yields and quality by
measuring the characteristics and placement of components during production
processes. The Company generates approximately 90% of its revenues from the
sales and service of sensors and system products used primarily in Surface Mount
Technology (SMT) circuit board production. Consequently, revenues are highly
dependent on the level of capital spending in the global SMT assembly market,
which began to experience a slowdown in early 1998 that lasted through the first
half of 1999. The slowdown in worldwide demand for SMT production equipment was
more pronounced in the Asian markets and had a significant impact on the level
of orders from large OEM customers. During the second half of 1999 and into
early 2000 the SMT market has significantly strengthened, resulting in higher
revenue volumes and order rates.

         Strategic initiatives during 1999 included focusing on investments that
will allow the Company to expand its end-user SMT inspection product offerings
and entering a new market area, semiconductor capital equipment. To accomplish
these objectives, the Company made two significant strategic acquisitions. In
April 1999, the Company acquired Kestra Limited, a UK based development stage
company with two Automated Optical Inspection (AOI) systems under development
for pre-oven and post-placement SMT applications. As part of this acquisition,
the Company recorded a non-tax-deductible charge for in-process research and
development (IPR&D) of $6.5 million. To enter the semiconductor capital
equipment market the Company acquired the assets of HAMA Laboratories in May
1999. HAMA designs and manufactures laser wafer-mapping and alignment sensors
that are incorporated into robotic equipment that handles silicon wafers during
the fabrication process. As of the acquisition date, HAMA had four products
under development that resulted in a tax-deductible IPR&D charge of $771,000.

         In addition to acquisitions, the Company decided to exit the industrial
measurement market in 1999 and to divest the end user products sold into that
market. The first step in this process was the sale of the Cobra laser profiling
system product line during the fourth quarter of 1999. The divestiture of
industrial measurement products was completed in the first quarter of 2000 with
the sale of the Vantage automated laser profiling system product line.

         Based on the strengthening SMT market and planned new product
introductions, the Company expects a higher rate of revenue growth in 2000 than
in any of the last three years.

RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1999

REVENUES

         Revenues increased 8% to $39.6 million in 1999 from $36.6 million in
1998, and increased 4% in 1998 from $35.1 million in 1997. The following table
sets forth, for the years indicated, revenues by product group:

                                            1999       1998       1997
                                            ----       ----       ----

OEM Sensors                               $26,268    $26,713    $23,613
SMT Systems                                 9,322      7,506      8,542
Industrial Measurement & Semiconductor      4,037      2,417      2,965
                                          -------    -------    -------
    Total                                 $39,627    $36,636    $35,120


                                      -13-
<PAGE>


         Revenues from the OEM sensor product group decreased $445,000 or 2%
during 1999 compared to 1998, and increased $3.1 million or 13% during 1998
compared to 1997. Revenues from OEM sensors, primarily the Company's LaserAlign
and Laser Lead Locator sensors, were negatively impacted in the first half of
1999 by slow demand in Asian markets. Although Asian demand strengthened
throughout the second half of 1999, full year revenues were slightly below 1998.
The impact of reduced demand in Asia was partially offset by increased revenues
generated in Europe, where revenues increased throughout 1999. During 1998,
demand for the Company's sensors increased worldwide from OEM customers
manufacturing both high-end capacity and mid-range capacity pick and place
equipment. This increase was partially offset by reduced demand for Laser Lead
Locator sensors.

         SMT systems revenues increased $1.8 million or 24% during 1999 compared
to 1998, following a decrease of $1.0 million or 12% during 1998 compared to
1997. SMT systems revenues are generated from sales of the Company's solder
paste inspection systems, SE 200 (formerly the CyberSentry 2000) and LSM 300
(formerly LSM2), which were introduced in their current versions during the
first half of 1997. Increased SMT Systems revenues in 1999 were primarily the
result of increased demand from electronic manufacturing services (EMS)
companies, which are becoming an increasingly large segment of the worldwide SMT
production market. The Company is seeing demand for inspection equipment
increase as production becomes more difficult due to smaller component sizes and
increased production speeds. Decreased SMT systems revenues in 1998 relative to
1997 were primarily the result of reduced shipments of the LSM2, following
strong market acceptance of the product in 1997, its initial year of
introduction.

         Industrial Measurement and Semiconductor revenues increased 67% to $4.0
million in 1999 compared to 1998 due to $1.8 million in revenue generated by
HAMA since the acquisition in May 1999. HAMA's full year 1999 revenues, only the
post acquisition component of which is included in the Company's consolidated
revenues, increased 22% in 1999 compared to 1998. HAMA's revenues are generated
from a line of wafer mapping and alignment sensors used in the semiconductor
fabrication process, and represent the Company's entry into that market.
Revenues from Industrial Measurement products decreased 18% during 1998 compared
to 1997. The Company has divested products produced for the industrial
measurement market in order to focus on the Semiconductor capital equipment
market.

         International revenue totaled $30.6 million in 1999, $29.9 million in
1998 and $24.2 million in 1997, comprising 77%, 82% and 69% of total revenue,
respectively. The international markets of Europe, Japan and the rest of Asia
account for a significant portion of the production capability of capital
equipment for the manufacture of electronics, the primary market for the
Company's OEM sensor and SMT system product lines.


GROSS MARGIN

         Gross margin for 1999 increased as a percentage of sales to 57%
compared to 55 % in 1998 and 1997. Gross margin is highly dependent on the
volume of revenues over which to spread the fixed component of cost of sales and
the related realization of manufacturing efficiencies. During 1999, gross margin
was positively impacted by a shift in the OEM sensor revenue mix towards higher
margin sensor products and by the acquisition of HAMA, which has revenues that
carry higher gross margins than the Company's pre-acquisition products. During
1998, gross margin was positively impacted by cost containment measures taken by
the Company during the second half of the year, along with higher revenue levels
over which to spread fixed manufacturing costs, reduced material costs on
certain high volume products and additional manufacturing overhead applied to
increased inventory levels. These positive impacts were offset in 1998 primarily
by reduced Laser Lead Locator sales, the Company's highest margin product, and
increased warranty costs.


                                      -14-
<PAGE>


RESEARCH AND DEVELOPMENT EXPENSES

         Research and development expenses increased 30% to $9.2 million in 1999
compared to $7.1 million in 1998 and $6.4 million in 1997. As a percentage of
revenues, research and development expenses were 23% in 1999, compared to 19%
and 18% in 1998 and 1997, respectively. Increased research and development
expense in 1999 was due primarily to the acquisition of Kestra, a development
stage company, in April 1999 and increased development spending required to
complete new SMT systems products scheduled for introduction in 2000. Payments
to the Company for customer funded research and development are deferred and
recognized as a reduction of research and development expenses as costs are
incurred. During 1997, customer funded research and development recognized as a
reduction of research and development expense totaled $166,000. There was no
customer funded research and development in 1999 or 1998.

         During 1999, research and development expenses were primarily focused
on completion of the new high speed solder paste inspection system, the SE 300,
completion of the in-process products acquired from Kestra and HAMA, continued
development of the FirstCheck product acquired in February 1999 and completion
of the next generation of the LaserAlign products. During 1998, research and
development expenses were primarily focused on continuing development work on
the LaserAlign technology, including the next generation of LaserAlign products,
completion of the new family of industrial measurement scan stations and sensors
and development of additional future product offerings for solder paste
inspection. The Company anticipates that development expenses will decrease as a
percentage of revenues in future periods.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses increased 9% to $10.7
million in 1999 compared to $9.9 million in 1998 and $8.5 million in 1997. As a
percentage of revenue, selling, general and administrative expenses were 27% in
1999 and 1998, and 24% in 1997. During 1999, the dollar increase in selling
general and administrative expenses was primarily due to additional costs
incurred in the operations of Kestra and HAMA, and the costs associated with
operating two separate subsidiary facilities. During 1998, the dollar increase
in selling general and administrative expenses was primarily due to increased
personnel and related costs associated with the addition of new senior
executives. These additions were made to strategically position the Company for
future growth, and to add depth to the senior management team. In addition,
selling, general and administrative expenses increased as the result of software
licensing and maintenance costs associated with the Company's new enterprise
system and with additional licenses purchased for company wide desktop use.


ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

         On April 6, 1999, the Company completed the acquisition of Kestra. At
the time of the acquisition, Kestra had 2 products under development using a
statistical technique, Principal Component Analysis (PCA), for the application
of Automated Optical Inspection (AOI) in the pre-oven and post-oven reflow
stages of SMT production. At the time of acquisition the Company was uncertain
whether the technology being developed for either application would ultimately
meet the technical specifications required for circuit board production or be
commercially acceptable. The Company recorded a $6.5 million charge to
operations for the estimated fair value of the acquired in-process research and
development. This charge is not deductible for tax purposes under UK law. The
Company commercially made available the pre-oven system in the fourth quarter of
1999, and is currently performing technical evaluations for potential customers.
The Company is continuing development of the post-reflow product and currently
believes that the product may be introduced in late 2000 or early 2001. Schedule
delays in the introduction of the post-reflow product are the result of resource
constraints resulting from introduction efforts on the pre-oven system and are
not expected to cause any significant changes in anticipated research and
development costs. However, these expectations are subject to change, given
uncertainties of the development process and potential changes in market
expectations.


                                      -15-
<PAGE>


         On May 5, 1999, the Company acquired substantially all of the operating
assets and assumed certain liabilities of HAMA Laboratories through HAMA
Sensors, Inc., a newly formed, wholly-owned subsidiary of the Company. At the
time of the acquisition, HAMA had under development technology to develop
laser-based proximity sensors for robotic semiconductor wafer handling, to be
used in a vacuum environment, and laser micrometers that will potentially
determine the orientation and alignment of semiconductor wafers during the
production process and other potential applications. At the time of acquisition
the Company was uncertain whether the technology being developed for either the
vacuum proximity sensors or the laser micrometers would ultimately meet the
technical specifications required for semiconductor wafer handling, or other
applications, or be commercially acceptable. The Company recorded a $771,000
charge to operations for the estimated fair value of the acquired in-process
research and development. This charge will be deductible, for income tax
reporting purposes, in future periods. Development has been completed on the
vacuum sensor and the custom kit micrometer and these products were introduced
during the fourth quarter of 1999. In addition, the mini laser micrometer is
planned to be introduced in the second quarter of 2000. The Company has
temporarily put on hold development of the acquired in-process technologies
related to the six-inch micrometer due to manufacturability issues. These
factors could impact the product development and release schedule.


AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

         Amortization of acquired intangible assets was $1.2 million during
1999. The amortization is attributable to identifiable intangible assets and
goodwill resulting from the Company's acquisition of certain technology and
other assets of Electronic Packaging Company (EPC) during the first quarter of
1999 and the Company's acquisition of Kestra and HAMA during the second quarter
of 1999. Amortization of these intangible assets is expected to remain constant
at approximately $1.7 million per year over the remaining life of the intangible
assets and goodwill.


EFFECTIVE TAX RATE

         The Company recorded a tax provision of $1.1 million during 1999
despite generating a loss before income tax of $4.4 million. The tax provision
during 1999 reflects the non-deductible acquired in-process research and
development charge resulting from the Kestra acquisition, non-deductible
goodwill amortization from the intangible assets related to the Kestra
acquisition and valuation allowances established to eliminate the future tax
benefit of net operating loss carryforwards generated by Kestra following the
acquisition due to uncertainty about realization. These items were offset
somewhat in 1999 by benefits from the Company's foreign sales corporation and
research and development tax credits. The Company's effective tax rate was 32%
in 1998 and 1997. Benefits from the Company's foreign sales corporation and the
use of the research and development tax credit were primarily responsible for
reducing the effective tax rate below the statutory federal rate in 1998 and
1997.


FINANCIAL INSTRUMENTS

         The Company invests excess funds not required for current operations in
certain marketable securities. The investment policy for these marketable
securities is approved annually by the Board of Directors and administrated by
management. A third party, at the direction of management, manages the
portfolio. The investment policy dictates that marketable securities consist of
U.S. Government or U.S. Government agency securities with maturities of three
years or less and an average portfolio maturity of not more that 18 months. As
of December 31, 1999 the portfolio of marketable securities had an average term
to maturity of approximately one year. All marketable securities are classified
as available for sale and carried at fair value. Market risk was estimated as
the potential decrease in fair value resulting from a hypothetical 1% increase
in interest rates for the issues contained in the portfolio of marketable
securities which would result in a decrease in the market value of the portfolio
of approximately $100,000. If such a rate increase occurred, the Company's net
income would only be impacted if securities were sold prior to maturity.


                                      -16-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents and marketable securities decreased $15.4
million to $23.1 million as of December 31, 1999 from $38.5 million as of
December 31, 1998, primarily due to $17.2 million of cash used to acquire
businesses and technology and $1.3 million used to purchase fixed assets and
other intangibles. These uses of cash were partially offset by $4.9 million of
cash generated by operations and $705,000 of cash provided by other common stock
related financing activities.

         The Company generated $4.9 million of cash from operations during 1999,
primarily due to the net loss offset by $9.9 million of non-cash charges for
IPR&D, depreciation and amortization and the provision for inventory
obsolescence. The cash generated from operations also included a decrease of
$780,000 in inventories and a $469,000 increase in accounts payable. These
increases in cash were partially offset by an increase in accounts receivable of
$1.1 million. The decrease in inventories is primarily due to management
initiatives in 1999. The changes in accounts payable and accounts receivable are
primarily due to increased activity levels during the second half of 1999
related to revenue growth. The Company generated $4.2 million of cash from
operations during 1998, primarily due to net income of $3.7 million, including
$1.6 million of non-cash expenses for depreciation and amortization and the
provision for inventory obsolescence and a $1.3 million decrease in accounts
receivable. The decrease in accounts receivable is primarily due to the timing
of revenues, as the fourth quarter of 1997 revenue levels were significantly
higher than for the comparable period in 1998. These increases in cash from
operations were partially offset by an increase in inventories of $1.9 million,
resulting from inventory purchased to support a higher than realized revenue,
new product introductions, increased warranty repairs and volume last-time
purchases of certain critical components

         The Company generated $2.0 million of cash from investing activities in
1999 compared to generating $364,000 in 1998. Cash generated from investing
activity in 1999, includes $20.4 million from the change in the level of
investment in marketable securities resulting from purchases and maturities of
those securities, which was offset by the use of $17.2 million of cash to
purchase businesses and technology and $1.3 million used for the purchase of
fixed assets and other intangibles. During 1998, the majority of the change in
cash from investing activities is due to changes in the level of investment in
marketable securities which provided $1.5 million of cash offset by purchases of
fixed assets and other intangibles.

         The Company used $1.7 million of cash from financing activities in
1999, and used $5.7 million 1998. During 1999, cash used primarily reflects the
repayment of $2.4 million of debt of Kestra following the acquisition, offset by
cash generated from stock option exercises and the issuance of stock under the
Employee Stock Purchase Plan (ESPP). During 1998, $6.8 million of cash was used
for the repurchase of 500,000 shares of CyberOptics common stock. Cash generated
from other stock related transactions, primarily stock option exercises and
Employee Stock Purchase Plan share purchases, partially offset these uses of
cash.

         There are no material capital commitments, although management is
seeking strategic acquisition candidates that it believes will provide a higher
level of return on assets to stockholders. The Company believes current working
capital and anticipated funds from operations will be adequate for anticipated
operating needs.


OTHER FACTORS

         Changes in revenues have resulted primarily from changes in the level
of unit shipments and new product introductions. The Company believes that
inflation has not had any significant effect on operations. All of the Company's
international export sales are negotiated, invoiced and paid in U.S. dollars.
Accordingly, although currency fluctuations do not effect the Company's revenue
and income per unit, they can influence the price competitiveness of the
Company's products relative to other technologies and the willingness of
existing and potential customers to purchase units.

         As the result of the Kestra acquisition the Company has an operating
unit located in the UK. The Company does not believe that currency fluctuations
will have a material impact on its consolidated financial statements.


                                      -17-
<PAGE>


RECENT ACCOUNTING DEVELOPMENTS

         In June 1999 the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of FASB Statement No. 133." SFAS No. 137 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS 137 is
effective for the Company in the first quarter of the year beginning January 1,
2000. The adoption of SFAS 137 will not have an impact on the Company's
consolidated financial statements.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The SAB summarizes certain of the SEC's views regarding revenue
recognition in financial statements. The provisions of SAB No. 101 are effective
for the year beginning January 1,2000. The Company is analyzing the effect of
the guidance offered in SAB 101 but does not currently believe that it will have
a significant impact on its consolidated financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Included in, and incorporated by reference to, the caption "Financial
Instruments" in Item 7 above.


                                      -18-
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION

<TABLE>
<CAPTION>
(In thousands)
December 31,                                                                            1999             1998
--------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>              <C>
ASSETS

Cash and cash equivalents                                                           $ 10,196         $  4,963
Marketable securities                                                                  8,509           17,142
Accounts receivable, less allowance for
    doubtful accounts of $125 in 1999 and 1998                                         7,762            6,362
Inventories                                                                            4,997            6,045
Other current assets                                                                   1,756            1,540
--------------------------------------------------------------------------------------------------------------

      Total current assets                                                            33,220           36,052

Marketable securities                                                                  4,396           16,397
Equipment and leasehold improvements, net                                              2,705            2,571
Intangible and other assets, net                                                      11,143              157
--------------------------------------------------------------------------------------------------------------

      Total assets                                                                  $ 51,464         $ 55,177
==============================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                                                    $  1,886         $  1,215
Income taxes payable                                                                     879              589
Accrued expenses                                                                       2,195            1,940
--------------------------------------------------------------------------------------------------------------

      Total current liabilities                                                        4,960            3,744

Commitments

Stockholders' equity:
    Preferred stock, no par value, 5,000 shares authorized, none outstanding
    Common stock, no par value, 25,000 authorized,
      5,018 and 4,950 shares issued and outstanding, respectively                     33,479           32,735
    Accumulated other comprehensive income (loss)                                         (4)             173
    Retained earnings                                                                 13,029           18,525
--------------------------------------------------------------------------------------------------------------

      Total stockholders' equity                                                      46,504           51,433
--------------------------------------------------------------------------------------------------------------

      Total liabilities and stockholders' equity                                    $ 51,464         $ 55,177
==============================================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      -19-
<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION

<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Year ended December 31,                                 1999           1998          1997
------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>           <C>
Revenues                                            $ 39,627       $ 36,636      $ 35,120
Cost of revenues                                      17,143         16,499        15,629
------------------------------------------------------------------------------------------

Gross margin                                          22,484         20,137        19,491

Research and development expenses                      9,168          6,991         6,313
Selling, general and administrative expenses          10,737          9,881         8,532
Acquired in-process research and development           7,301
Amortization of goodwill and other intangibles         1,210             81            58
------------------------------------------------------------------------------------------
          Income (loss) from operations               (5,932)         3,184         4,588

Interest income and other                              1,499          2,220         2,166
------------------------------------------------------------------------------------------
          Income (loss) before income taxes           (4,433)         5,404         6,754

Provision for income taxes                             1,063          1,735         2,157
------------------------------------------------------------------------------------------
          Net income (loss)                         $ (5,496)      $  3,669      $  4,597
==========================================================================================

Net income (loss) per share - Basic                 $  (1.10)      $    .71      $   0.88
Net income (loss) per share - Diluted               $  (1.10)      $   0.69      $   0.83
==========================================================================================

Weighted average shares outstanding - Basic            4,985          5,192         5,246

Weighted average shares outstanding - Diluted          4,985          5,320         5,555
==========================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      -20-
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION

<TABLE>
<CAPTION>
(In thousands)
Year ended December 31,                                                              1999           1998           1997
------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income (loss)                                                       $ (5,496)      $  3,669       $  4,597
         Adjustments to reconcile net income to
            net cash provided by operating activities:
           Acquired in-process research and development, net of tax benefit         7,041
           Depreciation and amortization                                            2,468          1,151            917
           Provision for doubtful accounts                                             10             11             12
           Provision for inventory obsolescence                                       361            455            445
           Deferred income taxes                                                     (145)          (160)            20
           Amortization of restricted stock                                            39             72
           Changes in operating assets and liabilities:
                Accounts receivable                                                (1,067)         1,324         (2,678)
                Inventories                                                           780         (1,889)        (1,288)
                Other current assets                                                  (43)           (37)           272
                Accounts payable                                                      469             10             14
                Income taxes payable                                                  290            (72)           428
                Accrued expenses                                                      170           (346)           862
------------------------------------------------------------------------------------------------------------------------

                Net cash provided by operating activities                           4,877          4,188          3,601

CASH FLOWS FROM INVESTING ACTIVITIES:
         Maturities of held to maturity marketable securities                                                     8,000
         Proceeds from sales of available for sale
            marketable securities                                                  25,608         34,330         12,758
         Purchases of available for sale marketable securities                     (5,214)       (32,854)       (27,145)
         Purchases of businesses and technology,
            net of cash acquired                                                  (17,159)
         Additions to equipment and leasehold improvements                         (1,166)          (982)        (1,025)
         Additions to patents                                                         (87)          (130)           (86)
------------------------------------------------------------------------------------------------------------------------

                Net cash provided (used) by investing activities                    1,982            364         (7,498)

CASH FLOWS FROM FINANCING ACTIVITIES:
         Repurchase of common stock                                                               (6,830)          (561)
         Repayment of long-term debt                                               (2,364)
         Proceeds from exercise of stock options                                      303            419            873
         Proceeds from issuance of common stock
            under Employee Stock Purchase Plan                                        345            355            285
         Tax benefit from exercise of stock options                                    57            307            507
------------------------------------------------------------------------------------------------------------------------

                Net cash provided (used) by financing activities                   (1,659)        (5,749)         1,104

Net increase (decrease) in cash and cash equivalents                                5,200         (1,197)        (2,793)

Cash and cash equivalents - beginning of year                                       4,963          6,160          8,953
------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents - end of year                                          $ 10,196       $  4,963       $  6,160
========================================================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      -21-
<PAGE>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
CYBEROPTICS CORPORATION

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                               Common Stock                Other                         Total
                                                         ------------------------      Comprehensive     Retained    Stockholders'
(In thousands)                                           Shares          Amount        Income (Loss)     Earnings       Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>              <C>             <C>            <C>
BALANCE, DECEMBER 31, 1996                                 5,216        $  37,308        $    (99)       $ 10,259       $ 47,468
Tax benefit from exercise of stock options                                    507                                            507
Exercise of stock options
     net of shares exchanged as payment
     and subsequently retired                                139              873                                            873
Issuance of common stock under
     Employee Stock Purchase Plan                             27              285                                            285
Repurchase of common stock                                   (41)            (561)                                          (561)
Market value adjustments of marketable securities                                        $    124                            124
Net income                                                                                                  4,597          4,597
                                                                                                                        ----------
Comprehensive income                                                                                                       4,721
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1997                                 5,341        $  38,412        $     25        $ 14,856       $ 53,293
Tax benefit from exercise of stock options                                    307                                            307
Exercise of stock options
     net of shares exchanged as payment
     and subsequently retired                                 69              419                                            419
Issuance of common stock under
     Employee Stock Purchase Plan                             30              355                                            355
Repurchase of common stock                                  (500)          (6,830)                                        (6,830)
Amortization of restricted stock                              10               72                                             72
Market value adjustments of marketable securities                                        $    148                            148
Net income                                                                                                  3,669          3,669
                                                                                                                        ----------
Comprehensive income                                                                                                       3,817
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1998                                 4,950        $  32,735        $    173        $ 18,525       $ 51,433
Tax benefit from exercise of stock options                                     57                                             57
Exercise of stock options
     net of shares exchanged as payment
     and subsequently retired                                 38              303                                            303
Issuance of common stock under
     Employee Stock Purchase Plan                             30              345                                            345
Amortization of restricted stock                                               39                                             39
Market value adjustments of marketable securities                                        $   (240)                          (240)
Cumulative translation adjustment                                                              63                             63
Net loss                                                                                                   (5,496)        (5,496)
                                                                                                                        ----------
Comprehensive loss                                                                                                        (5,673)
----------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1999                                 5,018        $  33,479        $     (4)       $ 13,029       $ 46,504
==================================================================================================================================
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      -22-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

NOTE 1 - BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS DESCRIPTION
CyberOptics Corporation (the Company) designs and manufactures intelligent
sensors and systems for high-precision, non-contact dimensional measurement and
process control. Utilizing proprietary laser, optics and machine vision
technology combined with advanced software and electronics, the Company's
products enable manufacturers to increase operating efficiencies, product yields
and quality by measuring the characteristics and placement of components both
during and after the manufacturing process. The Company sells its products
worldwide through a combination of direct sales staff and independent
distributors.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

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

CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company's cash and
cash equivalents consist of funds maintained in money market accounts, U.S.
Government backed obligations and state municipal instruments with a long-term
credit rating of AAA.

MARKETABLE SECURITIES
Marketable securities generally consist of U.S. Government or U.S. Government
backed obligations and state municipal instruments with long-term credit ratings
of AAA. Marketable securities are classified as short-term or long-term in the
balance sheet based on their maturity date and expectations regarding sales. All
marketable securities have maturities of three years or less. Certain marketable
securities held by the Company are subject to call provisions prior to their
maturity date.

As of December 31, 1999 and 1998, all marketable securities are classified as
available for sale, with a carrying amount of $12,905 and $33,539, respectively.
Available for sale securities are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders' equity
until realized. These fair values are determined using quoted market prices. The
carrying amounts of securities, for purposes of computing unrealized gains and
losses, are determined by specific identification. The cost of securities sold
is determined by specific identification. Net unrealized holding gains and
losses and realized gains and losses were not significant at December 31, 1999
and 1998 or during the years ended December 31, 1999, 1998 and 1997.

INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out (FIFO) method. Appropriate consideration is given
to deterioration, obsolescence, and other factors in evaluating net realizable
value.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Significant additions
or improvements extending asset lives are capitalized, while repairs and
maintenance are charged to expense as incurred. In progress costs are
capitalized with depreciation beginning when assets are placed in service.
Depreciation and amortization are recorded using the straight-line method over
the estimated useful lives of the assets or the lease term, ranging from three
to ten years. Gains or losses on dispositions are included in current
operations.

INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over a period of
7 years. Purchased in process research and development costs (IPR&D) are
expensed upon consummation of the purchase.


                                      -23-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

PATENTS
Patents consist of legal and patent registration costs for protection of the
Company's proprietary sensor technology. The Company amortizes such expenditures
over a three-year period on a straight-line basis commencing upon issuance of
the patent.

VALUATION OF LONG-LIVED ASSETS
The Company periodically assesses the potential impairment of its intangible and
other long-lived assets based on anticipated undiscounted cash flows.

REVENUE RECOGNITION
Revenues are recognized upon shipment. Estimated returns and warranty costs are
recorded at the time of sale.

FOREIGN CURRENCY TRANSLATION
Financial position and results of operations of the Company's international
subsidiary generally are measured using local currency as the functional
currency. Assets and liabilities of these operations are translated at the
exchange rates in effect at each fiscal year-end. Statements of operations
accounts are translated at the average rates of exchange prevailing during the
year. Translation adjustments arising from the use of differing exchange rates
from period to period are included as a cumulative translation adjustment in
stockholders' equity.

RESEARCH AND DEVELOPMENT
Research and development (R&D) costs, including software development, are
expensed when incurred. Software development costs are required to be expensed
until the point that technological feasibility and proven marketability of the
product are established; costs otherwise capitalizable after such point also are
expensed because they are insignificant. Customer-funded R&D is deferred and
recognized as a reduction of R&D expenses as costs are incurred in the
accompanying statements of income. All other R & D costs are expensed as
incurred.

INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the financial reporting and tax bases of assets and
liabilities. Income tax expense is the sum of the tax currently payable and the
change in the deferred tax assets and liabilities during the period. Valuation
allowances are established when, in the opinion of management, there is
uncertainty that some portion or all of the deferred tax assets will not be
realized.

NET INCOME PER SHARE
Basic net income (loss) per share is calculated based on the weighted average of
common shares outstanding during the period. Diluted Net income (loss) per share
is computed by dividing net income (loss) by the weighted average number of
common and common equivalent shares outstanding. The Company's only common stock
equivalents are those that result from dilutive common stock options. The
calculation of diluted earnings per common share for 1997 and 1998 includes
128,000 and 309,000 of such common stock equivalents, respectively. The
calculation of diluted loss per common share for 1999 excludes 124,000
equivalent shares because their effect would be antidilutive.

RECENT ACCOUNTING DEVELOPMENTS
In June 1999 the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of FASB Statement No. 133." SFAS No. 137 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS 137 is
effective for the Company in the first quarter of the year beginning January 1,
2000. The adoption of SFAS 137 will not have an impact on the Company's
consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The SAB
summarizes certain of the SEC's views regarding revenue recognition. The
provisions of SAB No. 101 are effective for the year beginning January 1, 2000.
The Company is currently analyzing the effect of the guidance outlined in SAB
101 but does not currently believe that it will have a significant impact on its
consolidated financial statements.


                                      -24-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

NOTE 2 - OTHER FINANCIAL STATEMENT DATA

INVENTORIES CONSIST OF THE FOLLOWING:

--------------------------------------------------------------------------------
December 31,                                                 1999          1998
--------------------------------------------------------------------------------

Raw materials and
   purchased parts                                        $ 3,531       $ 5,307
Work in process                                               912         1,045
Finished goods                                              1,009           573
--------------------------------------------------------------------------------
                                                            5,452         6,925

Allowance for obsolesence                                    (455)         (880)
--------------------------------------------------------------------------------
                                                          $ 4,997       $ 6,045
================================================================================


EQUIPMENT AND LEASEHOLD IMPROVEMENTS CONSIST OF THE FOLLOWING:

--------------------------------------------------------------------------------
December 31,                                                 1999          1998
--------------------------------------------------------------------------------

Equipment                                                 $ 5,769       $ 4,349
Leasehold improvements                                      1,029         1,010
--------------------------------------------------------------------------------
                                                            6,798         5,359
Accumulated
   depreciation and amortization                           (4,093)       (2,788)
--------------------------------------------------------------------------------
                                                          $ 2,705       $ 2,571
================================================================================


INTANGIBLE AND OTHER ASSETS CONSIST OF THE FOLLOWING:

--------------------------------------------------------------------------------
December 31,                                                 1999          1998
--------------------------------------------------------------------------------

Goodwill                                                  $ 7,331
Acquisition-related Intangibles                             4,564
Capitalized patent costs                                      697       $   609
Other                                                         302
--------------------------------------------------------------------------------
                                                           12,894           609
Accumulated Amortization                                   (1,751)         (452)
--------------------------------------------------------------------------------

Total intangible and other
   assets, net                                            $11,143       $   157
================================================================================

Acquisition related intangibles include amounts capitalized in connection with
the acquisition of businesses and product lines, including product technology
and trademarks.


ACCRUED EXPENSES CONSIST OF THE FOLLOWING:

--------------------------------------------------------------------------------
December 31,                                                 1999          1998
--------------------------------------------------------------------------------

Wages and benefits                                        $   925       $   701
Warranty costs                                                412           566
Other                                                         858           673
--------------------------------------------------------------------------------

                                                          $ 2,195       $ 1,940
================================================================================


NOTE 3 - ACQUISITIONS

In April 1999, the Company acquired of all the outstanding shares of Kestra
Limited, a British limited liability company organized under the Companies Act
of 1985 ("Kestra"). Total consideration paid of $9,040 included $7,943 of cash
paid to shareholders of Kestra at closing, $408 paid into escrow to cover
various warranties and $689 of guaranteed notes. The Company also repaid certain
indebtedness of Kestra to one of its shareholders and certain other obligations
related to the shares acquired totaling $2,364 and paid direct acquisition costs
of approximately $536. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the purchase price was allocated to the
estimated fair value of assets acquired and liabilities assumed, and the results
of operations of Kestra are included in the consolidated financial statements of
the Company since the acquisition date. The purchase price was allocated as
follows:

--------------------------------------------------------------------------------
Cash                                                                    $ 9,040
Direct acquisition costs                                                    536
Kestra liabilities assumed                                                2,619
           Total Purchase Price                                          12,195

Estimated fair value of tangible
   assets acquired (approximates
   recorded book value)                                                     198

--------------------------------------------------------------------------------
Purchase price in excess of estimated
   fair value of tangible assets acquired                               $11,997
================================================================================

Estimated fair value of purchased in-process research and development
   and goodwill:
       In-process research and development                                6,530
       Goodwill                                                           5,467
--------------------------------------------------------------------------------
                                                                        $11,997
================================================================================


                                      -25-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

Valuation of the purchased in-process research and development was conducted by
an independent third party appraisal company. The purchased in-process research
and development consisted of Kestra's projects to develop pre-oven and
post-reflow in-line inspection systems for printed circuit boards assemblies
utilizing a statistical technique called principle component analysis (PCA). PCA
is based on statistical appearance modeling that can learn for itself how to
recognize any object. The pre-oven system involves checking for placement of
components on circuit boards. The post-reflow system involves inspection of the
solder joints, after the solder paste applied to the leads of components placed
on circuit boards has been melted by the oven. Based upon the independent
third-party appraisal, management estimates that $3,200 and $3,300 of the
purchase price represents the fair value of purchased in-process research and
development related to the pre-oven and post-reflow systems, respectively, that
as of the acquisition date had not yet reached technological feasibility and
have no alternative future uses. These amounts were expensed as a non-recurring,
non-tax-deductible charge upon consummation of the acquisition. At the time of
acquisition, management was uncertain whether the technology being developed for
either system would ultimately meet the technical specifications required for
circuit board production or be commercially acceptable. Failure to achieve these
specifications will cause the pre-oven and post-reflow system to fail. If these
products are not successfully developed the sales and profitability of the
combined Company may be adversely affected in future periods. Additionally, the
value of the goodwill acquired may become impaired.

The independent third-party appraiser utilized the income valuation approach to
determine the estimated fair value of the purchased in-process research and
development. These estimates are based on the following assumptions:

*  The estimated revenues are based upon projected average annual revenue growth
   rates for the pre-oven and for the post-reflow systems once each technology
   individually reaches a point of market release. These projections assume that
   the Kestra systems under development reach approximately 20% of the
   forecasted AOI market by 2003 and grow at estimated market growth rates
   (approximately 20%) in 2004. Estimated total revenues expected from the
   pre-oven and post-reflow systems for the products to be developed from using
   the purchased in-process research and development, peak in the year 2004 and
   decline rapidly starting in 2005 through 2009 as the next generation of these
   systems are expected to enter the market. These projections are based on
   estimates made by the Company's management of market size and growth (which
   are supported by independent market data), expected trends in technology and
   the nature and projected timing of the introduction of the next generation of
   systems.

*  The estimated costs of sales as a percentage of revenues are based on the
   estimated costs that management believes could be achieved by Kestra without
   considering any synergies due to the acquisition by the Company.

*  The estimated selling general and administrative expenses are based on the
   estimated expense levels of Kestra through year 2001, and are based on the
   Company's historical percentage and industry comparisons for the years from
   2002 through 2009, without considering any synergies due to the acquisition
   by the Company.

*  The discount rate utilized in the alternative income valuation approach is
   based on the weighted average cost of capital (WACC). The WACC calculation
   produces the average required rate of return of an investment in an operating
   enterprise. The WACC estimated for the Company, as a corporate business
   enterprise, is 23.2%. The discount rate used in the income valuation approach
   was 35%. This discount rate is higher than the WACC due to the inherent
   uncertainties in the estimates described above including the uncertainty
   surrounding the successful development of the purchased in-process research
   and development, the useful life of such completed research and development,
   the profitability levels of such completed research and development and the
   uncertainty of technological advances that are unknown at this time.


                                      -26-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

The Company estimated that the purchased in-process research projects related to
the pre-oven and post-reflow systems were 79% and 71% complete, respectively,
based upon research and development costs incurred to date compared to total
estimated development costs for each project. As of the date of acquisition, the
estimated cost to complete the pre-oven project to a point of technological
feasibility was $487,000, expected to be incurred in the second and third
quarters of 1999. As of the date of acquisition, the estimated cost to complete
the post-reflow system to a point of technological feasibility was $540,000,
expected to be incurred primarily in th fourth quarter of 1999 and the first and
second quarters of 2000. These estimates are subject to change, given
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.

As of the date of acquisition, the Company estimated that the initial pre-oven
product developed from the purchased in-process research and development may be
introduced during the second half of 1999. As of the date of acquisition, the
Company anticipated that the initial post-reflow product developed from the
purchased in-process research and development may be introduced during second
quarter of 2000. The Company expects that all the purchased in-process research
and development will reach technological feasibility. However, even if
technological feasibility is achieved (of which there can be no assurance) there
can be no assurance that the commercial viability of the purchased in-process
research and development projects will achieve management expectations.

As of the date of acquisition, the nature of the development efforts related to
the pre-oven system included initial proof of concept through early prototype
testing, field testing in an off-line environment, continuous development of the
underlying complex PCA application software, initial development work on the
user interface and preliminary development work on the required Windows NT
platform conversion. For the post-reflow system, development efforts include
limited off-line field testing, preliminary revisions to the PCA application
software that is anticipated to be required for the post-reflow application and
preliminary evaluation of requirements for improved optics and the user
interface.

The Company commercially introduced the pre-oven system in the fourth quarter of
1999, and is currently performing technical evaluations for potential customers.
Research and development costs have not been significantly different from
management's estimates. The Company is continuing development of the acquired
in-process post-reflow technology and currently believes that the product may be
introduced in late 2000 or early 2001. Delays in the introduction of the
post-reflow product are the result of resource constraints resulting from
focusing resources on the pre-oven system and are not expected to cause any
significant changes in originally estimated research and development costs.
Management has not significantly changed its estimates of revenues to be
generated from future sales of pre-oven and post-reflow systems. However, these
expectations are subject to change, given uncertainties of the development
process and potential changes in market expectations.

On May 5, 1999, the Company acquired substantially all of the operating assets
and assumed certain liabilities of HAMA Laboratories, Inc. ("HAMA") through HAMA
Sensors, Inc., a newly formed, wholly-owned subsidiary of the Company ("HSI").
Pursuant to the Asset Purchase Agreement between HSI, HAMA and the two
shareholders of HAMA, HSI paid HAMA $6,750 of cash at closing, $500 of which was
deposited in an escrow account to cover certain indemnities, and $245 based on
the adjusted net asset value of HAMA at closing. In addition, the Company agreed
to pay HAMA up to $4.1 million of additional consideration based on meeting
certain operating thresholds over the next 3 years. The Company also paid direct
acquisition costs of approximately $169.

The acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the estimated fair value of
assets acquired and liabilities assumed, and the results of operations of HSI
have been included in the financial statements of the Company since the
acquisition date. The purchase price was allocated to the acquired assets and
assumed liabilities as follows:


                                      -27-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

--------------------------------------------------------------------------------
Cash                                                                    $ 6,995
Direct acquisition costs                                                    169
HAMA liabilities assumed                                                     33
           Total Purchase Price                                           7,197

Estimated fair value of tangible
   assets acquired (approximates
   recorded book value)                                                     479

--------------------------------------------------------------------------------
Purchase price in excess of estimated
   fair value of tangible assets acquired                               $ 6,718
================================================================================

Estimated fair value of
   purchased in-process research and development
   and intangible assets:
       Current technology                                                 4,065
       In-process research and development                                  771
       Trademarks                                                            82
       Goodwill                                                           1,800
--------------------------------------------------------------------------------
                                                                        $ 6,718
================================================================================

Valuation of the purchased in-process research and development, current
technology and trademarks was conducted by an independent third-party appraisal
company.

At the time of the acquisition, the purchased in-process research and
development consisted of HAMA's projects to develop laser-based proximity
sensors for robotic semiconductor wafer handling which can potentially be used
in a vacuum environment and laser micrometers that will be used in semiconductor
manufacture and other operations. The technology under development for use in
these laser-based sensors utilizes a complex combination of optical components,
firmware and electronics, along with customized microprocessors and mechanical
designs. Specific in-process projects as of the date of acquisition include
development of Laser-Based Vacuum Proximity Sensors, Six-Inch laser Micrometers,
Mini Through Beam Micrometers and Customizable Kit Micrometers. The Company is
uncertain whether the technology being developed for either the proximity
sensors or the laser micrometers will ultimately meet the technical
specifications required for semiconductor wafer handling or be commercially
acceptable. Based upon an independent third-party appraisal, management
allocated $771 of the purchase price to proximity sensors and laser micrometers
that had not yet reached technological feasibility and have no alternative
future uses. The estimated fair value of each acquired in-process research and
development technology was appraised as follows:

Vacuum Proximity Sensors:                                               $82,000

Six-Inch Laser Micrometers:                                            $210,000

Mini Through Beam Micrometers:                                          $55,000

Customizable Kit Micrometers:                                          $424,100

These amounts were expensed as a non-recurring, tax-deductible charge upon
consummation of the acquisition. At the time of acquisition management was
uncertain whether the technology being developed for either the proximity
sensors of the laser micrometers would ultimately meet the technical
specifications required for semiconductor wafer handling or be commercially
acceptable. Failure to achieve these specifications would cause the proximity
sensors and the laser micrometer projects to fail.

The independent third-party appraiser utilized the alternative income valuation
approach to determine the estimated fair value of the purchased in-process
research and development. These estimates are based on the following
assumptions:

*  The estimated revenues are based upon projected average annual revenue growth
   rates for the proximity sensors and the laser micrometers once each
   technology individually reaches a point of market release. These projections
   assume that the HAMA sensors under development achieve a market share of less
   than 5% of the factory automation sensor market. Estimated total revenues
   projected for sales of proximity sensors and laser micrometers to be
   developed using the purchased in-process research and development, peak in
   the year 2002 and decline rapidly starting in 2003 through 2005 as the next
   generation of these systems are expected to enter the market. These
   projections are based on estimates made by the Company's management of the
   estimated sales potential for individual customers, estimated market growth
   rates (supported by independent market data), expected trends in technology
   and the nature and projected timing of the introduction of the next
   generation of systems.


                                      -28-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

*  The estimated costs of sales as a percentage of revenues are based on the
   estimated costs that management believes could be achieved by HAMA without
   considering any synergies due to the acquisition by the Company.

*  The estimated selling general and administrative expenses are based on the
   estimated expense levels of HAMA through year 2001, and are based primarily
   on expense levels of similar companies and other industry comparisons for the
   years 2002 through 2005, without considering any synergies due to the
   acquisition by the Company.

*  The discount rate used in the income valuation approach was 35%.

The Company estimated that the purchased in-process research projects related to
the vacuum proximity sensors, the six-inch laser micrometers, the through beam
micrometers, and the customizable kit micrometers were 25%, 70%, 20% and 70%
complete, respectively, as of the acquisition date. These estimates were based
upon research and development costs incurred to date compared to total estimated
development costs for each project. As of the date of acquisition, the estimated
cost to complete the vacuum proximity sensors project to a point of
technological feasibility was approximately $150,000, expected to be incurred in
the remainder of 1999. As of the date of the acquisition, the estimated cost to
complete the new six-inch laser micrometers, mini through beam micrometers and
the customizable kit micrometers to a point of technological feasibility was
approximately $122,000, $240,000 and $43,000, respectively, expected to be
incurred primarily in the twelve month period following the acquisition. These
estimates are subject to change, given uncertainties of the development process,
and no assurance can be given that deviations from these estimates will not
occur.

As of the date of acquisition, the Company estimated that the initial vacuum
proximity sensor product to be developed from the purchased in-process research
and development may be introduced during the third quarter of 1999. As of the
date of acquisition, the Company estimated that the initial six-inch laser
micrometer product to be developed from the purchased in-process research and
development may be introduced during fourth quarter of 1999. At the acquisition
date, the anticipated introduction date for the customizable kit micrometers was
the fourth quarter of 1999 and the through beam micrometer was targeted for
introduction in mid-2000. The Company expects that all the purchased in-process
research and development will reach technological feasibility. However, even if
technological feasibility is achieved (of which there can be no assurance) there
can be no assurance that the commercial viability of the purchased in-process
research and development projects will achieve management's expectations.

As of the date of acquisition, the nature of the development efforts related to
the purchased in-process research and development projects, as well as the
efforts required to complete development of those projects into commercially
viable products are discussed below:

Laser-Based Vacuum Proximity Sensors - Early stage development efforts had
focused on preliminary mechanical and electrical designs, and the completion of
early stage prototypes. Environmental and functional testing had just begun on
the early prototypes. Development to be completed included obtaining feedback
from the prototype testing and determining the level of additional design work
required to complete final mechanical, electrical and optical designs.
Management believed that once these processes were completed, beta prototypes
would be developed and final testing would be performed on the beta units.

Six-Inch Laser Micrometers - Development had focused on completion of the
preliminary mechanical, electrical, CCD (charge coupled device) receiver and
optics designs. Development prototypes had been completed and initial tests had
been performed. Based on the feedback received from the prototype testing,
additional development efforts were to focus on design changes required for
the six-inch micrometer to meet additional technical specifications. If it was
determined that additional development efforts would potentially allow for
development of a product that would meet specifications, additional prototypes
would be developed. Further functional testing would be performed and management
believed that beta units would then be developed.


                                      -29-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

Mini Through Beam Micrometers - This product was in the early stages of
development, and efforts had focused preliminary on mechanical, electrical and
optical designs. Once preliminary design efforts are completed, prototypes will
be developed and tested. Future development efforts will depend on the results
of these prototype test results. However, management would anticipate future
development and testing of beta units following this prototype testing.

Customizable Kit Micrometers - Development had focused on completion of the
preliminary mechanical, electrical, CCD receiver and optics designs. Prototypes
had been completed and initial field testing was underway. Initial test results
indicate that the prototypes were performing up to specification in one
application. However, testing in multiple unique applications was necessary
before the preliminary testing on adaptability of the modular components could
be completed. Other opportunities for testing prototypes in other applications
were being sought. It was anticipated that design changes and modifications to
the firmware could be needed as test results were accumulated and analyzed. If
it was determined that additional development efforts would potentially allow
for development of a product that would meet technical specifications,
additional prototypes would be developed. Further functional testing would be
performed and management then believes that beta units would be developed and
tested.

Development has been completed on the vacuum sensor and the customizable kit
micrometer and these products were introduced during the fourth quarter of 1999.
The mini laser micrometer is planned to be released in the second quarter of
2000. The Company has temporarily put on hold development of the acquired
in-process technologies related to the six-inch micrometer due to
manufacturability issues. These factors could impact the product development and
release schedule.

During February of 1999, the Company acquired certain technology and other
assets from Electronic Packaging Company (EPC). The acquired technology and
other assets relate to a system that will inspect loaded circuit boards (circuit
boards with components placed thereon) to determine proper orientation of the
component and that the correct component is placed. The system is designed to be
used off-line for purposes of first article inspection. These assets were
acquired for $404 of cash and were accounted for using the purchase method,
whereby the purchase consideration was allocated to assets based on estimated
fair market value and will be amortized over the estimated useful life.

The following table presents unaudited pro forma condensed consolidated results
of operations as if the acquisitions of Kestra and HAMA had occurred as of the
beginning of fiscal 1998. The unaudited pro forma consolidated results of
operations have been adjusted to eliminate the effect of the non-recurring
charges to operations of $7,040 (net of tax) for the estimated fair value
allocated to the acquired in-process research and development technology. The
pro forma information includes adjustments for additional amortization of
identifiable intangibles and goodwill, the reduction of historical HAMA
compensation expense for executives to reflect contractual changes to the
Company's compensation structure, the reduction of interest income due to the
cash used for the acquisitions and the related tax impacts of these adjustments.
The unaudited pro forma consolidated results of operations are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial results that actually would have resulted had the acquistions, in
fact, occured on that date (in thousands):

--------------------------------------------------------------------------------
                                                        1999               1998
--------------------------------------------------------------------------------

Revenue                                             $ 40,422           $ 38,786
Net income (loss)                                   $    655           $    301
Net income (loss)
   per share - Basic                                $   0.13           $   0.06
Net income (loss)
   per share - Diluted                              $   0.13           $   0.06


                                      -30-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

NOTE 4 - INCOME TAXES

THE PROVISION FOR INCOME TAXES CONSISTS OF THE
FOLLOWING:

--------------------------------------------------------------------------------
                                                   1999        1998        1997
--------------------------------------------------------------------------------

Current:
   Federal                                      $ 1,454     $ 1,820     $ 2,061
   State                                             14          75          76
Deferred                                           (405)       (160)         20
--------------------------------------------------------------------------------
                                                $ 1,063     $ 1,735     $ 2,157
================================================================================


DEFERRED TAX ASSETS CONSIST OF THE FOLLOWING:

--------------------------------------------------------------------------------
December 31,                                       1999        1998        1997
--------------------------------------------------------------------------------

Inventory allowances                            $   162     $   320     $   300
Vacation accrual                                     98          80          70
Accounts receivable
   allowances                                        41          45          45
Warranty accrual                                    144         205         126
Intangible amortization                             360
Net operating loss
   carryforwards                                  1,667
Other, net                                          290         (11)         46
--------------------------------------------------------------------------------
                                                  2,762         690         530
Valuation allowance                              (1,667)         --          --
Net deferred tax asset
   included in other
   current assets                               $ 1,095     $   690     $   530
================================================================================

The net operating loss carryforwards relate to losses incurred in the UK by
Kestra, a development stage company acquired in 1999. The utilization of net
operating loss carryforwards is dependent on Kestra's ability to generate
sufficient taxable income during the carryforward period. Because of uncertainty
as to future realization, a valuation allowance equal to the deferred tax asset
has been recorded. Once realization becomes probable, the valuation allowance
will be reversed. Approximately $1,200 of the net operating loss carry forwards
relate to pre-acquisition losses and would be recorded as an adjustment to the
opening balance sheet, primarily goodwill, if the valuation allowance is
reversed.


A RECONCILIATION OF THE STATUTORY RATE TO THE EFFECTIVE INCOME TAX RATE IS AS
FOLLOWS:

--------------------------------------------------------------------------------
                                                  1999         1998       1997
-------------------------------------------------------------------------------

Federal statutory rate                           (34.0%)       34.0%      34.0%
Increase (decrease)
    resulting from:
   State income taxes, net
    of federal benefit                             0.5          1.1        1.2
   FSC benefit, net of
    FSC taxes                                     (2.1)        (3.5)      (1.8)
   R&E credit                                     (8.2)        (4.5)      (4.6)
   Foreign rate difference                         7.8
   Acquired IPR&D                                 44.2
   Valuation allowance                            10.5
   Non-deductible goodwill                         4.8
   Other, net                                      0.5          5.0        3.1
-------------------------------------------------------------------------------
Effective rate                                    24.0%        32.1%      31.9%
===============================================================================

Cash payments of income taxes for the years ended December 31, 1999, 1998 and
1997, were approximately $1,138, $1,663 and $1,033 respectively.


NOTE 5 - OPERATING LEASES

The Company leases its primary office, warehouse and manufacturing facility
under a 10 year operating lease that expires in April 2006. The Company has the
option to extend the lease for two additional three year periods. The lease
requires the Company to pay insurance, property taxes and other operating
expenses related to the leased facility. The Company also leases facilities for
the operations of its two subsidiaries, under operating leases which expire in
September 2004 and June 2013, respectively.

Total rent expense for the years ended December 31, 1999, 1998 and 1997, was
approximately, $905, $810 and $659, respectively.

At December 31, 1999, the future minimum lease payments required under
noncancellable operating lease agreements, are as follows:


                                      -31-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

Year ending December 31,
2000                                   $   716
2001                                       739
2002                                       751
2003                                       751
2004                                       737
Thereafter                               1,613
----------------------------------------------
Total                                  $ 5,307
==============================================


NOTE 6 - STOCKHOLDERS' EQUITY

In February 1998, the Company's Board of Directors authorized the repurchase of
up to 500,000 shares of common stock for the purpose of providing the necessary
common stock for the Company's stock option and employee stock purchase plans.
In 1998, all 500,000 shares were repurchased through open market purchases,
block transactions or privately negotiated purchases. In October 1998, the
Company's Board of Directors authorized the repurchase of up to an additional
250,000 shares of common stock. No shares were repurchased under the second
authorization, which expired in October 1999. During 1998, the Company issued
10,000 shares of restricted stock to an executive at the market price on the
issue date of $19.50 per share. Of these shares, 2000 vested upon issuance and
the remaining 8,000 shares vest over 4 years.

NOTE 7 - BENEFIT PLANS

STOCK OPTION PLAN
The Company has three stock option plans for which it has reserved 1,029,000
shares of common stock in the aggregate for issuance to employees, directors,
officers and others. In addition, there are 100,000 shares reserved, and
included in the following summaries, for issuance to an executive that are not
part of the three stock option plans. Reserved shares underlying canceled
options are available for future grant under all plans. Options are granted at
an option price per share equal to or greater than the market value at the date
of grant. Generally, options granted to employees vest over a four-year period
and expire five years after the date of grant. The plans allow for option
holders to tender shares of the Company's common stock as consideration for the
option price provided that the tendered shares have been held by the option
holder at least 6 months. Options exercised by tendering shares are shown at the
net amount.

THE FOLLOWING IS A SUMMARY OF STOCK OPTION PLAN ACTIVITY:

--------------------------------------------------------------------------------
Shares                                        1999          1998           1997
--------------------------------------------------------------------------------

Granted                                    325,600       235,050        258,900
Exercised                                  (37,504)      (77,053)      (142,495)
Canceled                                   (37,390)      (78,751)       (34,650)

December 31:
Outstanding                              1,050,202       799,496        720,250

Exercisable                                412,887       276,334        182,162


Weighted average exercise price
per share                                     1999          1998           1997
--------------------------------------------------------------------------------

Granted                                 $    13.44      $  17.16      $   18.31
Exercised                                     8.10          7.71           6.67
Canceled                                     12.42         14.00          14.67

December 31:
Outstanding                                  15.11         15.35          13.79

Exercisable                                  14.80         12.79           9.54
================================================================================

Stock options outstanding as of December 31, 1999, had a range of exercise
prices of $6.00 to $25.50 and a weighted average remaining contractual life of
approximately 4.5 years.


                                      -32-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

THE FOLLOWING IS A SUMMARY OF OUTSTANDING OPTIONS AS OF DECEMBER 31, 1999:

                                                                     Weighted
Exercise                                Options       Options        Average
Price                                 Outstanding   Exercisable   Remaining Life
--------------------------------------------------------------------------------

Less than $10.00                         66,000        66,000       4.88 years
$10.00 to $13.49                        390,652       102,912       3.52 years
$13.50 to $16.99                        237,525       106,975       4.11 years
$17.00 to $20.00                        254,900        80,500       5.31 years
Over $20.00                             101,125        48,375       6.70 years
================================================================================

As permitted by SFAS No. 123, "Accounting for Stock Based Compensation", the
Company continues to measure compensation cost for its stock incentive and
option plans using the intrinsic value method of accounting.

Had the Company used the fair value method of accounting for its stock option
and incentive plans beginning in 1995 and charged compensation costs against
income over the vesting period, net income and net income per share for 1999,
1998 and 1997 would have been reduced to the following pro forma amounts:

--------------------------------------------------------------------------------
                                                  1999         1998        1997
--------------------------------------------------------------------------------

Net Income:
   As reported                                 $(5,496)     $ 3,669     $ 4,597
   Pro forma                                   $(7,249)     $ 2,173     $ 3,591

Net income per share:
   As reported - Basic                         $ (1.10)     $  0.71     $  0.88
   Pro forma - Basic                           $ (1.45)     $  0.42     $  0.68

   As reported - Diluted                       $ (1.10)     $  0.69     $  0.83
   Pro forma - Diluted                         $ (1.45)     $  0.41     $  0.65

The pro forma information above only includes stock options granted in 1995 and
subsequent periods. Compensation expense under the fair value method of
accounting will increase over the next few years as additional stock option
grants are considered. The weighted-average grant-date fair value of options
granted during 1999, 1998 and 1997 was $7.59, $9.67 and $11.22, respectively.
The weighted-average grant-date fair value of options was determined by using
the fair value of each option grant on the date of grant, utilizing the
Black-Scholes option-pricing model and the following key assumptions:

--------------------------------------------------------------------------------
                                                     1998       1997       1996
--------------------------------------------------------------------------------

Risk-free interest rates                             5.41%      5.27%      6.39%
Expected life                                     4 YEARS    4 years    4 years
Expected volatility                                 69.24%     68.47%     63.97%
Expected dividends                                   NONE       None       None

EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan available to eligible employees.
Under terms of the plan, eligible employees may designate from 1 to 10% of their
compensation to be withheld through payroll deductions for the purchase of
common stock at 85% of the lower of the market price on the first or last day of
the offering period. Under the plan, 400,000 shares of common stock have been
reserved for issuance. As of December 31, 1999, 171,685 shares have been issued
under this plan.

401(k) PLAN
The Company has a savings plan pursuant to Section 401(k) of the Internal
Revenue Code ("the Code"), whereby eligible employees may contribute up to 15%
of their earnings, not to exceed annual amounts allowed under the Code. In
addition, the Company may also make contributions at the discretion of the Board
of Directors. In 1999, 1998 and 1997, the Company provided for matching
contributions totaling $155, $157, and $144, respectively.


                                      -33-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

NOTE 8 - BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS

Effective at year-end 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) 131, "Disclosure about Segments of an Enterprise and
Related Information". SFAS 131 requires the management approach in determining
business segments. The management approach designates the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. Following a
management reorganization in 1999 and a review of the Company's internal
organization, management determined that the Company operates its business as
one reportable segment - the design, manufacture and sale of optical process
control sensors and inspection systems for electronic circuit board assembly. To
make operating and strategic decisions, the Company's chief operating decision
maker, the President, evaluates revenue performance based on worldwide revenues
of each major product group and profitability on an enterprise-wide basis due to
shared manufacturing, research and development and administrative services.
Revenues by product group were as follows:

--------------------------------------------------------------------------------
Year ended December 31,                          1999         1998         1997
--------------------------------------------------------------------------------

OEM sensors                                  $ 26,268     $ 26,713     $ 23,613
SMT systems                                     9,322        7,506        8,542
Industrial
   Measurements/
   Semiconductor                                4,037        2,417        2,965
--------------------------------------------------------------------------------
                                             $ 39,627     $ 36,636     $ 35,120
================================================================================

THE FOLLOWING SUMMARIZES CERTAIN SIGNIFICANT CUSTOMER INFORMATION:

                                              Significant            Percentage
                                               Customer   Revenues   of Revenues
--------------------------------------------------------------------------------

Year ended
   December 31, 1999                              A       $13,403        34%
                                                  B       $ 6,026        15%
Year ended
   December 31, 1998                              A       $ 9,700        27%
                                                  B       $10,797        30%
Year ended
   December 31, 1997                              A       $ 4,420        13%
                                                  B       $ 7,704        22%

As of December 31, 1999, accounts receivable from significant customers A and B
were $2,077 and $2,467, respectively. As of December 31, 1998, accounts
receivable from significant customers A and B were $1,932 and $1,432,
respectively.

Export sales amounted to 82%, 82% and 69% of revenues for 1999, 1998 and 1997,
respectively. All of the Company's export sales are negotiated, invoiced and
paid in U.S. dollars. Export sales by geographic area are summarized as follows:

--------------------------------------------------------------------------------
                                                 1999         1998         1997
--------------------------------------------------------------------------------

Americas                                     $  1,888     $  1,400     $    393
Europe                                         16,759       12,237        5,964
Asia                                           11,858       16,169       17,504
Other                                             132          117          298
--------------------------------------------------------------------------------
                                             $ 30,637     $ 29,923     $ 24,159
================================================================================


NOTE 9 - CONTINGENCIES

In the ordinary course of business, the Company is
a defendant in miscellaneous claims and disputes. While the outcome of these
matters cannot be predicted with certainty, management presently believes the
disposition of these matters will not have a material effect on the financial
position, results of operations or cash flows of the Company.


                                      -34-
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION
(In thousands, except share and per share amounts)

NOTE 10 - QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
1999 (UNAUDITED)                        MARCH 31       JUNE 30(2)    SEPT. 30       DEC. 31
--------------------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>           <C>
Revenues                                $  7,705      $  8,811       $ 10,418      $ 12,693
Gross margin                               4,168         4,906          6,047         7,364
Income from operations                       252        (7,613)           352         1,078
Net income (loss)                            552        (7,249)           201         1,000
Net income (loss) per share - Basic (1)     0.11         (1.46)          0.04          0.20
Net income (loss) per share - Diluted (1)   0.11         (1.46)          0.04          0.19

<CAPTION>
1998 (UNAUDITED)                        MARCH 31       JUNE 30       SEPT. 30       DEC. 31
--------------------------------------------------------------------------------------------
Revenues                                $ 10,630      $  9,718       $  7,737      $  8,551
Gross margin                               6,183         5,317          4,077         4,560
Income from operations                     1,705           955             72           452
Net income                                 1,568         1,052            404           645
Net income per share - Basic (1)            0.29          0.20           0.08          0.13
Net income per share - Diluted (1)          0.28          0.19           0.08          0.13
</TABLE>

(1) The summation of quarterly per share amounts may not equal the calculation
    for the full year, as each quarterly calculation is performed discretely.

(2) Includes a $1.42 per share, net of tax, non-recurring charge for acquired
    in-process research and development.


                                      -35-
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
and Stockholders of
CyberOptics Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and stockholders' equity and
comprehensive income (loss) present fairly, in all material respects, the
financial position of CyberOptics Corporation as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management, our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 28, 2000


                                      -36-
<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         NONE.


PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information contained under the heading "Election of
Directors--Nominees and --Executive Officers" and "Shares Outstanding" of the
Company's definitive proxy statement for its annual meeting of shareholders to
be held May 19, 2000 (hereafter, the "Proxy Statement"), is hereby incorporated
by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information under the heading "Election of Directors--Compensation
of Directors," and "Executive Compensation" of the Proxy Statement is hereby
incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information contained under the heading "Shares Outstanding" of the
Proxy Statement is hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information under the heading "Election of Directors--Compensation
of Directors," of the Proxy Statement is hereby incorporated by reference.


                                      -37-

<PAGE>

                                    PART IV.

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

(a)(1)   Financial Statements: See Item 8 to this Form 10-K.

(a)(2)   Financial Statement Schedule: Schedule II, Valuation and Qualifying
         Accounts for the years ended December 31, 1999, 1998 and 1997, and the
         report of PricewaterhouseCoopers LLP thereon are attached as Item
         14(d).

(a)(3)   LIST OF EXHIBITS

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

         2.1      Agreement for the sale and purchase of the entire issued share
                  capital of Kestra Limited (incorporated by reference to
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  April 21, 1999).

         2.2      Tax Deed between Michael Bowes, John Tinning, Christopher
                  Brook Jackson, Manchester Technology Developments, Ltd and
                  CyberOptics Corporation (incorporated by reference to Exhibit
                  2.2 to the Company's Current Report on Form 8-K filed April
                  21, 1999).

         2.3      Asset Purchase Agreement dated May 5, 1999 between the
                  Company, Hama Sensors, Inc., HAMA Laboratories, Inc and Mark
                  J. Cerny and J. Hans Bartunek (incorporated by reference to
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  May 20, 1999).

         2.4      Escrow Agreement between Hama Sensors, Inc., HAMA
                  Laboratories, Inc, and U.S. Bank Trust National Association,
                  as escrow agent (incorporated by reference to Exhibit 2.2 to
                  the Company's Current Report on Form 8-K filed May 20, 1999).

         3.1      Articles of Incorporation of Company, as amended (incorporated
                  by reference to Exhibit 3.1 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1997).

         3.2      Bylaws of the Company (incorporated by reference to Exhibit
                  3.2 to the Company's Registration Statement on Form S-18
                  (Registration No. 33-17628C) (the "Registration Statement")).

         3.3      Rights Agreement, dated as of December 7, 1998, between the
                  Company and Norwest Bank Minnesota, N.A., as Rights Agent,
                  (incorporated by reference to the Company's Registration
                  Statement on Form 8-A, dated December 7, 1998).

         4.1      Restated Stock Option Plan of the Company, as amended
                  (incorporated by reference to Exhibit 4.1 of the Company's
                  Registration Statement on Form S-8 filed August 18, 1998 (file
                  no 333-61711)).

         4.2      CyberOptics Corporation Stock Option Plan for Non-Employee
                  Directors, as amended (Incorporated by reference to Exhibit
                  4.2 of the Company's Registration Statement on Form S-8 filed
                  October 30, 1997 (file no 33-39091).

         4.3      CyberOptics Corporation Employee Stock Purchase Plan
                  (Incorporated by reference to Exhibit 4.7 to the Company's
                  quarterly report on Form 10-Q for the quarter ended September
                  30, 1992).

         10.4     Lease Agreement between MEPC American Properties, Inc. and the
                  Company dated September 15, 1995 (Incorporated by reference to
                  Exhibit 10 of the Company's Form 10-QSB for the quarter ended
                  September 30, 1995).

         23.1     Consent of PricewaterhouseCoopers LLP

         27.1     Financial Data Schedule (for electronic filing purposes only).

         99.0     Forward Looking Statements--Cautionary Statement

(b)      REPORTS ON FORM 8-K

         No reports on Form 8-K have been filed for the quarter ended December
31, 1999.
                                      -38-
<PAGE>


(d)      FINANCIAL STATEMENT SCHEDULES:


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors
and Stockholders of
CyberOptics Corporation


Our report on the consolidated financial statements of CyberOptics Corporation
has been included in this Annual Report on Form 10-K under Item 8. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in item 14 of this Annual Report on Form
10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.


                                                      PricewaterhouseCoopers LLP

Minneapolis, Minnesota
January 28, 2000


                                      -39-
<PAGE>


                                                                     SCHEDULE II

                             CYBEROPTICS CORPORATION

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                        Balance at      Charged to                        Balance
                                       Beginning of     Costs and                        at end of
            Description                  Period         Expenses       Deductions         Period
            -----------                  ------         --------       ----------         ------
<S>                                    <C>             <C>             <C>              <C>
Allowance for doubtful accounts:

   Year ended December 31, 1999        $  124,811      $   10,000      $   10,623       $  124,188

   Year ended December 31, 1998        $  125,006      $   11,470      $   11,665       $  124,811

   Year ended December 31, 1997        $  125,566      $   11,844      $   12,404       $  125,006

<CAPTION>
                                        Balance at      Charged to                        Balance
                                       Beginning of     Costs and                        at end of
            Description                  Period         Expenses       Deductions         Period
            -----------                  ------         --------       ----------         ------

Allowance for obsolete inventory:

   Year ended December 31, 1999        $  880,142      $  361,180      $ (786,322)      $  450,000

   Year ended December 31, 1998        $  675,000      $  454,753      $ (249,611)      $  880,142

   Year ended December 31, 1997        $  474,846      $  445,000      $ (244,846)      $  675,000
</TABLE>


                                      -40-
<PAGE>


                                   SIGNATURES

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

                                       CYBEROPTICS CORPORATION



Dated: March 27, 2000                  By /s/ STEVEN M. QUIST
                                          -------------------
                                          Steven M. Quist,
                                          President and CEO

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Name                           Title                              Date
----                           -----                              ----

/s/ STEVEN M. QUIST            Director and President and CEO     March 27, 2000
--------------------------     (Principal Executive Officer)
Steven M. Quist

/s/ STEVEN K. CASE             Chairman and Director              March 27, 2000
--------------------------
Steven K. Case

/s/ ALEX B. CIMOCHOWSKI        Director                           March 27, 2000
--------------------------
Alex B. Cimochowski

/s/ KATHLEEN P. IVERSON        Director                           March 27, 2000
--------------------------
Kathleen P. Iverson

                               Director                           March 27, 2000
--------------------------
Michael M. Selzer, Jr.

/s/ IRENE QUALTERS             Director                           March 27, 2000
--------------------------
Irene Qualters

/s/ ERWIN KELEN                Director                           March 27, 2000
--------------------------
Erwin Kelen

/s/ RICHARD G. BALLINTINE      Vice President-Finance             March 27, 2000
--------------------------     (Principal Accounting Officer)
Richard Ballintine


                                      -41-