SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549-1004
                  ---------------------------------------------

                                    FORM 10-K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  for the fiscal year ended September 30, 2000

                                       or

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

                           Commission File No. 0-21820
                  --------------------------------------------

                              KEY TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)

               OREGON                              93-0822509
      (State of Incorporation)        (I.R.S. Employer Identification No.)

             150 Avery Street, Walla Walla, Washington      99362
             (Address of principal executive offices)     (Zip Code)

                                 (509) 529-2161
              (Registrant's telephone number, including area code)
                  ---------------------------------------------

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE
           Securities registered pursuant to Section 12(g) of the Act:
                           COMMON STOCK, NO PAR VALUE
         SERIES B CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE
             WARRANTS TO PURCHASE COMMON STOCK, DATED JULY 12, 2000

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

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

   The aggregate market value of the Registrant's common stock held by
non-affiliates on December 6, 2000 (based on the last sale price of such shares)
was approximately $25,742,562.

   The number of shares of the Registrant's common stock outstanding on
December 6, 2000 was 4,733,829 shares of common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

   Parts of Registrant's Proxy Statement dated January 2, 2001 prepared in
connection with the Annual Meeting of Shareholders to be held on February 7,
2001 are incorporated by reference into Part III of this Report.


<PAGE>


                              KEY TECHNOLOGY, INC.
                                 2000 FORM 10-K
                                TABLE OF CONTENTS

PART I
   PAGE
   ----

   Item 1.  BUSINESS....................................................    1

   Item 2.  PROPERTIES..................................................   12

   Item 3.  LEGAL PROCEEDINGS...........................................   13

   Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   13


PART II

   Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.........................................   14

   Item 6.  SELECTED FINANCIAL DATA.....................................   17

   Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS.........................   18

   Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK.................................................   23

   Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   24

   Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE.........................   45


PART III

   Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   45

   Item 11. EXECUTIVE COMPENSATION......................................   45

   Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT..............................................   46

   Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   46


PART IV

   Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
            FORM 8-K....................................................   47

   SIGNATURES...........................................................   50

   EXHIBIT INDEX........................................................   51


<PAGE>


                                     PART I

   Certain statements set forth below may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements to differ from those expressed or implied by the forward-looking
statements. With respect to the Company, the following factors, among others,
could cause actual results or outcomes to differ materially from current
expectations:
o  the ability to achieve revenue growth and cost savings objectives of mergers
   and acquisitions;
o  the ability of new products to compete successfully in either existing or new
   markets;
o  competitive factors;
o  the performance and needs of industries served by the Company and the
   financial capacity of customers in these industries to purchase capital
   equipment;
o  the risks involved in expanding international operations and sales;
o  achievement of product performance specifications and any related effect on
   product upgrade or warranty expenses;
o  the potential for adverse fluctuations in foreign currency exchange rates;
o  the effect of product or market development activities;
o  availability and future costs of materials and other operating expenses;
o  uncertainties relating to patents and proprietary information;
o  the potential for patent-related litigation expenses and other costs
   resulting from claims asserted against the Company or its customers by third
   parties; and
o  other factors discussed in Exhibit 99.1 hereto which is hereby incorporated
   by reference.

Given these uncertainties, readers are cautioned not to place undue reliance on
the forward-looking statements. The Company disclaims any obligation
subsequently to revise or update forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.



ITEM 1. BUSINESS.

GENERAL

   Key Technology, Inc. (the "Company") was founded in 1948 as a local producer
of vegetable processing equipment and has evolved into a worldwide supplier of
process automation solutions not only to the food processing industry, and other
industries such as forest products, plastics and tobacco. The present Company
was incorporated in 1983 as a result of a management buyout of that predecessor
organization.

   The Company and its operating subsidiaries design, manufacture, sell and
service process automation systems that process product streams of discrete
pieces to improve safety and quality. These systems integrate electro-optical
automated inspection and sorting systems, specialized conveying systems and
process and preparation systems. The Company provides parts and service for each
of its product lines to customers located throughout the world. Industries
served include food processing; non-food and industrial applications such as
tobacco, plastics, and pharmaceutical; and the forest products industry.

   During fiscal 2000, the Company's net sales were $67.6 million compared to
sales of $68.0 million in fiscal 1999. The Company incurred a net loss of
$333,000, or $0.12 per share, for the year ended September 30, 2000, which
included merger-related and one-time acquisition costs of $3.0 million or


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$1.9 million after tax. Excluding merger-related and one-time acquisition
charges, net earnings would have been $1.6 million or $0.29 per share for the
year ended September 30, 2000. This compared to net earnings of $3.5 million or
$0.75 per share in 1999.

The Company acquired two separate organizations during fiscal 2000:

o  The Company acquired on July 12, 2000 Advanced Machine Vision Corporation
   (AMVC), a company based in Medford, Oregon. AMVC and its subsidiaries design,
   manufacture and market machine vision systems that combine lighting, camera,
   processor and software technologies to improve quality, enhance yield, reduce
   production costs and increase throughput in a variety of markets.
   Applications include systems for the food, tobacco, plastics recycling, pulp
   wood, and wood panel industries.
o  The Company acquired on June 1, 2000 Farmco, Inc. and its sister company
   Ro-Tech, Inc. (collectively "Farmco") both companies based in Redmond,
   Oregon. Farmco manufactures and sells equipment that mechanically sorts,
   grades, selects, or removes product based upon its size or shape. Ro-Tech,
   Inc. performed research and development activities for Farmco products and
   owned the intellectual property associated with Farmco products.

   Subsequent to these acquisitions, the Company reorganized its corporate
structure such that the Company consists of Key Technology, Inc. and four direct
subsidiaries: Key Technology FSC, Inc., a foreign sales corporation (FSC); Key
Holdings USA LLC; Key Technology AMVC LLC; and Ventek, Inc. Key Holdings USA LLC
owns Suplusco Holdings B.V. which owns Key Technology B.V. Key Technology AMVC
LLC owns ALS, Inc. and ARC Netherlands B.V. The operations, assets and
liabilities of AMVC, SRC Vision and Farmco have been merged into Key Technology,
Inc. The Company's European business unit operations are conducted by its
indirect, wholly-owned European subsidiary, Key Technology B.V., which is the
result of a merger of KEY/Superior B.V. and SRC Vision B.V. Key Technology B.V.
is a manufacturer of specialized conveying systems sold primarily within Europe.
The Company also utilizes Key Technology B.V. as the primary sales and service
organization for automated inspection systems sold to European customers. Key
Technology B.V. is located in Beusichem, The Netherlands.

   The Company's domestic operations are headquartered in Walla Walla,
Washington with manufacturing facilities in Walla Walla and Medford, Redmond,
and Eugene, Oregon. The Company manufactures its three major product groups in
these facilities, in certain cases interchangeably between facilities to
maximize utilization of facility capacity. The Company anticipates moving the
manufacturing activities from Medford to Walla Walla, but will continue to
maintain a significant presence in Medford performing research and development,
service and sales activities. The Company supplies all product groups -
automated inspection systems, specialized conveying systems and processing and
preparation systems - to customers in its primary markets through common sales
and distribution channels. In addition, the Company supplies parts and service
through its worldwide service organization.

   The acquisitions in fiscal 2000 are consistent with the Company's strategy
for growth through acquisitions. The acquired companies bring complementary
products that can be exploited through the application of the Company's core
skills in distribution, marketing, new product development, manufacturing and
business systems. The Company has begun to experience some of the benefits of
the acquisitions as first envisioned:

   o   The Company believes it is competing more effectively in markets for
       automated inspection systems and specialized conveying systems.
       Additionally, the Company expects a higher level of conveying systems
       revenue to accompany the sale of AMVC optical sorting equipment.
       Previously the customer was required to purchase this equipment from
       other suppliers.


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<PAGE>


   o    The Company's customers now choose from a more complete product line and
        have access to expanded customer support and services with the
        combination of two customer service organizations.
   o    The Company is achieving substantial cost reductions, through
        elimination of expenses related to redundant sales, marketing, research
        and development and corporate staffing, and elimination of redundant
        public company costs.
   o    The acquisitions have provided the Company with greater depth of
        skilled personnel, strengthened research and development activity and
        expanded sales and marketing capacity.

   o    The creation of a larger customer base, a higher market profile and
        greater financial strength presents opportunities for marketing the
        products and services of the Company to expanded geographic markets and
        new industries in not only new markets for food, but also non-food
        markets such as tobacco and forest products.

   The Company expects the merger and acquisitions to be accretive to earnings
in fiscal 2001.

INDUSTRY BACKGROUND

   The Company considers the size and variety of worldwide processing industries
to be a significant opportunity for growth, not only to solve existing quality
and safety issues, but also to assist in providing safe processing technologies
to expanding global markets. Accordingly, the Company devoted increased
resources in fiscal 2000 to selling and marketing activities, new product
research and development and acquisitions that will increase the Company's
ability to address these potential global markets.

FOOD PROCESSING INDUSTRY

   Historically, defect removal and quality control in the food processing
industry have been labor intensive and dependent upon and limited by the
variability of the work force. Food processors must process large quantities of
raw product through different stages, including sorting to remove defective
pieces and inspection for product quality and safety. The frequency and severity
of defects in the raw product is highly variable depending upon local factors
affecting crops. The industry has sought to replace manual methods with
automated systems that achieve higher yield, better product quality and safety
and reduced cost.

   The Company's strategy is to solve processing industry problems of high labor
costs, inadequate yields and inconsistent quality and safety by providing
automated inspection systems and specialized conveying systems. The Company's
automated inspection systems use advanced optical inspection technology to
improve product yield (more of the good product recovered) and quality (higher
percentage of defective product being removed) over the manual sorting and
defect removal methods historically used by food processors. In a typical
application, a single automated inspection system can replace 25 to 75
processing line employees, resulting in labor cost savings and improved yield
sufficient to pay for the system in less than one year, as well as providing
significant improvements in product quality.


                                       3
<PAGE>


NON-FOOD INDUSTRIES - TOBACCO, PHARMACEUTICAL & PLASTICS

   Processors in non-food industries are also implementing systems solutions to
reduce costs, increase yields, and produce higher quality products that are safe
for consumers.

   Key Technology introduced a specially configured optical sorter into the
tobacco industry in fiscal 1998 and sold several automated inspection systems to
major producers. With the acquisition of AMVC and its subsidiary SRC Vision,
which had an installed base of approximately 100 units in the tobacco industry,
the Company significantly increased its potential in this market and now has the
opportunity to introduce other products along with automated inspection systems
to these customers. At present, the pharmaceutical, plastics and other non-food
industries represent a relatively small share of the Company's sales and
installed base. However, to further its growth strategy, the Company is actively
pursuing expansion into new markets that are well defined, some of which have
the potential for higher profit margins. The Company believes that many
additional applications for its products exist in both food and non-food
markets, particularly in the area of automated process control.

FOREST PRODUCTS INDUSTRY

   The Company entered the forest products industry with the acquisition of AMVC
and its subsidiaries SRC Vision, Inc. and Ventek, Inc. SRC Vision, founded in
1964, evolved from a single-product company that manufactured an optical device
to measure length and diameter of freshly cut logs, serving the timber industry,
into a provider of machine vision systems for a number of processing industries.
The Company has been testing a version of its inspection system in the pulp wood
industry to remove bark, rot and other undesirable wood parts from high quality
wood, improve recovery and save chemical processing costs in paper
manufacturers' plants. There can be no assurance that the pulp wood industry
will accept this new machine.

   Ventek, founded in 1991, introduced its "New Vision" system in 1994 to
replace an outdated product used to detect defects in wood veneer in the plywood
industry. Ventek's experience in wood panel production complements the Company's
lighting, camera, processing and software capabilities. In turn, Ventek's vision
system was enhanced by incorporating SRC Vision's high-speed camera into its
veneer scanning systems, thereby increasing their ability to separate the
product into various grades, as well as to detect and remove defects.

   Factors affecting sales in the forest products industry include housing
starts, which are directly affected by interest rates, and environmental
regulation which increases the need to obtain maximum yield and high quality
from the natural resources used in the industry.

PRODUCTS

   The Company has developed a modular family of product lines that can be
configured in a variety of ways and integrated to provide complete solutions for
specific applications. Advances in any one module can therefore benefit a number
of the Company's products that incorporate optical scanning and image analysis.
Despite the incorporation of sophisticated technology, the Company's products
can be operated by plant personnel with minimal specialized training and are
built to withstand the harsh environments found in processing plants.


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<PAGE>


   The following table sets forth sales by product category for the periods
indicated:

                                           FISCAL YEAR ENDED SEPTEMBER 30,
                                       ---------------------------------------
                                         2000           1999           1998
                                       ---------      ---------      ---------
                                                    (IN THOUSANDS)
Automated inspection systems........    $25,166        $22,342        $21,388
Specialized conveying systems.......     23,630         28,422         21,807
Processing and preparation systems..      2,784          5,528          1,687
Parts and service/contracts.........     16,054         11,736          8,251
                                       ---------      ---------      ---------
       Net sales....................    $67,634        $68,028        $53,133
                                       =========      =========      =========

Service and maintenance contracts are less than 10% of total net sales and
therefore are summarized with parts.

   The following table sets forth the percent of the total gross margin
contributed by each product category for the periods indicated:

                                           FISCAL YEAR ENDED SEPTEMBER 30,
                                       ---------------------------------------
                                         2000           1999           1998
                                       ---------      ---------      ---------
Automated inspection systems........      42%            39%            44%
Specialized conveying systems.......      30%            38%            36%
Processing and preparation systems..       1%             3%             2%
Parts and service/contracts.........      27%            20%            18%
                                       ---------      ---------      ---------
       Total gross margin...........     100%           100%           100%
                                       =========      =========      =========

AUTOMATED INSPECTION SYSTEMS

   Automated inspection systems are used in processing applications to detect
and eliminate defects during raw product processing. The Company's systems
within this group include the ADR(R) and Tegra(R) systems, representing the
fourth generation of automated inspection systems manufactured by Key
Technology; Prism(TM) and Tobacco Sorter II(TM) and Tobacco Sorter III(TM)
manufactured by SRC Vision; and New Vision Veneer Scanning System, Sequoia
Sentry Dryer Control System and GS2000 Veneer Grading System manufactured by
Ventek, Inc.

   Nearly all systems in this group use proprietary linear array charged coupled
device ("CCD") mono-chromatic (black and white), color or multi-spectral
cameras. Each of the cameras scan the product-streams, which move at 5 to 20
feet per second, at the rate of 1,500 to 4,000 times per second and can identify
defects as small as 1/16 of an inch (1.5 mm) in diameter. Systems with
monochromatic cameras generally are sold at lower price levels and are most
effective for product that has a marked disparity in shade between the defective
and the good product. Systems with color cameras are required when a variety of
defect and product colors occur simultaneously or when the difference in shading
between the defective and the good product is more subtle. In 1998, the Company
developed multi-spectral systems which utilize either infra-red or ultraviolet
technologies, individually or in combination with visible light, to identify
defects that may not be detectable by using solely visible light spectra.

   TEGRA SYSTEM. In fiscal 1996, the Company introduced its fourth generation of
automated inspection system sorters. Named Tegra, this generation of automated
inspection systems incorporates a number of technological and mechanical
advances that result in significant improvements to processing efficiency and
product throughput with higher recovery and defect-removal rates. Certain
present and potential applications for Tegra systems include potato products,
green beans, dried beans, corn, carrots, peas, spinach and other leafy
vegetables, pears, nuts, grains, coffee and tobacco.


                                       5
<PAGE>


   Tegra incorporates object-specific IntelliSort(TM) technology. IntelliSort
sorting technology recognizes not only color and size, but also shape. This
capability provides a solution to previously difficult sorting problems, such as
differentiation between green beans and green bean stems. Tegra cameras are
capable of high fidelity color-image processing to scan product at a rate of
over 4,000 times per second, offering a sensitivity to color subtleties beyond
human vision. Tegra also incorporates KeyWare(R) software that substantially
reduces operational complexity. KeyWare consists of application packages, each
specifically designed for a single product category that, together with the
system's computer hardware capability and networking software, support all
standard factory control and automation interfaces. These features allow Tegra
to establish data connectivity and communication with a processing plant's
computer network system.

   PRISM SYSTEM. In 1999, SRC Vision introduced the new Prism sorting system.
Designed for stable performance in challenging environments, Prism has gained
strong acceptance in segments of the fruit and vegetable markets. It
incorporates optional sensing of short-wave infrared light, uses a novel
broad-band illumination system, and is designed to require minimal maintenance.
In addition to present and potential applications in potato products,
vegetables, fruits and plastics, Prism adds specific applications with products
such as potato chips, dehydrated potato flakes, plastic flake and peaches.

   Prism incorporates a new image processing module, the "Advanced Vision
Processor" ("AVP(TM)"). Introduced concurrently with Prism, AVP uses a high
speed serial processor to convert color camera signals into product separation
actions. It incorporates the latest in high frequency bus architecture, and
incorporates cameras that have eight times the color resolution of previous
generations. Designed for flexibility, AVP is comprised of modules that provide
an on-going upgrade path, minimizing sustaining development costs, and
maximizing the effective life of the design. AVP uses a powerful combination of
a high speed "super-pipelined" sorting engine with a Windows NT-based user
interface. An internal communication network enables detailed self-diagnosis to
be performed on many system components.

   TOBACCO SORTER II AND TOBACCO SORTER III. The tobacco industry has special
requirements in the handling and sorting of its leaf products, which vary in
size and moisture content depending upon the type of product being produced and
the point of handling and inspection. SRC Vision's Tobacco Sorter II, introduced
in 1996, and Tobacco Sorter III, introduced in 2000, utilize the machine vision
systems of the Prism and other SRC products in a specially constructed frame and
enclosure to meet the specific product handling needs of this industry. The
Company received orders for two Tobacco Sorter III systems during fiscal 2000
and anticipates increased acceptance in Fiscal 2001.

   ADR SYSTEM. The Company's ADR systems are used to transport, inspect and
remove defects from french fry potatoes. The Company believes its ADR system is
the principal optical inspection and defect removal system used in the french
fry processing market. The Company's full-capacity ADR systems can process up to
27,000 pounds of product per hour.

   As a result of product development activities in fiscal 1999 and 2000, the
Company introduced a fourth generation of the ADR to the frozen french fry
industry during fiscal 2000. In addition to allowing processors to automatically
detect and trim defects from french fries, this new product also allows
processors to custom-cut the fries to optimize plant production while meeting
customer demand for length distribution. Selective length cutting of the french
fries also allows them to be packed more densely which reduces shipping expense,
a significant contributor to the cost of the delivered product.

   PHARMACEUTICAL INSPECTION SYSTEM. In fiscal 1996, the Company purchased
certain inventory,  trademarks and patents  related to a  pharmaceutical
inspection product line, the  I-300 Pharmaceutical  Inspection System,  from
the Imaging  Division of Oncor,  Inc.  Using  patented  spatial color analysis
technology, this product line inspects solid-dose pharmaceuticals, including
tablets, capsules  and softgels for  broken  or missing  pieces,  foreign
products, discoloration or coating defects, as well as the integrity of


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capsules. The pharmaceutical inspection system also verifies and detects color,
size, location and shape defects at processing rates over one million pieces
per hour. The Company expects sales of this product line will be a minor to
moderate contributor to automated inspection system revenues during fiscal 2001.

   NEW VISION VENEER SCANNING SYSTEM, SEQUOIA SENTRY DRYER CONTROL SYSTEM AND
GS2000 VENEER GRADING SYSTEM. In 1994, Ventek introduced the New Vision Veneer
Scanning System to replace outdated optical systems then used in the plywood
industry. This product scans for defects in the peeled ribbon of veneer and
controls a clipper (manufactured by another company) which clips the veneer
immediately before and after the defect. The New Vision system reduces the
amount of good wood attached to the defect and ensures complete defect
identification at the beginning of the plywood production process, which
decreases the number of downgraded panels, increases dryer utilization and
reduces re-clipping of previously undetected defects. In 1998, Ventek introduced
the Sequoia Sentry veneer dryer control system to measure moisture in veneer
exiting the dryer to determine if additional time in the dryer is necessary. In
1999, Ventek introduced its GS2000 veneer grading system that enables a more
consistent grading of panels than human inspection. The Company will seek to
leverage Ventek's brand name recognition in veneer scanning to reach customers
at multiple insertion points in not only the plywood production process but also
in the production process, newer products such as oriented strand board and
medium density fiberboard.

SPECIALIZED CONVEYING SYSTEMS

   Conveying systems are utilized throughout the food industry, as well as other
industries, to move large quantities of product within a processing plant. The
Company's specialized conveying systems include the Iso-Flo(R) vibratory
conveyor systems, food pumping systems, belt conveyors, electromagnetic conveyor
and spiral elevator technologies.

   ISO-FLO VIBRATORY CONVEYING SYSTEMS. The Company's principal specialized
conveying system is its patented Iso-Flo vibratory conveyor system, which was
introduced in 1978. The Iso-Flo conveyor is a type of pan conveyor. Pan
conveyors are common throughout industries that process product streams of
discrete pieces, especially the food processing industry. Pan conveyors move
product pieces by vibrating the pan at high frequency along a diagonal axis,
upward and forward. This action propels the product ahead in small increments
and distributes it evenly for close control of movement and presentation.

   Most Iso-Flo conveyors are custom designed and engineered by the Company to
customer specifications. Iso-Flo systems are used in a variety of processing
applications, including potato products, vegetables and fruits (green beans,
peas, carrots, corn, peaches, pears, cranberries and apples), snack foods,
cereals, pet foods, poultry, seafood and certain nonfood products.

   The Company considers its vibratory conveyor technology to be a proprietary
core competency. Consequently, while investment in research and development
activities related to specialized conveying systems decreased slightly in fiscal
2000 compared to 1999, research and development activities for this product
group are expected to increase significantly in fiscal 2001 compared to 2000. As
a result of the Company's research and development activities in fiscal 1999 and
2000, it expanded its family of vibratory conveyors with the introduction of
three new products in the first quarter of fiscal 2000. These products were the
Horizon(TM), the Impulse(TM) and the Marathon(TM) conveying systems.

   The Horizon is a horizontal motion vibratory conveyor that uses a gentle
conveying action to move fragile foods, such as snacks, cereals and
seasoned/coated products, through the processing stages. The design of the
Horizon eliminates vertical bounce of the processor's product. This feature
results in reduced costs to the processor due to minimized product damage,
reduced seasoning/coating loss and elimination of condiment build-up on the
conveyor bed.


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<PAGE>


   The Impulse is a line of electromagnetic conveyors which combine the
advantage of starting and stopping in milliseconds with precise metering
control. Additionally, the Impulse conveyor drive systems are oil free which
limits the potential for contamination and improves the safety of edible food
products. This conveyor system was developed for packaging applications in snack
food, dry ingredient, chemical and pharmaceutical processing.

   The Marathon is the Company's longest conveyor and moves product up to 100
feet or more on a single conveyor bed. This conveyor is targeted for use in high
volume applications such as corn, green beans and other bulk conveying markets
to maximize the processor's production efficiency.

   FOOD PUMPING SYSTEMS AND BELT CONVEYORS. The Company's hydro food pumping
systems are used to transport food items over distances and elevations in
processing plants. A typical pumping system consists of a stainless steel
contoured tank and food pump to propel the product through lengths of piping to
a water removal/product spreading subsystem. The systems can be configured so
that food processing functions, such as blanching, cooling and cutting, can also
occur during pumping. The Company also designs and manufactures belt conveyors
using a variety of belt materials.

PROCESS AND PREPARATION SYSTEMS

   The Company designs and manufactures raw food preparation systems to prepare
vegetables prior to freezing, canning or other processing. Products in this
group include blanchers, air cleaners, air coolers, froth flotation cleaners,
vegetable metering systems, and bulk handling equipment. These products
represent the Company's most mature product line. Sales of these products over
the years have formed a customer base for sales of other Company products and
are also establishing a customer base in developing country markets.

   Process and preparation system revenues also include a variety of third-party
supplied equipment and installation services which are sold as components of
larger processing lines, for which the Company has assumed turn-key sales
responsibility. In fiscal 2000, these third-party supplied products accounted
for approximately $1.8 million of the $2.8 million total net sales of process
and preparation systems compared to $3.1 million of $5.5 million in total net
sales in fiscal 1999.

PARTS AND SERVICE/CONTRACTS

   The Company generates revenues from the sale of spare parts and post-sale
field and telephone-based repair services to support its customers' routine
maintenance requirements and seasonal equipment startup and winterization
processes. In response to increasing customer demand for maintenance and parts
services, the Company introduced a new multi-level service product offering
named UpTime(TM) in fiscal 1999. During fiscal 2000 the Company tested the
ability to supply remote diagnostics in the UpTime(TM) offering and expects to
implement these capabilities in Fiscal 2001. The UpTime program was a principal
contributor to increases of 44% and 52% in maintenance service revenues in
fiscal 2000 and 1999, respectively. The Company considers its parts and
maintenance service sales to be important potential sources of future revenue
growth and expects to continue to devote additional resources in fiscal 2001 to
increase such sales. The Company also typically provides system installation
support services which are included in the sales price of certain of its
products, principally the automated inspection systems.

CUSTOMERS AND MARKETS

   The Company's primary market is the food processing industry. The largest
markets  for the  Company's products  have been processors of  potatoes,
vegetables and  snack foods.  The Company  has also penetrated  other food
markets, including fruits, cereals and pet foods. The Company believes many


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<PAGE>


additional applications for its systems exist in both food and nonfood markets.
In non-food, the Company's principal markets are in forest products and in
industrial processing, particularly in the tobacco industry.

   The principal potato market served by the Company's systems is french fries.
French fries comprise approximately 90% of the over eight billion pounds of
frozen potato products processed annually in the United States. The expansion of
American-style fast food chains in foreign countries is resulting in parallel
development of the frozen french fry market overseas.

   The Company's products are used in the fruit and vegetable processing market
where field-harvested products are cleaned, graded, automatically sorted,
blanched and processed prior to freezing, canning or packaging for sale to
institutional and retail markets. Principal fruit and vegetable market segments
for the Company are green beans, corn, carrots, peas, onions, apples, pears,
cranberries and peaches. The Company also sells pharmaceutical systems, together
with other products, to pharmaceutical manufacturers in the United States,
Puerto Rico and Europe.

   In fiscal 1998, the Company expanded its addressable markets by introducing
Tegra-based product applications into the coffee and tobacco markets. During
fiscal 1999 and 2000, the Company sold Tegra systems to coffee processors
located in Brazil and Colombia and in the Ivory Coast. Several Tegra systems
were also installed in fiscal 2000 on either rental or trial placements in
tobacco processing applications. Additionally, the Company expects that the
coffee and tobacco markets may provide opportunities for expanded sales of
specialized conveying systems.

   The acquisition of Superior B.V. in fiscal 1996 provided the Company with a
manufacturing base from which it can more rapidly manufacture and deliver
conveying systems to European customers. Export and international sales for the
fiscal years ended September 30, 2000, 1999 and 1998 accounted for 40%, 46% and
37% of net sales in each such year, respectively. Nearly all export sales of
products manufactured in the United States for shipment into international
markets other than Europe have been denominated in U.S. dollars. Sales into
Europe of systems, spare parts and service, as well as products manufactured in
Europe, are generally denominated in European currencies. In its export and
foreign sales, the Company is subject to the risks of conducting business
internationally, including unexpected changes in regulatory requirements;
fluctuations in the value of the U.S. dollar, which could increase the sales
prices in local currencies of the Company's products in international markets;
tariffs and other barriers and restrictions; and the burdens of complying with a
variety of international laws. Additional information regarding export and
foreign sales is set forth in Note 12 to the Company's Consolidated Financial
Statements for the year ended September 30, 2000.

   The Company does not rely on annual recurring sales to particular customers.
However, the Company's customers often make periodic large purchases of complete
systems. Therefore, while in any given fiscal year sales to a single customer
might represent 10 percent or more of the Company's consolidated revenues, the
Company believes the loss of such customer would not have a material adverse
effect on the Company. During fiscal 2000, sales to one customer amounted to
approximately 14% of total net sales. During fiscal 1999, sales to one customer
amounted to approximately 11% of total net sales. No single customer accounted
for more than 10% of net sales during fiscal 1998.

   The Company markets its products directly and through independent sales
representatives. In North America, the Company operates sales offices in Walla
Walla, Washington; Medford, Oregon; Redmond, Oregon; Eugene, Oregon; Doyline,
Louisiana; Rockville, Maryland; and Beaver Dam, Wisconsin. The Company's
subsidiary, Key Technology B.V., provides sales and service to European
customers. Sales in Australia and New Zealand are made through an independent
distributor, which the Company also licenses to manufacture certain of its
products.


                                       9
<PAGE>


ENGINEERING, RESEARCH AND DEVELOPMENT

   At September 30, 2000, the Company's engineering departments had 117
technical and support employees who conduct new product research and
development, sustaining engineering for released products and project
engineering for custom systems. The department includes electronic, mechanical
and software engineers, mathematicians and technical support personnel.

   The Company's project engineering teams are responsible for engineering and
designing the details of each custom order. A document control team maintains
and controls product documentation and the product modeling database for the
development engineering and project engineering teams as well as the
manufacturing department.

   In fiscal 2000, the Company's engineering, research and development expenses
were approximately $5.5 million, compared to $4.3 million and $4.8 million in
1999 and 1998, respectively.

MANUFACTURING

   The Company maintains five domestic manufacturing facilities, two located in
Walla Walla, one each in Medford, Eugene and Redmond, Oregon, and a European
manufacturing facility located in The Netherlands. The Company's current
manufacturing facilities and its product design and manufacturing processes
integrate Computer Aided Engineering (CAE), Computer Aided Design (CAD),
Computer Aided Manufacturing (CAM) and Computer Integrated Manufacturing (CIM)
technologies. Manufacturing activities include process engineering; cutting,
welding, fabrication and assembly of custom designed stainless steel systems;
camera and electronics assembly; subsystem assembly; and system test and
integration. The Company manufactures products in the following locations:

    ------------------------------------------------------------------------
    LOCATION          SIZE IN SQUARE FEET         PRODUCTS/SERVICES PRODUCED
    --------          -------------------         --------------------------
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Walla Walla,      150,000                     Automated Inspection
    Washington                                    Specialized Conveying
                                                  Parts and Service
    ------------------------------------------------------------------------
    Walla Walla,      100,000                     Specialized Conveying
    Washington                                    Processing and Preparation
    ------------------------------------------------------------------------
    Medford,          82,000                      Automated Inspection
    Oregon                                        Parts and Service
    ------------------------------------------------------------------------
    Redmond,          19,000                      Processing and Preparation
    Oregon                                        Parts and Service
    ------------------------------------------------------------------------
    Eugene,           12,000                      Automated Inspection
    Oregon                                        Parts and Service
    ------------------------------------------------------------------------
    Beusichem,        45,000                      Specialized Conveying
    The Netherlands                               Processing and Preparation
                                                  Parts and Service
    ------------------------------------------------------------------------
    Beusichem,        18,000                      Parts warehouse
    The Netherlands                               Future manufacturing
                                                  expansion
    ------------------------------------------------------------------------

   The Company manufactures certain of its products to Underwriters
Laboratories, United States Department  of Agriculture  and  Occupational
Safety and Health  Administration standards. The  Company's domestic
manufacturing processes in its  Walla Walla operations  originally became
qualified in  January 1995 for  certification to  the  ISO-9001  quality
management  and assurance  standards. Those  specific operations  were
re-certified to  ISO-9001:1994 quality  standard during fiscal 2000. The
processes  of qualifying  and certifying  the Company's European operations,
and  those other  operating entities acquired  by the Company during
fiscal 2000, to  the ISO-9001 quality  standard is  currently under


                                       10
<PAGE>


review. It is the Company's expectation that each of those entities will
become certified to the ISO-9001 quality standard. The Company's products also
comply with the Canadian Standards Association (CSA) and European CE (Conformite
Europeene) safety standards.

   Certain components and subassemblies included in the Company's products are
obtained from single-source or sole-source suppliers. The Company attempts to
ensure that adequate supplies are available to maintain manufacturing schedules.
Although the Company seeks to reduce its dependence on sole and limited source
suppliers, the partial or complete loss of certain sources of supply could have
an adverse effect on the Company's results of operations and relations with
customers.

BACKLOG

   The Company's backlog as of September 30, 2000 and September 30, 1999 was
approximately $15.4 million and $12.6 million, respectively. Gross shipments
exceeded orders by $2.2 million in fiscal 2000; however, backlog acquired in the
Farmco and AMVC acquisitions resulted in a net increase in backlog from the
closing backlog in fiscal 1999. The Company schedules production based on firm
customer commitments and forecasted requirements. The Company includes in
backlog only those customer orders for which it has accepted purchase orders.
However, the Company believes that backlog is not necessarily a meaningful
indicator of future financial results as it typically ships products ordered
within eight to thirteen weeks from the date of receipt of the order. Large
multiple-unit system orders or orders for systems in high demand may, however,
result in longer delivery times.

COMPETITION

   The markets for automated inspection systems and specialized conveying
systems are highly competitive. Important competitive factors include price,
performance, reliability, and customer support and service. The Company believes
that it currently competes effectively with respect to these factors, although
there can be no assurance that existing or future competitors will not introduce
comparable or superior products at lower prices. Certain of the Company's
competitors may have substantially greater financial, technical, marketing and
other resources. The Company's principal competitors are believed to be FMC
Corporation and its subsidiary Allen Machinery Co., Sortex Ltd., the Pulsarr
B.V. and Elbicon N.V. subsidiaries of Barco N.V., and Kiremko B.V. As the
Company enters new markets, such as coffee, it expects to encounter new niche
competitors such as Satake ESM, Elexso and BEST B.V.

PATENTS AND TRADEMARKS

   The Company currently holds fifty-one outstanding United States patents
issued from 1984 through 2000 and thirty-one outstanding patents issued by
foreign countries, the first of which expires in calendar 2002. As of December
6, 2000, thirty-eight United States and foreign patent applications had been
filed and are pending. The Company has thirty-one registered trademarks and an
application pending for three trademarks.

   The Company also attempts to protect its trade secrets and other proprietary
information through proprietary information agreements with employees and
consultants and other security measures. The laws of certain countries in which
the Company's products are or may be manufactured or sold may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States.

EMPLOYEES

   At  September 30, 2000, the  Company  had 611  full-time employees,
including  254 in  manufacturing, 117 in  engineering, research and
development, 164 in marketing, sales and service and 76 in general


                                       11
<PAGE>


administration and finance. A total of 96 employees are located outside the
United States. None of the Company's employees in the United States are
represented by a labor union. The manufacturing employees located at the
Company's facility in Beusichem, The Netherlands are represented by the Small
Metal Union. The Company has never experienced a work stoppage, slowdown or
strike. The Company considers its employee relations to be excellent.


ITEM 2. PROPERTIES.

   The Company owns or leases the following properties:

--------------------------------------------------------------------------------
                                     SQUARE    OWNED OR      LEASE     RENEWAL
LOCATION        PURPOSE              FEET      LEASED        EXPIRES   PERIOD
--------------------------------------------------------------------------------
Walla Walla,    Corporate office,    150,000   Leased with   2010
Washington      manufacturing,                 option to
                research and                   purchase
                development, sales             within the
                and marketing,                 lease term
                administration
--------------------------------------------------------------------------------
Walla Walla,    Manufacturing,       100,000   Leased        2005      2010
Washington      research and
                development, sales
                and marketing
--------------------------------------------------------------------------------
Medford,        Manufacturing (1),   82,000    Owned (2)
Oregon          research and
                development, sales
                and marketing
--------------------------------------------------------------------------------
Medford,        Vacant Lot           150,000   Owned (3)
Oregon
--------------------------------------------------------------------------------
Redmond,        Manufacturing,       19,000    Leased        2003      2008
Oregon          research and
                development,
                administration
--------------------------------------------------------------------------------
Eugene,         Manufacturing,       12,000    Leased        2002      2004
Oregon          sales and
                marketing,
                administration
--------------------------------------------------------------------------------
Beusichem, The  Manufacturing,       45,000    Leased        2008      2013
Netherlands     sales and
                marketing,
                administration
--------------------------------------------------------------------------------
Beusichem, The  Parts warehouse,     18,000    Owned
Netherlands     future
                manufacturing
                expansion
--------------------------------------------------------------------------------

  (1) The manufacturing activities currently performed at this location will be
      moved to the Company's 150,000 square foot facility in Walla Walla, at
      which time the Company may lease a portion of the Medford facility to a
      third party.
  (2) Subject to a deed of trust securing an approximately $2.9 million loan
      made by Bank of America National Trust and Savings Association. The loan
      bears interest at 8.3% and is due May 1, 2008.
  (3) Subsequent to the end of fiscal 2000, the Company sold 25,000 square feet
      to a third party. Based upon this transaction and the number and quality
      of continuing inquiries, the Company expects to sell the remaining
      property at or above its book value.

   The Company leases additional office space in the United States in Medford,
Oregon; Rockville, Maryland; Doyline, Louisiana and Beaver Dam, Wisconsin.


                                       12
<PAGE>


ITEM 3. LEGAL PROCEEDINGS.

   From time-to-time, the Company is named as a defendant in legal proceedings
arising out of the normal course of its business. As of December 6, 2000, the
Company was not a party to any material legal proceedings.


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

   A special meeting of shareholders was held on July 12, 2000 for the purpose
of considering and voting on two proposals: (1) a proposal to approve the
issuance of shares of Key Technology Series B and Series C Convertible Preferred
Stock and warrants pursuant to an Agreement and Plan of Merger effective
February 15, 2000 by and among Key Technology, KTC Acquisition Corp., and
Advanced Machine Vision Corporation.; and (2) a proposal to amend the 1996
Employees' Stock Option Plan in increase the number of shares available for
issuance from 750,000 shares to 1,250,000 shares.

   A total of 2,905,004 votes, or 61.42% of the outstanding common stock, was
cast for proposal (1), with 15,267 votes against and 3,199 votes abstaining.
Broker non-votes were included in votes cast against the proposal.

   A total of 2,607,689 votes, or 55.14% of the outstanding common stock, was
cast for proposal (2), with 307,127 votes against and 8,654 abstaining. Broker
non-votes were included in votes cast against the proposal.

















                                       13
<PAGE>


                                     PART II

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

COMMON STOCK

   Shares of the Company's common stock are quoted on the Nasdaq National Market
System under the symbol "KTEC". The following table shows the high and low bid
prices per share of the Company's common stock by quarter for the two most
recent fiscal years ended September 30:

                                         High             Low
                                         ----             ---
                 Fiscal 2000
                 -----------
                     1st Quarter       $10.00             $6.578
                     2nd Quarter        11.188             8.125
                     3rd Quarter         9.875             7.00
                     4th Quarter        10.063             8.25

                 Fiscal 1999
                 -----------
                     1st Quarter        $7.75             $5.25
                     2nd Quarter         9.50              6.125
                     3rd Quarter         9.375             4.75
                     4th Quarter        12.50              5.188

   The sources of these quotations for the Company's common stock were Nasdaq's
Summary of Activity(TM) reports and the Nasdaq OnlineSM Internet site.

   The Company had approximately 1,975 beneficial owners of its common stock, of
which 195 are of record, as of December 6, 2000.

   The Company has not historically paid dividends on its common or preferred
stock. The Board of Directors does not anticipate payment of any dividends in
the foreseeable future and intends to continue its present policy of retaining
earnings for reinvestment in the operations of the Company. The current credit
facility with the Company's principal domestic bank restricts the payment of
dividends on its common stock, other than dividends payable in its stock, or the
retirement of any of the Company's outstanding shares or the alteration or
amendment of the Company's capital structure without the prior written consent
of the bank.













                                       14
<PAGE>


SERIES B CONVERTIBLE PREFERRED STOCK

   Shares of the Company's Series B convertible preferred stock were issued in
the merger with AMVC on July 12, 2000 These shares are quoted on the Nasdaq
SmallCap Market under the symbol "KTECP". The following table shows the high and
low bid prices per share of the Company's Series B convertible preferred stock
for the fiscal year ended September 30, 2000:

                                         High             Low
                                         ----             ---
                 Fiscal 2000
                 -----------
                     1st Quarter          N/A             N/A
                     2nd Quarter          N/A             N/A
                     3rd Quarter          N/A             N/A
                     4th Quarter        7.375           6.125

   The sources of these quotations for the Company's Series B convertible
preferred stock were Nasdaq's Summary of Activity(TM) reports and the Nasdaq
OnlineSM Internet site.

   The Company had approximately 1,750 beneficial owners of its Series B
convertible preferred stock, of which 80 are of record, as of December 6, 2000.

   Each whole share of Key Technology Series B convertible preferred stock is:

      o  convertible at the election of the holder at any time for 2/3 of a
         share of Key Technology common stock; or
      o  redeemable at the election of the holder after July 12, 2002 for
         $10.00 in cash; or
      o  redeemed by the Company on July 12, 2005, or may be redeemed earlier
         by the Company if the average closing price of Key Technology common
         stock exceeds $15.00 per share for 30 consecutive trading days, for
         $10.00 in cash plus declared and unpaid dividends, if any.

   Upon closing the AMVC acquisition on July 12, 2000, FMC Corporation's option
 to purchase shares of AMVC common stock was converted into an option to
 purchase 210,000 shares of Key Technology Series B convertible preferred stock
 and warrants to purchase 52,500 shares of Key Technology common stock for
 $2,520,000. This option expires October 14, 2003.

   The Series B convertible preferred stock is not entitled to dividends. If a
 dividend is declared payable on the outstanding common stock, the holders of
 Series B convertible preferred stock are entitled to the dividend that would be
 payable on the common stock into which the Series B could convert. The holders
 of Series B are entitled to vote on all matters. Series B convertible preferred
 stock holders vote the number of whole shares of common stock into which the
 holder's Series B convertible preferred stock could be converted.









                                       15
<PAGE>


SERIES C CONVERTIBLE PREFERRED STOCK

   In connection with the AMVC transaction, shares of AMVC Series B mandatorily
 redeemable preferred stock held by FMC Corporation were converted into 119,106
 shares of Key Technology Series C convertible preferred stock and 29,776
 warrants. Each share of Series C convertible preferred stock is convertible at
 the election of the holder into 1 2/3 shares of Key Technology common stock,
 and may be redeemed at the election of the holder at any time for $20.00 per
 share. In addition, the Company is required to redeem any Series C convertible
 preferred stock remaining outstanding on July 12, 2005 for $20.00 per share.
 The Series C Convertible preferred stock in not presently traded.

   The Series C convertible preferred stock is not entitled to dividends. If a
 dividend is declared payable on the outstanding common stock, the holders of
 Series C convertible preferred stock are entitled to the dividend that would be
 payable on the common stock into which the Series C could convert. The holders
 of Series C are entitled to vote on all matters. Series C convertible preferred
 stock holders vote the number of whole shares of common stock into which the
 holder's Series C convertible preferred stock could be converted.


WARRANTS

   Warrants were issued in the merger with AMVC on July 12, 2000. These warrants
are quoted on the Nasdaq SmallCap Market under the symbol "KTECW". The following
table shows the high and low bid prices of the Company's warrants for the fiscal
year ended September 30, 2000:

                                         High             Low
                                         ----             ---
                 Fiscal 2000
                 -----------
                     1st Quarter          N/A             N/A
                     2nd Quarter          N/A             N/A
                     3rd Quarter          N/A             N/A
                     4th Quarter        9.875           9.875

   Each whole warrant is exercisable for five years to purchase one share of Key
 Technology common stock for $15.00. Each whole warrant is redeemable by the
 holder at any time prior to expiration for $10.00. The warrant holders do not
 have the right to vote or participate in any other matters as a shareholder.
 The warrants do not accrue any dividends or interest until exercised and then
 only to the extent it is exercised. Identical warrants were issued to AMVC
 common shareholders and the holder of AMVC Series B preferred stock, and may be
 issued in the future to FMC Corporation upon exercise of its option to purchase
 Key Technology Series B preferred stock.


                                       16
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

   The selected consolidated financial information set forth below for each of
the five years in the period ended September 30, 2000 has been derived from the
audited consolidated financial statements of the Company. The information below
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Company's Consolidated
Financial Statements and Notes thereto as provided in Item 7 and Item 8 of this
Annual Report on Form 10-K, respectively.

<TABLE>
<CAPTION>

                                                       FISCAL YEAR ENDED SEPTEMBER 30,
                                    ----------------------------------------------------------------------
                                           2000         1999         1998         1997         1996
                                         ---------    --------     --------     --------     --------
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF EARNINGS (LOSS) DATA:
<S>                                       <C>          <C>          <C>          <C>          <C>
Net sales............................     $67,634      $68,028      $53,133      $57,268      $54,341
Cost of sales........................      41,804       42,281       33,838       39,451       33,050
                                         ---------    ---------    ---------    ---------    ---------
Gross profit.........................      25,830       25,747       19,295       17,817       21,291
Operating expenses...................      26,712       21,022       18,085       17,648       15,226
                                         ---------    ---------    ---------    ---------    ---------
Income (loss) from operations........        (882)       4,725        1,210          169        6,065
Other income - net ..................         174          436          179          450        1,061
                                         ---------    ---------    ---------    ---------    ---------
Earnings (loss) before
   income taxes......................        (708)       5,161        1,389          619        7,126
Income tax (benefit) expense.........        (375)       1,632          464          197        2,252
                                         ---------    ---------    ---------    ---------    ---------
Net earnings (loss)..................     $  (333)     $ 3,529      $   925      $   422      $ 4,874
Accretion of mandatorily
   redeemable preferred stock........        (235)           0            0            0            0
                                         ---------    ---------    ---------    ---------    ---------
Net earnings (loss) available to
   common shareholders...............     $  (568)     $ 3,529      $   925      $   422      $ 4,874
                                         =========    =========    =========    =========    =========
Earnings (loss) per share -
   Basic.............................     $ (0.12)     $  0.75      $  0.20      $  0.09      $  1.05
                                         =========    =========    =========    =========    =========
Earnings (loss) per share -
   Diluted...........................     $ (0.12)     $  0.75      $  0.20      $  0.09      $  1.02
                                         =========    =========    =========    =========    =========
Shares used in per share
   calculation - Basic...............       4,723        4,707        4,692        4,674        4,652
                                         =========    =========    =========    =========    =========
Shares used in per share
   calculation - Diluted.............       4,723        4,711        4,721        4,760        4,777
                                         =========    =========    =========    =========    =========

</TABLE>


<TABLE>
<CAPTION>

                                                         FISCAL YEAR ENDED SEPTEMBER 30,
                                    ----------------------------------------------------------------------
                                            2000         1999         1998        1997         1996
                                          ---------   ---------     --------    --------     --------
                                                                 (IN THOUSANDS)
BALANCE SHEET DATA:
<S>                                       <C>          <C>          <C>          <C>          <C>
Cash and cash equivalents and short-
   term investments..................     $ 6,535      $ 6,403      $ 6,333      $ 2,896      $ 9,528
Working capital......................      25,202       22,973       18,949       17,308       17,736
Property, plant and equipment,
   net...............................      13,784        8,582        9,584        9,380        8,703
Total assets.........................      85,417       44,420       39,357       39,441       45,252
Current portion of long-term debt....       3,447          304          579          852          923
Long-term debt, less current
portion..............................      19,483          722        1,103        1,293        1,467
Mandatorily redeemable preferred
   stock and warrants................      17,105            0            0            0            0
Shareholders' equity.................      31,465       32,657       29,315       28,031       27,583

</TABLE>



                                       17
<PAGE>


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

INTRODUCTION

   The Company and its wholly-owned subsidiaries design, manufacture and sell
process automation systems, integrating electro-optical inspection and sorting,
specialized conveying and processing and preparation equipment.

   The Company consists of Key Technology, Inc. which directly owns four
subsidiaries: Key Technology FSC, Inc., a foreign sales corporation (FSC); Key
Holdings USA LLC; Key Technology AMVC LLC; and Ventek, Inc. Key Holdings USA LLC
owns Suplusco Holdings B.V., its European subsidiary, which owns Key Technology
B.V. Key Technology AMVC LLC owns ALS, Inc. and ARC Netherlands B.V. The Company
manufactures products in Walla Walla, Washington; Redmond, Oregon; Eugene,
Oregon; Medford, Oregon and Beusichem, The Netherlands. Through the maintenance
of its wholly-owned foreign sales corporation subsidiary, Key Technology FSC,
Inc., a portion of the Company's domestically originated foreign trade income is
exempt from tax at the corporate level.

RESULTS OF OPERATIONS

   For the fiscal years ended September 30, 2000, 1999 and 1998, the Company's
net sales were $67.6 million, $68.0 million, and $53.1 million, respectively.
Sales of automated inspection systems and parts and service/contracts increased
by 13% and 37%, respectively, but was more than offset by decreases in
specialized conveying systems and processing and preparation equipment in fiscal
2000 compared to fiscal 1999. Sales for the year ended September 30, 2000 were
unfavorably affected by market factors including:

   o  Consolidation among food processors which resulted in delayed investments
      in capital equipment by Key's customers;
   o  Softness in the vegetable industry caused by processed inventories carried
      over from the previous season and lower prices for customers' products;
   o  Customers' higher costs of capital due to increased interest rates in the
      United States, which has delayed certain projects; and
   o  The strength of the U.S. dollar on the world markets, which has made
      U.S.-manufactured goods relatively more expensive to foreign customers.

   The Company did not experience a comparable level of "turn-key" sales in
fiscal 2000 that it experienced in fiscal 1999, most notably from the vegetable
industry. These turn-key sales incorporate the Company's conveying and
processing systems together with other third-party supplied equipment into
entire processing lines. Sales by subsidiaries acquired during the third and
fourth quarter of fiscal 2000 contributed approximately $6.4 million to the
Company's consolidated gross sales in fiscal 2000, of which $6.1 million was in
the fourth quarter. In fiscal 2001, the Company anticipates increases in sales
due to the acquisitions completed in fiscal 2000, increases in sales to the
tobacco industry, increases in sales to international markets and large
expansion projects projected by the Company's customers, principally in the
french fry industry.

   Net sales in fiscal 1999 increased by 28% compared to fiscal 1998. The
increased sales in fiscal 1999 resulted principally from a $6.6 million or 30%
increase sales of in specialized conveying systems followed by a 228% increase
in process and preparation systems and a 42% increase in parts and
service/contracts. Sales of automated inspection systems increased by 4% in
fiscal 1999 compared to fiscal 1998. The increases in sales during fiscal 1999
for both the specialized conveying systems and the process and preparation
systems resulted principally from sales of larger turn-key processing line


                                       18
<PAGE>


systems. The increase in sales of parts and service/contracts in fiscal 1999
compared to 1998 was principally the result of the introduction early in fiscal
1999 of a new multi-level service product offering named UpTime. The increase in
sales of automated inspection systems resulted principally from increased sales
of AccuScan(R) and ADR systems, partially offset by decreased sales of Tegra
systems. Sales of automated inspection systems to European and other
international customers increased by 77% in fiscal 1999 compared to fiscal 1998.

   Export and foreign sales accounted for 40%, 46% and 37% of total net sales in
fiscal 2000, 1999 and 1998, respectively. An increase in sales to domestic
customers of 9% was more than offset by a 12% decrease in sales to foreign
customers in fiscal 2000. The largest market for such foreign sales in each of
the three fiscal years was to European customers.

   Gross profit was 38%, 38% and 36% of sales in fiscal 2000, 1999 and 1998,
respectively. The gross margin, as a percentage of net sales in fiscal 2000
compared to fiscal 1999, benefited from improved margins in automated inspection
systems and in parts and service, offset by decreased gross margins in
specialized conveying systems and process and preparation systems. Automated
inspection system gross margins, as a percent of sales, improved two percentage
points in fiscal 2000 over fiscal 1999, principally the result of an 16%
decrease in warranty costs, which continued the favorable trend of a 41%
decrease in warranty costs in the previous year. In addition, the Ventek
products carry a higher margin, which favorably affected the automated
inspection systems product group. Decreased specialized conveying system gross
margins were principally due to an increase in manufacturing overhead resulting
from decreased production volumes between the two comparable periods. The gross
margins for parts and service/contracts improved principally as a result of
increased volume of higher margin upgrades. Process and preparation system
revenues in both fiscal 2000 and 1999 included a variety of third-party supplied
equipment and installation services which were sold at very low margins as
components of larger processing lines. During fiscal 2000, the third-party
supplied products accounted for approximately $1.8 million of $2.8 million in
total net sales of process and preparation systems compared to $3.1 million of
the $5.5 million in total net sales in fiscal 1999. The Company anticipates that
gross margins for fiscal 2001 will improve over those experienced in previous
years due to higher margins carried by acquired product lines, efficiencies
gained from the manufacture of all automated inspection systems in one facility,
and higher volumes and economies of scale that can be achieved as a result of
the fiscal 2000 acquisitions.

   Operating expenses increased to $26.7 million in fiscal 2000 from $21.0
million in fiscal 1999 and from $18.1 million in fiscal 1998 and represented
39%, 31% and 34% of net sales in each such year, respectively. Operating
expenses increased in fiscal 2000 over fiscal 1999 due to the addition of
operating expenses for the acquired companies, a one-time charge of $1.4 million
of expenses for acquired in-process research and development, non-recurring
integration costs totaling $953,000 and incremental amortization of $643,000 for
acquired intangibles. The Company expects that, as a percentage of net sales,
total operating expenses in fiscal 2001 should be closer to those experienced
prior to fiscal 2000.

   Selling and marketing expenses were $13.0 million in fiscal 2000, $11.1
million in fiscal 1999 and $8.0 million in fiscal 1998, and represented 19%, 16%
and 15% of net sales in each such year, respectively. In fiscal 2000, selling
and marketing expenses increased 17% over fiscal 1999, principally due to the
expenses contributed by the acquisitions. The Company also increased investments
in new product promotions related to four new products introduced in fiscal 2000
and expanded sales coverage to European and Latin American markets. Selling and
marketing expenses in fiscal 1999 increased 39% compared to fiscal 1998,
resulting principally from increased commission expenses related to the higher
level of  product  sales combined with an  increased volume and percentage of
those sales sold through  outside representatives  to whom the Company pays
higher commission rates,  increased staff costs and increased  advertising and
product promotion expenses. The Company expects to  reduce its selling and


                                       19
<PAGE>


marketing expenses as a percentage of net sales as a result of reorganization
of its sales and distribution channels and an anticipated reduction in
investments related to new product introductions.

   Research and development expenses increased in fiscal 2000 to $5.5 million
from $4.3 million in fiscal 1999 and $4.8 million in fiscal 1998, and
represented 8%, 6% and 9% of net sales in each such year, respectively. Research
and development expenses in fiscal 2000 increased by approximately 29% compared
to 1999 principally due to expenses contributed by acquisitions. Research and
development expenses in fiscal 1999 decreased by approximately 10% compared to
1998 as a result of an increased level of engineering costs charged to cost of
sales as a direct result of the increased sales volume, particularly in the
Company's specialized conveying product group. However, research and development
expenses related to new product development projects increased by 7% in fiscal
1999 compared to fiscal 1998 as a result of activities devoted to developing the
new fourth generation ADR product and new specialized conveying system products.
The Company expects research and development expenses, as a percentage of fiscal
2001 net sales, to approximate fiscal 2000 levels. Activities in fiscal 2001
will focus on continuing to extend the capabilities and applications of the
technologies contained in Tegra and Prism, and continuing to develop new
specialized conveying system products.

   General and administrative expenses increased to $5.9 million in fiscal 2000
from $5.4 million in fiscal 1999 and $5.0 million in fiscal 1998, and
represented 9%, 8% and 9% of net sales in each such year, respectively. General
and administrative expenses increased in fiscal 2000 by approximately 10%
compared to fiscal 1999 principally due to expenses contributed by acquisitions.
During fiscal 1999, general and administrative expenses increased approximately
7% compared to fiscal 1998 due principally to increased incentive compensation
related to the Company's increased level of profitability and increased
consulting and professional service expenses, partially offset by decreased
costs for doubtful accounts receivable. As a percentage of net sales, the
Company expects general and administrative expenses in fiscal 2001 to
approximate those levels experienced in previous years.

   The increase in amortization of intangibles and the one-time charge for
acquired in-process research and development costs are due to the acquisitions
completed during fiscal 2000. The Company obtained independent appraisals of the
fair market value of the intangible assets acquired. Acquired intangible assets,
including goodwill, patents, existing technologies and established customer
base, are amortized over the shorter of their remaining lives or periods of 10
to 15 years. A one-time charge of $1.4 million associated with the write-off of
acquired in-process research and development was recorded immediately subsequent
to the acquisition of AMVC in the Company's fourth quarter of fiscal 2000.

   Other income and expense includes interest income and expense, royalty income
and other income from miscellaneous sources. Net interest expense in fiscal 2000
was $29,000 compared to net interest income of $210,000 in fiscal 1999 and
$88,000 in fiscal 1998. Decreased net interest income in fiscal 2000 compared to
fiscal 1999 resulted from increased interest expense on long-term debt arising
from the acquisitions in the third and fourth quarter of fiscal 2000, partially
offset by interest earnings on invested cash equivalents and short-term
investments. During fiscal 2000, the Company received royalty payments of
$110,000 compared to total royalty income of $77,000 in fiscal 1999 and $62,000
in fiscal 1998. As part of a settlement agreement entered into during 1997, the
Company may receive royalty payments through 2001 related to the sale of certain
equipment to a selected market. The payment may be reduced by a percentage of
the purchases of equipment from the Company by the other party. The Company
recognized royalty income from this agreement of $71,000 in fiscal 2000, $26,000
in fiscal 1999 and $7,000 in fiscal 1998. During fiscal 2000, the Company
recognized foreign currency conversion losses totaling $407,000 on cash and
accounts receivable held primarily in Euros and Dutch guilders. This compares to
foreign currency conversion gains of $58,000 in fiscal 1999 and $61,000 in
fiscal 1998.


                                       20
<PAGE>


   The Company's effective income tax rate was a tax benefit of 53.0% in fiscal
2000 and tax expense of 31.6%, and 33.5% for fiscal 1999 and 1998, respectively.
The effective tax benefit or tax expense rate varies from the statutory rate of
34% due to permanent differences in tax obligations arising from activities of
the FSC, research and development tax credits, and other permanent differences.
The larger variance from statutory rates in fiscal 2000 compared to fiscal 1999
and fiscal 1998 is principally due to the taxable net loss reported for the
latter period compared to larger taxable net earnings for the previous fiscal
years.

   Net loss after tax was $333,000 in fiscal 2000 compared to net earnings of
$3.5 million in fiscal 1999 and $925,000 in fiscal 1998. Basic and diluted net
loss per share was $0.12 compared to earnings per share of $0.75 and $0.20 in
fiscal years 1999 and 1998, respectively. The net loss of $333,000, or $0.12 per
share, for the year ended September 30, 2000 included merger-related and
one-time acquisition costs of $3.0 million, or $1.9 million after tax. Excluding
merger-related and one-time acquisition charges, net earnings would have been
$1.6 million or $0.29 per share for the year ended September 30, 2000. The
decrease in net earnings in fiscal 2000 compared to fiscal 1999 was principally
due to decreased sales volume in the Company's core business and the one-time
acquisition costs and amortization related to acquisitions. The increase in net
earnings in fiscal 1999 compared to 1998 resulted principally from the increased
gross margins due to the increased level of sales, decreased warranty expenses,
and decreased manufacturing costs as a percentage of sales.

   The anticipated return on the Company's acquisitions during fiscal 2000 is
dependent upon maintaining and growing total revenues of the combined
organization at or above those experienced by the separate companies prior to
acquisition and merger and achieving cost reductions of $4 to $5 million in
manufacturing and operating expense categories. A significant shortfall of
actual results compared to anticipated results could have an adverse effect the
Company's results of operations. Although the Company has begun to experience
cost savings in fiscal 2000, market, economic or other factors may adversely
intervene. There can be no assurance that the Company will achieve its revenue
growth or cost savings objectives.

LIQUIDITY AND CAPITAL RESOURCES

   During fiscal 2000, net cash provided by operating activities totaled $4.3
million compared to $1.9 million and $5.1 million in fiscal 1999 and 1998,
respectively. During fiscal 2000, cash provided by operating activities was
affected by a decrease in accounts receivable totaling $4.1 million that
resulted principally from a decrease in sales volume and improved accounts
receivable management, compared to cash used due to an increase in accounts
receivable totaling $3.8 million during fiscal 1999, due principally to an
increase in sales volume. Accounts receivable balances during fiscal 1998
decreased, and cash increased, by $1.6 million. Operating activities during 2000
provided $1.3 million in cash from a decrease in inventory compared to $2.1
million used to fund an increase in inventories in fiscal 1999 and $1.2 million
provided from a decrease in inventories in 1998. Decreases in trade accounts
payable, accrued payroll liabilities, accrued income taxes and other accrued
liabilities, partially offset by an increase in prepaid expenses, utilized cash
totaling $6.4 million during fiscal 2000. By comparison, the Company was
provided cash totaling $2.0 million in fiscal 1999 by increases in trade
accounts payable, accrued payroll liabilities and accrued income taxes,
partially offset by a decrease in accrued customer support and warranty costs.
The Company used cash during 1998 in the amounts of $846,000 to decrease trade
accounts payable balances and accrued customer support and warranty costs and to
pay accrued income taxes and certain accrued payroll liabilities which had been
accrued in previous fiscal years.

   Net cash  resources  from investing  activities  totaling  $16.2  million
were  used  to acquire  AMVC  and Farmco  during  the  third and fourth
quarters of fiscal  2000, and   $2.2 million,  $1.3 million  and  $2.0
million were  used  to fund the  acquisition  of  capital  equipment  during
2000, 1999  and  1998,  respectively.  At  September 30,  2000,  the  Company
had no  material commitments for capital expenditures. During


                                       21
<PAGE>


fiscal 1998, the Company received net cash resources totaling $653,000 from the
sale of a previously vacated facility. Net proceeds of $1.0 million arising
from the sale and purchase of short-term investments in fiscal 2000 compared
to net investments of $984,000 to purchase short-term investments in fiscal
1999 and no such investments in fiscal 1998.

   The Company's cash flows from financing activities were affected by the
repayment of long-term debt during fiscal 2000, 1999 and 1998 totaling $2.8
million, $539,000, and $904,000, respectively. Separately, cash flows from the
issuance of long-term debt totaled $18.2 million for fiscal 2000 with no such
issuance in fiscal 1999 and $409,000 in fiscal 1998. Proceeds from the issuance
of common stock under the Company's employee stock option and stock purchase
plans during fiscal 2000, 1999 and 1998 totaled $146,000, $77,000 and $137,000,
respectively. During fiscal 2000, the Company redeemed for cash warrants
totaling $703,000. There were no such redemptions in fiscal 1999 and 1998.

   The Company's  facility  with a domestic  commercial bank  provides for
operating lines of credit of up to $22.7 million in three components. The first
component is an unsecured operating line of up to $4.5 million which expires
February 1, 2001. At September 30, 2000 the Company had no borrowings under this
credit line. The second component is a revolving credit agreement of up to $10.0
million, secured by business personal property, with a variable interest rate,
due in quarterly installments until May 2007. The Company had borrowings of
$10.0 million under this agreement at September 30, 2000. The third component is
a revolving credit agreement of up to $8.15 million, secured by business
personal  property, with  a variable  interest rate, due  in  quarterly
installments until July 2008. The Company had borrowings of $8.15 million
under this agreement at September 30, 2000. The authorized borrowing limits
of the revolving credit agreements were reduced by a total of $250,000 on
September 30, 2000 and will reduce by a total of $500,000 each quarter
thereafter beginning December 31, 2000. The Company also maintains a credit
facility with a Dutch bank providing for operating lines of credit totaling up
to approximately $600,000, which are available to the Company's subsidiaries in
the Netherlands.  At September 30, 2000, the Company had no borrowings under
this credit facility.

   The domestic credit accommodation and the mortgage note payable contain
covenants which require certain levels of tangible equity, working capital,
ratios of current assets to current liabilities, or debt to equity. The Company
was not in compliance with certain covenants at September 30, 2000. The Company
has obtained temporary waivers of these covenants and has negotiated
modifications of the covenants to provide latitude in meeting certain covenants
in the future.

   The Company's operating, investing and financing activities during fiscal
2000 resulted in increases in cash and cash equivalents totaling $1.0 million,
compared to a decrease totaling $914,000 in 1999 and an increase totaling $3.4
million in 1998. The balance of cash and cash equivalents totaled $6.4 million,
$5.4 million and $6.3 million at the end of fiscal 2000, 1999 and 1998,
respectively. The Company believes that its cash and cash equivalents, cash
generated from operations and available borrowings under its operating lines of
credit will be sufficient to provide for its working capital needs and to fund
future internal growth.

   Pursuant to the terms of conversion or redemption of the Company's preferred
stock and warrants, the Company has contingent cash requirements through fiscal
2005 for possible redemption of these securities. The maximum cash that could be
required totals $17.1 million. The redemption of securities is at the option of
the security holders until July 12, 2005, at which date any outstanding
unconverted preferred stock is mandatorily redeemed by the Company. The market
price of the Company's common stock will determine timing and occurrence of
redemption  of these securities.  A price of $15.00 per share  or more on or
prior to July 12, 2002 could motivate holders  to convert their  preferred
stock to common stock. At December 6, 2000, holders of 216,605 warrants of the
365,222 warrants  issued had redeemed  for cash  their warrants at $10 each.
If  the Company  is not able to sustain  operating  cash through  normal
operations or were required to redeem for cash the preferred stock and remaining


                                       22
<PAGE>


warrants, it may have to rely on additional debt or equity financing. There can
be no assurance the Company would be able to obtain future financing on terms
satisfactory to the Company.

THE EURO CONVERSION

   On January 1, 1999, certain member countries of the European Union, including
the Netherlands, established fixed conversion rates between their existing
sovereign (legacy) currencies and the Euro, leading to the adoption of the Euro
by these countries as their common legal currency. The information systems of
the Company's European subsidiary, Key Technology B.V., currently accommodates
multiple currency transactions and has integrated Euro denominated transactions
with no difficulty. Key Technology began implementing a conversion of its
business systems to the Euro concurrent with the start of the Company's fiscal
2000 year. The Company expects to complete the conversion during its fiscal year
2001, well before January 1, 2002 when the legacy currencies may no longer be
legal tender.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   The Company has assessed its exposure to market risks for its financial
instruments and has determined that its exposures to such risks are generally
limited to those affected by the strength of the U.S. Dollar against the Euro
and the Dutch guilder.

   The terms of sales to European customers by Key Technology B.V., the
Company's European subsidiary, are typically denominated in either Euros, U.S.
Dollars, Dutch guilders or to a far lesser extent, the respective legacy
currencies of its European customers. The Company expects that its standard
terms of sales to international customers, other than those in Europe, will
continue to be denominated in U.S. dollars. For sales transactions between
international customers, including European customers, and the Company's
domestic operations which are denominated in currencies other than U.S. dollars,
the Company assesses its currency exchange risk and may enter into a currency
hedging transaction to minimize such risk. At September 30, 2000, the Company
was not a party to any currency hedging transaction.

   During the Company's fiscal 2000, the Euro and the Dutch guilder, the latter
normally a stable currency, lost 21% of their respective values against the U.S.
dollar. The majority of this currency exchange movement occurred in the last six
months of the Company's fiscal year. The effect of the stronger dollar on the
operations and financial results of the Company were:

   o  Margins on automated  inspection  systems sold into Europe were  decreased
      approximately 3% as the Company continued a Euro-based pricing model to
      maintain market share against European manufacturers.
   o  Translation  adjustments of $770,000, net of income tax, were recognized
      as a component of  Comprehensive  Loss in the Company's  Statement of
      Shareholders' Equity as a result of converting  the guilder  denominated
      balance sheet of Key Technology into U.S. dollars.

   o  Foreign exchange losses of $407,000 were recognized in the other income
      and expense section of the  consolidated  income statement as a result of
      conversion of guilder  and Euro  denominated  receivables and cash carried
      on the balance sheet of the U.S. operations.

Among the  factors  influencing  the strength  of the U.S. dollar on the world
market  were the general strength  of the U.S.  economy, the  relatively  high
interest rates in the U.S. and continuing economic weakness in some economies of
countries comprising  the European  Union. The Company  expects to continue to
experience  adverse effects from the relative strength of the U.S.  dollar on
business outside of the United  States, if factors supporting the strong U.S.
dollar do not reverse themselves to levels experienced in earlier years.


                                       23
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Title                                                             Page
         -----                                                             ----

         Independent Auditors' Report...................................    25

         Consolidated Balance Sheets at September 30, 2000 and 1999.....    26

         Consolidated Statements of Earnings (Loss) for the three
            years ended September 30, 2000..............................    28

         Consolidated Statements of Shareholders' Equity for the
            three years ended September 30, 2000........................    29

         Consolidated Statements of Cash Flows for the three years
            ended September 30, 2000....................................    30

         Notes to Consolidated Financial Statements.....................    32

         Supplementary Data.............................................    45




















                                       24
<PAGE>


INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
Key Technology, Inc.
Walla Walla, Washington


We have audited the accompanying consolidated balance sheets of Key Technology,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of earnings (loss), shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 2000. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Key Technology, Inc. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States of America.


DELOITTE & TOUCHE LLP

Portland, Oregon
November 13, 2000
(December 14, 2000 as to information in Note 6)















                                       25
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
--------------------------------------------------------------------------------

ASSETS                                                          2000       1999

CURRENT ASSETS:
  Cash and cash equivalents                                  $ 6,427    $ 5,419
  Short-term investments                                         108        984
  Trade accounts and notes receivable, net                     9,426     10,762
  Inventories                                                 22,011     14,618
  Deferred income taxes                                        1,699      1,182
  Prepaid expenses and other assets                            2,372      1,049
                                                             ---------  --------
         Total current assets                                 42,043     34,014

PROPERTY, PLANT, AND EQUIPMENT, Net                           13,784      8,582

DEFERRED INCOME TAXES                                          1,237        207

OTHER ASSETS                                                     445          2

GOODWILL AND OTHER INTANGIBLES, Net                           27,908      1,615
                                                             ---------  --------
TOTAL                                                        $85,417    $44,420
                                                             =========  ========

                                                                    (Continued)














                See notes to consolidated financial statements.

                                       26
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARES)
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY                            2000       1999

CURRENT LIABILITIES:
  Accounts payable                                           $ 3,843    $ 2,753
  Accrued payroll liabilities and commissions                  3,972      3,801
  Accrued customer support and warranty costs                    947        797
  Income tax payable                                             185        507
  Other accrued liabilities                                    1,790      1,344
  Customers' deposits                                          2,657      1,535
  Current portion of long-term debt                            3,447        304
                                                             ---------  --------
         Total current liabilities                            16,841     11,041

LONG-TERM DEBT                                                19,483        722

DEFERRED INCOME TAXES                                            523          -

COMMITMENTS AND CONTINGENCIES (Note 7)                             -          -

MANDATORILY REDEEMABLE PREFERRED STOCK (Note 8)               14,156          -

WARRANTS (Note 8)                                              2,949          -

SHAREHOLDERS' EQUITY:
  Preferred stock - no par value; 5,000,000 shares
    authorized; none issued and outstanding                        -          -
  Common stock - no par value; 15,000,000 shares
    authorized; 4,733,560 and 4,713,995 issued and
    outstanding 2000 and 1999, respectively                    9,329      9,183
  Retained earnings                                           23,370     23,938
  Accumulated comprehensive loss                              (1,234)      (464)
                                                             ---------  --------
         Total shareholders' equity                           31,465     32,657
                                                             ---------  --------
TOTAL                                                        $85,417    $44,420
                                                             =========  ========

                                                                    (Concluded)










                See notes to consolidated financial statements.

                                       27
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
THREE YEARS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------


                                                    2000       1999       1998

NET SALES                                        $67,634    $68,028    $53,133

COST OF SALES                                     41,804     42,281     33,838
                                                 ---------  ---------  ---------

      Gross profit                                25,830     25,747     19,295
                                                 ---------  ---------  ---------

OPERATING EXPENSES:
  Selling                                         12,970     11,125      8,025
  Research and development                         5,521      4,282      4,781
  General and administrative                       5,907      5,378      5,042
  Amortization of intangibles                        914        237        237
  In-process research and development              1,400          -          -
                                                 ---------  ---------  ---------
      Total operating expenses                    26,712     21,022     18,085
                                                 ---------  ---------  ---------
INCOME (LOSS) FROM OPERATIONS                       (882)     4,725      1,210
                                                 ---------  ---------  ---------

OTHER INCOME (EXPENSE):
  Royalty income                                     110         77         62
  Interest income                                    398        318        227
  Interest expense                                  (427)      (108)      (139)
  Other, net                                          93        149         29
                                                 ---------  ---------  ---------
            Total other income - net                 174        436        179
                                                 ---------  ---------  ---------
Earnings (loss) before income taxes                 (708)     5,161      1,389

Income tax (benefit) expense                        (375)     1,632        464
                                                 ---------  ---------  ---------

NET EARNINGS (LOSS)                                 (333)     3,529        925

Accretion of mandatorily redeemable preferred
  securities (Note 8)                               (235)         -          -
                                                 ---------  ---------  ---------
Net earnings (loss) available to common
shareholders                                     $  (568)   $ 3,529    $   925
                                                 =========  =========  =========
EARNINGS (LOSS) PER SHARE - Basic                $ (0.12)   $  0.75    $  0.20
                                                 =========  =========  =========
EARNINGS (LOSS) PER SHARE - Diluted              $ (0.12)   $  0.75    $  0.20
                                                 =========  =========  =========
SHARES USED IN PER SHARE CALCULATION - Basic       4,723      4,707      4,692
                                                 =========  =========  =========
SHARES USED IN PER SHARE CALCULATION - Diluted     4,723      4,711      4,721
                                                 =========  =========  =========


                See notes to consolidated financial statements.

                                       28
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------

                                         COMMON STOCK
                                       -----------------                    ACCUMULATED
                                                             RETAINED      COMPREHENSIVE
                                       SHARES     AMOUNT     EARNINGS         INCOME(LOSS)     TOTAL
                                     ----------  ---------   --------        ---------        --------
<S>                                   <C>         <C>        <C>              <C>              <C>

 Balance at October 1, 1997           4,684,446     $8,969    $19,484          $  (422)        $28,031

Components of comprehensive
income:
 Net earnings                                                     925                              925
 Comprehensive income - foreign
 currency translation adjustment,
 net of tax                                                                        222             222
                                                                                              --------
      Total comprehensive income                                                                 1,147
                                                                                              --------
Issuance of common stock upon
exercise of stock options                 6,472         51          -                -              51

Issuance of stock for Employee
Stock Purchase Plan                      10,581         86          -                -              86
                                     ----------  ---------   --------        ---------        --------

Balance at September 30, 1998         4,701,502      9,106     20,409             (200)         29,315

Components of comprehensive
income:
 Net earnings                                                   3,529                            3,529
 Comprehensive loss - foreign
 currency translation adjustment,
 net of tax                                                                       (264)           (264)
                                                                                              --------
      Total comprehensive income                                                                 3,265
                                                                                              --------

Issuance of common stock upon
 exercise of stock options                  100          1          -                -               1

Issuance of stock for Employee
 Stock Purchase Plan                     12,393         76          -                -              76
                                     ----------  ---------   --------        ---------        --------
Balance at September 30, 1999         4,713,995      9,183     23,938             (464)         32,657

Components of comprehensive
income:
 Net loss                                                        (333)                            (333)
 Comprehensive loss - foreign
 currency translation adjustment,
 net of tax                                                                       (770)           (770)
                                                                                              --------
      Total comprehensive loss                                                                  (1,103)
                                                                                              --------
 Accretion of mandatorily
 redeemable preferred stock                                      (235)                            (235)

Issuance of common stock upon
 exercise of stock options               11,500         85          -                -              85

Issuance of stock for Employee
 Stock Purchase Plan                      8,065         61          -                -              61
                                     ----------  ---------   --------        ---------        --------
Balance at September 30, 2000         4,733,560     $9,329    $23,370          $(1.234)        $31,465
                                     ==========  =========   ========        =========        ========

</TABLE>


                See notes to consolidated financial statements.

                                       29
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
--------------------------------------------------------------------------------

                                                     2000       1999       1998

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                             $  (333)   $ 3,529    $   925
  Adjustments to reconcile net earnings (loss)
   to net cash provided by operating activities:
     Foreign currency exchange (gain) loss            407        (58)       (61)
     Depreciation and amortization                  3,311      2,371      2,187
     In-process research and development            1,400          -          -
     Deferred income taxes                            518        (30)         7
     Deferred rent                                     31         42         50
     Bad debt expense (recoveries)                   (103)      (117)       156
  Changes in assets and liabilities:
      Trade accounts and notes receivable           4,144     (3,768)     1,626
      Inventories                                   1,290     (2,125)     1,230
      Prepaid expenses and other current assets    (1,184)      (452)         1
      Accounts payable                               (686)       354        (85)
      Accrued payroll liabilities and commissions    (657)     1,665       (194)
      Accrued customer support and warranty costs     (24)      (246)       (86)
      Income taxes payable                           (314)       256       (481)
      Other accrued liabilities                    (3,441)       280       (121)
      Customers' deposits                             (18)       189        (64)
      Other                                           (46)         -          6
                                                  ---------  ---------  --------
         Cash provided by operating activities      4,295      1,890      5,096
                                                  ---------  ---------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of short-term investments      3,500          -          -
  Purchases of short-term investments              (2,519)      (984)         -
  Proceeds from sale of property                        -          -        653
  Purchases of property, plant, and equipment      (2,168)    (1,338)    (2,032)
  Cash paid for acquired companies, net of cash   (16,208)         -          -
   acquired                                       ---------  ---------  --------
         Cash used in investing activities        (17,395)    (2,322)    (1,379)
                                                  ---------  ---------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock              146         77        137
  Payments on long-term debt                       (2,750)      (539)      (904)
  Proceeds from issuance of long-term debt         18,150          -        409
  Redemption of warrants                             (703)         -          -
                                                  ---------  ---------  --------
         Cash provided (used in)
          financing activities                     14,843       (462)      (358)
                                                  ---------  ---------  --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH              (735)       (20)        78
                                                  ---------  ---------  --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                     $ 1,008    $  (914)   $ 3,437

                                                                    (Continued)


                See notes to consolidated financial statements.

                                       30
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------


                                                     2000       1999       1998
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                     $ 1,008    $  (914)   $ 3,437

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR        5,419      6,333      2,896
                                                  ---------  ---------  --------
CASH AND CASH EQUIVALENTS, END OF YEAR            $ 6,427    $ 5,419    $ 6,333
                                                  =========  =========  ========

SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
      Cash paid during the year for interest      $   344    $   148    $   256
      Cash paid during the year for income taxes      880      1,408        800

SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES
      Equipment obtained through capital leases   $    96    $     -    $     -
      Noncash portion of acquisitions (assumption
      of liabilities and issuance of mandatorily
      redeemable preferred stock and warrants)    $33,249    $     -    $     -

                                                                    (Concluded)
















                See notes to consolidated financial statements.

                                       31
<PAGE>


KEY TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------


1.  THE COMPANY AND CURRENT YEAR ACQUISITIONS

     Key Technology, Inc. and its wholly-owned subsidiaries (the "Company")
     design, manufacture, and sell process automation systems, integrating
     electro-optical inspection and sorting, specialized conveying and product
     preparation equipment. The consolidated financial statements include the
     accounts of Key Technology, Inc. and its wholly-owned subsidiaries, Key
     Technology Holdings USA LLC, Advanced Machine Vision Corporation ("AMVC")
     and Key Technology FSC, Inc., a foreign sales corporation (FSC). Suplusco
     Holding B.V., a wholly-owned European subsidiary of Key Technology Holdings
     USA LLC includes the accounts of KEY/Superior B.V. AMVC includes the
     accounts of SRC Vision, Inc. and its wholly-owned European subsidiary, SRC
     Vision B.V., Ventek, Inc., ARC Netherlands B.V. (inactive) and Applied
     Laser Systems, Inc. (inactive). Farmco, Inc. and its sister company,
     Ro-Tech, Inc. (collectively, "Farmco") were merged into the accounts of Key
     Technology, Inc. All significant intercompany accounts and transactions
     have been eliminated.

     ACQUISITIONS - Effective June 1, 2000, the Company acquired all the
     outstanding stock of Farmco. The purchase price was $5,040,000. The Company
     financed the cash purchase price from cash on hand, short-term investments
     and existing lines of credits. The acquisition was accounted for as a
     purchase and Farmco's results of operations for the period subsequent to
     the acquisition have been included in the Company's Consolidated Statements
     of Earnings for the year ended September 30, 2000. On September 29, 2000
     these legal entities were statutorily dissolved and merged with the
     Company. The purchase price has been allocated to the assets and
     liabilities of Farmco based on their estimated fair values. Based on these
     estimates, the Company recorded approximately $1,950,000 million of
     goodwill in its consolidated balance sheet at September 30, 2000, which is
     being amortized on a straight-line basis over 15 years. Assets and
     liabilities acquired were as follows (in thousands):

       Fair value of assets acquired:
         Tangible assets                                             $1,420
         Patents/developed technologies and                           5,091
         goodwill
       Cash paid for common stock, less cash                         (4,587)
       acquired of $453
                                                                     -------

           Liabilities assumed                                       $1,924
                                                                     =======

    The amortization period for patents/developed technologies is ten years. The
    product lines associated with theses assets are expected to continue to
    generate revenues for an extended period of time.

    Effective  July 12, 2000, the  Company  acquired all  the outstanding
    stock of AMVC. The  Company financed the  purchase  of outstanding common
    stock and preferred stock by issuing $11,539,000 of Series  B convertible
    preferred stock, $2,382,000 of Series C convertible preferred stock,
    $3,652,000 of warrants, and by paying cash of $11,621,000. The acquisition
    was accounted for as a  purchase and AMVC's  operations for the  period
    subsequent to the  acquisition have been  included in  the Company's
    consolidated statements of earnings for the year ended September 30, 2000.
    The purchase  price has been  allocated  to the  assets and liabilities
    of AMVC  based on their estimated fair values. Based on these estimates,
    the Company recorded approximately $5,700,000 million of


                                       32
<PAGE>


goodwill in its Consolidated Balance Sheet at September 30, 2000, which is being
amortized on a straight-line basis over 15 years. Assets and liabilities
acquired were as follows (in thousands):

       Fair value of assets acquired:
         Tangible assets                                           $17,086
         Patents/developed technologies,
         in-process research
         And development costs and goodwill                         23,519
         Deferred tax assets acquired                                2,341
                                                                   ---------

           Fair value of assets acquired                            42,946

       Less:
         Cash paid for stock, less cash acquired                    11,621
         of $2,877
         Mandatorily redeemable preferred stock
         issued (both Series B and Series C)                        13,921
         Warrants issued                                             3,652
                                                                   ---------

           Liabilities assumed                                     $13,752
                                                                   =========

    The Company obtained independent appraisals of the fair market value of the
    intangible assets to be acquired. The Company identified eight significant
    categories of projects under development at the date of the acquisition
    which had not been proven technologically feasible or had not generated
    revenue as of the date of the evaluation. These projects are expected to
    generate revenue in the near future. A one-time charge of $1.4 million
    associated with the write-off of acquired in-process research and
    development related to these projects was recorded upon closing of the
    transaction.

    The Company identified eleven product catagories which were proven
    technologically feasible and are classified as patents/developed
    technologies. The amortization period for these assets is ten years. The
    product lines associated with these assets are expected to continue to
    generate revenues for an extended period of time.

    Pro forma combined statements of operations data, presented as if the
    mergers had occurred on October 1 of each year are as follows (dollars in
    thousands, except per share data):

                                                               SEPTEMBER 30,
                                                               -------------
                                                              2000 *    1999

        Net sales                                           $87,868    $96,482
        Net earnings (loss)                                  (3,749)     1,227
        Accretion of mandatorily redeemable preferred          (940)      (940)
        stock
        Net earnings (loss) available to common              (4,689)       287
        shareholders
        Pro forma net earnings (loss) per share               (0.99)      0.06
        Pro forma weighted average shares outstanding         4,723      4,707

    * PRO FORMA RESULTS FOR 2000 INCLUDE THE $1.4 MILLION CHARGE FOR IN-PROCESS
    RESEARCH AND DEVELOPMENT RESULTING FROM THE ACQUISITION OF AMVC.


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    REVENUE RECOGNITION - Sales revenue net of allowances is generally
    recognized at the  time equipment is  shipped to  customers or when title
    passes  or in the  case of trial  units,  upon the  customers'  acceptance
    of the product. Revenue  from maintenance  and support  contracts  is
    recognized ratably over the period the service is provided. Revenue from
    other service contracts is


                                       33
<PAGE>


    recognized at the time the service is provided. Upon receipt of an
    order, the Company generally receives a deposit which is recorded as
    customers' deposits. The Company makes periodic evaluations of the
    creditworthiness of its customers and generally does not require collateral.
    An allowance for credit losses is provided based upon historical experience
    and anticipated losses.

    CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company considers
    all highly liquid investments with original maturities of 90 days or less at
    date of acquisition to be cash equivalents. The Company invests from
    time-to-time in short-term investments which consist primarily of bankers
    acceptances and commercial paper with original maturities of greater than 90
    days and less than one year. These short-term investments are typically held
    to maturity and the carrying value approximates fair value.

    INVENTORIES are stated at the lower of cost (first-in, first-out method) or
    market.

    PROPERTY, PLANT, AND EQUIPMENT are recorded at cost and depreciated over
    estimated useful lives on the straight-line method. The range in lives for
    the assets is as follows:
                                                                     YEARS
                                                                     -----
        Buildings and improvements                                   7 to 40
        Manufacturing equipment                                      5 to 10
        Office equipment, furniture, and fixtures                    3 to 7

    GOODWILL AND OTHER INTANGIBLES - Goodwill is amortized over the estimated
    useful lives of the related goodwill or 15 years, whichever is shorter.
    Patent costs are amortized over the estimated useful lives of the related
    patents or 17 years, whichever is shorter. Management periodically evaluates
    the recoverability of goodwill and other intangibles based upon current and
    anticipated net income and undiscounted future cash flows. Amortization of
    goodwill and other intangibles was $914,000, $237,000, and $237,000 for the
    years ended September 30, 2000, 1999, and 1998, respectively.

    OTHER ASSETS - Other assets include approximately $280,000 of a note
    receivable due from a director of the Company at September 30, 2000.

    ACCRUED CUSTOMER SUPPORT AND WARRANTY COSTS - The Company provides customer
    support services consisting of installation and training to its customers.
    The Company also provides a warranty on its products for one to two years
    following the date of shipment. Management establishes a reserve for
    customer support and warranty costs based upon the types of products
    shipped, customer support and product warranty experience and estimates such
    costs for related new products where experience is not available. The
    provision of customer support and warranty costs is charged to cost of sales
    at the time such costs are known or estimable.

    INCOME TAXES - Deferred income taxes are provided for the effects of
    temporary differences arising from differences in the reporting of revenues
    and expenses for financial statement and income tax purposes under the asset
    and liability method using currently enacted tax rates.

    FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in a
    foreign currency are translated to U.S. dollars at the exchange rate on the
    balance sheet date. Translation adjustments are shown separately in
    shareholders' equity. Revenues, costs, and expenses are translated using an
    average rate. Realized and unrealized foreign currency transaction gains and
    losses are included in the consolidated statement of earnings.

    IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates its long-lived
    assets for financial impairments and will continue to evaluate them if
    events or changes in circumstance indicate the carrying amount of such
    assets may not be fully recoverable.


                                       34
<PAGE>


    ESTIMATES - The preparation of financial statements in conformity with
    accounting principles generally accepted in the United States of America
    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 reported
    amounts of revenues and expenses during the reporting period. Actual results
    could differ from those estimates.

    FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards ("SFAS")
    No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
    disclosure of the estimated fair value of financial instruments. The
    carrying value of the Company's cash and cash equivalents, short-term
    investments, accounts and notes receivable, trade payables, and other
    accrued liabilities approximates their estimated fair values due to the
    short maturities of those instruments.

    EARNINGS PER SHARE - Basic earnings (loss) per share ("EPS") has been
    computed by dividing net earnings (loss) available to common shareholders by
    the weighted average number of shares outstanding during each period.
    Diluted EPS has been computed by dividing net earnings (loss) available to
    common shareholders by the weighted average common stock and common stock
    equivalent shares outstanding during each period using the treasury stock
    method for employee stock option plans and warrants, and the if-converted
    method for mandatorily redeemable preferred stock, if the common equivalent
    shares were not anti-dilutive. In the current year, all common stock
    equivalents were anti-dilutive. Net earnings (loss) for the calculation of
    both basic and diluted EPS is the same for each period presented. The
    calculation of the weighted average outstanding shares is as follows (in
    thousands):

                                                 2000         1999        1998

        Weighted average shares outstanding -
        basic                                   4,723        4,707       4,692
        Common stock options and warrants           -            4          29
                                                -----        -----       -----
        Weighted average shares outstanding -
        diluted                                 4,723        4,711       4,721
                                                =====        =====       =====

    Options to purchase 724,833 shares of common stock were outstanding as of
    September 30, 2000, but were not included in the computation of diluted EPS
    for the year then ended because the options were antidilutive. These options
    expire on dates beginning May 2003 through February 2010. For the years
    ended September 30, 1999 and 1998, options for 509,183 and 467,250 shares,
    respectively, of common stock were not included in the computation of
    diluted EPS because the options' exercise prices were greater than the
    average market price of the common stock. Common equivalent shares of
    1,091,543 and 294,551 from assumed conversion of mandatorily redeemable
    preferred stock and warrants, respectively, were not included in the
    computation of diluted EPS due to antidilution.


    FUTURE ACCOUNTING CHANGES - In June 1998, the Financial Accounting Standards
    Board ("FASB") issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
    AND HEDGING ACTIVITIES. This statement establishes accounting and reporting
    standards for derivative instruments and hedging activities. It requires
    that an entity recognize all derivatives as either assets or liabilities in
    the statement of financial position and measure those instruments at fair
    value. The implementation of this statement has been postponed by SFAS No.
    137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL
    OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133. SFAS No. 137 has postponed
    implementation of SFAS No. 133 until fiscal year ending September 30, 2001.
    Currently, this statement is not applicable under the Company's current
    operating condition.

    In December 1999, the Securities and Exchange Commission issued Staff
    Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL
    STATEMENTS, which, as amended, the Company is required to implement
    beginning June 1, 2001. This statement emphasizes that revenue cannot be
    recognized until realized or realizable. Management believes this statement
    will have an immaterial affect on the financial statements.


                                       35
<PAGE>


3.  TRADE ACCOUNTS AND NOTES RECEIVABLE

    Trade accounts and notes receivable consist of the following (in thousands):

                                                              SEPTEMBER 30,
                                                         -----------------------
                                                              2000      1999

      Trade accounts and notes receivable                  $ 9,847    $11,098
      Allowance for doubtful accounts                         (421)      (336)
                                                           ---------  ---------

         Total trade accounts and notes receivable, net    $ 9,426    $10,762
                                                           =========  =========

4.  INVENTORIES

    Inventories consist of the following (in thousands):

                                                              SEPTEMBER 30,
                                                         -----------------------
                                                            2000      1999

      Purchased components and raw materials               $ 7,964    $ 6,202
      Sub-assemblies                                         2,941      1,851
      Work-in-process                                        4,343      3,481
      Finished goods                                         6,763      3,084
                                                           ---------  ---------
            Total inventories                              $22,011    $14,618
                                                           =========  =========

5.  PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment consist of the following (in thousands):

                                                              SEPTEMBER 30,
                                                         -----------------------
                                                            2000      1999

      Land                                                 $ 1,768    $   230
      Buildings and improvements                             7,364      3,233
      Manufacturing equipment                               11,213      9,223
      Office equipment, furniture, and fixtures             11,657      8,012
      Equipment purchases in process                           433        106
                                                           ---------  ---------

                                                            32,435     20,804
      Accumulated depreciation                             (18,651)   (12,222)
                                                           ---------  ---------
            Total property, plant, and equipment - net     $13,784    $ 8,582
                                                           =========  =========

6.  FINANCING AGREEMENTS

    The Company has a domestic credit accommodation with a commercial bank which
    provides for an unsecured operating line up to $4,500,000 and revolving
    credit loans  of  up to  $18,150,000. The authorized  borrowing limits
    of the revolving credit loans were reduced by a total of $250,000 on
    September 30, 2000 and will reduce by a total of $500,000 each quarter
    thereafter beginning December 31, 2000. The unsecured operating line expires
    February 1, 2001. The credit facilities carry interest rates based upon
    either the lender's prime rate less certain basis points, the Federal Funds
    Borrowing Rate plus certain basis points or the LIBOR rate plus certain
    basis points.  The spread is determined by the performance of the Company
    as reviewed quarterly by the lender. The selection of the interest rate
    can be changed from time-to-time by the Company. At September 30, 2000


                                       36
<PAGE>


    the Company used the Federal Funds Borrowing Rate which was 8.0% for the
    operating line and 8.1% for the revolving credit loans.

    The Company also maintains a credit facility with a Dutch bank which
    provides for operating lines of credit up to 1.5 million guilders or
    approximately $600,000 at an interest rate of 7.00%. Collateral for this
    credit facility is certain receivables and inventories of the Company's
    Dutch subsidiaries and a guarantee provided by the Company. At September 30,
    2000 and 1999, there were no borrowings outstanding.

    Long-term debt consists of the following (in thousands):

                                                              SEPTEMBER 30,
                                                         -----------------------
                                                              2000      1999
   Revolving credit agreement, variable interest rate,
     due in quarterly Installments until May 2007,
     secured by business personal property                 $10,000    $      -

   Revolving credit agreement, variable interest rate
     through July 2008, secured by business personal
     property.                                               8,150           -

   Mortgage note payable, interest of 8.3%, due in
     monthly principal and interest installments through
     May 2008, secured by specific property, plant, and
     equipment.                                              2,905           -

   Notes payable, interest rate of 11.25%, due in quarterly
     interest Installments through April 2001.  The
     principal amount is payable In April 2001.                900           -

   Note payable, interest rate of 6%, due in quarterly
     principal and interest installments through October 2006,
     secured by certain Land and buildings.                    400         563

   Note payable to Veneer Technology, Inc. (which is owned
     by a director and certain employees of the Company)
     interest of 6.75%, due in July 2001.                      250           -

   Note payable, interest rate of 5.625%, due in quarterly
     principal and Interest installments through October 2001,
     secured by receivables.                                   100         218

   Unsecured borrowing through assignment of lease with
     limited Recourse through July 2001.                         -         222

   Capital leases, interest rates between 6% and 11%, due
     in principal and interest installments through June 2003,
     secured by certain office equipment.                      225          23
                                                           ----------- ---------
                                                            22,930       1,026
   Current portion                                          (3,447)       (304)
                                                           -----------  --------
        Total long-term debt                               $19,483      $  722
                                                           ===========  ========







                                       37
<PAGE>


    Principal payments on long-term debt are as follows (in thousands):

        YEAR ENDING
       SEPTEMBER 30,
       -------------

           2001                                                        $ 3,447
           2002                                                          2,231
           2003                                                          2,137
           2004                                                          2,123
           2005                                                          2,128
         Thereafter                                                     10,864
                                                                       --------
                 Total                                                 $22,930
                                                                       ========

    Based on the borrowing rates currently available to the Company for loans
    with similar terms and average maturities, the fair value of long-term debt
    at September 30, 2000 approximates carrying value.

    The domestic credit accommodation and the mortgage note payable contain
    covenants which require certain levels of tangible equity, working capital,
    ratios of current assets to current liabilities, or debt to equity. The
    Company was not in compliance with certain covenants at September 30, 2000.
    The Company has obtained temporary waivers of these covenants.


7.  LEASES

    The Company has agreements with the Port of Walla Walla to lease two
    operating facilities which expire in 2010. The Company currently has the
    option to purchase the land and plant under one of the agreements. The
    purchase price is determined by reducing the original plant construction
    costs of approximately $8,800,000 by one thirty-fifth for each lease year
    prior to the exercise of the option and adding $600,000 for the land,
    subject to further reductions if exercised after the fifteenth year of the
    lease. The Company has also leased two operating facilities in Oregon which
    expire in 2002 and 2003. One of the facilities is owned by a current
    employee of the Company. The Company has leased an operating facility in The
    Netherlands, which expires in 2008.

    Rental expense is recognized on a straight-line basis over the term of the
    lease. Rental expense for the Company's operating leases referred to above
    was $1,178,000 for the year ended September 30, 2000, $1,133,000 for the
    year ended September 30, 1999, and $1,061,000 for the year ended September
    30, 1998.

    The following is a schedule of future minimum rental payments required under
    the operating leases and future rental expense (in thousands):


         YEAR ENDING                                      RENTAL     RENTAL
        SEPTEMBER 30,                                    PAYMENTS    EXPENSE
        -------------                                    ---------  ---------

          2001                                            $ 1,254    $ 1,280
          2002                                              1,245      1,260
          2003                                              1,169      1,161
          2004                                              1,115      1,080
          2005                                              1,141      1,080
        Thereafter                                          5,502      5,084
                                                         ---------  ---------
                     Total                                $11,426    $10,945
                                                         =========  =========


                                       38
<PAGE>


8.  MANDATORILY REDEEMABLE PREFERRED STOCK AND WARRANTS

    The Company issued 1,340,366 and 119,106 shares of Series B convertible
    preferred stock and Series C convertible preferred stock ("Series B" and
    "Series C", respectively) at a price of $8.60 and $20.00 per share,
    respectively, in conjunction with the acquisition of AMVC (see Note 1). Both
    Series are convertible at the option of the holder at any time, unless
    previously redeemed, or by the Company upon a merger, consolidation, share
    exchange or sale of substantially all of its assets. The Series B, par value
    of $0.01 per share, may be converted into 2/3 of a share of common stock.
    The Series C, par value $0.01 per share, may be converted into 1 2/3 shares
    of common stock. If not converted to common stock, the Company must redeem
    the Series B and the Series C for $10.00 and $20.00 per share, respectively,
    on July 12, 2005. The Series B is being accreted from its issue price to its
    scheduled redemption price using the effective interest method. The holders
    of Series B may require the Company to repurchase any or all of their shares
    at any time after July 12, 2002 at the redemption price of $10.00. The
    holders of Series C may require the Company to repurchase any or all of
    their shares at any time at a redemption price of $20.00.

    The holders of Series B and Series C are entitled to vote on all matters
    based on the number of whole shares of common stock into which the holder's
    stock could be converted. Neither series is entitled to any dividends. In
    the event of any liquidation, dissolution or winding up of the Company's
    business, the holders of Series B and Series C would be entitled to a
    payment of $10.00 and $20.00 per share, respectively, before any mount is
    distributed to holders of common stock. If the assets were insufficient to
    permit this payment to the holders of Series B and Series C, the entire
    assets available for distribution to holders of capital stock would be
    distributed ratably among the holders of Series B and Series C.

    Also, the Company issued 365,222 warrants at a fair market value of $10.00
    per warrant in conjunction with the issuance of the convertible preferred
    stock. Each warrant entitles its holder to purchase at any time for a period
    of five years one share of common stock at $15.00 per share, subject to
    certain adjustments. The warrants permit the holder to engage in a net
    exercise of the warrants if the fair market value of one share of common
    stock is greater than $15.00 per share on the date of exercise. Prior to the
    expiration date of the warrant, the holder may require the Company to redeem
    the warrant for cash at a price equal to $10.00 for each whole share of
    common stock that may be purchased under the warrant. The warrant holder
    does not have the right to vote or participate in any other matters as a
    shareholder.

    The Series C shareholder held an option to purchase shares of AMVC common
    stock at the date of its acquisition by the Company. This option was
    converted upon the closing of the merger into an option expiring on October
    14, 2003 to purchase 210,000 shares of the Company's Series B convertible
    preferred stock and warrants to purchase 52,500 shares of the Company's
    common stock for $2,520,000. The Company's warrants issuable in connection
    with the exercise of this option are identical to the warrants discussed
    above.







                                       39
<PAGE>


9.  INCOME TAXES

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

                                                  YEAR ENDED SEPTEMBER 30,
                                             ----------------------------------
                                                 2000       1999       1998

            Current:
              Federal                          $ (850)    $1,520     $  415
              State                               (43)       142         42
                                               ---------  ---------  ---------
                                                 (893)     1,662        457
                                               ---------  ---------  ---------

            Deferred:
              Federal                             490        (32)         8
              State                                28          2         (1)
                                               ---------  ---------  ---------
                                                  518        (30)         7
                                               ---------  ---------  ---------

          Total income tax expense (benefit)   $ (375)    $1,632     $  464
                                               =========  =========  =========

     The tax effects of temporary differences that give rise to significant
     portions of deferred tax assets and deferred tax liabilities are as follows
     (in thousands):

                                                           SEPTEMBER 30,
                                                    --------------------------
                                                         2000        1999
        Deferred tax asset:
         Reserves and accruals                         $1,807      $1,347
         NOL carryforward                               6,301           -
         Translation adjustment to equity                 636         239
        Deferred tax liability:
         Accumulated depreciation                        (148)       (270)
         Intangible assets                             (6,183)         73
                                                      ---------   ---------
               Net deferred tax asset                  $2,413      $1,389
                                                      =========   =========



        Deferred tax:
         Current asset                                 $1,699      $1,182
         Long-term asset                                1,237         207
         Long-term liability                             (523)          -
                                                      ---------   ---------
               Net deferred tax asset                  $2,413      $1,389
                                                      =========   =========

     Income tax expense (benefit) is computed at rates different than statutory
     rates. The reconciliation between effective and statutory rates is as
     follows:









                                       40
<PAGE>


                                                  YEAR ENDED SEPTEMBER 30,
                                             ----------------------------------
                                                2000       1999       1998


    Statutory rates                            (34.0)%     34.0%      34.0%
    Increase (reduction) in income taxes
    resulting from:
         FSC commissions                       (15.1)      (5.0)      (6.8)
         FSC tax                                 5.2        1.7        2.4
         R&D credit                             (8.2)         -          -
         State income taxes, net
         of federal benefit                     (1.3)       1.8        1.9
         Other permanent differences            10.3        0.8        2.5
         Other                                 (10.1)      (1.7)      (0.5)
                                               --------   --------  --------

          Income tax combined effective rate   (53.0)%     31.6%      33.5%
                                               ========   ========  ========

10. SHAREHOLDERS' EQUITY

    EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase Plan
    (the "Plan"). Most employees are eligible to participate in the Plan. Shares
    are not available to employees who already own 5% or more of the Company's
    stock. Employees can withhold, by payroll deductions, up to 5% of their
    regular compensation to purchase shares. The purchase price is 85% of the
    fair market value of the common stock on the purchase date. There were
    500,000 shares reserved for purchase under the Plan. During the years ended
    September 30, 2000, 1999, and 1998, the Company issued 8,065, 12,393, and
    10,581, respectively, under the Plan.

    EMPLOYEES' STOCK OPTION PLAN - Under the 1996 Employees' Stock Option Plan
    (the "1996 Plan"), eligible employees may receive either incentive stock
    options or nonstatutory stock options and such options may be exercised only
    after an employee has remained in continuous employment for one year after
    the date of grant. Thereafter, the options become exercisable as stipulated
    by the individual option agreements, generally 25% per year on the
    anniversary date of the grant. The option price is determined to be fair
    market value at date of grant. The following table summarizes activity under
    this Plan:

                                                OUTSTANDING OPTIONS
                                            ---------------------------
                                                               WEIGHTED
                                                               AVERAGE
                                             NUMBER OF          PRICE
                                              SHARES          PER SHARE


  Balance at September 30, 1997              463,333           $16.31
        Options granted                      156,200           $11.77
        Options exercised                     (6,475)           $7.79
        Options forfeited                    (10,275)          $17.92
                                            ----------

  Balance at September 30, 1998              602,783           $15.19
        Options granted                       45,000            $8.23
        Options exercised                       (100)           $7.00
        Options forfeited                    (91,700)          $16.09
                                            ----------

  Balance at September 30, 1999              555,983           $14.48
        Options granted                      298,250            $8.84
        Options exercised                    (11,500)           $7.00
        Options forfeited                   (117,900)          $14.96
                                            ----------

  Balance at September 30, 2000              724,833           $12.20
                                            ==========


                                       41
<PAGE>


    At September 30, 2000, the total number of shares reserved for option
    exercises was 1,187,483, of which 462,650 were available for grant. At
    September 30, 2000, options for 326,418 shares were exercisable at prices
    from $7.00 to $23.25 per share. At September 30, 1999, the total number of
    shares reserved for option exercises was 698,983, of which 143,000 were
    available for grant. At September 30, 1999, options for 320,780 shares were
    exercisable at prices from $7.00 to $23.25 per share. At September 30, 1998,
    the total number of shares reserved for option exercises was 699,083, of
    which 96,300 were available for grant. At September 30, 1998, options for
    240,568 shares were exercisable at prices from $7.00 to $23.25 per share.

    During 1995, FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
    COMPENSATION, which defines a fair value based method of accounting for
    employee stock options and similar equity instruments and encourages all
    entities to adopt that method of accounting for all of their employee stock
    compensation plans. However, it also allows an entity to continue to measure
    compensation cost for those plans using the method of accounting prescribed
    by Accounting Principles Board Opinion No. 25 ("APB 25"). Entities electing
    to remain with the accounting in APB 25 must make pro forma disclosures of
    net income and, if presented, earnings per share, as if the fair value based
    method of accounting defined in SFAS No. 123 has been adopted.

    The Company has elected to account for its stock-based compensation plans
    under APB 25. The Company has computed, for pro forma disclosure purposes,
    the value of all stock and stock options granted under the Employee Stock
    Purchase Plan and the 1996 Employees' Stock Option Plan during 2000, 1999,
    and 1998 using the Black-Scholes option pricing model as prescribed by SFAS
    No. 123 using the following weighted average assumptions for the years ended
    September 30, 2000, 1999, and 1998:
                                             2000      1999      1998

      Risk-free interest rate                6.2 %     5.0 %     5.0 %
      Expected dividend yield                  0 %       0 %       0 %
      Expected lives                      5.5 years   6 years   6 years
      Expected volatility                     66 %      66 %      62 %

    Using the Black-Scholes methodology, the total value of stock options
    granted during 2000, 1999, and 1998 was $1,598,000, 225,000, and $1,097,000,
    respectively, which would be amortized on a pro forma basis over the vesting
    period of the options (typically five years). The weighted average fair
    value of options granted under the 1996 Employees' Stock Option Plan during
    2000, 1999, and 1998 was $5.60 per share, $5.28 per share, and $7.27 per
    share, respectively.

    The total compensatory value of stock purchased under the Employee Stock
    Purchase Plan during 2000, 1999, and 1998 was $11,000, $13,000, and $15,000,
    respectively. The weighted average fair value of the stock purchased during
    2000, 1999, and 1998 was $1.34 per share, $1.08 per share, and $1.42 per
    share, respectively.

    If the Company had accounted for its 1996 Plan and Employee Stock Purchase
    Plan in accordance with SFAS No. 123, the Company's net earnings and
    earnings per share would approximate the pro forma disclosures below (in
    thousands, except per share amounts):


                         YEAR ENDED           YEAR ENDED         YEAR ENDED
                        SEPTEMBER 30,       SEPTEMBER 30,      SEPTEMBER 30,
                            2000                 1999               1998
                      ------------------   -----------------  -----------------
                      AS       PRO         AS       PRO       AS       PRO
                      REPORTED FORMA       REPORTED FORMA     REPORTED FORMA

    Net earnings
    (loss)            $ (333)  $(1,083)    $ 3,529   $ 2,633   $  925  $  186
    Earnings (loss)
    per share -
    basic and
    diluted           $(0.12)  $ (0.28)    $  0.75   $  0.56   $ 0.20  $ 0.04


                                       42
<PAGE>


    The effects of applying SFAS No. 123 in this pro forma disclosure are not
    indicative of future amounts. SFAS No. 123 does not apply to awards prior to
    October 1, 1995, and additional awards are anticipated in future years.

    The following table summarizes information about stock options outstanding
    at September 30, 2000:

<TABLE>
<CAPTION>


                     OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
   --------------------------------------------------------          -------------------------
                                    WEIGHTED
                                    AVERAGE       WEIGHTED                            WEIGHTED
     RANGE OF                      REMAINING      AVERAGE              NUMBER OF      AVERAGE
     EXERCISE          NUMBER      CONTRACTUAL    EXERCISE              SHARES        EXERCISE
      PRICES         OUTSTANDING   LIFE (YEARS)    PRICE               EXERCISABLE     PRICE
   <S>               <C>           <C>           <C>                   <C>            <C>

   $ 7.00 - $10.00     399,483         5.0        $  8.68                80,733       $  8.20
   $10.01 - $15.00     129,100         7.3          11.70                72,050         11.64
   $15.01 - $20.00     105,450         6.5          17.21                82,835         17.23
   $20.01 - $23.25      90,800         5.6          22.57                90,800         22.57
   ----------------  ------------  ------------  ----------            ------------  -----------
   $ 7.00 - $23.25     724,833         5.7        $ 12.20               326,418       $ 15.25
   ================  ============  ============  ==========            ============  ===========

</TABLE>

11. EMPLOYEE BENEFIT PLANS

    The Company has a 401(k) profit sharing plan which covers substantially all
    employees. The Company is required to match 50% of employee contributions up
    to 2% of each participating employee's compensation. The Company contributed
    $257,000, $200,000, and $222,000 in matching funds to the plan for the years
    ended September 30, 2000, 1999, and 1998, respectively.

    The 401(k) plan also permits the Company to make discretionary profit
    sharing contributions to all employees. Discretionary profit sharing
    contributions are determined annually by the Board of Directors. Profit
    sharing plan expense was zero, $506,000, and zero for the years ended
    September 30, 2000, 1999, and 1998, respectively.

    The Company had a phantom stock plan for certain key employees and the
    Company's estimated purchase price of the phantom stock units was included
    in other liabilities. No additional awards of phantom stock units could
    occur and final settlement occurred in fiscal 1998. The Company paid zero,
    zero, and $46,000 in settlement of certain phantom stock unit awards during
    the years ended September 30, 2000, 1999, and 1998, respectively.

12. SEGMENT  INFORMATION

    The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
    ENTERPRISE AND RELATED INFORMATION, as of the fiscal year ended
    September 30, 1999. The Company's business units serve customers in its
    primary market - the food processing and agricultural products industry -
    through common sales and distribution channels. Therefore, the Company
    reports on one segment. The following is information about products and
    services (in thousands).

                                                   YEAR ENDED SEPTEMBER 30,
                                             ----------------------------------
                                                  2000       1999      1998


      Net sales by product category:
       Automated inspection systems            $25,166    $22,342   $21,388
       Specialized conveying systems            23,630     28,422    21,807
       Process and preparation systems           2,784      5,528     1,687
       Parts and service/contracts              16,054     11,736     8,251
                                               --------   --------  ---------
         Total net sales by product category   $67,634    $68,028   $53,133
                                               ========   ========  =========


                                       43
<PAGE>


    The following is information about geographic areas:

                                                   YEAR ENDED SEPTEMBER 30,
                                             ----------------------------------
                                                  2000       1999      1998

      Net sales:
       Domestic                                $40,264    $37,026   $33,306
       International                            27,370     31,002    19,827
                                               --------   --------  --------
         Total net sales                       $67,634    $68,028   $53,133
                                               ========   ========  ========

      Long-lived assets:
       Domestic                                $38,306    $ 6,192   $ 6,852
       International                             3,332      4,007     4,599
                                               --------   --------  --------
         Total long-lived assets               $41,638    $10,199   $11,451
                                               ========   ========  ========

    During 2000, net sales to one major customer amounted to approximately 14%
    of total net sales. During 1999, net sales to one major customer amounted to
    approximately 11% of total net sales. No single customer accounted for more
    than 10% of net sales during the year ended September 30, 1998.

    No single geographic location accounted for more than 10% of net sales
    during 2000. During 1999, net sales to various customers in Canada accounted
    for approximately 11% of total net sales. During 1998, net sales to various
    customers in The Netherlands accounted for approximately 11% of total net
    sales. Location of the customer is the basis for identification of net
    sales.

    International long-lived assets are located in The Netherlands.

13. ROYALTY INCOME

    As part of a settlement agreement entered into during 1997, the Company may
    receive royalty payments through 2001 related to the sale of certain
    equipment to a selected market. The payment may be reduced by a percentage
    of the purchases of equipment from the Company by the other party. The
    Company recognized royalty income from this agreement of $71,000, $26,000,
    and $7,000 during the years ended September 30, 2000, 1999, and 1998,
    respectively.

                                   * * * * * *












                                       44
<PAGE>


SUPPLEMENTARY DATA

    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

    The following is a summary of operating results by quarter for the years
    ended September 30, 2000 and 1999 (in thousands, except per share data):

<TABLE>
<CAPTION>

     2000 QUARTER ENDED     DECEMBER 31,     MARCH 31,     JUNE 30,     SEPTEMBER 30,     TOTAL

     <S>                     <C>             <C>           <C>            <C>            <C>
     Net sales               $15,079         $17,081       $16,819        $18,655        $67,634
     Gross profit              5,431           6,444         6,923          7,032         25,830
     Net earnings (loss)          90             834         1,196         (2,453)          (333)
     Net earnings (loss) per
     share -
      Basic and diluted         0.02            0.18          0.25          (0.57)         (0.12)

</TABLE>

<TABLE>
<CAPTION>

     1999 QUARTER ENDED     DECEMBER 31,     MARCH 31,     JUNE 30,     SEPTEMBER 30,     TOTAL

     <S>                     <C>             <C>           <C>            <C>            <C>
     Net sales               $14,819         $15,676       $15,836        $21,697        $68,028
     Gross profit              5,390           5,752         6,874          7,731         25,747
     Net earnings                424             547         1,196          1,362          3,529
     Net earnings per share
     - basic and diluted        0.09            0.12          0.25           0.29           0.75

</TABLE>


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.

   There is hereby incorporated by reference the information under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A, which Proxy Statement is anticipated to be filed with the
Securities and Exchange Commission within 120 days after the end of Registrant's
fiscal year ended September 30, 2000.


ITEM 11. EXECUTIVE COMPENSATION.

   There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 2000.





                                       45
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

   There is hereby incorporated by reference the information under the caption
"Principal Shareholders" in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed
with the Securities and Exchange Commission within 120 days after the end of
Registrant's fiscal year ended September 30, 2000.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   During the fourth quarter of fiscal 2000, the Company paid $2,250,000 plus
accrued interest to Veneer Technology, Inc., representing payment in full of a
note payable. Veneer Technology, Inc. is 25% owned by Rodger A. Van Voorhis, a
director and employee of the Company. At September 30, 2000, the Company owed
Veneer Technology, Inc. $250,000 plus accrued interest on a note due in April
2001. The Company also held at September 30, 2000 a note receivable from Mr. Van
Voorhis of $280,000, including accrued interest receivable. The note payable to
Veneer Technology, Inc. and the note receivable from Mr. Van Voorhis were paid
or received in full with all accrued interest in October 2000, subsequent to the
close of the fiscal year.

   The Company leases its manufacturing facility in Redmond, Oregon from John E.
Mobley, an employee and former owner of Farmco. Monthly lease payments of
$10,000 were determined by a real estate professional to be comparable with
similar properties in the area. The lease expires in 2003 with a right to extend
for an additional 5 years.



















                                       46
<PAGE>


                                     PART IV

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

                                                                          PAGE
                                                                          ----
(A)   THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

      1. FINANCIAL STATEMENTS:

         Reference is made to Part II, Item 8, for a listing of
         required financial statements filed with this report..........    24

      2. FINANCIAL STATEMENT SCHEDULES:

         Financial statement schedules are omitted because they are
         not applicable or the required information is included in the
         accompanying consolidated financial statements or notes thereto.

      3. EXHIBITS:

         (3)   Articles of Incorporation and Bylaws

               (3.1)    Restated Articles of Incorporation (filed as Exhibit 3.1
                        to the Registration Statement on Form S-1 (Registration
                        No. 33-63194) filed with the Securities and Exchange
                        Commission on May 24, 1993 and incorporated herein by
                        reference)
               (3.2)    Restated Bylaws, as amended (filed as Exhibit 3.2 to the
                        Quarterly Report on Form 10-Q for the quarterly period
                        ended December 31, 1993 and incorporated herein by
                        reference)

         (10)  Material contracts

               (10.1)   Construction and Lease Agreement dated October 17, 1989
                        between the Port of Walla Walla and Registrant (filed as
                        Exhibit 10.1 to the Registration Statement on Form S-1
                        (Registration No. 33-63194) filed with the Securities
                        and Exchange Commission on May 24, 1993 and incorporated
                        herein by reference)
               (10.2)   Indenture of Trust dated as of February 1, 1993 between
                        Port of Walla Walla Public Corporation and Key Bank of
                        Washington, as Trustee (filed as Exhibit 10.2 to the
                        Registration Statement on Form S-1 (Registration No.
                        33-63194) filed with the Securities and Exchange
                        Commission on May 24, 1993 and incorporated herein by
                        reference)
               (10.3)   Loan Agreement dated February 1, 1993 between Port of
                        Walla Walla Public Corporation and Registrant (filed as
                        Exhibit 10.3 to the Registration Statement on Form S-1
                        (Registration No. 33-63194) filed with the Securities
                        and Exchange Commission on May 24, 1993 and incorporated
                        herein by reference)
               (10.4)   Pledge and Security Agreement dated as of
                        February 1, 1993 between Registrant and U.S. Bank of
                        Washington, N.A. (filed as Exhibit 10.4 to the
                        Registration Statement on Form S-1 (Registration No.
                        33-63194) filed with the Securities and Exchange
                        Commission on May 24, 1993 and incorporated herein by
                        reference)


                                       47
<PAGE>


               (10.5)*  Registrant's 1989 Employees' Stock Option Plan, as
                        amended (filed as Exhibit 10.5 to the Registration
                        Statement on Form S-1 (Registration No. 33-63194) filed
                        with the Securities and Exchange Commission on May 24,
                        1993 and incorporated herein by reference)
               (10.6)*  Registrant's 401(k) Profit Sharing Plan dated
                        May 11, 1992 (filed as Exhibit 10.6 to Amendment No. 1
                        to Form S-1 (Registration No. 33-63194) filed with the
                        Securities and Exchange Commission on May 24, 1993 and
                        incorporated herein by reference)
               (10.7)*  Registrant's Restated Phantom Stock Plan, as amended
                        (filed as Exhibit 10.7 to the Registration Statement on
                        Form S-1 (Registration No. 33-63194) filed with the
                        Securities and Exchange Commission on May 24, 1993 and
                        incorporated herein by reference)
               (10.8)   License Agreement effective July 1, 1992 between
                        Registrant and Simco/Ramic Corporation (filed as Exhibit
                        10.8 to the Registration Statement on Form S-1
                        (Registration No. 33-63194) filed with the Securities
                        and Exchange Commission on May 24, 1993 and incorporated
                        herein by reference)
               (10.9)*  Registrant's Restated 1989 Employees' Stock Option Plan,
                        as amended (filed as Exhibit 10.1 to the Form 10-Q filed
                        with the Securities and Exchange Commission on May 12,
                        1995 and incorporated herein by reference)
               (10.10)* Registrant's 1996 Employees' Stock Option Plan (filed as
                        Exhibit 10.1 to the Form 10-Q filed with the Securities
                        and Exchange Commission on May 2, 1996 and incorporated
                        herein by reference)
               (10.11)* Registrant's 1996 Employees Stock Purchase Plan (filed
                        as Exhibit 10.2 to the Form 10-Q filed with the
                        Securities and Exchange Commission on May 2, 1996 and
                        incorporated herein by reference)
               (10.12)  Lease Agreement dated April 18, 1996 between the Port of
                        Walla Walla and Registrant (filed as Exhibit 10.1 to the
                        Form 10-Q filed with the Securities and Exchange
                        Commission on August 7, 1996 and incorporated herein by
                        reference)
               (10.13)  Business Loan Agreement dated as of January 25, 1999
                        between Registrant and U.S. Bank National Association
                        (filed as Exhibit 10.1 to the Form 10-Q filed with the
                        Securities and Exchange Commission on May 14, 1999 and
                        incorporated herein by reference)
               (10.14)  Agreement and Plan of Merger by and among the
                        Registrant, KTC Acquisition Corp. and Advanced Machine
                        Vision Corporation dated February 15, 2000 as amended by
                        Amendment No. 1 dated February 25, 2000 and as amended
                        by Amendment No. 2 dated April 24, 2000 (filed as
                        Exhibit 2.1 to the Form 8-K filed with the Securities
                        and Exchange Commission on July 27, 2000 and
                        incorporated herein by reference)
               (10.15)  Stock Purchase Agreement by and among the Registrant,
                        Farmco, Inc., Ro-Tech, Inc., John E. Mobley and Nancy L.
                        Mobley dated May 16, 2000 (filed as Exhibit 2.1 to the
                        Form 8-K filed with the Securities and Exchange
                        Commission on May 31, 2000 and incorporated herein by
                        reference)
               (10.16)  Business Loan Agreement dated May 5, 2000 between
                        Registrant and U.S. Bank National Association (filed as
                        Exhibit 10.1 to the Form 10-Q filed with the Securities
                        and Exchange Commission on August 14, 2000 and
                        incorporated herein by reference)
               (10.17)  Promissory Note dated April 24, 1998 between SRC Vision,
                        Inc. and Bank of America National Trust & Savings
                        Association.



                                       48
<PAGE>


         (21)  List of Subsidiaries

         (23)  Consent of Deloitte & Touche LLP

         (27)  Financial Data Schedule

         (99)  Forward-Looking Statement Risk and Uncertainty Factors

         -------------------------------
         * Management contract or compensatory plan or arrangement.

(B)   REPORTS ON FORM 8-K

      The following reports on Form 8-K during the fourth quarter of fiscal 2000
      were filed:

      1.    Registrant's Form 8-K/A dated May 16, 2000 and filed with the
            Securities and Exchange Commission on July 27, 2000 amending Item 7
            Financial Statements and Pro Forma Financial Information related to
            the Farmco acquisition.

      2.    Registrant's Form 8-K dated February 15, 2000 and filed with the
            Securities and Exchange Commission on July 27, 2000 related to the
            AMVC acquisition.






















                                       49
<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.

                                    KEY TECHNOLOGY, INC.

                                By: /s/ Thomas C. Madsen
                                    -------------------------------------
                                    Thomas C. Madsen
                                    President and Chief Executive Officer

                                By: /s/ Ted R. Sharp
                                    -------------------------------------
                                    Ted R. Sharp
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


December 14, 2000


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


/s/  Thomas C. Madsen                                      December 14, 2000
-------------------------------------------------------
Thomas C. Madsen, Director, President and Chief
Executive Officer

/s/  Harold R. Frank                                       December 14, 2000
-------------------------------------------------------
Harold R. Frank, Director

/s/  John E. Pelo                                          December 14, 2000
-------------------------------------------------------
John E. Pelo, Director

/s/  Michael L. Shannon                                    December 14, 2000
-------------------------------------------------------
Michael L. Shannon, Director

/s/  Peter H. van Oppen                                    December 14, 2000
-------------------------------------------------------
Peter H. van Oppen, Director

/s/  Gordon Wicher                                         December 14, 2000
-------------------------------------------------------
Gordon Wicher, Director

/s/  Rodger A. Van Voorhis                                 December 14, 2000
-------------------------------------------------------
Rodger A. Van Voorhis, Director

/s/  Ted R. Sharp                                          December 14, 2000
-------------------------------------------------------
Ted R. Sharp, Chief Financial Officer (Principal
Financial and Accounting Officer)




                                       50
<PAGE>


                              KEY TECHNOLOGY, INC.
                                    FORM 10-K
                                  EXHIBIT INDEX

   EXHIBIT
   NUMBER                                                               PAGE
   ------                                                               ----


    10.17 Promissory Note.............................................   52

    21.1  List of Subsidiaries........................................   59

    23.1  Consent of Deloitte & Touche LLP............................   60

    27.1  Financial Data Schedule.....................................   61

    99.1  Forward-Looking Statement Risk and Uncertainty Factors......   62



























                                       51