SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   ----------

                                   FORM 10-KSB
                 Annual Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                  For the fiscal year ended December 31, 1996

                         Commission File Number 0-11370

                              CERPROBE CORPORATION
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

          Delaware                                    86-0312814
-------------------------------                  -------------------------
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)

                 600 South Rockford Drive, Tempe, Arizona 85281
                 ----------------------------------------------
               (Address of principal executive offices)(Zip Code)

                  Issuer telephone number, including area code:
                                 (602) 967-7885
                                 --------------

               Securities registered under Section 12(b) of the :
                                      None
                            ------------------------
                                (Title of Class)

              Securities registered under Section 12(g) of the Act:
                     Common Stock, par value $.05 per share
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the issuer (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes X   No
                                      ---    ---
Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ X ].

The  issuer's  net  sales for the  fiscal  year  ended  December  31,  1996 were
$37,308,199.

As of March 20,  1997,  the  aggregate  market value of the voting stock held by
non-affiliates  of the registrant,  computed by reference to the last sale price
of such stock as of such date on the Nasdaq National  Market,  was  $49,604,602.
Shares of common  stock held by each officer and director and by each person who
owned 5% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily conclusive.

As of March 20, 1997,  there were 6,353,047  shares of the  registrant's  common
stock outstanding.

Transitional Small Business Disclosure Format:  Yes      No  X
                                                    ---     ---

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuer's  definitive Proxy Statement for the 1997 Annual Meeting
of Stockholders are incorporated by reference in Part III hereof.
<PAGE>
                              CERPROBE CORPORATION

                          ANNUAL REPORT ON FORM 10-KSB

                      FOR THE YEAR ENDED DECEMBER 31, 1996

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                       Page
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                                                      PART I

<S>              <C>                                                                   <C>
ITEM 1.           DESCRIPTION OF BUSINESS...............................................  1
ITEM 2.           DESCRIPTION OF PROPERTIES............................................. 21
ITEM 3.           LEGAL PROCEEDINGS..................................................... 21
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 22

                                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............. 22
ITEM 6.           SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 23
ITEM 7.           FINANCIAL STATEMENTS ................................................. 31
ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE.............................................. 31

                                                     PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............ 31
ITEM 10.          EXECUTIVE COMPENSATION................................................ 31
ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT............................................................ 31
ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 31

                                                     PART IV

ITEM 13.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
                  ON FORM 8-K........................................................... 32

SIGNATURES.............................................................................. 38
</TABLE>
<PAGE>
                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

Introduction and General Development of Business

         Cerprobe   Corporation   ("Cerprobe"   or   the   "Company")   designs,
manufactures,  markets, and services high performance products and equipment for
use  in the  testing  of  integrated  circuits  ("ICs")  for  the  semiconductor
industry.  Historically, the Company has designed, manufactured, and marketed IC
probe card products and automatic test equipment ("ATE")  interface  assemblies.
Through the acquisition of CompuRoute, Inc. ("CompuRoute") in December 1996, the
Company  expanded  its  product  and  service  offerings  to include the design,
manufacture,  and  marketing  of ATE test  board  products  and  other  complex,
multilayer  printed circuit boards ("PCBs")  primarily for use in  semiconductor
testing applications.  The Company also refurbishes,  reconfigures, and services
wafer  probers  through  Silicon  Valley  Test & Repair,  Inc.,  a wholly  owned
subsidiary  acquired in January 1997 ("SVTR").  Cerprobe's products and services
enable semiconductor manufacturers,  such as Intel, Motorola, Texas Instruments,
and IBM,  among  others,  to test the  integrity  of their ICs  during the batch
fabrication  stage of the  manufacturing  process used in  manufacturing  ICs in
wafer form. Testing ICs during the batch fabrication stage permits semiconductor
manufacturers to identify defective products early in the manufacturing process,
which improves  overall  product  quality and lowers  manufacturing  costs.  The
CompuRoute acquisition also enabled the Company to offer a line of products used
in the final  performance  testing  and  sorting of  packaged  ICs.  The Company
markets its products and services worldwide to semiconductor manufacturers, both
those who manufacture ICs for resale and those who manufacture ICs for inclusion
in their own products.

         The  Company has grown  substantially  over the last three years as the
Company has benefited from  substantial  growth in worldwide demand for ICs. Net
sales have  increased from $14.3 million for 1994 to $26.1 million for 1995, and
to $37.3  million for 1996.  Similarly,  the  Company's net income has increased
from $1.2 million for 1994,  to $2.4  million for 1995,  and to $3.2 million for
1996 (before a one-time charge for purchased in-process research and development
of $4.6 million,  resulting in a net loss of $1.4 million). This growth resulted
primarily from internal product development and strategies. However, the Company
also  benefited  from its  acquisition  in April 1995 of Fresh  Test  Technology
Corporation,  whose complementary products contributed  approximately $4 million
to 1995 net sales and  approximately  $7 million  to 1996 net sales.  To further
expand its semiconductor test product and service  offerings,  Cerprobe acquired
CompuRoute in December 1996 and SVTR in January 1997. CompuRoute's net sales and
net income for the fiscal year ended  December  31, 1996 were $10.4  million and
$0.5  million,  respectively,  and  SVTR's  net  sales and net loss for the same
period were $14.6 million and $0.4 million, respectively.

         The Company  believes that it is positioned to continue its growth as a
result of its strength in designing,  producing, and delivering, on a timely and
cost-efficient  basis, a broad range of custom or customized,  high quality test
products and services for semiconductor  manufacturers in the U.S.,  Europe, and
Asia.  The  Company  maintains  regional  full  service  facilities  in Arizona,
California, and Texas as well as sales offices in Oregon, Colorado, Florida, and
Massachusetts  to service the U.S.  market for its  products and  services.  The
Company  maintains a full  service  facility  in Scotland to serve the  European
market, and opened full service facilities in Singapore and Taiwan in April 1996
and January 1997, respectively,  to serve the Southeast Asia market. Each of the
Company's  facilities  is located in  proximity to  semiconductor  manufacturing
centers.

         The Company was  incorporated in California in 1976 and  reincorporated
in Delaware in May 1987. The Company  maintains its principal  executive offices
at 600 South Rockford Drive,  Tempe,  Arizona 85281, and its telephone number is
(602)  967-7885.  Unless the context  indicates  otherwise,  all  references  to
"Cerprobe" or the "Company" refer to Cerprobe Corporation and its subsidiaries.
<PAGE>
Industry Background

         During  the  past  three  decades,  the  demand  for ICs has  increased
dramatically. The semiconductor has enabled the electronics industry to decrease
the size,  improve the  performance,  and expand the  capabilities of electronic
products, such as computers and cellular phones. As the electronics industry has
become more sophisticated, it has developed the technology to reduce the size of
components and to fabricate a complete  electronic circuit on a single substrate
referred to in the industry as a "chip." A number of components  integrated on a
single  chip to form a  circuit  is known as an  "integrated  circuit."  ICs are
widely  used  in the  automotive,  computer,  telecommunications,  and  consumer
electronics  industries.  Demand for  products  incorporating  ICs  continues to
increase as semiconductor manufacturers have decreased the size and improved the
performance capabilities of ICs.

         ICs generally are  manufactured  using a batch  fabrication  process in
which ICs are  fabricated  by repeating a complex  series of process  steps on a
wafer  substrate,  which is usually made of silicon and measures  three to eight
inches in diameter.  A finished wafer consists of many ICs (referred to as "die"
while in wafer form), the number depending on the dimensions of the circuits and
the size of the wafer.

Integrated Circuit Testing

         Semiconductor manufacturers use probing equipment during the design and
manufacturing processes to verify design specifications, identify defective ICs,
ensure  conformance  with  quality  standards,  and  classify  ICs  according to
performance  characteristics.  Most  semiconductor  manufacturers  test  ICs  by
probing the die in wafer form to  determine  whether  each  individual  IC meets
design  specifications.   Probing  involves  establishing  temporary  electrical
contact  between the device under test ("DUT") and the automatic  test equipment
("ATE"). The number of die on any wafer meeting  specifications varies depending
upon the  complexity  of the circuit and other  manufacturing  related  aspects.
Semiconductor  manufacturers  generally  test each IC two or three times  before
completion of the fabrication  process,  in order to maintain high manufacturing
yields and  acceptable  profit  margins.  Testing is performed  during the wafer
fabrication  process  ("in-line  testing")  and at the  completion  of the wafer
fabrication  process  ("end-of-line  testing") to measure electrical  parameters
that verify the reliability of the wafer fabrication  process,  while functional
testing is performed after the wafer fabrication  ("wafer sort") to identify ICs
that do not  conform  to  particular  electrical  specifications.  Semiconductor
manufacturers  use probe cards,  ATE  interfaces,  and wafer  probing  equipment
primarily  during  the wafer  sort,  which  occurs  before  the  separation  and
packaging of each  individual  IC. The testing of ICs in wafer form is important
to avoid  incurring the  significant  expense of assembling ICs that do not meet
specifications.

         After wafer probing,  ICs that meet  specifications  are separated from
the batch and bonded onto  plastic,  ceramic,  or other  packages  with extended
leads.  Packaged  devices  are loaded  into a handler  and the ATE test board is
placed on the tester and coupled to the handler.  The handler then automatically
inserts each IC into the ATE test board, and the tester tests the IC and signals
the handler if the IC is good or defective so the handler can automatically sort
the ICs that pass the test.

         Wafer Probing

         Semiconductor  manufacturers  test  ICs in  wafer  form by  means  of a
probing system,  which transmits  electrical signals to the ICs and analyzes the
signals upon their return. The principal components of a probing system include:
(i) a probe card, which consists of a complex,  multilayer printed circuit board
("PCB") and numerous  probes  positioned  to "touch down" on or make  electrical
contact with a series of  metallized  pads on the ICs;  (ii) a wafer  prober,  a
piece of capital  equipment  that moves the wafers into  position  enabling  the
probe card  probes to touch  down on the pads;  (iii) an ATE, a piece of capital
equipment that transmits the electrical signals to the ICs and evaluates signals
upon their return; and (iv) an ATE interface assembly,  consisting of a complex,
multilayer PCB combined with custom  mechanical  fixturing,  which transmits the
electrical signals between the ATE and the probe card.

         During the probing  process,  the wafer prober  successively  positions
each IC on a wafer so that the pads on the IC align under and make  contact with
the probes on the probe card, which is mounted on the wafer prober.
                                        2
<PAGE>
The ATE transmits electrical signals through the ATE interface assembly,  to the
probe card, then to the metallized pads on the IC, and then evaluates the return
signals  from the probe card to determine  whether a particular  IC meets design
specifications. The probing process also determines the performance capabilities
of each IC.

         Package Testing

         ICs that pass the initial testing at the wafer level are separated from
the wafer and bonded onto  plastic,  ceramic,  or other  packages  with extended
leads.  The packaged IC must then be tested to validate  design and  performance
specifications.  Packaged  devices are loaded into a piece of capital  equipment
called a handler.  The ATE test board, which is placed on the tester and coupled
to the handler,  performs a similar function as the interface between the tester
and the wafer prober in the wafer test process. The handler, which operates like
a wafer prober in the wafer test process,  then automatically  positions each IC
into a test socket  device that is connected  to the ATE test board.  The tester
then tests the IC and signals the handler if the IC is good or  defective so the
handler can automatically sort the ICs that pass the test.

Market for Cerprobe's Products and Services

         Recent trends,  including rapidly growing demand for semiconductors and
advances  in  semiconductor   technology,   have  driven  increased  demand  for
semiconductor  testing products,  such as probe cards, ATE interface assemblies,
wafer  probing  equipment,  and ATE test  boards.  As demand for  semiconductors
increases,  semiconductor  manufacturers  typically require  additional  probing
devices to meet their growing capacity  requirements.  IC technology is changing
rapidly due to constantly increasing demand for greater functionality and higher
speeds.   Advances  in  IC  design  and  process   technologies   have   enabled
manufacturers to produce smaller ICs with even greater circuit densities, levels
of integration,  and complexity to meet these demands. Advances in semiconductor
technology have resulted in higher pin counts, more varied  configurations,  and
increasingly  complex  semiconductor  devices.  As a  result  of  the  increased
complexity  of ICs and shorter  product  life cycles,  demand for  sophisticated
probing devices has increased.

         These trends in the IC market have caused  corresponding  trends in the
probe card, ATE interface assembly, wafer prober equipment and services, and ATE
test board markets.  Testing more complex ICs requires more sophisticated  probe
cards,  ATE interface  assemblies,  and ATE test board  products.  The increased
sophistication  of ICs also has resulted in increased testing time, which lowers
IC production rates. In addition, probe cards, ATE interface assemblies, and ATE
test  boards,  which all employ  complex,  multilayer  PCBs,  must have  greater
performance capabilities in order to test the increasingly complex circuitry and
higher  pin  counts of ICs.  IC test  product  manufacturers  also must have the
capability to handle increasingly varied IC configurations. IC manufacturers are
placing added emphasis on greater  accuracy,  testing at higher speed,  multiple
DUT  testing,  and quicker  turnaround  times for probing  devices and  packaged
testing products.

         The  long-term  growth in demand  for ICs and the  required  production
capacity to meet this demand  drives the market for wafer prober  equipment  and
services.   To  meet  forecasted   capacity   requirements,   the  semiconductor
manufacturing  industry will add approximately 70 new semiconductor  fabrication
facilities   ("fabs")  by  the  year  2001   according  to  Integrated   Circuit
Engineering, an independent semiconductor research company. The market value for
new wafer  probers and  associated  equipment  in the new and  existing  fabs is
estimated  to be $476  million in 1997 and growing at an average  annual rate of
21% to the year 2001, according to VLSI Research,  an independent  semiconductor
research  organization.  Because  of  the  escalating  costs  of new  fabs,  the
Company's   reconditioned/reconfigured  wafer  probers  are  increasingly  being
utilized by  manufacturers  in order to extend the life of an  existing  fab and
minimize the overall fab investment.

         Product  life,  which is the time  between  the  introduction  of a new
product  and when it  becomes  obsolete  due to new  products  that are  faster,
smaller, and/or more feature laden, is becoming shorter,  requiring companies to
develop new and better products in less time to be  competitive.  Because of the
intense competition among semiconductor manufacturers to be first to market with
a new IC and gain a competitive  edge,  design and production cycles continue to
shrink.  These factors have resulted in increased demand for sophisticated  test
products that can be produced in short lead times.
                                        3
<PAGE>
         The probe  testing of a single IC can last from a few  milliseconds  to
over a minute depending on the complexity of the semiconductor  device. Some ICs
contain more than five million transistors. Unlike most of the equipment used in
the semiconductor  manufacturing process, which typically has a long life cycle,
probe cards have a short life span and are generally  considered  consumables in
the semiconductor  manufacturing  process.  Probe cards for application specific
integrated  circuits ("ASICs") might be used to test a single batch of 25 wafers
and then  discarded.  The average  life of a probe card  ranges from  200,000 to
500,000  touchdowns.  Cerprobe estimates that about one-third of its probe cards
become  obsolete within six months of initial  placement into service.  However,
damage due to faulty test  handling  equipment  or  operator  error can render a
probe card useless prior to the expiration of its normal useful life.

Cerprobe's Strategy

         Cerprobe  believes it has become a leader in  providing  its  customers
with high quality semiconductor testing products and services by addressing many
of the  challenges  associated  with  the  testing  of  complex  ICs  through  a
combination of strengths,  involving  advanced technical  capabilities,  a broad
line  of  high  quality  products,  and  close  relationships  with  leading  IC
manufacturers.  Cerprobe's  strategy is to continue to increase its share of the
domestic  semiconductor  test  product  market and to  continue  expanding  into
international  markets.  The Company's  implementation of this strategy includes
the following key elements:

         o        Focus on  Technological  Innovation.  The  Company  intends to
                  continue   to   work   closely   with   major    semiconductor
                  manufacturers   in  an  effort  to   anticipate   and  address
                  technological advances in semiconductor testing. Cerprobe will
                  continue  to focus  its probe  card  engineering  and  product
                  development   efforts  toward  producing  a  variety  of  high
                  performance  custom-designed  cards  that have the  ability to
                  test  more  complex  ICs  and to test at  higher  speeds.  The
                  Company supports higher IC production rates through the use of
                  leading edge materials and proprietary  circuit design methods
                  in its probe cards,  ATE  interface  assemblies,  and ATE test
                  boards.  Cerprobe is collaborating  with ATE  manufacturers to
                  produce higher  performance PCBs using advanced  materials and
                  fabrication   processes.   SEMATECH,  the  U.S.  semiconductor
                  industry  consortium,  which  defines the standards for future
                  semiconductor  products,  awarded  Cerprobe  two  research and
                  development  contracts in 1996. Cerprobe will continue to work
                  with  SEMATECH  during 1997 to develop  testing  products that
                  probe tighter  pitch,  higher  temperatures  and  frequencies,
                  multiple  DUT, and area array.  The Company also will continue
                  its efforts to develop proprietary  components,  software, and
                  processes  to  provide  value-added  wafer  probing  equipment
                  refurbishment and reconfiguration services.

         o        Maintain Strong  Customer  Relationships.  Cerprobe  maintains
                  long standing  relationships  with many of its customers.  The
                  Company's  development of products and product enhancements is
                  market driven.  Engineering,  sales, and management  personnel
                  collaborate  closely with customer  counterparts  to determine
                  customers' needs and  specifications.  The Company's  products
                  are   custom-designed   or  customized  for  testing  specific
                  semiconductor  devices.  To help  meet the  demanding  service
                  needs of the semiconductor  manufacturing industry, all of the
                  Company's facilities are located in proximity to semiconductor
                  manufacturing  centers in the U.S., Europe, and Asia. Cerprobe
                  expects  to  continue  to  strengthen  its  existing  customer
                  relationships  by continuing to provide  quality  products and
                  high levels of service and support.

         o        Provide Quality Products and Services. The Company believes it
                  has  developed  a  reputation  as a leader in  providing  high
                  quality  products and  services.  This high  quality  level is
                  achieved   through  a  robust,   documented,   and  controlled
                  manufacturing  process,  and the  application of sound quality
                  management    policies   and   practices.    ISO   9000,   the
                  internationally  recognized  standard for quality  management,
                  sets the criterion for Cerprobe's  quality  management  system
                  and  is  being   implemented  at  all   manufacturing   sites.
                  Cerprobe's  use of  advanced  metrology  tools,  which  ensure
                  precise measurement
                                        4
<PAGE>
                  of all key product parameters, is a cornerstone of its quality
                  management system. As the size of the ICs is driven smaller by
                  advances  in  IC  technology,  the  accuracy  of  measurements
                  becomes  increasingly  important.  The  Company's  Quality and
                  Engineering  Departments  work together to define  measurement
                  needs and identify tools that can achieve the desired results.
                  Cerprobe  believes that its size and production  methods allow
                  it to provide its  customers  with high  quality  products and
                  services with quick turnaround times.

         o        Expand  to  International  Markets.  The  Company  intends  to
                  continue its expansion into  international  markets  including
                  Europe and Asia. Cerprobe has begun to pursue these markets by
                  aggressively  mounting a focused  sales and  marketing  effort
                  directed at selected key semiconductor  manufacturers  abroad.
                  Cerprobe believes that its recent international  successes are
                  in part due to its strategy of locating  manufacturing  plants
                  close to customer sites.  Cerprobe's  international  expansion
                  includes  the   establishment   of  full  service   sales  and
                  manufacturing facilities in Scotland, Singapore, and Taiwan.

         o        Expand  Product  Lines and  Services.  The Company  intends to
                  capitalize on its market  position and technical  expertise to
                  further  broaden  existing  product lines  through  internally
                  developed products and from time to time through  acquisitions
                  and/or  joint  ventures.  Currently,  Cerprobe  is  focused on
                  providing  a total  system  solution  for  semiconductor  test
                  integration.  Assuring the  integrity of the  electrical  test
                  signal,  which  passes from the ATE to the DUT and is returned
                  for  evaluation,   is  essential  to  semiconductor   testing.
                  Cerprobe  believes it is the only  company  that is  currently
                  able to design,  manufacture,  and assemble all  components in
                  this critical path,  which  includes test boards,  interfaces,
                  probe cards,  and electrical and  mechanical  connections,  as
                  well as wafer prober products and services. Cerprobe developed
                  and  introduced  its CerCardTM  probe card product in 1990. In
                  early  1995,  the  Company   acquired  Fresh  Test  Technology
                  Corporation, which enabled Cerprobe to expand its product line
                  to  include  ATE  interfaces  and  custom-designed  PCBs.  The
                  acquisition of CompuRoute  enabled  Cerprobe to offer ATE test
                  boards and the design and  fabrication of complex,  multilayer
                  PCBs.  The  acquisition  of SVTR  enabled the Company to offer
                  wafer prober equipment refurbishment and upgrading services.

Products and Services

Probe Card Products

         Probe card products  constitute  the majority of  Cerprobe's  business.
Cerprobe  believes it is the leading U.S.  producer of probe cards.  Probe cards
accounted for  approximately  81%, 84%, and 96% of net sales for 1996, 1995, and
1994,  respectively.  Because of the  CompuRoute and SVTR  acquisitions  and the
related new product and service  offerings  of the Company in 1997,  the Company
expects that probe card sales consequently will account for a smaller percentage
of 1997 net sales.  Cerprobe's probe cards generally range in price from $500 to
$24,000,  but may be priced higher depending upon the complexity and performance
specifications of the probe cards.

         The probe card  consists of a complex,  multilayer  PCB and  utilizes a
number of  probes  designed  to  separately  contact  (or  "probe")  a series of
electrical contact points (or "pads") on the IC. Because the type and complexity
of the IC to be tested vary,  the number and  positioning  of the probes and the
size of each  probe  card must be custom  designed  for the  specific  ICs being
tested to ensure proper alignment.

         The metallized pads on the IC to be tested generally are located on the
periphery of the circuit.  As the number of pads  increases  due to the type and
complexity of the IC being tested, certain customers place pads in the center as
well as on the  periphery  of the IC being  tested.  This  design is known as an
"array."
                                        5
<PAGE>
         There are four types of probe card technologies  currently available in
production.

         1.       CerCardTM/epoxy  ring  technology  uses  probes  that  connect
                  directly to a printed  circuit  board.  Probe cards using this
                  type of  technology  are capable of high speed,  high  density
                  probing.  Cerprobe  introduced  the CerCardTM in October 1990.
                  Sales  of  the  CerCardTM   generated   approximately  70%  of
                  Cerprobe's net sales in 1996 as compared to approximately  68%
                  of Cerprobe's net sales in 1995. Cerprobe anticipates that the
                  CerCardTM  will continue to account for a substantial  portion
                  of Cerprobe's probe card business in the future.

         2.       Ceramic/metal  blade  technology uses a ceramic or metal blade
                  attached to a needle  designed to make  contact with the pads.
                  Probe  cards  using  ceramic  blade   technology,   which  was
                  developed and patented by Cerprobe,  are capable of low speed,
                  low density probing. With optional features, the ceramic blade
                  can be used for high speed probing.  Cerprobe will continue to
                  manufacture  ceramic  blade  probe  cards;  however,  Cerprobe
                  expects  that  ceramic  blade probe  cards will  account for a
                  decreasing  portion of  Cerprobe's  probe card business in the
                  future.

         3.       Buckle beam technology uses vertical probes that emerge from a
                  pattern  that  mirrors the pattern of the pads on the IC being
                  tested.  Probe  cards  using this  technology  are  capable of
                  probing  pads in the center of an IC using an "array"  design.
                  This technology  generally is used for high density, low speed
                  applications.

         4.       Membrane  technology  uses a thin film  flexible  circuit with
                  "bumps," rather than probes, designed to make contact with the
                  pads.  Probe cards using this  technology  were  introduced in
                  1988  and  are   intended   for  high  speed,   high   density
                  applications.

         Other probe card  technologies  are being  developed,  such as quadrant
replaceable  and  silicon  membrane,  but the  Company  does  not  believe  such
technologies   currently  are  production   worthy,   primarily   because  these
technologies result in greater costs and slower turnaround times.

         Cerprobe  estimates that products  utilizing  CerCardTM/epoxy  ring and
ceramic blade technologies account for approximately 85% of the world market for
IC probe card products, that products utilizing the metal technology account for
approximately   10%  of  the  world  market,   and  that  products  using  other
technologies  constitute  less than 5% of the  available  world  market.  All of
Cerprobe's internally developed probe cards utilize either  CerCardTM/epoxy ring
or ceramic blade technologies.  In addition,  in March 1997, the Company entered
into a joint venture with a French semiconductor testing and engineering company
to assemble and repair a vertical probe device originally  developed by IBM. The
Company will be the exclusive distributor for the product in the U.S. and Asia.

         Cerprobe has invested over 20 years in the design of different types of
PCBs, blades,  and probes, and the manufacturing  processes required to assemble
these  products into a finished probe card.  Because the signals  carried by the
probe card are very  sophisticated and vary by customer,  Cerprobe  manufactures
many  types of PCBs,  blades  and  probes,  each of  which  may be  individually
designed to meet the specifications of each customer.

ATE Interface Assemblies

         An ATE interface  assembly is used to carry signals from the ATE to the
probe card. An interface assembly typically consists of two intricate multilayer
PCBs connected by either a system of cables varying in length from less than one
inch  up to  six  feet  or  increasingly,  spring-loaded  "pogo"  contact  pins.
Interface  assembly  products  range  from  small,   single  board,   cable-type
interfaces for less complex systems to high speed,  high  frequency,  digital or
mixed  signal  interfaces  used in  testing  more  complex  ICs.  One end of the
interface connects to the ATE and the other to a probe card fixture mounted on a
prober that holds the probe card in a stationary  position.  Each ATE  interface
assembly  generally  must be custom  designed  for each probe card  application.
Cerprobe's  computer-aided  design  system  is  used  to  design  the  interface
assemblies, each of which has hundreds
                                        6
<PAGE>
of intricate  signal  lines.  In each case,  the integrity of the test is highly
dependent on  maintaining  the quality of the signal  between the ATE and the IC
being tested.

         Cerprobe's  ATE interface  product line transmits a "clean" signal from
the ATE to the probe card and carries a return  signal back to the ATE after the
circuit  processes  the signal.  Cerprobe's  interface  products are designed to
optimize the  integrity of return  signal data through the  reduction of channel
crosstalk  and the  matching of delay  times and  impedance,  thereby  realizing
accurate  circuit yields.  Yield is the ratio of good circuits to total circuits
per processed  wafer and is an important cost factor for  Cerprobe's  customers.
Because  Cerprobe's  interfaces enable the ATE to provide reliable yield data by
allowing  for clear  signal  transmission,  interfaces  can also be cost  saving
devices.  Cerprobe's interface products feature ease of mechanical  installation
in the prober and facilitate access to the wafer during testing.

         Cerprobe  also   produces   another   interface   product  known  as  a
"planarization  motherboard"  ("PMB"),  which is a modified  probe card  fixture
sometimes  used in the  manufacture,  repair,  and  inspection  of probe  cards.
Customers of Cerprobe  that maintain and inspect their probe cards will continue
to purchase  PMBs even though  their  demand for other  interface  products  may
decrease.  In  addition,   motherboards  are  a  necessary  part  of  Cerprobe's
manufacturing operations.

         The useful life of the ATE interface theoretically should match the 5-7
year life of the ATE; however, any upgrade of the ATE and/or  reconfiguration of
the  prober  used  with a  specific  ATE will  necessitate  a new ATE  interface
assembly. Accordingly, the Company's ATE interface products have an average life
of 2-3 years.

         Cerprobe  increased  sales  of  ATE  interfaces  as  a  result  of  the
acquisition  in April  1995 of Fresh  Test  Technology  Corporation,  a  company
engaged  primarily  in the  design,  manufacture,  and  sales  of ATE  interface
products.  Cerprobe's  ATE  interface  assemblies  range in price from $1,000 to
$65,000.

ATE Test Boards

         Through the  acquisition of CompuRoute in December  1996,  Cerprobe has
expanded its products  and services to include  custom-designed  ATE test boards
for testing of ICs in packaged  form.  Some of these  PCB-based  products  mount
directly on the ATE test head,  while others are  interface or daughter  boards,
which  consist of multiple  PCBs  connected  either by cables or pogo pins.  The
Company has  developed a number of master data bases for different  ATEs,  which
are used as a starting  design that is then  customized for the particular IC to
be tested.

         The Company also makes two other semiconductor test board products. The
first  is a  product  used  to  test  ATE  interface  boards  off-line,  thereby
eliminating  the need for  valuable ATE tester  time,  which is better  utilized
testing ICs. Each system,  called an Auto-Verifier,  consists of a test fixture,
computer,  printer,  and test matrix  interface  mounted on a custom cart.  This
product may be used for either manual testing or volume production testing.  The
second product is an evaluation module product. Evaluation modules are assembled
PCBs used by  semiconductor  manufacturers  to demonstrate  the  capabilities of
their  ICs.   Evaluation  modules  have  been  produced  for  such  products  as
analog-to-digital converters, phase-lock loops, and audio amplifiers. Cerprobe's
ATE test board products range in price from $10,000 to $70,000.

         The Company also designs and fabricates certain non-ATE boards. Some of
these  consist of high  performance  boards  similar in  complexity to ATE PCBs,
while others consist of lower technology PCBs. Because non-ATE boards are easier
to design and  manufacture,  competition is greater and profit margins are lower
in this market, although volumes tend to be higher and production usually can be
scheduled over a longer period of time.

         The CompuRoute  acquisition also enabled the Company to internalize the
fabrication  of PCBs,  which are a critical  component in its probe card and ATE
interface  assembly  products,  rather than rely  exclusively on third-party PCB
manufacturers.  In order to maximize consolidated profit margins, however, which
typically  are higher for PCBs sold to third  parties,  the  Company  intends to
consume its internal PCB fabrication  capacity only for  prototypes,  quick-turn
customer needs, and research and development.  The Company  estimates that these
activities will constitute less than 20% of its current internal capacity.
                                        7
<PAGE>
Wafer Prober Products and Services

         Through  the  acquisition  of SVTR in January  1997,  the  Company  has
expanded  its services to include  refurbishing,  reconfiguring,  and  servicing
wafer  probers.   The  wafer  prober  is  a  piece  of  capital  equipment  that
successively positions each IC on a wafer so that the pads on the IC align under
and make  contact  with the  probes on the probe  card,  which is mounted on the
wafer  prober.  The Company  currently is focusing it services on wafer  probers
originally  manufactured  by  Electroglas,  Inc.  ("Electroglas"),  because  the
Company  believes  that  Electroglas  has the  largest  installed  base of wafer
probers in the world, outside of Japan.

         Prober refurbishment requires the Company to overhaul,  reprofile,  and
recertify its  customers'  wafer probers.  Refurbishing  extends the life of the
equipment and defers the need to buy new capital  intensive  probing  equipment.
The Company  either  develops  independent  sources  for most of the  components
necessary for refurbishment or internally  produces the part,  particularly when
the required part has been discontinued by the original equipment manufacturer.

         Prober reconfiguration  requires the Company to retrofit its customers'
wafer probers with greater/additional  wafer diameter capability and/or accuracy
positioning  equipment.  The Company has developed the  components and processes
necessary to reconfigure  probers originally  designed to handle six-inch wafers
to  the  current  advanced  fab  requirement  of  eight-inch  wafers.  Many  fab
production  managers consider conversion of their existing six-inch equipment as
an effective way to stretch their capital equipment budgets and an expedient way
to  upgrade  to  eight-inch  wafer  capability.  Additionally,  each  conversion
provides  the  Company  with  discarded  six-inch   components,   which  can  be
reconditioned  and used for the  Company's  service  and  repair  business.  The
Company also converts  older  generation  four-inch  probers into a single unit,
which is able to  handle  four,  five,  and  six-inch  wafers.  The  demand  for
six-inch,  wafer probers remains strong,  especially in developing nations.  The
Company  recently  introduced a  reaccurization  service in which the customer's
existing  six-inch  wafer  probers are  reprofiled  and  upgraded  beyond  their
originally  manufactured  specifications  to achieve  the greater  accuracy  and
performance  that is  required  by many  current  standards.  Additionally,  the
Company has developed  add-on/enhancement products, including an automatic wafer
transfer/handling system and probe-to-pad alignment positioning products.

         The Company also provides  other prober  services  including  providing
maintenance and repair services and replacement  parts for wafer probers through
a network of direct and contract  field service  personnel in the U.S.,  Europe,
and parts of Asia.

         Cerprobe's  wafer  prober  products  and  services  range in price from
$40,000 to $150,000 per unit depending on options.

Engineering and Product Development

         Cerprobe  recently  expanded its  engineering  and product  development
efforts in order to remain  competitive in its target  markets.  The Company has
devoted and will continue to devote substantial resources to product development
and  materials  and process  engineering.  Engineering  and product  development
expenses were $902,909,  $706,680, and $417,198 for the years ended December 31,
1996, 1995, and 1994,  respectively,  which  represented 2.4%, 2.7%, and 2.9% of
net  sales,  respectively.  Cerprobe  has from  time to time  collaborated  with
certain  customers that pay Cerprobe to develop new product  innovations.  These
customer  receipts  for  engineering  and  product   development  are  generally
accounted for as offsets to the total  expenses for the related  project.  There
can be no assurance  that  Cerprobe  will  continue to be successful in securing
such joint funding.

         During  1996,   Cerprobe  was  awarded  two   engineering  and  product
development contracts with SEMATECH, a consortium of leading U.S.  semiconductor
manufacturers and the U.S. government formed to promote technological innovation
in the U.S.  semiconductor  industry.  In the  first  agreement  with  SEMATECH,
Cerprobe  concentrated on the extension of present technology to include tighter
pitches  (i.e.  placing  probes closer  together) as well as  developing  higher
frequency  testing  characteristics.  Advances in semiconductor  technology have
resulted in the shrinkage of circuitry patterns (from 200 microns to 90 microns,
and smaller pad  pitches)  and  increases in speed from 33 megahertz to over 100
megahertz. As semiconductors have become more sophisticated,
                                        8
<PAGE>
the need to place the pads in the  middle of the IC as well as on the  perimeter
has developed. An area array probe card makes it possible to test circuitry pads
or bumps  regardless  of where they are located on the IC. The second  agreement
with SEMATECH called for Cerprobe to determine the best solution for probing the
interior  contact  points of  semiconductors.  Pursuant  to this  agreement,  in
exchange for matching  funds  contributed  by  SEMATECH,  Cerprobe  retained the
rights  to any  technology  developed  through  these  engineering  and  product
development  efforts.  Cerprobe also believes it gains an added benefit from the
SEMATECH relationship by being able to work with its semiconductor  manufacturer
partners to  anticipate  and  address  technological  advances in  semiconductor
processing and testing.

Manufacturing

Probe Cards

         Probe cards follow a build-to-order manufacturing process, initiated by
receipt of an order and related technical  specifications from the semiconductor
manufacturer customer.  Probe card design consists of creating bills of material
and  manufacturing  work  instructions  showing the  required  probe  layout and
interconnect  scheme for the PCB. For certain complex designs,  a custom ring or
PCB design may be required.

         After the order is released to  production,  the probe needles are bent
to the  appropriate  tip  length  and  bend  angle to meet  individual  customer
specifications.  Individual  probes are inspected on an optical  comparator  for
conformance to design  requirements  prior to advancing to the ring build stage.
In the ring build stage, the probe tips are precisely positioned using a fixture
and a template that matches the pads of the IC being tested. Once the probes are
placed in position,  the ring is secured with epoxy or ceramic-based  epoxy, and
the subassembly is placed in an oven for curing.

         The completed  ring  assembly is checked for initial  planarity and tip
depth and  assembled to the PCB.  Probes are then  individually  soldered to the
appropriate  interconnection  points. Once soldering is complete, the probe tips
are sanded and  aligned to ensure  consistent  contact  with the pads on the IC.
Final quality checks include contact force measurement,  workmanship inspection,
and  verification  on a  probe  card  analyzer  for  alignment,  planarity,  and
interconnection accuracy.

ATE Interface

         ATE interfaces can follow either a build-to-order or a standard product
build-to-inventory stock process. The former is most common and is used for most
semiconductor manufacturer customers. The latter is primarily used for large ATE
manufacturers  that integrate the interface into their tester product for resale
to their end customer, a semiconductor manufacturer.

         The build  process is initiated  after  receipt of an order and product
specifications from the customer. A preliminary bill of materials is created and
an engineer is assigned to manage the design project. A cross-functional meeting
is held to communicate the project goals and  specifications to all departments.
Design is commenced and long lead time raw materials are ordered.  A preliminary
design or layout is completed and submitted to the customer for approval.  Final
detailed drawings are then created.

         The drawings are logged in, approved,  and then released for production
by  the  Company's  document  control  department.   The  Company's   purchasing
department then issues stamped drawings to suppliers for fabrication of machined
parts.  Purchased  and  machined  parts are  inspected  for  conformance  to all
critical design aspects.  Accepted parts are forwarded to production control for
kitting and then advanced to the production floor for assembly.

         Engineering  and/or design team members then join the  production  team
and quality  assurance  personnel to assemble and test the finished  product for
functionality and performance.  The product is electrically tested for a variety
of customer or product  specifications.  Finally,  quality  assurance  personnel
compare  the  product  to the  purchase  order  for  completeness,  inspect  the
packaging of the product, and release the product for shipment.
                                        9
<PAGE>
PCB Fabrication

         Cerprobe conducts its PCB fabrication and assembly  operations  through
its newly acquired CompuRoute subsidiary in its Dallas, Texas facility. PCBs are
manufactured using various raw materials.  Most of the products manufactured for
semiconductor testing consist of multilayer PCBs with up to 22 layers.

         PCB  assemblies  involve  three  separate  production  stages:  design,
fabrication, and assembly. Customers may use outside vendors such as the Company
for any or all of these  stages.  The design stage  consists of working with the
customer to create a layout of the PCB wiring patterns on a personal computer or
workstation using CAD software. Once the design is complete, the wiring patterns
are  transferred  to film  using a laser  photo  plotter.  This  film is used to
photographically  transfer the wiring  pattern image onto  copper-clad  laminate
material.  Through a chemical milling process, the excess copper is then removed
leaving the desired wiring  pattern.  If multiple  layers of wiring patterns are
required,  they are fabricated  independently  and then combined in a lamination
press using a  temperature/pressure/time  matrix  process.  The  outside  wiring
patterns then receive an electro-plated finish of tin-lead, nickel, and/or gold.
Soldermask  is applied as an outer wiring  pattern  insulator,  and  identifying
nomenclature  is marked in a  silk-screen  process.  The finished  PCBs are then
electrically   tested  and  inspected  to  ensure  that  customer  and  industry
requirements are met.

         During the assembly  process,  passive and active components are loaded
by hand onto the PCB in accordance  with customer  specifications.  The leads of
the components are soldered to their respective  termination points on the outer
wiring  patterns of the PCB.  After  passing  through a series of  cleaning  and
inspection points, the PCB is finished and ready for shipment to the customer.

Wafer Prober Services

         Cerprobe's  recently acquired wafer prober services business provides a
variety of services to a large installed base of wafer probers in North America,
Europe,  and Asia.  These services  include field service at the user's site and
factory-based refurbishing and reprofiling to improve prober accuracy.

         Field  service is provided by trained  technicians  consisting  of both
employees and contract  representatives.  The field service network  provides on
site maintenance,  repair, and training.  Field repair involves trouble shooting
and replacement of components such as PCBs, cables, and electrical assemblies.

         Cerprobe  refurbishes  its  customers'  wafer  probers at the Company's
facilities.  The units to be refurbished  undergo an inspection and test regime,
which thoroughly  evaluates the prober's performance and accuracy and identifies
components that are defective or have substandard operating characteristics. The
equipment is completely  disassembled  and rebuilt,  replacing  all  substandard
components and assemblies and any parts that show excessive wear.

         The Company also provides a reaccurization service to its customer base
that includes reprofiling as its major component.  This service may be performed
separately or in conjunction  with  refurbishing  and is designed to improve the
positioning  accuracy of the user's older  probers.  Reprofiling is necessary to
correct for the inaccuracies  that may occur in  manufacturing  the linear motor
and platen.

         The Company from time to time also remanufactures  older equipment that
it  acquires  on the  open  market  using  the  processes  described  above  for
refurbishing and reprofiling.

Marketing, Sales, and Services

         Cerprobe markets its products in North America through direct technical
sales persons.  The Company has an extensive North American customer base. These
customers  represent the major merchant  manufacturers of ICs, which manufacture
ICs  for  resale,  such as  Motorola,  Intel,  and  National  Semiconductor.  In
addition,  a significant  part of Cerprobe's net sales are derived from sales to
captive semiconductor  operations,  which manufacture ICs for their own internal
use, such as IBM, Hewlett-Packard, and AT&T/Lucent. These merchant semiconductor
                                       10
<PAGE>
manufacturers  and captive  semiconductor  operations  provide  Cerprobe  with a
well-balanced  customer base whose products serve the communications,  computer,
automotive,  military,  and  aerospace  industries.  In addition to serving high
volume established manufacturers,  Cerprobe's products also are designed to meet
the needs of emerging and leading edge  technology  firms such as those offering
ASICs and GaAs (Gallium Arsenide devices).  During 1996,  Cerprobe's two largest
customers,  Intel and Motorola,  accounted for  approximately 15% and 12% of net
sales,  respectively.  The Company's top five customers are Intel, Motorola, LSI
Logic, IBM, and Hewlett-Packard,  which together accounted for approximately 47%
of net sales in 1996.

         Purchasers of probing products generally place a high value on service.
Technical  features  and  product  quality  also  are  attributes   expected  by
Cerprobe's  customers.  The unique needs of purchasers of semiconductor  testing
products demand a high level of customer responsiveness.  The Company's products
usually  require  a high  degree  of  customization  in order  to meet  customer
specifications. Response time, product design specifications, and rapid delivery
typically  are  critical  factors in customer  satisfaction.  In  addition,  the
customer's evaluation of the design and performance of completed products can be
quite subjective.  To facilitate satisfaction of its customers' servicing needs,
Cerprobe  maintains five regional  manufacturing,  repair,  and sales centers in
Arizona,  California,  and Texas,  and three  manufacturing,  repair,  and sales
facilities  in Scotland,  Singapore,  and Taiwan to provide  service to both the
European and Asian markets.

         In addition to its regional  service  facilities,  Cerprobe  serves its
domestic  customers  with full service  sales offices  strategically  located to
facilitate  rapid response to major market  centers and key customers.  Cerprobe
maintains sales offices in Oregon, Colorado, Florida, and Massachusetts.

         The  Company  utilizes a network of  independent  distributors  in both
Europe and Asia. Cerprobe's international business represented approximately 20%
of net sales in 1996.  Cerprobe  believes the potential exists to increase sales
in international markets and is positioning itself to initiate a more aggressive
marketing  and sales  program in these  markets in the  future.  In  particular,
Cerprobe intends to expand its sales efforts  throughout Europe and has opened a
manufacturing, repair, and sales facility in Scotland for the purpose of serving
customers in Europe.  In June 1995, the Company formed Cerprobe Asia PTE, LTD, a
joint  venture  with  Asian  investors.  Through  the  joint  venture,  Cerprobe
established  full  service  manufacturing,   repair,  and  sales  facilities  in
Singapore and Taiwan in April 1996 and January 1997, respectively,  to penetrate
the growing  markets for the Company's  products in Southeast Asia. The Japanese
market has been  difficult  for the Company to penetrate.  The Company  believes
that the Japanese  semiconductor market is slightly larger than the U.S. market,
but the  Japanese  manufacturers  are being  adequately  serviced by  Cerprobe's
Japanese  competitors.  The Company is attempting  to enter the Japanese  market
within the next 12 to 18 months through a joint venture  arrangement  with local
Japanese investors.

         The  Company  intends  to  leverage  its  worldwide  sales and  service
facilities  to market and  distribute  all of the Company's  products;  however,
international  sales of ATE test boards and wafer prober  equipment and services
currently are coordinated  primarily through its regional service centers in the
U.S.  The  Company may not  manufacture  each of its  products  in each  service
location.

Competition

Probe Cards

         Cerprobe  competes with several well-established  domestic  competitors
and is becoming increasingly subject to significant competition  internationally
as it expands into foreign markets.  In the IC probe card market,  the Company's
competitors include: Probe Technology Corporation, Wentworth Laboratories, Inc.,
and Micro-Probe,  Incorporated,  as well as numerous smaller competitors.  These
competitors  manufacture  and market  epoxy ring  probe  cards,  which have been
accepted in the  marketplace  for over 20 years,  and metal  blade probe  cards,
which have been accepted in the  marketplace  for over 15 years.  Epoxy ring and
ceramic blade probe cards  comprise  approximately  85% of the  available  world
market and metal  blade  probe  cards  comprise  approximately  10% of the world
market,  according to the Company's internal research.  The Company expects that
probe card competition  will increase in the future as integrated  circuitry and
probing technology become more sophisticated. Manufacturers
                                       11
<PAGE>
of IC  probe  cards  compete  primarily  on the  basis of  product  performance,
service,  delivery time, and price. Cerprobe believes that it compares favorably
with its competitors in these areas.

         Competition in the  international  market is significant and similar to
that faced in the domestic market. Most of the probe cards sold outside the U.S.
use  epoxy  ring   technology.   Cerprobe's   competitive   challenges   in  the
international   market  are   expected  to  be  similar  to  those   experienced
domestically.

ATE Interface Assemblies

         Hand-wired  connections have been Cerprobe's  principal  competition in
the ATE interface assembly market.  Historically,  ATE end users have hand-wired
the connections between the ATE and the probe card. More recently,  however, the
market  for  advanced  ATE  interface   assemblies  has  been   developing  both
domestically    and    internationally.    Cerprobe    competes   with   several
well-established  domestic companies in the ATE interface market, including ESH,
Inc. ("ESH"),  Micro Ceramix, Pier Electronics,  and Troyco, as well as numerous
smaller  competitors.  The  Company  competes  in the market  for ATE  interface
assemblies on the basis of performance specifications, service, and price.

ATE Test Boards

         The Company competes with a variety of companies  engaged in each facet
of the ATE test  board  market,  including  design,  fabrication,  and  assembly
services. In design services,  the Company competes not only with companies such
as Automated  Circuit Design ("ACD") and ESH, but also with the in-house  design
groups of its customers.  Although the Company's  customers  have  outsourced an
increasing  amount of design work to outside  vendors such as the Company during
the past two years, there can be no assurance that this trend will continue.  In
addition,  there are numerous PCB  fabricators in the U.S., any one of which may
compete directly with the Company. Specifically, MulTech Engineering Consultants
and  UniCircuits,  Incorporated  specialize in high layer count ATE PCBs such as
those manufactured by the Company.  Cerprobe believes,  however, that ESH is the
only other PCB  fabricator  specializing  in the  semiconductor  ATE market with
in-house design, fabrication, and assembly capability. Other companies, however,
could  acquire  this  capability  and  compete  with the  Company in the future.
Cerprobe  believes that the key  competitive  factors in the market for ATE test
boards include cycle time, cost, experience, vertical integration, and technical
capabilities.  Because  of its  new  facility  and  purchase  of new  equipment,
Cerprobe believes that it is well-positioned to increase  manufacturing capacity
and to meet increasingly demanding delivery schedules. The Company believes that
the  integration  of design,  manufacturing,  and assembly in one operation is a
significant advantage over many of its domestic competitors. Cerprobe's strategy
is to expand its market in this area to increase its  domestic  market share and
pursue  international  market  share  through  its  existing  sales and  service
facilities both domestically and internationally.

Wafer Prober Services

         The Company does not believe it has any material direct competition for
its prober refurbishment and reconfiguration  services,  although certain prober
manufacturers do provide some limited  refurbishment  services.  There can be no
assurance,  however, that the Company will not face increasing  competition from
prober manufacturers or other potential  competitors in the future. See "Special
Considerations - Competition" contained in Item 1 of this report.

Backlog

         As of  December  31, 1996,  the Company  had a  backlog  of  orders  of
approximately  $4.8 million,  excluding  CompuRoute,  which was acquired in late
December  1996.  These orders are believed to be firm and all are expected to be
filled  during  fiscal  1997.  The  backlog of orders at  December  31, 1995 for
Cerprobe only was  approximately  $2.9 million.  The Company's  business has not
been seasonal to date.
                                       12
<PAGE>
Patents

         Cerprobe  strives to improve its  existing  technology  and will pursue
patent  protection  for any new products it may develop in connection  with such
efforts.  However, there can be no assurance that future patents on new products
will be sought or issued or that  Cerprobe's  present  patent  position  will be
sufficient to protect its development of new products.  While Cerprobe considers
patents,  licenses,  and other  intellectual  property  rights to be  important,
Cerprobe  does not consider  any single  patent to be material to the conduct of
its business.  Cerprobe  believes that its success will depend  primarily on the
technological  competence and creative  skills of its personnel  rather than the
protection of its existing patents or future patents.

Raw Materials

Probe Cards and ATE Interfaces

         The raw materials and components used by Cerprobe in the  manufacturing
and  assembly  process  for probe  cards and ATE  interface  assemblies  include
ceramic,  tungsten,  single and multiple PCBs, a variety of machined  mechanical
parts,  probe needles,  and metallized  ceramic blades.  These raw materials and
components  are readily  available  from a broad  supplier  base.  Cerprobe  has
experienced no significant shortages in the recent past.

ATE Test Boards

         The raw materials and  components  used by Cerprobe in the  manufacture
and assembly of ATE test boards  include  circuit  board  laminates  and passive
electronic components, such as connectors,  resistors, and capacitors. These raw
materials and components  are readily  available from a broad base of suppliers.
Cerprobe has experienced no significant shortages in the recent past.


Prober Refurbishment/Reconfiguration

         The  parts  used  in  the  Company's  wafer  prober  refurbishment  and
reconfiguration services consist of electronic components, PCBs, wire and cable,
sheet metal assemblies,  motor platens (linear motors), other electrical motors,
mechanical  components  such as bearings,  screws,  and various  machined  metal
parts. Most of these parts are readily available from a number of suppliers. The
primary  exception  is the  motor  platen,  which  only is  available  from  two
suppliers.  The Company has  experienced no significant  shortages in the recent
past.

Environmental Regulations

         Cerprobe is subject to federal,  state, and local provisions regulating
the  discharge  of  materials  into the  environment.  Cerprobe has made certain
leasehold  improvements in order to comply with Environmental  Protection Agency
and local regulations.  Although Cerprobe believes that it is in full compliance
with all  regulations,  Cerprobe is unable to predict what  effect,  if any, the
adoption  of more  stringent  regulation  would have on its  future  operations.
Cerprobe does not  anticipate  incurring  any future  material  expenditures  to
remain  in  substantial  compliance  with  presently  applicable   environmental
regulation.  See "Special  Considerations  - Potential  Liability for Failure to
Comply with Environmental Regulation" contained in Item 1 of this report.

Employees

         As of December 31,  1996,  Cerprobe had 439  employees,  including  108
employees  of  CompuRoute,  which was  acquired in December  1996.  There are no
collective  bargaining  agreements and Cerprobe considers its relations with its
employees to be good.
                                       13
<PAGE>
Executive Officers

The  following  table  sets  forth  certain  information   regarding  Cerprobe's
executive officers.

Name                  Age    Position(s) with Cerprobe
----                  ---    -------------------------

C. Zane Close         47     President, Chief Executive Officer, and Director

Michael K. Bonham     58     Senior Vice President - Sales and Marketing

Randal L. Buness      40     Vice President, Chief Financial Officer, Secretary,
                             and Treasurer

Eswar Subramanian     39     Senior Vice President and Chief Operating Officer

Roseann L. Tavarozzi  42     Vice President, Corporate Controller, and Assistant
                             Secretary

Henry Wong            37     Vice President and Executive Director of Cerprobe
                             Asia

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

         C. Zane Close has served as President and Chief  Executive  Officer and
as a director of Cerprobe since July 1990. From September 1989 to July 1990, Mr.
Close  served  as  Vice  President  and  General  Manager  of  Probe  Technology
Corporation,  a corporation  that develops,  manufactures,  and markets  probing
devices for use in the testing of ICs ("Probe Technology").  Mr. Close served as
Vice President of Operations of Probe Technology from February 1985 to September
1989.

         Michael  K.  Bonham  has served as Senior  Vice  President  - Sales and
Marketing of Cerprobe since June 1996.  Prior to that time, Mr. Bonham served as
Vice  President of Sales and  Marketing of Cerprobe from July 1990 to June 1996.
From October 1988 to June 1990, Mr. Bonham served as Marketing Manager of the IC
Probe and Curve Tracer  Group of  Tektronix,  Incorporated,  a  manufacturer  of
electronic  test  measurement  equipment  (Tektronix").  From  September 1984 to
October 1988, Mr. Bonham served as Major Account  Manager and  Consulting  Sales
Engineer for the Semiconductor Cast Systems division of Tektronix.

         Randal L. Buness has served as Vice President, Chief Financial Officer,
Secretary,  and Treasurer of Cerprobe  since June 1996.  From  September 1994 to
June 1996,  Mr.  Buness served as Vice  President - Finance and  Administration,
Chief Financial Officer, Secretary, and Treasurer of Three-Five Systems, Inc., a
publicly held company traded on the New York Stock  Exchange.  Mr. Buness served
as Chief Financial Officer,  Secretary,  and Treasurer of United Medical Network
from January  1993 to September  1994.  From January 1989 to January  1993,  Mr.
Buness worked as a self-employed consultant.  Mr. Buness served as principal and
manager  with Arthur  Young from  January  1986 to January  1989 and served as a
manager,  senior,  and staff  accountant with Price Waterhouse from July 1979 to
January 1986. Mr. Buness is a Certified Public Accountant.

         Eswar  Subramanian  has  served  as  Senior  Vice  President  and Chief
Operating  Officer  of  Cerprobe  since  June  1996.  Prior  to that  time,  Mr.
Subramanian  served as Vice  President of Engineering of Cerprobe from July 1990
to June  1996.  Immediately  prior to  joining  Cerprobe,  Mr.  Subramanian  was
Director of Development at Probe  Technology,  where he was  responsible for the
development  and  establishment  of new probing  technology  and its  production
operations.  From November 1984 to April 1990, Mr.  Subramanian  was Engineering
Manager at Probe  Technology and was  responsible  for the design,  development,
manufacture, and engineering of probing products.

         Roseann  L.   Tavarozzi  has  served  as  Vice   President,   Corporate
Controller,  and Assistant  Secretary of Cerprobe since June 1996. Ms. Tavarozzi
served as Vice President - Finance of Cerprobe from April 1995 to June
                                       14
<PAGE>
1996 and as Vice President and Chief Financial  Officer from March 1994 to March
1995. Prior to joining Cerprobe,  Ms. Tavarozzi was the Corporate Controller for
Quorum International,  Ltd., an international  distributor of security products.
From May 1989 to April 1992, Ms. Tavarozzi was the Controller- Mid Continent for
Core-Mark  International,  Inc.,  an  international  distributor  of  consumable
products. Ms. Tavarozzi is a Certified Public Accountant.

         Henry Wong has  served as Vice  President  and  Executive  Director  of
Cerprobe Asia since June 1996.  Mr. Wong served as Vice  President of Production
of Cerprobe from July 1991 to June 1996. Prior to joining Cerprobe, Mr. Wong was
Chief  Technologist of probe card production at Probe  Technology,  where he was
involved  in the  manufacture  and design of probe  cards as well as  production
operations and research and  development.  Prior to his  affiliation  with Probe
Technology  in 1983,  Mr.  Wong  worked  with  Rucker  and Kolls,  a  California
manufacturer of probe cards.


                             Special Considerations

         The following factors, in addition to those discussed elsewhere in this
report,  should be  considered  carefully  in  evaluating  the  Company  and its
business. In accordance with the provisions of the Private Securities Litigation
Reform Act of 1995,  the  cautionary  statements  and  factors  set forth  below
identify important trends,  factors, and currently known developments that could
cause  actual  results to differ  materially  from those in any  forward-looking
statements  contained in this report or other  filings made by the Company under
the Securities Exchange Act of 1934.

Uncertainties  Accompanying  Integration of Acquired  Businesses;  Management of
Growth

         Significant  uncertainties  accompany any business  combination and its
implementation  with  respect  to  the  ability  of  the  Company  to  integrate
administrative   functions,   management  resources,  and  sales  and  marketing
distribution systems in order to achieve operating efficiencies. There can be no
assurance that the Company will be able to successfully integrate the operations
of CompuRoute and SVTR following  their recent  acquisition by the Company.  The
inability  to  achieve  the  anticipated  operating  efficiencies  could  have a
material adverse effect on the Company's  operating results.  The CompuRoute and
SVTR  acquisitions  also will  result  in  significant  growth in the  Company's
operations.  To manage this growth effectively,  the Company will be required to
expand its existing operating and financial systems and controls and to manage a
substantial  increase in its  employee  base.  To the extent that the  Company's
management is unable to assume or perform these combined duties, the business of
the  Company  could  be  materially  and  adversely  affected.  There  can be no
assurance  that the  management  systems and controls  currently in place or any
steps taken to expand such  management  systems and controls will be adequate in
the future.

Factors Affecting Operating Results

         The Company's  operating  results will be affected by a wide variety of
factors  that  could  have a  material  adverse  effect  on its  net  sales  and
profitability,  many of which are beyond its control.  These factors include the
Company's  ability to design  and  introduce  new  products  on a timely  basis,
customer  demand  for the  Company's  products,  the  level of  orders  that are
received and can be delivered in a quarter,  customer  order  patterns,  product
performance  and  reliability,   utilization  of  manufacturing   capacity,  the
availability  and cost of raw  materials,  equipment  and  other  supplies,  the
cyclical  nature  of  the   semiconductor   industry,   technological   changes,
competition and competitive  pressures on prices, and economic conditions in the
U.S. and worldwide  markets  served by the Company.  The Company's  products are
utilized in the testing of ICs used by a wide variety of  computer,  automotive,
communications,  and aerospace manufacturers.  A slowdown in demand for products
that  utilize  ICs as a result of economic  or other  conditions  in the U.S. or
worldwide  markets served by the Company could have a material adverse effect on
its operating results.
                                       15
<PAGE>
Dependence on New Products and Technologies

         The  Company   operates  in  an  industry   subject  to  rapid  change.
Technological  advances,  the  introduction of new products,  and new design and
manufacturing  techniques  could  materially and adversely  affect the Company's
operations unless it is able to adapt to the resulting change in conditions. The
Company's  future operating  results will depend to a significant  extent on its
ability to continue to develop and introduce new products on a timely basis that
compete  effectively on the basis of price,  performance,  and delivery and that
address  customer  requirements.  The success of new products depends on various
factors,   including  proper  new  product  selection,   timely  completion  and
introduction  of new  product  designs,  and  development  of support  tools and
collateral  literature  that make  complex new  products  easy for  engineers to
understand.  There can be no  assurance  that any new  products  will receive or
maintain  substantial  market  acceptance.  If the  Company is unable to design,
develop,  and  introduce  competitive  products  on a timely  basis,  its future
operating results may be materially and adversely affected.

Inability to Maintain Manufacturing Yields and Delivery Schedules

         The design and manufacture of probe cards, ATE interface products, test
PCBs, and wafer prober  equipment and services by the Company are highly complex
processes  that are sensitive to a wide variety of factors,  including the level
of contaminants in the  manufacturing  environment,  impurities in the materials
used, and the performance of the design and production  personnel and equipment.
As is typical in the  industry,  the Company  from time to time has  experienced
lower  than  anticipated   manufacturing  yields  and  lengthening  of  delivery
schedules.  The Company's  operating  results could be materially  and adversely
affected  if it is unable to  maintain  high  levels of  productivity  and/or to
maintain satisfactory delivery schedules.

Competition

         Cerprobe competes with several well-established  domestic  companies in
the IC probe card market,  including  Probe  Technology  Corporation,  Wentworth
Laboratories,  Inc., and Micro-Probe,  Incorporated, as well as numerous smaller
competitors,  and is becoming  increasingly  subject to significant  competition
internationally  as the Company expands into foreign  markets.  Such competitors
manufacture  and market epoxy ring probe cards,  which represent the significant
majority of the domestic and international markets, and metal blade probe cards,
which represent only a small portion of those markets.  Cerprobe also encounters
competition in the manufacture  and sale of ceramic blade probe cards,  although
ceramic  blade  probe cards  currently  are  produced by Cerprobe  and only to a
limited extent by Wentworth Laboratories, Inc. and Accuprobe, Inc. and represent
only a small  portion  of the total  market  for probe  cards.  Competition  may
increase in the future as  integrated  circuitry and probing  technology  become
more  sophisticated.   Cerprobe  competes  primarily  on  the  basis  of  price,
performance, and delivery.

         Cerprobe  believes that ESH is the only other domestic  manufacturer of
ATE  interface  assemblies  with  complete  in-house  design,  fabrication,  and
assembly  capabilities.  Other competitors  currently provide only one or two of
these   services   (usually   design  and  assembly)  but  could  acquire  other
capabilities  and  compete  with  Cerprobe in the  future.  In design  services,
Cerprobe competes with small design houses,  such as Dolphin Designs, as well as
the in-house  design groups of its  customers.  Competition  may increase in the
future as test equipment and testing technology become more sophisticated.

         The Company competes with a variety of companies  engaged in each facet
of the ATE test  board  market,  including  design,  fabrication,  and  assembly
services. In design services,  the Company competes not only with companies such
as Automated  Circuit Design ("ACD") and ESH, but also with the in-house  design
groups of its customers.  Although the Company's  customers  have  outsourced an
increasing  amount of design work to outside  vendors such as the Company during
the past two years, there can be no assurance that this trend will continue.  In
addition,  there are numerous PCB  fabricators in the U.S., any one of which may
compete directly with the Company. Specifically, MulTech Engineering Consultants
and  UniCircuits,  Incorporated  specialize in high layer count ATE PCBs such as
those manufactured by the Company.  Cerprobe believes,  however, that ESH is the
only other PCB  fabricator  specializing  in the  semiconductor  ATE market with
in-house design, fabrication, and assembly capability. Other companies, however,
could acquire this capability and compete with the Company in the future.
                                       16
<PAGE>
         The Company does not believe it has any material direct competition for
its wafer prober refurbishment and reconfiguration services, although the prober
manufacturers,  such as  Electroglas,  Inc.,  Tokyo  Electron  Labs,  and  Tokyo
Semitsu,  do provide some  limited  refurbishment  services.  These wafer prober
manufacturers have greater financial,  engineering,  and manufacturing resources
than the Company and larger service  organizations  and  long-standing  customer
relationships.  There can be no  assurance  that  levels of  competition  in the
market for wafer  prober  refurbishing  and  reconfiguration  services  will not
intensify in the future.

Risks of International Trade and Currency Exchange Fluctuations

         Approximately   20%  of   Cerprobe's   net   sales  for  1996  were  to
international customers. Given Cerprobe's efforts in establishing production and
sales  facilities  in  Scotland  and  Singapore,  as  well as the  opening  of a
production  and sales facility in Taiwan in January 1997,  Cerprobe  anticipates
that sales to international  customers will increase in the future.  The foreign
manufacture and sale of products and the purchase of raw materials and equipment
from foreign suppliers may be materially and adversely affected by political and
economic  conditions abroad.  Protectionist trade legislation in either the U.S.
or foreign countries, such as a change in the current tariff structures,  export
compliance laws, or other trade policies,  as well as Cerprobe's ability to form
effective  joint venture  alliances in order to compete in restrictive  markets,
could materially and adversely affect Cerprobe's  ability to manufacture or sell
products in foreign  markets and purchase  materials  or equipment  from foreign
suppliers.  In countries in which Cerprobe  conducts business in local currency,
currency  exchange  fluctuations  could adversely affect Cerprobe's net sales or
costs.  In  addition,  the laws of certain  foreign  countries  may not  protect
Cerprobe's  intellectual  property  rights to the same extent as the laws of the
United States.

         A  portion  of  Cerprobe's  foreign  transactions  are  denominated  in
currencies  other than the U.S.  dollar.  Such  transactions  expose Cerprobe to
exchange  rate  fluctuations  for the  period  of  time  from  inception  of the
transaction  until it is settled.  Cerprobe has not engaged in  transactions  to
hedge it currency risks, but may do so in the future.  Although Cerprobe has not
incurred any material  exchange gains or losses,  there can be no assurance that
fluctuations  in the  currency  exchange  rates  in the  future  will not have a
material adverse effect on Cerprobe's operating results.

Cyclicality of the Semiconductor Industry; Significant Capital Requirements

         The  semiconductor  industry  in  general  has  been  characterized  by
cyclicality.  The industry has  experienced  significant  economic  downturns at
various times,  characterized by diminished product demand,  accelerated erosion
of average selling prices, and production over-capacity.  Cerprobe has sought to
reduce  its  exposure  to  industry   cyclicality  by  selling   products  to  a
geographically  diverse  base of  customers  across  a  broad  range  of  market
applications.  However, the Company may experience substantial  period-to-period
fluctuations in future operating  results due to general industry  conditions or
events occurring in the general economy. Although the semiconductor industry has
experienced  increased  demand in the past,  there can be no assurance  that the
Company  will  continue  to  experience  the  current  level of  demand  for its
products.

         The probe  card,  ATE  interface,  PCB  fabrication,  and wafer  prober
services industries are also capital intensive.  In order to remain competitive,
the Company must continue to make significant  investments in capital  equipment
for  engineering and product  development.  As a result of the increase in fixed
costs  and  operating  expenses  related  to  these  capital  expenditures,  the
Company's  operating  results may be materially  and  adversely  affected if net
sales do not increase  sufficiently to offset the increased  costs.  The Company
may from time to time seek  additional  equity or debt  financing to provide for
the  capital  expenditures   required  to  maintain  or  expand  its  production
facilities  and  capital  equipment.  The timing and amount of any such  capital
requirements  cannot be  predicted  at this time and will  depend on a number of
factors,  including demand for the Company's  products,  product mix, changes in
industry conditions, and competitive factors. There can be no assurance that any
such  financing will be available on acceptable  terms,  and that any additional
equity financing would not result in additional dilution to existing investors.
                                       17
<PAGE>
Risks Associated with Acquisition Strategy

         The success of Cerprobe's acquisition strategy will depend primarily on
its ability to identify,  acquire,  and operate other businesses that complement
Cerprobe's  existing  business.  There  can be no  assurance  that any  suitable
acquisitions  can be identified  or  consummated  or that the  operations of any
businesses  that are acquired will be  successfully  integrated  into Cerprobe's
operations. In addition,  increased competition for acquisition candidates could
increase  purchase prices for acquisitions to levels that make such acquisitions
unfavorable.  As of the date of this report,  Cerprobe has no binding agreements
to effect any  acquisitions.  Cerprobe  anticipates that it will use cash and/or
its securities,  including  Cerprobe common stock, as the primary  consideration
for any future  acquisitions.  The size,  timing,  and integration of any future
acquisitions  could cause  substantial  fluctuations  in operating  results from
quarter to quarter.  Consequently,  operating results for any quarter may not be
indicative of the results that may be achieved for any subsequent fiscal quarter
or for a full fiscal year.  These  fluctuations  could  materially and adversely
affect the market price of Cerprobe common stock.

Potential Liability for Failure to Comply with Environmental Regulations

         The  Company  is  subject to a variety  of  federal,  state,  and local
governmental regulations related to the use, storage,  discharge and disposal of
toxic,  volatile or  otherwise  hazardous  chemicals  used in its  manufacturing
process.  Although the Company  believes that its  activities are in substantial
compliance with presently applicable environmental  regulations,  the failure to
comply with present or future regulations could result in fines being imposed on
the Company,  suspension of its  production,  or a cessation of its  operations.
Such  regulations  could require the Company to acquire  costly  equipment or to
incur other significant expenses to comply with environmental  regulations.  Any
failure by the Company to control the use or  adequately  restrict the discharge
of hazardous substances could subject it to future liabilities.

Dependence on Management and Other Key Personnel

         The  Company's  success  depends  upon the  retention  of  certain  key
personnel and the  recruitment  and retention of additional key  personnel.  The
loss of existing key  personnel  or the failure to recruit and retain  necessary
additional  personnel by the Company could  materially and adversely  affect its
business  prospects.  There can be no assurance that the Company will be able to
retain  its  current  personnel  or  attract  and  retain  necessary  additional
personnel.  Future  growth will  further  increase  the demand on the  Company's
resources  and require the  addition of new  personnel  and the  development  of
additional  expertise  by  existing  personnel.  The  failure of the  Company to
attract and retain  personnel  with the  requisite  expertise or to develop such
expertise internally could materially and adversely affect the prospects for its
success.  Cerprobe has entered into employment agreements with certain executive
officers  that are  effective  for one year and are each  subject  to  automatic
renewal for terms of one year.

Control by Current Stockholders

         The directors and executive  officers of Cerprobe and their  affiliates
currently  own  beneficially  approximately  23.9%  of  Cerprobe  common  stock.
Accordingly,  these  persons,  if they act as a group,  will be able to elect at
least one member to the  Company's  Board of Directors  and may be able to exert
significant  influence regarding the outcome of other matters requiring approval
by the stockholders of the Company.

Price Volatility of Cerprobe Common Stock

         The market price of Cerprobe common stock has  experienced  significant
volatility  during the past two years. See "Market for Common Equity and Related
Stockholder  Matters"  contained in Item 5 of this report.  The trading price of
Cerprobe  common  stock in the future could be subject to wide  fluctuations  in
response to quarterly  variations in operating results of Cerprobe and others in
its industry,  actual or anticipated  announcements  concerning  Cerprobe or its
competitors, changes in analysts' estimates of Cerprobe's financial performance,
general conditions in the semiconductor industry, general economic and financial
conditions,  and other  events or factors.  In  addition,  the stock  market has
experienced extreme price and volume fluctuations, which have adversely affected
the market
                                       18
<PAGE>
prices for many companies involved in high technology  manufacturing and related
industries and which often have been  unrelated to the operating  performance of
such companies.  These broad market  fluctuations and other factors could have a
material adverse effect on the market price of Cerprobe common stock.

Rights to Acquire Shares; Potential Issuance of Additional Shares

         In  accordance  with the  terms  of  Cerprobe's  Series  A  Convertible
Preferred Stock ("Convertible  Preferred Stock"), up to 27,839 additional shares
of  Cerprobe  common  stock may be issued  upon  conversion  of the  Convertible
Preferred  Stock.  As of March 20,  1997,  options to acquire a total of 568,298
shares were outstanding under the Company's stock option plans. The Company also
has  registered  for offer and sale up to 207,834  shares of its  common  stock,
which are reserved for issuance pursuant to the Company's stock option plans. In
addition,  the Company has granted non-employee options to purchase up to 10,000
shares of common stock.  The Company also has issued  warrants to purchase up to
39,275  shares of common stock in  connection  with the sale of the  Convertible
Preferred  Stock.  During the terms of such  options and  warrants,  the holders
thereof will have the opportunity to profit from an increase in the market price
of the  Company's  common  stock with  resulting  dilution in the  interests  of
holders of common stock.  The existence of such stock options and warrants could
adversely affect the terms on which the Company can obtain additional financing,
and the holders of such options and  warrants  can be expected to exercise  such
options and warrants at a time when the  Company,  in all  likelihood,  would be
able to obtain  additional  capital by  offering  shares of its common  stock on
terms more  favorable to the Company than those provided by the exercise of such
options and warrants. Cerprobe also has the authority to issue additional shares
of common stock and shares of one or more series of convertible preferred stock.
The  issuance of such shares could result in the dilution of the voting power of
outstanding  shares of Cerprobe common stock and could have a dilutive effect on
earnings per share.

Shares Eligible for Future Sale

         Sales of  substantial  amounts of Cerprobe  common  stock in the public
market could adversely affect  prevailing  market prices.  As of March 20, 1997,
there were  6,353,047  shares of Cerprobe  common stock  outstanding,  5,160,158
shares  of  which  were  freely  transferable   without  restriction  under  the
Securities  Act,  unless held by an "affiliate" of the Company,  as that term is
defined  under  the  Securities  Act.  Cerprobe  also  has  outstanding  562,857
restricted  shares,  as that term is  defined  under  Rule 144 (the  "Restricted
Shares")  under the  Securities  Act,  that are  eligible for sale in the public
market subject to compliance with the holding period,  volume  limitations,  and
other  requirements  of Rule 144. As a result of recent  changes to Rule 144, on
April 30,  1997,  these  562,857  Restricted  Shares of common stock will become
eligible for resale without restriction pursuant to Rule 144(k),  unless held by
an  affiliate of the Company.  In  addition,  330,032  shares held by the former
principal  shareholder  of CompuRoute  are subject to Rule 145 of the Securities
Act, which requires  affiliates to sell any stock acquired in the acquisition in
accordance with the volume and manner of sale  restrictions  under Rule 144. The
former principal  shareholder of CompuRoute has agreed not to sell,  publicly or
privately,  any of the 330,032  shares  acquired by her in  connection  with the
CompuRoute  acquisition until December 27, 1997, and no more than the greater of
1% of the outstanding  shares of Cerprobe common stock, or 50,000 shares, in any
90-day period during the  succeeding  12-month  period.  Subject to the terms of
this lock-up  agreement,  this same shareholder  will have certain  registration
rights covering the resale of shares of Cerprobe common stock acquired by her in
the  CompuRoute  acquisition  for  as  long  as  she is  subject  to the  volume
limitations on resale under Rule 145. The former  principal  shareholder of SVTR
has agreed  generally  not to sell,  publicly or  privately,  any of the 300,000
shares acquired by him in connection with the SVTR acquisition until January 15,
1998, on which date such shares will become  eligible for resale  subject to the
volume limitations and other requirements of Rule 144.

Patents, Licenses, and Intellectual Property Claims

         The  Company  has  acquired  certain  patents,   licenses,   and  other
intellectual  property rights covering certain of its products and manufacturing
processes.  While the  Company  considers  these  patents,  licenses,  and other
intellectual  property  rights to be important,  it does not consider any single
patent to be material to the conduct of its business.
                                       19
<PAGE>
Change in Control Provisions

         Cerprobe's First Restated  Certificate of Incorporation  (the "Restated
Certificate")  and the Delaware  General  Corporation  Law (the "Delaware  GCL")
contain provisions that may have the effect of making more difficult or delaying
attempts by others to obtain  control of Cerprobe,  even when these attempts may
be  in  the  best  interest  of  stockholders.  The  Restated  Certificate  also
authorizes the Board of Directors, without stockholder approval, to issue one or
more series of  preferred  stock which could have voting and  conversion  rights
that adversely  effect the voting power of the holders of Cerprobe common stock.
The  Delaware  GCL also  imposes  conditions  on  certain  business  combination
transactions with "interested stockholders" (as defined therein).

Cautionary Statement Regarding Forward - Looking Statements

         This report contains various forward-looking  statements that are based
on certain  assumptions  made by the  Company,  as well as  assumptions  made in
reliance on information  currently  available to the Company.  When used in this
report,  the words  "believe,"  "expect,"  "anticipate,"  "intend,"  "estimate,"
"should,"  "will  likely,"  and  similar  expressions  are  intended to identify
forward-looking  statements.  Such  statements  are  subject to  certain  risks,
uncertainties,  and  assumptions,  including  those  identified  under  "Special
Considerations." Should one or more of these risks or uncertainties materialize,
or should  underlying  assumptions  prove  incorrect,  actual  results  may vary
materially from those anticipated, estimated, or projected.
                                       20
<PAGE>
ITEM 2.           DESCRIPTION OF PROPERTIES

         Cerprobe's   current   principal    executive   offices   and   primary
manufacturing facility are located at 600 S. Rockford Drive, Tempe, Arizona. The
Company  leases  approximately  30,000  square feet of office and  manufacturing
space  at that  location.  The  lease  expires  on March  31,  1997 and has been
extended until May 31, 1997. Cerprobe also occupies  approximately 16,000 square
feet of office and  manufacturing  space in Chandler,  Arizona.  The term of the
lease expires on November 30, 1998. Cerprobe utilizes an additional 6,000 square
feet of office and  warehouse  space in  Chandler,  Arizona  pursuant to a lease
ending March 31, 1997.  Cerprobe occupies  approximately  34,000 square feet for
its manufacturing  facilities in San Jose,  California and 7,000 square feet for
its facilities in Austin, Texas under leases expiring on July 31, 2002 and March
31, 2002,  respectively.  The Company's international service centers occupy the
following  space with leases  expiring as  indicated:  East  Kilbride,  Scotland
occupies  5,000  square  feet  expiring  on August 27,  1999;  Hsin Chu,  Taiwan
occupies 5,000 square feet expiring on August 31, 2001;  and Singapore  occupies
1,000 square feet  expiring on September 2, 1998. In addition,  Cerprobe  leases
space for its sales offices in Richardson,  Texas;  Beaverton,  Oregon; Colorado
Springs, Colorado; and Boca Raton, Florida.  Cerprobe's aggregate monthly rental
payments for these facilities are approximately $87,000.

         In connection  with the acquisition of CompuRoute,  Cerprobe  purchased
the land and building currently occupied by CompuRoute located in Dallas, Texas.
The purchase price was approximately $2.2 million, including the assumption of a
promissory  note,  secured by the property,  which has an outstanding  principal
balance of  approximately  $1,030,000.  The  approximately  35,000  square  foot
facility was custom built for  CompuRoute  in 1995 and houses the  Company's PCB
design, manufacturing assembly, and sales operations.

         In connection with the acquisition of SVTR, the Company acquired SVTR's
current principal executive offices and primary manufacturing facilities,  which
are located in California,  Arizona, and Texas. The Company leases approximately
10,000 square feet of executive  office space in Santa Clara,  California.  This
lease will expire on February  28, 2001.  The  manufacturing  activities  occupy
approximately  15,300 square feet in three locations pursuant to leases expiring
on September  30,  1997,  February  19,  1998,  and March 31, 1998.  The Company
acquired two additional  locations,  which are used as sales service  offices in
Tempe,  Arizona,  and Dallas,  Texas. The Arizona location occupies 1,000 square
feet  pursuant to a month to month  lease.  The Texas  location  occupies  2,272
square  feet  pursuant to a lease that will expire on  November  30,  1998.  The
aggregate monthly rental payments for these facilities are $19,789.

         In September  1996,  construction  began on  Cerprobe's  new  corporate
headquarters facility in Gilbert,  Arizona.  Cerprobe expects the facility to be
completed  in the spring of 1997.  In addition to executive  and  administrative
offices,  the facility will house Cerprobe's  manufacturing  and engineering and
product development operations. Upon completion, Cerprobe intends to consolidate
its Arizona  operations,  which are currently  divided between three  locations,
into the 83,000 square foot  facility,  which is being  constructed on a 12-acre
parcel of land. The facility and land is owned by CRPB Investors,  L.L.C. ("CRPB
Investors").  Cerprobe  owns a 36%  interest  in CRPB  Investors.  Cerprobe  has
entered into a long-term  lease with CRPB  Investors  commencing  on the date of
substantial  completion  of the  facility.  The initial  term of the lease is 15
years with seven options to extend the lease for successive five-year terms. The
initial  lease rate is dependent on final  construction  cost,  but currently is
estimated at approximately  $73,000 per month, which will increase the Company's
total monthly facility lease expense by approximately $34,000. Cerprobe believes
that  its  existing  facilities  are  adequate  to meet its  requirements  until
additional  production  capacity  becomes  available upon  completion of the new
facility.


ITEM 3.           LEGAL PROCEEDINGS

         The Company is not a party to, nor is any of its  property  the subject
of, any material pending legal proceedings.
                                       21
<PAGE>
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of the Company's stockholders
during the fourth quarter of 1996.


                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock began trading in the over-the-counter market
on the Nasdaq system on September  29, 1983 and commenced  trading on the Nasdaq
National  Market on August 10, 1995 under the symbol  "CRPB." On March 20, 1997,
the closing price for the Company's common stock was $12.13. The following table
sets forth the high and low last sale prices of the  Company's  common stock for
the periods indicated, as reported on the Nasdaq National Market.

                                                         High          Low
                                                         ----          ---
1994:
   First Quarter...................................       6 1/2         5
   Second Quarter..................................       5 1/4         4 1/2
   Third Quarter...................................       5 3/4         5 1/2
   Fourth Quarter..................................       4 3/4         4 1/4

1995:
   First Quarter...................................       6             5
   Second Quarter..................................       8 1/4         5 1/2
   Third Quarter(1)................................      10 1/2        10
   Fourth Quarter..................................      17            16 3/4

1996:
   First Quarter...................................      15 1/4        12 3/8
   Second Quarter..................................      14 1/8        11 1/2
   Third Quarter...................................      12 1/8         7 7/8
   Fourth Quarter..................................      14 3/8         9


(1)      Prior to August 10, 1995,  prices represent high and low bid quotations
         on Nasdaq.  Bid  quotations  represent  interdealer  quotations,  which
         exclude  retail  markups  or  mark-downs  and  commissions  and may not
         necessarily represent actual transactions.

         Cerprobe paid a one-time dividend of $.03 per share on its common stock
on May 23, 1994,  but  typically  does not pay dividends on its common stock and
does not anticipate  that it will do so in the future.  Cerprobe  currently does
not  intend to  declare  or pay any cash  dividends,  and  intends to retain any
future earnings for  reinvestment in its business.  Payments of dividends in the
future will depend on Cerprobe's growth, profitability, financial condition, and
other  factors  that  Cerprobe's  Board  of  Directors  may deem  relevant.  The
Company's  revolving  credit  facility  contains  restrictions  on the Company's
ability  to pay cash  dividends,  and  future  borrowings  may  contain  similar
restrictions.  See "Management's  Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."

         As of March 20, 1997, there were approximately  2,360 holders of record
of Cerprobe common stock.
                                       22
<PAGE>
ITEM 6.           SELECTED FINANCIAL DATA;  MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following table summarizes certain selected consolidated  financial
data of the  Company  and is  qualified  in its  entirety  by the more  detailed
consolidated  financial statements and notes thereto appearing elsewhere herein.
The data have been derived from the  consolidated  financial  statements  of the
Company audited by KPMG Peat Marwick LLP,  independent public  accountants,  for
years  1994  through  1996 and by  Deloitte  & Touche  LLP,  independent  public
accountants, for years 1992 and 1993.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                     -------------------------------------------------------------------
                                                        1996(1)       1995          1994          1993         1992
                                                        -------       ----          ----          ----         ----
                                                                  (in thousands, except per share amounts)

<S>                                                      <C>           <C>            <C>           <C>            <C>
Consolidated Statements of Operations:

Net sales                                                 $37,308     $26,099        $14,251       $11,212       $8,060
                                                          -------     -------        -------       -------       ------

Costs and expenses:
  Cost of sales                                            20,343      13,706          8,214         6,768        4,914
  Selling, general and administrative                      10,725       7,503          3,693         2,398        1,827
  Engineering and product development                         903         707            417           336          246
  Purchased research and development                        4,584         ---            ---           ---          ---
                                                          -------     -------        -------       -------      -------
                                                           36,555      21,916         12,324         9,502        6,987
                                                          -------     -------        -------       -------      -------
Operating income                                              753       4,183          1,927         1,710        1,073
                                                          -------     -------        -------       -------      -------

Other income (expense)
  Interest income                                             467          45             19             1          ---
  Interest expense                                          (222)       (154)          (115)         (132)        (304)
  Other income                                                247         140             92            13           22
                                                         --------     -------        -------       -------      -------
                                                              492          31            (4)         (118)        (282)
                                                         --------     -------       -------       -------      -------

Income before provision for income taxes,
   minority interest, and extraordinary item                1,245       4,214          1,923         1,592          791
Provision for income taxes                                (2,701)     (1,812)          (710)          (90)        (321)
Minority interest share of loss                                95         ---            ---           ---          ---
                                                         --------     -------       --------       -------      -------

Net income (loss) before extraordinary item               (1,361)       2,402          1,213         1,502          470
Extraordinary item - prior years' NOLs                        ---         ---            ---           ---          301
                                                         --------     -------       --------       -------     --------

Net income (loss)                                        $(1,361)      $2,402         $1,213        $1,502         $771
                                                        =========     =======       ========       =======     ========

Net income (loss) per common and common equivalent share:

   Primary                                                $(0.30)       $0.59          $0.36         $0.41        $0.31

   Weighted average number of common
   shares and common equivalent shares                      4,580       4,071          3,387         3,688        2,502

   Fully diluted                                           $(0.30)      $0.49          $0.30         $0.35        $0.21

   Weighted average number of common
   shares and common equivalent shares                      4,580       4,862          4,007         4,349        3,680

Consolidated Balance Sheet Data
(at end of period):

Working capital                                            $9,903      $4,772         $3,572        $2,777       $1,551
Total assets                                               31,411      14,967          7,015         4,674        3,083
Long-term debt                                              1,742         981            791           748          859
Stockholders' equity                                       23,130      10,656          4,923         3,063        1,304
</TABLE>

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

(1)      Includes a one-time  write-off  of purchased  research and  development
costs of $4,584,000 or $1.00 per share related to the acquisition of CompuRoute,
Inc. in December 1996.
                                       23
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction and General Development of Business

         Cerprobe was incorporated in California in 1976 and  reincorporated  in
Delaware in May 1987. The Company designs,  manufactures,  markets, and services
high  performance  products and  equipment  for use in the testing of integrated
circuits  ("ICs")  for  the  semiconductor  industry.  Cerprobe's  products  and
services enable  semiconductor  manufacturers to test the integrity of their ICs
during  the  batch  fabrication  stage  of the  manufacturing  process  used  in
manufacturing ICs in wafer form.

         The  Company has grown  substantially  over the last three years as the
Company has benefited from the  substantial  growth in the worldwide  demand for
ICs. Net sales have  increased from $14.3 million for 1994, to $26.1 million for
1995,  and to $37.3  million for 1996.  Similarly,  the Company's net income has
increased  from $1.2  million for 1994,  to $2.4  million for 1995,  and to $3.2
million for 1996 (before a one-time charge for purchased in-process research and
development  of $4.6  million,  resulting in a net loss of $1.4  million).  This
growth  resulted  primarily from internal  product  development  and strategies.
However,  the Company also benefited from its acquisition in April 1995 of Fresh
Test  Technology   Corporation,   whose   complementary   products   contributed
approximately $4 million to 1995 net sales and  approximately $7 million to 1996
net sales.  To  further  expand  its  semiconductor  test  product  and  service
offerings,  Cerprobe acquired CompuRoute, Inc., a company engaged in the design,
manufacture,  and  marketing of complex,  multilayer  PCBs  primarily for use in
semiconductor testing applications ("CompuRoute"),  in December 1996 and Silicon
Valley  Test & Repair,  Inc.,  a company  that  refurbishes,  reconfigures,  and
services wafer probers ("SVTR"), in January 1997. CompuRoute's net sales and net
income for its fiscal year ended  December 31, 1996 were $10.4  million and $0.5
million,  respectively,  and SVTR's  net sales and net loss for the same  period
were $14.6 million and $0.4 million, respectively.

         The Company  believes that it is positioned to continue its growth as a
result of its strength in designing,  producing, and delivering, on a timely and
cost-efficient  basis, a broad range of custom or customized,  high quality test
products and services for semiconductor  manufacturers in the U.S.,  Europe, and
Asia.  The  Company  maintains  regional  full  service  facilities  in Arizona,
California, and Texas as well as sales offices in Oregon, Colorado, Florida, and
Massachusetts  to service the U.S.  market for its  products and  services.  The
Company  maintains a full  service  facility  in Scotland to serve the  European
market, and opened full service facilities in Singapore and Taiwan in April 1996
and January 1997, respectively,  to serve the Southeast Asia market. Each of the
Company's  facilities  is located in  proximity to  semiconductor  manufacturing
centers.
                                       24
<PAGE>
Results of Operations

         The  following  table  sets  forth,  for  the  periods  indicated,  the
percentage  of  net  sales  of  certain  items  in  the  Consolidated  Financial
Statements of the Company.  The table and the discussion below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.


                                                   Year Ended December 31,
                                               ------------------------------

                                                1996(1)     1995       1994
                                                -------     ----       ----

Net sales                                        100.0%    100.0%      100.0%
                                                 -----     -----       -----

Costs and expenses:

     Cost of sales                                54.5      52.5        57.6

     Selling, general and administrative          28.7      28.8        25.9

     Engineering and product development           2.4       2.7         2.9

     Purchased research and development           12.3      --         --
                                                 -----     -----       -----

                                                  97.9      84.0        86.4
                                                 -----     -----       -----

Operating income                                   2.1      16.0        13.6
                                                 -----     -----       -----

Other income (expense):

     Interest income                               1.3       0.2         0.1

     Interest expense                             (0.6)     (0.6)       (0.8)

     Interest and other income                     0.6       0.5         0.6
                                                 -----     -----       -----

                                                   1.3       0.1       (0.1)
                                                 -----     -----      -----

Income before provision for income taxes
     and minority interest share of loss           3.4      16.1        13.5

Provision for income taxes                        (7.2)     (6.9)       (5.0)

Minority interest share of loss                    0.2      --         --
                                                 -----     -----       -----



Net income                                        (3.6)%     9.2%        8.5%
                                                  ======   ======      ======

-----------------
(1)      Includes a one-time  write-off  of purchased  research and  development
costs of $4,584,000  related to the acquisition of CompuRoute,  Inc. in December
1996.

Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

         Net sales for 1996 were $37,308,199,  an increase of 43% over net sales
of $26,098,637  for 1995.  This increase in net sales reflects a continuation of
higher order rates for Cerprobe's probe card products,  especially its CerCardTM
product line,  and increased  sales from  Cerprobe's  international  operations.
International net sales in 1996 were $7,334,472  compared to $2,965,171 in 1995,
an increase of 147%.

         The gross margin for 1996 was $16,964,683,  an increase of 37% from the
gross margin of  $12,392,202  for 1995.  Gross  margin as a percentage  of sales
decreased  from 47% in 1995 to 45% in 1996.  The  decrease in gross  margin as a
percentage  of sales is  primarily  a result of a change in product  mix,  which
includes a higher ratio of
                                       25
<PAGE>
ATE interface  product sales and an increase in  manufacturing  capacity to meet
anticipated customer demand and maintain satisfactory delivery schedules.

         Selling,  general and administrative expenses were $10,725,075 for 1996
compared to  $7,502,598  for 1995,  an increase of 43%. The increase in selling,
general and  administrative  expenses  resulted  primarily  from the increase in
fixed  general and  administrative  costs due to Cerprobe's  continued  domestic
facilities expansion and the start up of Asian operations.

         Engineering and product development expenses were $902,909 for 1996, an
increase of 28% over $706,680 for 1995.  This increase  resulted from Cerprobe's
continued  emphasis  on  engineering  and  product  development  in an effort to
anticipate and address technological advances in semiconductor  testing.  During
1996, Cerprobe was awarded two engineering and product development  contracts by
SEMATECH,  the U.S.  semiconductor  industry consortium.  Cerprobe also performs
ongoing contract engineering and product development in collaboration with Micro
Electronics & Computer Technology Corporation, a consortium of customers and the
U.S. government.  Contract revenues from these consortia are generally accounted
for as an offset to the total expenses incurred for the respective projects.

         Purchased  research  and  development  costs  from the  acquisition  of
CompuRoute  totalled  $4,584,000.   On  December  27,  1996,  Cerprobe  acquired
CompuRoute,  a designer  and  fabricator  of  complex,  multilayer  PCBs used in
semiconductor  testing.  The  acquisition  was  accounted for using the purchase
method. Accordingly, the purchase price was allocated to the assets acquired and
the  liabilities  assumed based upon their  estimated fair values.  The value of
purchased in-process research and development in connection with the acquisition
was   $4,584,000.   The  current   state  of  the   research   and   development
products/processes  is not yet at a  technologically  feasible  or  commercially
viable  stage.  Cerprobe  does not believe  that the  research  and  development
products/processes  have any  future  alternative  use  because  if they are not
finished  and brought to  ultimate  product or process  completion  they have no
value.  Therefore,  consistent with generally  accepted  accounting  principles,
Cerprobe took a one-time  charge for the full value of the purchased  in-process
research and development.

         Interest  expense was  $221,248  for 1996 as  compared to $153,758  for
1995, an increase of 44%. Cerprobe anticipates interest expense will increase in
1997 due to debt acquired in its  acquisition  of CompuRoute and SVTR as well as
capacity expansion both domestically and internationally.

         Interest  income was  $467,043 in 1996 as compared to $44,697 for 1995.
This  represents a 945% increase from 1995 and is  attributable  to the interest
earned on the net proceeds from the issuance of Convertible  Preferred  Stock in
January 1996.  Cerprobe  expects a significant  reduction in interest  income in
1997, as the net proceeds of the  Convertible  Preferred  Stock were used in the
CompuRoute and SVTR acquisitions.

         The minority  interest from Asian operations of $94,854  represents the
Company's  joint  venture  partners'  share (30%) of the loss from Cerprobe Asia
PTE, Ltd.

         The  provision  for  income  taxes   increased  to  $2,701,000,   which
represents an effective tax rate of 46% for 1996,  excluding the  non-deductible
purchased  in-process  research  and  development  costs of  $4,584,000,  versus
$1,811,727,  which  represents an effective  rate of 43% for 1995. The increased
effective  tax rate,  as adjusted for 1996,  was due primarily to the benefit in
1995 of the Company's net operating  loss  carryforwards  and the tax benefit of
research tax credits.

         Net  loss  for  1996  was  $1,360,790,  a  decrease  in net  income  of
$3,763,037,  or 157%,  from net income of $2,402,247 for 1995.  This decrease is
primarily  due to  the  write-off  of  the  purchased  in-process  research  and
development  costs from the CompuRoute  acquisition in the amount of $4,584,000.
Excluding this one-time  charge,  net income for 1996 would have been $3,223,210
or 9% of net sales for 1996 as compared to 9% of net sales for 1995.
                                       26
<PAGE>
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994

         Cerprobe's  net sales in 1995  increased 83% from 1994,  primarily as a
result of increased sales of its CerCardTM  product line. The significant  sales
increase  in the  CerCardTM  product  line was due  primarily  to an increase in
market share and continued strength in the semiconductor industry.

         The gross margin increased $6,354,683 from the comparable figure in the
prior year.  Gross margin as a percentage of sales increased from  approximately
42% in 1994 to approximately 47% in 1995. The increase in gross margin and gross
margin as a  percentage  of sales  resulted  primarily  from the increase in net
sales and the positive  effect of fixed costs being spread over a larger revenue
base.  Although the strength in the semiconductor  industry  positively impacted
sales,  price competition in the market place continued to prevent Cerprobe from
raising prices for its products.

         Selling,  general and administrative  expenses increased to $7,502,598,
or 29% of net sales in 1995, from  $3,693,401,  or 26% of net sales in 1994. The
increased selling,  general and administrative  expenses resulted primarily from
the  increase in fixed  general and  administrative  costs due to the  Company's
continued  facility  expansion  and the  acquisition  of Fresh  Test  Technology
Corporation.

         Engineering and product development expenses increased by $289,482,  or
approximately 69%, from the prior period,  reflecting a controlled  expansion of
engineering and product development efforts. This effort to maintain engineering
and product  development  expenses  at lower than  historical  levels  reflected
Cerprobe's then current strategy to focus  engineering  activity on improvements
in current  technology  rather than the  development and  implementation  of new
products.  During 1995,  Cerprobe  continued tight controls over engineering and
product development spending.

         Interest  expense  in 1995 was  $153,758,  a slight  increase  from the
$115,254 of interest expense of 1994.

         Total other income  (expense)  was $31,050 in 1995 compared to ($3,576)
in 1994. Other income (expense)  primarily resulted from interest income on cash
balances and interest expense on debentures and financed property and equipment.

         Cerprobe's net income  increased to $2,402,247 in 1995 from  $1,212,823
in 1994.  The  increase in net income was  primarily  due to the increase in net
sales and gross margin.
                                       27
<PAGE>
Quarterly Results of Operations

         The following table presents unaudited  consolidated  financial results
for each of the eight  quarters  in the period  ended  December  31,  1996.  The
Company  believes that all necessary  adjustments  have been included to present
fairly the quarterly  information when read in conjunction with the Consolidated
Financial Statements.  The operating results for any quarter are not necessarily
indicative of the results for any subsequent quarter.

<TABLE>
<CAPTION>
                                                                     Quarters Ended
                                     ------------------------------------------------------------------------------
                                                      1996                                    1995
                                     --------------------------------------  --------------------------------------
                                     Dec 31(1)  Sep 30   June 30    Mar 31   Dec 31    Sept 30    June 30   Mar 31
                                     --------   ------   --------  --------  -------   --------   -------   -------
                                                        (in thousands, except per share amounts)
<S>                                  <C>        <C>      <C>       <C>       <C>       <C>        <C>       <C>
Consolidated Statements of Operations:

Net sales                              $9,149   $8,799     $9,660    $9,700   $8,131     $6,834    $6,172    $4,963
                                     --------   ------   --------  --------  -------   --------   -------   -------

Costs and expenses:

   Cost of sales                        5,058    4,938      5,175     5,173    4,315      3,551     3,148     2,691

   Selling, general and administration  2,854    2,595      2,667     2,608    2,393      2,198     1,763     1,149

   Engineering & product development      179      346        276       102      178        200       209       121

   Purchased research & development     4,584      ---        ---       ---      ---        ---       ---       ---
                                     --------   ------   --------  --------  -------   --------   -------   -------

                                       12,675    7,879      8,118     7,883    6,886      5,949     5,120     3,961
                                     --------   ------   --------  --------  -------   --------   -------   -------

Operating income                      (3,526)      920      1,542     1,817    1,245        885     1,052     1,002
                                     --------   ------   --------  --------  -------   --------   -------   -------

Other income (expense):

   Interest income                         92      177        109        89       23          9        13       ---

   Interest expense                       (55)     (51)       (57)      (59)     (20)       (50)      (47)      (36)

   Other income                           125       65         46        11        8         30        39        62
                                     --------   ------   --------  --------  -------   --------   -------   -------

   Total other income (expense)           162      191         98        41       11        (11)        5        26
                                     --------   ------   --------  --------  -------   --------   -------   -------

Income before provision for income taxes
   and minority interest               (3,364)    1,111     1,640     1,858    1,256        874     1,057     1,028

Provision for income taxes               (539)    (469)      (816)     (877)    (545)      (362)     (442)     (463)

Minority interest share of loss            11       21         37        25      ---        ---       ---       ---

Net income (loss)                    $ (3,892)  $  663   $    861  $  1,006  $   711   $    512   $   615   $   565
                                     ========   ======   ========  ========  =======   ========   =======   =======

Net income (loss) per common and common equivalent share:

   Primary                           $  (0.73)  $ 0.13   $   0.16  $   0.20  $  0.16   $   0.12   $  0.15   $  0.16
                                     ========   ======   ========  ========  =======   ========   =======   =======

   Weighted average number of common
   & common equivalent shares           5,362    5,298      5,393     5,063    4,365      4,405     4,194     3,446

   Fully diluted                     $  (0.73)  $ 0.11   $   0.15  $   0.18  $  0.14   $   0.10   $  0.13   $  0.14
                                     ========   ======   ========  ========  =======   ========   =======   =======

   Weighted average number of common
   & common equivalent shares           5,362    5,783      5,878     5,645    5,004      4,993     4,859     4,041
</TABLE>

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

(1)      Includes a one-time  write-off  of purchased  research and  development
costs of $4,584,000 or $0.86 per share related to the acquisition of CompuRoute,
Inc. in December 1996.
                                       28
<PAGE>
         Quarterly results can be affected by a number of factors, including the
cyclical nature of the semiconductor  industry,  the timing of orders from major
customers,  customer  delivery  requirements,  the  availability  and  efficient
utilization  of the Company's  production  capacity,  the mix of products  sold,
availability  and cost of raw materials and skilled labor,  competitive  pricing
pressures on the Company's products and services, and technological advances.

Liquidity and Capital Resources

         Cerprobe has financed its operations and capital requirements primarily
through cash flow from operations,  equipment lease financing arrangements,  and
sales of equity  securities.  In  January  1996,  Cerprobe  completed  a private
placement  of  Convertible   Preferred  Stock,  which  raised  net  proceeds  of
$9,400,000  to  fund  its  domestic  and  international  expansion  as  well  as
acquisitions of other companies and/or technologies.  At December 31, 1996, cash
and cash equivalents  were  $5,564,557,  compared to $263,681 as of December 31,
1995.

         Cerprobe generated $5,660,015 in cash flow from operating activities in
1996.  Accounts  receivable  increased by  $1,187,162,  or 27%, to $5,564,203 in
1996. Of this increase,  $1,004,869 resulted from the acquisition of CompuRoute,
$194,293  resulted from an increase in net sales,  and $12,000 resulted from the
increase in the provision for losses on accounts  receivable  for the year ended
December  31,  1996 as  compared to December  31,  1995.  Inventories  increased
$1,060,672, or 38%, over 1995 to $3,862,753. Of this increase, $322,768 resulted
from the  acquisition of CompuRoute,  $812,904  resulted from higher  production
levels  related to the  continuing year-over-year  increase  in net  sales,  and
$75,000 resulted from an increase in the provision for obsolete inventory.  Both
accounts receivable days outstanding and inventory turns improved during 1996 as
compared to 1995.

         Accounts payable and accrued expenses increased $2,050,732,  or 90%, to
$4,339,184  in 1996.  Approximately  $821,324 of the increase  resulted from the
acquisition of CompuRoute and the remainder represents increased activities with
vendors.

         The current portions of notes payable,  capital leases, and demand note
payable  increased to  $1,792,935 at December 31, 1996 from $333,628 at December
31, 1995,  primarily as a result of CompuRoute's  capital  leases,  of which the
current portion totaled $355,962, and the assumption of a $1,030,000 loan on the
CompuRoute land and building purchased on December 27, 1996.

         Working  capital  increased  $5,131,511,  or  108%,  to  $9,902,970  at
December 31, 1996 from December 31, 1995. The current ratio  increased to 2.6 to
1 at December 31, 1996 from 2.5 to 1 at December 31, 1995.  These increases were
primarily  as a result of the  remaining  balance of the net  proceeds  from the
private placement of the Convertible Preferred Stock at December 31, 1996, which
had not yet been used for the  acquisition of SVTR.  That  acquisition  utilized
approximately $2,753,217 of cash in January 1997.

         Cerprobe  increased its  investment in property,  plant,  and equipment
during the year ended December 31, 1996 by  $8,412,043,  or 109%, to $16,158,535
in 1996.  This  increase was  attributable  to the  Company's  efforts to expand
capacity  to meet  customer  demand  for its  products  and its  acquisition  of
CompuRoute and the related land and building.  These capital  expenditures  were
funded from cash flow from  operations,  proceeds from the private  placement of
the  Convertible  Preferred  Stock,  a capital  lease with Wells  Fargo  Leasing
Corporation  and the assumption of a loan on the  CompuRoute  land and building.
Long-term  debt,  comprised  of the  non-current  portions of notes  payable and
capital leases, increased $760,238, or 77%, to $1,741,444, primarily as a result
of the financing of new manufacturing equipment.

         In September  1996,  construction  began on  Cerprobe's  new  corporate
headquarters facility in Gilbert,  Arizona.  Cerprobe expects the facility to be
completed in the spring of 1997.  Cerprobe  has entered  into a long-term  lease
commencing on the date of  substantial  completion of the facility.  The initial
lease rate is dependent on final construction  costs, but currently is estimated
at  approximately  $73,000 per month,  which will increase the  Company's  total
monthly facility lease expense by approximately $34,000.
                                       29
<PAGE>
         In  February  1997,  Cerprobe  entered  into  a  $10,000,000  unsecured
revolving  line of credit,  which  matures  August 15,  1998,  with its  primary
lender, Wells Fargo Bank. Advances under the revolving line may be made as prime
rate  advances,  which  accrue  interest  payable  monthly,  at the Bank's prime
lending rate, or as LIBOR rate advances, which bear interest at 175 basis points
in excess of the LIBOR base rate.

         If the remaining  holders of the  Convertible  Preferred Stock elect to
convert their shares into shares of Cerprobe common stock,  based on the current
market price of Cerprobe common stock,  Cerprobe would be required to issue more
than  800,000  shares of its common  stock.  To ensure  compliance  with  Nasdaq
National  Market rules requiring  stockholder  approval of issuances of Cerprobe
common stock representing  greater than 20% of all shares outstanding,  Cerprobe
has the right to redeem any  shares of  Convertible  Preferred  Stock  that,  if
converted,  would  result in the  issuance  of more than  800,000  shares of its
common  stock.  In such event,  Cerprobe may redeem those shares of  Convertible
Preferred  Stock for cash in an  amount  determined  by a  formula  based on the
current market price of Cerprobe common stock. If the holders of all outstanding
shares of  Convertible  Preferred  Stock had elected to convert  their shares on
March 20,  1997,  Cerprobe  estimates  that it would have been  required  to pay
approximately  $3,300,000 to have redeemed all shares of  Convertible  Preferred
Stock that,  if  converted,  would have  resulted  in the  issuance of more than
800,000 shares of Cerprobe common stock. Redemption or automatic conversion must
occur on or before January 18, 1998.

         On January  15,  1997,  Cerprobe  acquired  SVTR.  The  purchase  price
consisted of (i) $2,753,217 in cash, and (ii) 300,000 shares of Cerprobe  common
stock of which 125,000 shares have been placed in escrow as a source of recourse
for certain  indemnification  claims. The acquisition of SVTR was funded through
net proceeds from the private placement of Convertible Preferred Stock.

         Cerprobe  believes  that its working  capital,  together  with the loan
commitments  described above and  anticipated  cash flow from  operations,  will
provide  adequate  sources to fund  operations  for at least the next 12 months.
Cerprobe  anticipates  that any additional  cash  requirements  as the result of
operations  or capital  expenditures  will be  financed  through  cash flow from
operations,  by borrowing from  Cerprobe's  primary  lender,  by lease financing
arrangements, or by sales of equity securities.

Inflation and Changing Prices

         Cerprobe is impacted by inflationary  trends and business trends within
the  semiconductor  industry  and  by the  general  condition  of the  worldwide
semiconductor  markets.  Market  price  pressures  are exerted on  semiconductor
manufacturers by the global marketplace and global  competition.  Such pressures
mandate that semiconductor  manufacturers closely scrutinize the prices they pay
for goods and services purchased from Cerprobe and other suppliers. Accordingly,
the price structure for Cerprobe's products must be competitive.

         Changes in Cerprobe's supplier prices did not have a significant impact
on cost of sales during 1996 or 1995.

         As a result of Cerprobe's  operation of the manufacturing,  repair, and
sales  facilities  in  Scotland,   Singapore,  and  Taiwan,  Cerprobe's  foreign
transactions may be denominated in currencies  other than the U.S. dollar.  Such
transactions may expose Cerprobe to exchange rate fluctuations for the period of
time from  inception  of the  transaction  until it is settled.  There can be no
assurance that fluctuations in the currency exchange rate in the future will not
have an adverse impact on Cerprobe's foreign operations.

         In addition,  Cerprobe may  purchase a  substantial  portion of its raw
materials and equipment  from foreign  suppliers and will incur labor costs in a
foreign currency.  The foreign manufacture and sale of products and the purchase
of raw material and equipment from foreign  suppliers may be adversely  affected
by political and economic  conditions  abroad.  Protective trade  legislation in
either the United States or foreign  countries,  such as a change in the current
tariff  structures,  export  compliance  laws or  other  trade  policies,  could
adversely  affect  Cerprobe's  ability to  manufacture  or sell its  products in
foreign markets and purchase materials or equipment from foreign  suppliers.  In
countries  in which  Cerprobe  conducts  business  in local  currency,  currency
exchange fluctuations could adversely affect Cerprobe's net sales or costs.
                                       30
<PAGE>
"Safe Harbor"  Statement Under the Private  Securities  Litigation Reform Act of
1995

         Statements  in this  section  regarding  the  expansion  of  Cerprobe's
operation   in   Southeast   Asia  and   adequacy  of  sources  of  capital  are
forward-looking  statements.  Words such as  "expects,"  "intends,"  "believes,"
"anticipates,"   "should,"  and  "will  likely"  also  identify  forward-looking
statements.   Actual  results,  however,  could  differ  materially  from  those
anticipated  for  a  number  of  reasons,  including  increased  competition  in
Southeast  Asia,  a  downturn  in the market for  semiconductors,  increases  in
interest rates, foreign currency fluctuation,  and other unanticipated  factors.
Risk  factors,  cautionary  statements,  and other  conditions  that could cause
actual results to differ are contained in "Special  Considerations" in Item 1 of
this report.

ITEM 7.           FINANCIAL STATEMENTS

         The Independent Auditors' Report and Consolidated  Financial Statements
of the  Company  are set  forth  on  pages  F-1 to F-24 of this  report  and are
incorporated by reference herein.

ITEM 8.           CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

         None.


                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The  information  required by this Item  relating to  directors  of the
Company and disclosure  relating to compliance  with 16(a) of the Securities Act
of 1934 is included under the captions  "Election of Directors" and  "Compliance
with  Section  16(a)  of the  Securities  Act of 1934"  in the  Company's  Proxy
Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.  The  information  required by this Item relating to the Company's
executive officers is included under the caption "Executive  Officers" in Part I
of this report.

ITEM 10.          EXECUTIVE COMPENSATION

         The  information  required by this Item is  included  under the caption
"Executive  Compensation"  in the Company's  Proxy Statement for the 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required by this Item is  included  under the caption
"Security  Ownership of Principal  Stockholders and Management" in the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders  and is incorporated
herein by reference.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this Item is  included  under the caption
"Certain   Relationships  and  Related  Transactions"  in  the  Company's  Proxy
Statement for the 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.
                                       31
<PAGE>
                                     PART IV

ITEM 13.          EXHIBITS,  FINANCIAL STATEMENT SCHEDULES,  AND REPORTS ON FORM
                  8-K

         (a)      The following documents are filed as part of this report:

         1.       Financial Statements
                  --------------------

                  The  following  Financial  Statements of the Company are filed
with this report:
<TABLE>
<CAPTION>
                  Description                                                                                 Page
                  -----------                                                                                 ----

<S>               <C>                                                                                         <C>
                  Independent Auditors' Report................................................................F-1
                  Consolidated Balance Sheets, December 31, 1996 and 1995.................................... F-2
                  Consolidated Statements of Operations for the years ended
                     December 31, 1996, 1995 and 1994........................................................ F-3
                  Consolidated Statements of Stockholders' Equity for the years
                     ended December 31, 1996, 1995 and 1994.................................................. F-4
                  Consolidated Statements of Cash Flows for the years ended
                     December 31, 1996, 1995 and 1994........................................................ F-5
                  Notes to Consolidated Financial Statements................................................. F-7
</TABLE>

         2.       Exhibits
                  --------

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

2(a)              Agreement of Merger and Plan of Reorganization  dated February
                  21, 1995, as amended by that certain Amendment of Agreement of
                  Merger and Plan of Reorganization dated March 31, 1995, by and
                  among  Fresh  Test  Acquisition,   Inc.,  the  Company,  Fresh
                  Technology Corporation, and William A. Fresh, Robert K. Bench,
                  Harold  D.  Higgins,  WAF  Investment  Company  and  Orem  Tek
                  Development  Corp. filed as Exhibit 2 to the Company's Current
                  Report on Form 8-K filed with the Commission on or about April
                  4, 1995 and incorporated herein by reference.

3(a)              First  Restated  Certificate of  Incorporation  of the Company
                  dated August 20, 1996.

3(b)              Bylaws of the Company  dated March 14, 1987,  filed as Exhibit
                  4(b) to the Company's  Form 10-Q for the period ended June 30,
                  1987 and incorporated herein by reference.

4(a)              Specimen  Stock  Certificate  filed  as  Exhibit  4(c)  to the
                  Company's Form S-18  Registration  Statement (No. 2-85679) and
                  incorporated herein by reference.

4(b)              Specimen Convertible  Subordinated  Debenture filed as Exhibit
                  4(b) to the  Company's  Form 10-K for the year ended  December
                  31, 1990 and incorporated herein by reference.

4(c)              Specimen Series A Preferred Stock Certificate filed as Exhibit
                  4(c) to the Company's  Form 10-KSB for the year ended December
                  31, 1995 and incorporated herein by reference.

4(d)              Certificate of  Designations of Series A Preferred Stock dated
                  January  11,  1996,  as filed with the  Secretary  of State of
                  Delaware  filed as Exhibit 4(d) to the  Company's  Form 10-KSB
                  for the year ended December 31, 1995 and  incorporated  herein
                  by reference.

10(a)             Non-Qualified Stock Option Plan adopted by the Company's Board
                  of  Directors  on June  25,  1983,  as  amended,  and  Form of
                  Qualified  Stock Option  Agreement  filed as Exhibits 4(a) and
                  4(c) to the Company's  Form S-8  Registration  Statement  (No.
                  33-65200) and incorporated herein by reference.
                                       32
<PAGE>
10(b)             Incentive  Stock Option Plan adopted by the Company's Board of
                  Directors  on April 3,  1989,  filed as  Exhibit  10(k) to the
                  Company's  Form 10-K for the year ended  December 31, 1989 and
                  incorporated  herein by reference and Form of Incentive  Stock
                  Option  Agreement  filed as Exhibit 4(d) to the Company's Form
                  S-8  Registration  Statement (No.  33-65200) and  incorporated
                  herein by reference.

10(c)             Lease  Agreement  between the  Company and Jerome A.  Reynolds
                  dated  July 4, 1991 filed as  Exhibit  10(b) to the  Company's
                  Form  10-K  for  the  year  ended   December   31,   1991  and
                  incorporated herein by reference.

10(d)             Lease  Agreement  between the Company and Kou-ping Cheng dated
                  June 11,  1993 filed as Exhibit  10(u) to the  Company's  Form
                  10-KSB for the year ended  December 31, 1993 and  incorporated
                  herein by reference.

10(e)             Lease Agreement  between the Company and NPF Management,  Inc.
                  dated March 15, 1993 filed as Exhibit  10(p) to the  Company's
                  Form  10-K  for  the  year  ended   December   31,   1992  and
                  incorporated herein by reference.

10(f)             Lease  Modification  between the  Company and PDJ  Corporation
                  dated February 10, 1994 to Lease Agreement between the Company
                  and NPF Management, Inc. dated March 15, 1993 filed as Exhibit
                  10(v) to the Company's Form 10-KSB for the year ended December
                  31, 1993 and incorporated herein by reference.

10(g)             Lease  Agreement  between the  Company  and John J.  Hollowell
                  dated October 30, 1990 filed as Exhibit 10(m) to the Company's
                  Form  10-K  for  the  year  ended   December   31,   1990  and
                  incorporated herein by reference.

10(h)             Office  Lease  Agreement  between  the  Company  and Robert B.
                  Hopgood, Jr. dated November 13, 1990 filed as Exhibit 10(n) to
                  the Company's  Form 10-K for the year ended  December 31, 1990
                  and incorporated herein by reference.

10(i)             Addendum dated March 1, 1992 between the Company and Robert B.
                  Hopgood, Jr. to Office Lease Agreement between the Company and
                  Robert B.  Hopgood,  Jr.  dated  November  13,  1990  filed as
                  Exhibit  10(j) to the  Company's  Form 10-K for the year ended
                  December 31, 1991 and incorporated herein by reference.

10(j)             Second  Addendum dated January 1, 1994 between the Company and
                  Robert B. Hopgood,  Jr. to Office Lease Agreement  between the
                  Company and Robert B.  Hopgood,  Jr.  dated  November 13, 1990
                  filed as Exhibit 10(j) to the Company's Form 10-K for the year
                  ended December 31, 1991 and incorporated herein by reference.

10(k)             Lease   Agreement   between  the  Company  and  Renner   Plaza
                  Properties  dated  September 8, 1993 filed as Exhibit 10(w) to
                  the Company's Form 10-KSB for the year ended December 31, 1993
                  and incorporated herein by reference.

10(l)             Lease  Agreement  between the Company and Aetna Life Insurance
                  Company dated  December 30, 1994 filed as Exhibit 10(l) to the
                  Company's Form 10-KSB for the year ended December 31, 1994 and
                  incorporated herein by reference.

10(m)             Lease between Scottish  Enterprise and Cerprobe Europe Limited
                  dated November 4, 1994 filed as Exhibit 10(m) to the Company's
                  Form  10-KSB  for  the  year  ended   December  31,  1994  and
                  incorporated herein by reference.
                                       33
<PAGE>
10(n)             Rental  Agreement  between  the  Company  and  Gentra  Capital
                  Corporation dated as of July 6, 1994 filed as Exhibit 10(n) to
                  the Company's Form 10-KSB for the year ended December 31, 1994
                  and incorporated herein by reference.

10(o)             Agreement  dated May 2, 1991  between  the Company and John W.
                  Tarzwell and Margaret L.  Tarzwell  filed as Exhibit  10(d) to
                  the Company's  Form 10-K for the year ended  December 31, 1991
                  and incorporated herein by reference.

10(p)             Amendment No. 1 dated March 8, 1993 to Agreement  dated May 2,
                  1991 between the Company and John W.  Tarzwell and Margaret L.
                  Tarzwell  filed as Exhibit 10(s) to the Company's  Form 10-KSB
                  for the year ended December 31, 1993 and  incorporated  herein
                  by reference.

10(q)             Asset  Purchase  Agreement  dated July 10,  1991  between  the
                  Company and Alpha Test  Corporation  filed as Exhibit 10(c) to
                  the Company's  Form 10-K for the year ended  December 31, 1991
                  and incorporated herein by reference.

10(r)             Employment  Contract  dated July 16, 1990  between the Company
                  and Carl Zane Close  filed as Exhibit  10(p) to the  Company's
                  Form  10-K  for  the  year  ended   December   31,   1990  and
                  incorporated herein by reference.

10(s)             Employment  Contract  dated July 17, 1990  between the Company
                  and Michael K. Bonham filed as Exhibit  10(q) to the Company's
                  Form  10-K  for  the  year  ended   December   31,   1990  and
                  incorporated herein by reference.

10(t)             Employment  Contract  dated July 16, 1990  between the Company
                  and Eswar  Subramanian filed as Exhibit 10(r) to the Company's
                  Form  10-K  for  the  year  ended   December   31,   1990  and
                  incorporated herein by reference.

10(u)             Employment  Contract  dated July 16, 1990  between the Company
                  and Henry Wong filed as Exhibit  10(s) to the  Company's  Form
                  10-K for the year ended  December  31,  1990 and  incorporated
                  herein by reference.

10(v)             Manufacturing  Licensing  Agreement  between  the  Company and
                  Intertrade  Scientific,  Inc.  dated  August 30, 1993 filed as
                  Exhibit 10(x) to the Company's  Form 10-KSB for the year ended
                  December 31, 1993 and incorporated herein by reference.

10(w)             Manufacturing  Licensing Agreement between the Company and ESJ
                  Corporation  dated  January 21, 1994 filed as Exhibit 10(y) to
                  the Company's Form 10-KSB for the year ended December 31, 1993
                  and incorporated herein by reference.

10(x)             Loan Agreement  between the Company and First  Interstate Bank
                  of Arizona,  N.A.  dated June 6, 1994 and  related  Promissory
                  Note filed as Exhibit 10(x) to the  Company's  Form 10-KSB for
                  the year ended  December 31, 1994 and  incorporated  herein by
                  reference.

10(y)             Master   Lease   Agreement   between  the  Company  and  First
                  Interstate  Bank of  Arizona,  N.A.  dated as of June 6,  1994
                  filed as Exhibit  10(y) to the  Company's  Form 10-KSB for the
                  year  ended  December  31,  1994 and  incorporated  herein  by
                  reference.

10(z)             Master Lease Agreement between the Company and PFC, Inc. dated
                  August 9, 1994 filed as Exhibit  10(z) to the  Company's  Form
                  10-KSB for the year ended  December 31, 1994 and  incorporated
                  herein by reference.
                                       34
<PAGE>
10(aa)            Commitment of Norwest Equipment  Finance,  Inc. to the Company
                  dated  December  14,  1994  filed  as  Exhibit  10(aa)  to the
                  Company's Form 10-KSB for the year ended December 31, 1994 and
                  incorporated herein by reference.

10(bb)            Agreement  between  Cerprobe  Europe,  Limited and Lanarkshire
                  Development Agency dated August 15, 1994, as amended, filed as
                  Exhibit 10(bb) to the Company's Form 10-KSB for the year ended
                  December 31, 1994 and incorporated herein by reference.

10(cc)            Lease Agreement between the Company and Realtec  Properties I,
                  L.P.  dated July 17, 1995 filed as Exhibit 1 to the  Company's
                  Form  10-QSB  for  the   quarter   ended  June  30,  1995  and
                  incorporated herein by reference.

10(dd)            Lease  Agreement  between the  Company  and East Point  Realty
                  Trust dated June 30, 1995 filed as Exhibit 2 to the  Company's
                  Form  10-QSB  for  the   quarter   ended  June  30,  1995  and
                  incorporated herein by reference.

10(ee)            Amendment  to Loan  Agreement  between  the  Company and First
                  Interstate  Bank of  Arizona,  N.A.  dated  April 30, 1995 and
                  related  Promissory  Note filed as Exhibit 3 to the  Company's
                  Form  10-QSB  for  the   quarter   ended  June  30,  1995  and
                  incorporated herein by reference.

10(ff)            Amendment  to Master Lease  Agreement  between the Company and
                  First  Interstate  Bank of Arizona,  N.A. dated April 30, 1995
                  filed  as  Exhibit  4 to the  Company's  Form  10-QSB  for the
                  quarter  ended  June  30,  1995  and  incorporated  herein  by
                  reference.

10(gg)            Letter of Intent between the Company and Technology  Parks PTE
                  LTD dated June 23,  1995  filed as Exhibit 5 to the  Company's
                  Form  10-QSB  for  the   quarter   ended  June  30,  1995  and
                  incorporated herein by reference.

10(hh)            Employment  Agreement  between the Company and Robert K. Bench
                  dated March 31, 1995 filed as Exhibit  10(hh) to the Company's
                  Form  10-KSB  for  the  year  ended   December  31,  1995  and
                  incorporated herein by reference.

10(ii)            Security  Agreement  between  the  Company  and  Zions  Credit
                  Corporation dated December 27, 1995 filed as Exhibit 10(ii) to
                  the Company's Form 10-KSB for the year ended December 31, 1995
                  and incorporated herein by reference.

10(jj)            Assignment of Lease between  Fresh Test  Technology,  Inc. and
                  the Company  dated  August 31, 1995 filed as Exhibit 10(jj) to
                  the Company's Form 10-KSB for the year ended December 31, 1995
                  and incorporated herein by reference.

10(kk)            Lease  Agreement  between  Fresh  Test  Technology,  Inc.  and
                  Mission  West  Properties  dated  September  21, 1993 filed as
                  Exhibit (kk) to the  Company's  Form 10-KSB for the year ended
                  December 31, 1995.

10(ll)            The Company's 1995 Stock  Option Plan filed as  Exhibit 10(ll)
                  to the Company's Form  10-KSB for the  year ended December 31,
                  1995 and incorporated herein by reference.

10(mm)            Capital  Lease  Agreement  between the Company and Wells Fargo
                  Leasing Corporation dated October 10, 1996 filed as an Exhibit
                  to the Company's  Form 10-QSB for the quarter ended  September
                  30, 1996 and incorporated herein by reference.

10(nn)            Capital  Lease  Agreement  between the Company and Wells Fargo
                  Leasing  Corporation  dated  September  9,  1996  filed  as an
                  Exhibit to the  Company's  Form 10-QSB for the  quarter  ended
                  September 30, 1996 and incorporated herein by reference.

10(oo)            Memorandum  of  Lease  with  respect  to the  Lease  Agreement
                  between the Company and CRPB  Investors,  L.L.C.  dated August
                  21, 1996, and the Addendum to the Lease  Agreement filed as an
                  Exhibit to the  Company's  Form 10-QSB for the  quarter  ended
                  September 30, 1996 and incorporated herein by reference.
                                       35
<PAGE>
10(pp)            Employment  Agreement between the Company and Randal L. Buness
                  dated June 26, 1996 filed as an Exhibit to the Company's  Form
                  10-QSB  for  the  quarter   ended   September   30,  1996  and
                  incorporated herein by reference.

10(qq)            Operating  Agreement  between the Company and CRPB  Investors,
                  L.L.C.  dated  September  18,  1996 filed as an Exhibit to the
                  Company's Form 10-QSB for the quarter ended September 30, 1996
                  and incorporated herein by reference.

10(rr)            Agreement  of Merger and Plan of  Reorganization,  dated as of
                  October  25,  1996,   by  and  among  the   Company,   C-Route
                  Acquisition, Inc., CROUTE, Inc., COMPUROUTE, INCORPORATED, and
                  Souad  Shrime  filed  as  Exhibit   10(rr)  to  the  Company's
                  Registration   Statement  on  Form  S-4  (No.  333-15785)  and
                  incorporated herein by reference.

10(ss)            Agreement and Plan of Merger, dated as of October 25, 1996, by
                  and between COMPUROUTE,  INCORPORATED,  and CROUTE, Inc. filed
                  as Exhibit 10(ss) to the Company's  Registration  Statement on
                  Form S-4 (No. 333-15785) and incorporated herein by reference.

10(tt)            Purchase and Sale  Agreement  dated as of October 25, 1996, by
                  and  between  Souad  Shrime and the  Company  filed as Exhibit
                  10(tt) to the  Company's  Registration  Statement  on Form S-4
                  (No. 333-15785) and incorporated herein by reference.

10(uu)            Indemnification  Agreement by Souad Shrime in favor of and for
                  the benefit of the Company and C-Route Acquisition, Inc. filed
                  as Exhibit 10(uu) to the Company's  Registration  Statement on
                  Form S-4 (No. 333-15785) and incorporated herein by reference.

10(vv)            Agreement of Merger and Plan of  Reorganization  dated January
                  15, 1997,  by and among the Company,  EMI  Acquisition,  Inc.,
                  Silicon  Valley  Test & Repair,  Inc.,  and  William and Carol
                  Mayer filed as Exhibit 1 to the  Company's  Current  Report on
                  Form 8-K filed with the  Commission  on or about  January  30,
                  1997 and incorporated herein by reference.

10(ww)            Registration  Rights  Agreement dated January 15, 1997, by and
                  between  the  Company  and  William  and Carol  Mayer filed as
                  Exhibit 2 to the  Company's  Current  Report on Form 8-K filed
                  with  the   Commission  on  or  about  January  30,  1997  and
                  incorporated herein by reference.

10(xx)            Employment  Agreement  dated  January 15, 1997, by and between
                  the  Company and William and Carol Mayer filed as Exhibit 2 to
                  the  Company's  Current  Report  on Form  8-K  filed  with the
                  Commission  on or about  January  30,  1997  and  incorporated
                  herein by reference.

10(yy)            Credit  Agreement  between  the  Company and Wells Fargo Bank,
                  National Association dated February 28, 1997.

10(zz)            Revolving  Line of Credit  Note  between the Company and Wells
                  Fargo Bank, National Associated dated February 28, 1997.

11      Schedule of Computation of Net Income (Loss) per Share.

21      List of Subsidiaries.

23      Independent Auditors' Consent.

27      Financial Data Schedule.

(b)     Reports on Form 8-K
        -------------------
        None.
                                       36
<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.


                                         CERPROBE CORPORATION


                                         /s/ Zane Close
                                         -------------------------------------
                                         C. Zane Close
                                         President, Chief Executive
                                         Officer, and Director

                                         Dated:  March 28, 1997

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

<TABLE>
<CAPTION>
         Signature                                   Title                                       Date
         ---------                                   -----                                       ----


<S>                                                  <C>                                        <C>
/s/Ross J. Mangano                                   Chairman of the Board of                    March 28, 1997
--------------------------------------------         Directors and Director
Ross J. Mangano


/s/C. Zane Close                                     President, Chief Executive                  March 28, 1997
--------------------------------------------         Officer, and Director
C. Zane Close                                        (Principal Executive
                                                     Officer)



/s/Randal L. Buness                                  Vice President, Chief Financial             March 28, 1997
--------------------------------------------         Officer, Secretary, and Treasurer
Randal L. Buness                                     (Principal Financial
                                                     and Accounting Officer)



/s/William A. Fresh                                  Director                                    March 28, 1997
--------------------------------------------
William A. Fresh


/s/Kenneth W. Miller                                 Director                                    March 28, 1997
--------------------------------------------
Kenneth W. Miller


/s/Donald F. Walter                                  Director                                    March 28, 1997
--------------------------------------------
Donald F. Walter
</TABLE>
                                       37
<PAGE>
                              CERPROBE CORPORATION

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                               Page

<S>                                                                                                            <C>
Independent Auditors' Report..............................................................................     F-1
Consolidated Balance Sheets, December 31, 1996 and 1995...................................................     F-2
Consolidated Statements of Operations for the years ended December 31, 1996,
   1995 and 1994..........................................................................................     F-3
Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 1996,  1995 and 1994......................................................................     F-4
Consolidated  Statements of Cash Flows for the years ended December 31, 1996,
   1995 and 1994..........................................................................................     F-5
Notes To Consolidated Financial Statements................................................................     F-7
</TABLE>
<PAGE>
                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Cerprobe Corporation:


We have  audited  the  accompanying  consolidated  balance  sheets  of  Cerprobe
Corporation  and  subsidiaries  as of December 31, 1996 and 1995 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the years in the  three-year  period  ended  December  31,  1996.  These
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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Cerprobe Corporation
and  subsidiaries  as of  December  31,  1996 and 1995 and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1996 in  conformity  with  generally  accepted  accounting
principles.



KPMG Peat Marwick LLP




Phoenix, Arizona
February 14, 1997, except as to the
fourth paragraph of note 20 which
is as of February 28, 1997
                                      F-1
<PAGE>
                              CERPROBE CORPORATION

                           Consolidated Balance Sheets
                           December 31, 1996 and 1995



                      Assets                        1996               1995
                                              -----------------   --------------
Current assets:
    Cash and cash equivalents                   $  5,564,557        $    263,681
    Accounts receivable, net of allowance of
      $223,000 in 1996 and $173,000 in 1995        5,564,203           4,377,041
    Inventories, net                               3,862,753           2,802,081
    Note receivable                                  250,000                  --
    Prepaid expenses                                 377,003             111,673
    Income taxes receivable                          214,097             163,464
    Deferred tax asset                               202,476             270,599
                                              -----------------   --------------
           Total current assets                   16,035,089           7,988,539

Property, plant and equipment, net                11,446,291           4,667,786
Intangibles, net                                   2,602,812           1,997,409
Other assets                                       1,326,592             313,716
                                              -----------------   --------------

           Total assets                          $31,410,784         $14,967,450
                                              =================   ==============


       Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                             $2,739,064           $1,499,853
    Accrued expenses                              1,600,120              788,599
    Convertible subordinated debentures                  --              595,000
    Demand note payable                           1,030,000                   --
    Current portion of notes payable                128,180              123,743
    Current portion of capital leases               634,755              209,885
                                              -----------------    -------------
           Total current liabilities              6,132,119            3,217,080

Notes payable, less current portion                 278,645              408,376
Capital leases, less current portion              1,462,799              572,830
Deferred tax liability                                   --               66,123
Other liabilities                                   394,011               46,801
                                              -----------------    -------------
           Total liabilities                      8,267,574            4,311,210
                                              -----------------    -------------

Minority interest                                    12,851                   --

Commitments and contingencies
Stockholders' equity:
    Preferred stock, $.05 par value; authorized
      10,000,000 shares; issued and outstanding
      330 shares of Series A Convertible
      Preferred Stock, liquidation preference of
      $10,164 per share                                  16                   --
    Common stock, $.05 par value; authorized,
      10,000,000 shares; issued and outstanding
      6,027,714 shares in 1996 and 4,095,851        301,386              204,792
      shares in 1995
    Additional paid-in capital                   20,652,290            7,239,410
    Retained earnings                             2,105,674            3,466,464
    Unearned compensation                                --             (241,872
    Foreign currency translation adjustment          70,993              (12,554
                                              -----------------    -------------
           Total stockholders' equity            23,130,359           10,656,240
                                              =================    =============

           Total liabilities and stockholders'
              equity                            $31,410,784          $14,967,450
                                              =================    =============

See accompanying notes to consolidated financial statements.
                                      F-2
<PAGE>
                              CERPROBE CORPORATION

                      Consolidated Statements of Operations

                  Years ended December 31, 1996, 1995 and 1994



<TABLE>
<CAPTION>
                                                            1996                 1995                 1994
                                                      ------------------   ------------------   ------------------
<S>                                                      <C>                  <C>                  <C>
Net sales                                                $37,308,199          $26,098,637          $14,251,485
Costs of goods sold                                       20,343,516           13,706,435            8,213,966
                                                      ------------------   ------------------   ------------------
              Gross margin                                16,964,683           12,392,202            6,037,519
                                                      ------------------   ------------------   ------------------

Expenses:
    Selling, general and administrative                   10,725,075            7,502,598            3,693,401
    Engineering and product development                      902,909              706,680              417,198
    Purchased research and development                     4,584,000                   --                   --
                                                      ------------------   ------------------   ------------------
              Total expenses                              16,211,984            8,209,278            4,110,599
                                                      ------------------   ------------------   ------------------

              Operating income                               752,699            4,182,924            1,926,920
                                                      ------------------   ------------------   ------------------

Other income (expense):
    Interest income                                          467,043               44,697               18,882
    Interest expense                                        (221,248)            (153,758)            (115,254)
    Other income, net                                        246,862              140,111               92,796
                                                      ------------------   ------------------   ------------------
              Total other income (expense)                   492,657               31,050               (3,576)
                                                      ------------------   ------------------   ------------------

              Income before income taxes and               1,245,356            4,213,974            1,923,344
                minority interest

Minority interest share of loss                               94,854                   --                   --
                                                      ------------------   ------------------   ------------------

              Income before income taxes                   1,340,210            4,213,974            1,923,344

Provision for income taxes                                (2,701,000)          (1,811,727)            (710,521)
                                                      ------------------   ------------------   ------------------

              Net income (loss)                          $(1,360,790)          $2,402,247           $1,212,823
                                                      ==================   ==================   ==================

Net income (loss) per common and common
    equivalent share:
    Primary                                                   $(0.30)               $0.59               $0.36
                                                      ==================   ==================   ==================

    Weighted average number of common and
      common equivalent shares outstanding                 4,579,598            4,071,233            3,387,220
                                                      ==================   ==================   ==================

    Fully diluted                                             $(0.30)               $0.49               $0.30
                                                      ==================   ==================   ==================

    Weighted average number of common and
      common equivalent shares outstanding                 4,579,598            4,862,137            4,006,801
                                                      ==================   ==================   ==================
</TABLE>
          See accompanying notes to consolidated financial statements.
                                      F-3
<PAGE>
                              CERPROBE CORPORATION
                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                            Number of            Number of
                                                             Common              Preferred
                                                            Shares         Shares                                  Additional
                                                           Issued and    Issued and       Common     Preferred      Paid-in
                                                           Outstanding   Outstanding      Stock        Stock        Capital
                                                          ------------  ------------- -------------- ---------- ----------------

<S>                                                       <C>             <C>           <C>           <C>        <C>
Balance, January 1, 1994                                    2,976,018              -     $  148,800    $     -    $   2,973,645
Conversion of subordinated debentures                          40,000              -          2,000          -           38,000
Stock options exercised                                       207,333              -         10,367          -          191,326
Tax benefit of exercise of nonqualified stock options               -              -              -          -          482,461
Cash dividends paid ($.03 a share)                                  -              -              -          -                -
Translation adjustment                                              -              -              -          -                -
Net income                                                          -              -              -          -                -
                                                          ------------  ------------- -------------- ---------- ----------------

Balance, December 31, 1994                                  3,223,351                    $  161,167    $     -    $   3,685,432
Issuance of stock options at less than fair market value            -              -              -          -          387,000
Compensation expense related to stock options                       -              -              -          -                -
Stock options exercised                                       160,000              -          8,000          -          199,464
Tax benefit of exercise of nonqualified stock options               -              -              -          -          340,170
Issuance of common stock for acquisition                      712,500              -         35,625          -        2,627,344
Translation adjustment                                              -              -              -          -                -
Net income                                                          -              -              -                           -
                                                          ------------  ------------- -------------- ---------- ----------------

Balance, December 31, 1995                                  4,095,851              -     $  204,792   $      -    $   7,239,410
Issuance of convertible preferred stock                             -          1,000              -         50        9,399,950
Conversion of subordinated debentures                         595,000              -         29,750          -          565,250
Compensation expense related to stock options                       -              -              -          -         (192,489)
Stock options exercised                                       164,702              -          8,235          -          556,744
Tax benefit of exercise of nonqualified stock options               -              -              -          -          542,000
Conversion of preferred stock for common stock                772,161           (670)        38,609        (34)         (38,575)
Issuance of common stock for acquisition                      400,000              -         20,000          -        2,580,000
Translation adjustment                                              -              -              -          -                -
Net loss                                                            -              -              -          -                -
                                                          ------------  ------------- -------------- ---------- ----------------

Balance, December 31, 1996                                  6,027,714            330     $  301,386   $     16    $  20,652,290
                                                          ============  ============= ============== ========== ================
</TABLE>
<TABLE>
<CAPTION>
                                                                                         Foreign
                                                          Retained                       Currency        Total
                                                          Earnings        Unearned     Translation   Stockholders'
                                                         (Deficit)      Compensation    Adjustment       Equity
                                                        -------------- --------------  ------------ -----------------

<S>                                                       <C>           <C>             <C>          <C>
Balance, January 1, 1994                                  $   (59,129)  $          -    $        -   $      3,063,316
Conversion of subordinated debentures                               -              -             -             40,000
Stock options exercised                                             -              -             -            201,693
Tax benefit of exercise of nonqualified stock options               -              -             -            482,461
Cash dividends paid ($.03 a share)                            (89,477)             -             -            (89,477)
Translation adjustment                                              -              -        12,138             12,138
Net income                                                  1,212,823              -             -          1,212,823
                                                        -------------- --------------  ------------ -----------------

Balance, December 31, 1994                                $ 1,064,217   $               $   12,138   $     4,922,954
Issuance of stock options at less than fair market value            -       (387,000)            -                 -
Compensation expense related to stock options                       -        145,128             -           145,128
Stock options exercised                                             -              -             -           207,464
Tax benefit of exercise of nonqualified stock options               -              -             -           340,170
Issuance of common stock for acquisition                            -              -             -         2,662,969
Translation adjustment                                              -              -       (24,692)          (24,692)
Net income                                                  2,402,247              -             -         2,402,247
                                                        -------------- --------------  ------------ -----------------

Balance, December 31, 1995                                $ 3,466,464   $   (241,872)   $  (12,554)  $    10,656,240
Issuance of convertible preferred stock                             -              -             -         9,400,000
Conversion of subordinated debentures                               -              -             -           595,000
Compensation expense related to stock options                       -        241,872             -            49,383
Stock options exercised                                             -              -             -           564,979
Tax benefit of exercise of nonqualified stock options               -              -             -           542,000
Conversion of preferred stock for common stock                      -              -             -                 -
Issuance of common stock for acquisition                            -              -             -         2,600,000
Translation adjustment                                              -              -        83,547            83,547
Net loss                                                   (1,360,790)             -             -        (1,360,790)
                                                        -------------- --------------  ------------ -----------------

Balance, December 31, 1996                                $ 2,105,674   $          -    $   70,993   $    23,130,359
                                                        ============== ==============  ============ =================
</TABLE>
          See accompanying notes to consolidated financial statements.
                                      F-4
<PAGE>
                              CERPROBE CORPORATION

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                   1996               1995              1994
                                                              ---------------    ---------------   ---------------
<S>                                                              <C>                 <C>             <C>
Cash flows from operating activities:
    Net income (loss)                                            $(1,360,790)        $2,402,247      $1,212,823
    Adjustments to reconcile net income (loss) to net
      cash provided by operating activities:

      Depreciation and amortization                                1,930,341          1,125,584         458,436
      Purchased research and development                           4,584,000                 --              --
      Tax benefit from exercise of nonqualified  stock
        options                                                      542,000            340,170         482,461
      (Gain) loss on sale of equipment                                    --              4,787             (50)
      Deferred income taxes                                            2,000           (110,502)        (93,974)
      Provision for losses on accounts receivable                     12,000             12,000          24,000
      Provision for obsolete inventory                                75,000             80,000          67,200
      Compensation expense                                            49,383            145,128              --
      Loss applicable to minority interest in
        consolidated subsidiaries                                    (94,854)                --              --
      Changes in operating assets and liabilities, net of
        acquisitions:
        Accounts receivable                                         (194,293)        (1,444,689)       (907,762)
        Inventories                                                 (812,904)        (1,038,216)        (51,285)
        Prepaid expenses and other assets                           (562,590)          (389,988)        (59,418)
        Income taxes receivable                                      (50,633)          (163,464)             --
        Accounts payable and accrued expenses                      1,229,408          1,101,238         (15,786)
        Accrued income taxes                                              --           (376,442)        331,765
        Other liabilities                                            311,947            (42,289)         90,356
                                                              ---------------    ---------------   ----------------
Net cash provided by operating activities:                         5,660,015          1,645,564       1,538,766
                                                              ---------------    ---------------   ----------------
Cash flows from investing activities:
    Purchase of property, plant and equipment                     (4,922,960)        (1,960,775)     (1,354,694)
    Investment in CRPB Investors, L.L.C.                            (659,233)                --              --
    Purchase of Fresh Test Technology, net of cash
      acquired                                                            --            (81,698)             --
    Purchase of CompuRoute, Inc., net of cash acquired            (4,327,162)                --              --
    Proceeds from sale of equipment                                       --             42,062              50
    Increase in notes receivable                                    (250,000)                --              --
                                                              ---------------    ---------------   ----------------
           Net cash used in investing activities                 (10,159,355)        (2,000,411)     (1,354,644)
                                                              ---------------    ---------------   ----------------
Cash flows from financing activities:
    Dividends paid                                                        --                 --         (89,477)
    Principal payments on notes payable and capital leases          (356,015)          (302,563)        (79,603)
    Net proceeds from issuance of convertible preferred            9,400,000                 --              --
      stock
    Net proceeds from stock options exercised                        564,979            207,464         201,693
    Capital contribution by minority interest partners               107,705                 --              --
                                                              ---------------    ---------------   ----------------
           Net cash provided by (used in) financing
                  activities                                       9,716,669            (95,099)         32,613
                                                              ---------------    ---------------   ----------------

Effect of exchange rates on cash and cash equivalents                 83,547            (24,692)         12,138
                                                              ---------------    ---------------   ----------------

Net increase (decrease) in cash and cash equivalents               5,300,876           (474,638)        228,873
Cash and cash equivalents, beginning of year                         263,681            738,319         509,446
                                                              ---------------    ---------------   ----------------
Cash and cash equivalents, end of year                            $5,564,557           $263,681        $738,319
                                                              ===============    ===============   ================
</TABLE>
          See accompanying notes to consolidated financial statements.
                                      F-5
<PAGE>
                              CERPROBE CORPORATION

                Consolidated Statements of Cash Flows, Continued

                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                            1996                 1995                 1994
                                                      ------------------   ------------------   ------------------
<S>                                                      <C>               <C>                       <C>
Supplemental schedule of noncash investing and
    financing activities:

    Conversion of subordinated debentures                $   595,000       $           --            $  40,000
                                                      ==================   ==================   ==================

    Equipment acquired under capital leases and
      issuance of note payable                            $1,553,968           $1,056,817             $195,293
                                                      ==================   ==================   ==================

Supplemental disclosures of cash flow information:

    Interest paid                                         $  218,383          $   153,690             $115,873
                                                      ==================   ==================   ==================

    Income taxes paid (refunded)                          $2,060,000           $1,679,876            $  (9,731)
                                                      ==================   ==================   ==================

Supplemental disclosures of noncash investing
    activities:
    The Company made acquisitions for $7.4
      million and $3.1 million in the years ended
      December 31, 1996 and 1995, respectively.
      The purchase price was allocated to the
      assets acquired and liabilities assumed
      based on their fair values as indicated in
      notes to the consolidated financial
      statements. A summary of the acquisitions
      was as follows:
    Purchase price                                       $ 7,432,543          $ 3,065,834
    Less cash acquired                                      (505,381)            (321,167)
    Common stock issued                                   (2,600,000)          (2,662,969)
                                                      ==================   ==================
      Cash invested                                      $ 4,327,162        $      81,698
                                                      ==================   ==================
</TABLE>
          See accompanying notes to consolidated financial statements.
                                      F-6
<PAGE>
                              CERPROBE CORPORATION

                   Notes to Consolidated Financial Statements

                  Years ended December 31, 1996, 1995 and 1994





(1)    Summary of Significant Accounting Policies

       Description of Business

       Cerprobe Corporation  ("Cerprobe")  designs,  manufactures,  markets, and
       services high  performance  products and equipment for use in the testing
       of integrated circuits ("ICs") for the semiconductor industry. Cerprobe's
       products  enable  semiconductor  manufacturers  to test the  integrity of
       their ICs in wafer form.  Testing ICs during the batch  fabrication stage
       of the  manufacturing  process  permits  semiconductor  manufacturers  to
       identify  defective  products early in the manufacturing  process,  which
       improves overall product quality and lowers  manufacturing costs. Through
       a recent acquisition, the Company also has a line of products used in the
       final  performance  testing  and  sorting of  packaged  ICs.  The Company
       markets  its   products   and   services   worldwide   to   semiconductor
       manufacturers,  both those who  manufacture  ICs for resale and those who
       manufacture ICs for inclusion in their own products.

       Principles of Consolidation

       The consolidated  financial  statements  include the accounts of Cerprobe
       and its wholly-owned subsidiaries:  Cerprobe Europe Limited, and Cerprobe
       Asia  Holdings  PTE  LTD  ("Company").  Cerprobe  Asia  Holdings  PTE LTD
       together  with Asian  investors,  formed  Cerprobe  Asia PTE LTD in 1995.
       Cerprobe  Asia  Holdings PTE LTD is a 70% owner of Cerprobe Asia PTE LTD.
       Cerprobe  Asia  PTE  LTD  created  wholly-owned  subsidiaries,   Cerprobe
       Singapore  PTE LTD and  Cerprobe  Taiwan Co. LTD, to operate full service
       sales and manufacturing plants.  Singapore became operational in April of
       1996  and  Taiwan  in  January  of  1997.  All  significant  intercompany
       transactions have been eliminated in consolidation.

       The  consolidated  balance  sheet at December 31, 1996 also  includes the
       assets and  liabilities  of CompuRoute,  Inc. a wholly owned  subsidiary,
       acquired on December 27, 1996; the consolidated  financial  statements do
       not include the 1996  operations of  CompuRoute,  Inc. due to the date of
       acquisition.

       Use of Estimates

       Management of the Company has made a number of estimates and  assumptions
       relating to the reporting of assets and liabilities and the disclosure of
       contingent  assets and liabilities to prepare these financial  statements
       in conformity  with  generally  accepted  accounting  principles.  Actual
       results could differ from those estimates.

       Cash and Cash Equivalents

       Cash  and cash  equivalents  include  cash on hand and in banks  and cash
       invested in  short-term  securities  with  original  maturities  of three
       months or less.

       Inventories

       Inventories are stated at the lower of cost (first-in,  first-out method)
       or market.
                                       F-7
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued




       Property, Plant and Equipment

       Property,  plant and equipment are stated at cost and  depreciated by the
       straight-line method over the following estimated useful lives:

              Building                                                39 years
              Manufacturing tools and equipment                      3-7 years
              Office furniture and equipment                         3-7 years
              Computer hardware and software                           3 years
              Leasehold improvements                             Life of lease


       Other Intangibles

       Goodwill represents the amount by which the cost of businesses  purchased
       exceeds the fair value of the net assets acquired.  Goodwill is amortized
       over a period of eight years using the straight-line  method. The Company
       continually evaluates whether events and circumstances have occurred that
       indicate  the  remaining  estimated  useful life of goodwill  may warrant
       revision  or that the  remaining  balance  may not be  recoverable.  When
       factors  indicate  that  the  asset  should  be  evaluated  for  possible
       impairment,  the Company  uses an estimate of the  undiscounted  net cash
       flows over the remaining life of the asset in measuring whether the asset
       is recoverable.

       Patents and  technology  are stated at fair  market  value at the date of
       acquisition less accumulated amortization and are amortized over a period
       of five years using the  straight-line  method.  Research and development
       costs  and  any  costs  associated  with  internally  developed  patents,
       formulas  or  other  proprietary  technology  are  expensed  in the  year
       incurred.

       Income Taxes

       The Company  utilizes the asset and liability  method of  accounting  for
       income taxes.  Under the asset and liability method,  deferred tax assets
       and   liabilities   are  recognized  for  the  future  tax   consequences
       attributable  to  differences  between the financial  statement  carrying
       amounts of  existing  assets and  liabilities  and their  respective  tax
       bases. Deferred tax assets and liabilities are measured using enacted tax
       rates  expected  to apply to taxable  income in the years in which  those
       temporary differences are expected to be recovered or settled. The effect
       on  deferred  tax  assets  and  liabilities  of a change  in tax rates is
       recognized in income in the period that includes the enactment date.

       Foreign Currency Translation

       The financial  statements of the Company's  Europe and Asia  subsidiaries
       are translated  into US dollars in accordance  with SFAS No. 52, "Foreign
       Currency  Translation."  Assets and liabilities of the  subsidiaries  are
       translated into US dollars at current exchange rates.  Income and expense
       items are  translated  at the  average  exchange  rate for the year.  The
       resulting  translation  adjustments  are recorded  directly as a separate
       component of stockholders'  equity.  All transaction  gains or losses are
       recorded in the statement of operations.
                                      F-8
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued




       Revenue Recognition

       The Company records revenue when goods are shipped.

       Net Income (Loss) Per Share

       Primary  net income  (loss) per  common  and common  equivalent  share is
       computed using the weighted  average number of common shares  outstanding
       during each year and  includes  shares  issuable  upon  exercise of stock
       options, warrants, and conversion of convertible preferred stock when the
       effect of such issuance is dilutive. The calculation of fully diluted net
       income (loss) per common and common equivalent share also includes shares
       issuable upon conversion of convertible  subordinated debentures when the
       effect of such issuance is dilutive.

       Long-lived Asset

       In March 1995, the Financial  Accounting  Standards Board issued SFAS No.
       121,  "Accounting  for  the  Impairment  of  Long-Lived  Assets  and  for
       Long-Lived  Assets to Be Disposed  Of," ("SFAS No.  121") which  requires
       impairment  losses to be recorded on long-lived assets used in operations
       when indicators of impairment are present and the undiscounted cash flows
       estimated  to be  generated  by those  assets  are less than the  assets'
       carrying  amount.   SFAS  No.  121  also  addresses  the  accounting  for
       long-lived  assets  that are  expected  to be  disposed  of. The  Company
       adopted SFAS No. 121 in the first  quarter of 1996 and this  adoption did
       not have a material impact on the consolidated financial statements.

       Stock Based Compensation

       Prior to January 1, 1996,  the  Company  accounted  for its stock  option
       plans in accordance  with the provisions of Accounting  Principles  Board
       ("APB")  Opinion No. 25,  "Accounting for Stock Issued to Employees," and
       related interpretations.  As such, compensation expense would be recorded
       on the date of grant only if the current  market price of the  underlying
       stock  exceeded  the  exercise  price.  On January 1, 1996,  the  Company
       adopted SFAS No. 123, "Accounting for Stock-Based  Compensation,"  ("SFAS
       No.  123"),  which  permits  entities to  recognize  as expense  over the
       vesting  period the fair value of all  stock-based  awards on the date of
       grant.  Alternatively,  SFAS No. 123 also allows  entities to continue to
       apply the  provisions  of APB  Opinion  No. 25 and  provide pro forma net
       income and pro forma  earnings per share  disclosures  for employee stock
       option  grants made in 1995 and future  years as if the  fair-value-based
       method defined in SFAS No. 123 had been applied.  The Company has elected
       to continue to apply the provisions of APB Opinion No. 25 and provide the
       pro forma disclosure provisions of SFAS No. 123.

       Reclassifications

       Certain  reclassifications  have been made to the  prior  year  financial
       statements to conform to the 1996 presentation.
                                      F-9
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued





 (2)   Inventories

       Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------
<S>                                                                         <C>                  <C>
             Raw materials                                                  $3,328,422           $1,655,974
             Work-in-process                                                   615,360            1,229,107
             Finished goods                                                     47,971                   --
             Reserve for obsolete inventories                                 (129,000)             (83,000)
                                                                        ------------------   ----------------

                                                                            $3,862,753           $2,802,081
                                                                        ==================   ==================
</TABLE>

(3)    Note Receivable

       The  Company has a note  receivable  from  Silicon  Valley Test & Repair,
       Inc.,  ("SVTR") dated  December 12, 1996,  for $250,000.  Interest on the
       outstanding balance is 1% in excess of the prime rate. As of December 31,
       1996,  the  interest  rate  was  9.25%.  This  note was  repaid  upon the
       acquisition of SVTR by the Company on January 15, 1997. See note 20.


 (4)   Property, Plant and Equipment

       Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------

<S>                                                                      <C>                 <C>
             Land                                                        $     359,253       $           --
             Building                                                        1,947,877                   --
             Manufacturing tools and equipment                               8,789,140            4,825,724
             Office furniture and equipment                                  1,063,547              694,643
             Leasehold improvements                                          1,112,576              759,843
             Computer hardware and software                                  2,402,551            1,067,444
             Construction in progress                                          483,591              398,838
             Accumulated depreciation and amortization                      (4,712,244)          (3,078,706)
                                                                        ------------------   ------------------

                                                                           $11,446,291           $4,667,786
                                                                        ==================   ==================
</TABLE>
                                      F-10
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued





 (5)   Intangibles

       Intangibles consist of the following:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------

<S>                                                                         <C>                  <C>
             Goodwill                                                       $3,009,638           $2,120,505
             Patents and technology                                             90,839               90,839
             Accumulated amortization                                         (497,665)            (213,935)
                                                                        ------------------   ------------------

                                                                            $2,602,812           $1,997,409
                                                                        ==================   ==================
</TABLE>

       Goodwill from the  acquisition of Fresh Test  Technology and  CompuRoute,
       Inc. is $2,120,505 and $889,133, respectively.

(6)    Other Assets

       Other assets consist of the following:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------

<S>                                                                         <C>             <C>
             Investment in CRPB Investors, L.L.C.                             $659,233       $          --
             Deferred compensation                                             343,755              306,348
             Other assets and deposits                                         323,604                7,368
                                                                        ------------------   ------------------

                                                                            $1,326,592             $313,716
                                                                        ==================   ==================
</TABLE>

       In September 1996, the Company acquired a 36% interest in CRPB Investors,
       L.L.C.,  for  $659,233.  CRPB  Investors,   L.L.C.,  an  Arizona  limited
       liability company, was formed for the purpose of owning and operating the
       83,000 square foot facility being built to serve as Cerprobe's  worldwide
       headquarters.  The investment  will be accounted for by the equity method
       of accounting.


 (7)   Accrued Expenses

       Accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------

<S>                                                                         <C>                    <C>
             Accrued payroll and related taxes                              $1,070,777             $482,866
             Other accrued expenses                                            529,343              305,733
                                                                        ------------------   ------------------

                                                                            $1,600,120             $788,599
                                                                        ==================   ==================
</TABLE>
                                      F-11
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued





 (8)   Demand Note Payable

       On December 27,  1996,  the Company  assumed a demand note with  Security
       Bank of Garland,  Texas for  approximately  $1,030,000 on the purchase of
       land and building occupied by CompuRoute, Inc., located in Dallas, Texas.
       Interest on the outstanding balance is 1.00% in excess of the prime rate.
       As of December 31, 1996, the interest rate was 9.25%.


(9)    Convertible Subordinated Debentures and Notes Payable

       In March and April  1991,  the Company  issued  $1,000,000  in  aggregate
       principal   amount   of   Convertible    Subordinated   Debentures   (the
       "Debentures").  The  Debentures  were  convertible  into  shares  of  the
       Company's common stock at a conversion price equal to $1.00 per share. As
       of December 31, 1996 and 1995, respectively, $0 and $595,000 in principal
       amount of debentures were outstanding.

       On April 30,  1996,  the Company  entered  into an  unsecured  $3,000,000
       revolving  line of credit  with First  Interstate  Bank (now Wells  Fargo
       Bank), which expires on April 28, 1997. The non-use fee under the line of
       credit is .125% of the unused portion, calculated per annum. The interest
       rate on any amounts  borrowed under the revolving credit agreement is the
       lower of prime  rate,  which was 8.25% at  December  31,  1996,  or LIBOR
       (London  Interbank  Rate),  plus 2.25%,  which was 7.75% at December  31,
       1996.  There was no amount  outstanding  under this agreement at December
       31, 1996.  On February 28, 1997,  the Company  entered into a new line of
       credit with Wells Fargo Bank that replaced this line. See note 20.

       The  Company has a note  payable  with Zion  Credit  Corporation  for the
       purchase of  manufacturing  equipment.  The note accrues interest at 9.4%
       annually  with monthly  payments of $13,185  including  interest  through
       December 1999. At December 31, 1996,  $406,825 was outstanding  under the
       note.

       Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                               1996                 1995
                                                                         ------------------   -----------------
<S>                                                                        <C>                   <C>
               Convertible subordinated debentures                         $         --          $   595,000
               Note payable                                                     406,825              532,119
                                                                         ------------------   -----------------
                                                                                406,825            1,127,119
               Less current portion                                            (128,180)            (718,743)
                                                                         ------------------   -----------------

               Long-term debt                                                  $278,645            $ 408,376
                                                                         ==================   =================
</TABLE>
                                      F-12
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued




       Annual maturities of long-term debt are as follows:

                             1997                           $128,180
                             1998                            139,660
                             1999                            138,985
                                                      ------------------

                                                            $406,825
                                                      ==================



(10)   Stockholders' Equity

       Convertible Preferred Stock

       In January 1996, the Company issued 1,000 shares of convertible preferred
       stock for  $10,000,000.  Net proceeds,  after  deducting  expenses,  were
       $9,400,000. If a holder does not convert within the first two years, then
       automatic   conversion  occurs  at  the  end  of  the  second  year.  The
       convertible  preferred  stock converts at the lesser of 110% of the fixed
       strike price of $16.55 or 90% of the average five day closing price prior
       to the conversion  date. The Company may call the  convertible  preferred
       stock at any time in minimum  amounts of $2,000,000 at a price of 125% of
       par, or upon a merger, buyout, or acquisition.

       Additionally,  the Company issued 39,275 common stock warrants in January
       1996.  These give the holder the right to  purchase  from the Company not
       more than 39,275 fully paid and  non-assessable  shares of the  Company's
       common stock,  $.05 par value, at a price of $16.55 per share on or after
       January 16, 1997, with expiration in four years.

       During 1996,  670 shares of  convertible  preferred  stock were converted
       into  772,161  shares  of  common  stock.  Accordingly,   330  shares  of
       convertible preferred stock were outstanding at December 31, 1996. If the
       remaining  holders of the  convertible  preferred  stock elect to convert
       their  shares into shares of  Cerprobe  common  stock based on the market
       price of common  stock as of December  31,  1996,  the  Company  would be
       required to issue more than  800,000  shares of common  stock.  To insure
       compliance  with  Nasdaq  National  Market  rules  requiring  shareholder
       approval of issuances of common  stock  representing  greater than 20% of
       all shares outstanding, the Company has the right to redeem any shares of
       convertible  preferred  stock that,  if  converted,  would  result in the
       issuance of more than 800,000 shares of Cerprobe  common stock.  See note
       14.
                                      F-13
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued





 (11)  Income Taxes

       The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                            1996                 1995                 1994
                                                      ------------------   ------------------   ------------------

<S>                                                       <C>                  <C>                    <C>
          Federal                                         $2,093,000           $1,391,499             $495,000
          State                                              608,000              420,228              215,521
                                                      ------------------   ------------------   ------------------

                                                          $2,701,000           $1,811,727             $710,521
                                                      ==================   ==================   ==================

          Current                                         $2,699,000           $1,922,229             $804,495
          Deferred                                             2,000             (110,502)             (93,974)
                                                      ------------------   ------------------   ------------------

                                                          $2,701,000           $1,811,727             $710,521
                                                      ==================   ==================   ==================
</TABLE>

       A reconciliation of the difference between the provision for income taxes
       and income taxes at the statutory  United States  federal income tax rate
       is as follows:

<TABLE>
<CAPTION>
                                                             1996                  1995                 1994
                                                       ------------------    -----------------    -----------------
<S>                                                        <C>                   <C>                    <C>
          Income tax expense at statutory rate               $456,000            $1,433,000             $654,000
          State income taxes, net                             362,700               253,000              142,000
          Purchased research and development not
            benefited                                       1,558,560                    --                   --
          Foreign losses not benefited                        167,450               199,000              149,000
          Amortization of intangibles                          90,200                67,000                   --
          Utilization of net operating
            carryforwards                                          --               (38,045)            (186,400)
          Research tax credit                                      --               (54,440)                  --
          Other                                                66,090               (47,788)             (48,079)
                                                       ------------------    -----------------    -----------------

                                                           $2,701,000            $1,811,727             $710,521
                                                       ==================    =================    =================
</TABLE>
                                      F-14
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued




       The  components  of the  Company's  deferred  tax asset and  deferred tax
liability are as follows:
<TABLE>
<CAPTION>
                                                                              1996                 1995
                                                                        ------------------   ------------------
<S>                                                                           <C>                  <C>
             Deferred tax assets:
               Foreign loss carry forward                                     $545,000             $348,000
               Reserves and accruals not currently deductible                  303,265              270,598
               Deferred compensation                                            87,747               48,785
                                                                        ------------------   ------------------
                     Total gross deferred tax assets                           936,012              667,383

               Less valuation allowance                                       (545,000)            (348,000)
                                                                        ------------------   ------------------

               Deferred tax asset                                              391,012              319,383
                                                                        ------------------   ------------------

             Deferred tax liability:
               Difference between book and tax depreciation of
                 property, plant and equipment                                 188,536              114,907
                                                                        ------------------   ------------------

               Net deferred tax asset                                         $202,476             $204,476
                                                                        ==================   ==================
</TABLE>

       The  valuation  allowance  increased by $197,000 and $163,000 in December
       31, 1996 and 1995,  respectively  and is due to foreign  losses for which
       there is no assurance of realizing a tax benefit.  A valuation  allowance
       has not been provided for the other deferred tax assets since  management
       believes realization of the deferred tax assets is considered more likely
       than not.

       During 1996 and 1995,  tax  benefits  were  recorded  for the exercise of
       stock options under the  nonqualified  stock option plan. The benefits of
       $542,000 and $340,170 were recorded to additional paid-in capital.


(12)   Stock Option Plan

       The Company adopted in 1983, 1989, and 1995,  respectively,  an incentive
       stock option plan, a  nonqualified  stock option plan,  and a combination
       stock  option  plan.  The  combined  plans  provided  for the issuance of
       options to purchase  1,685,000  shares of the Company's  common stock, of
       which  207,834  were  available  for grant as of December  31,  1996.  In
       accordance with the plans, options are to be granted at no less than 100%
       of the fair market value of the shares at the date of grant.  The options
       become   exercisable   on  a  basis  as   established  by  the  Company's
       Compensation  Advisory  Committee  of the  Board  of  Directors  and  are
       exercisable  for a period  of 5 to 10 years.  The  Company  extended  the
       exercise  date on 72,000  options  issued  under the  nonqualified  stock
       option plan in 1995.  Compensation  expense  related to these options was
       $49,383 and $145,128  during the years ended  December 31, 1996 and 1995,
       respectively.

       The Company has  elected to follow APB  Opinion No. 25,  "Accounting  for
       Stock Issued to Employees," and related Interpretations in accounting for
       its plans  because,  as  discussed  below,  the  alternative  fair  value
       accounting  provided for under SFAS No. 123.  "Accounting for Stock-Based
       Compensation,"  requires the use of option valuation models that were not
       developed for use in valuing  employee stock  options.  Under APB No. 25,
       because the exercise price of the
                                      F-15
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       Company's   employee  stock  options  equals  the  market  price  of  the
       underlying  stock on the date of the grant,  no  compensation  expense is
       recognized.

       Pro forma information regarding net income (loss) and earnings (loss) per
       share is  required by SFAS No. 123 and it has been  determined  as if the
       Company had accounted for its employee stock options under the fair value
       method.  The fair  value  of each  option  granted  for 1996 and 1995 was
       estimated  as of the date of the  grant  using the  Black-Scholes  option
       pricing model with the following  weighted  average  assumptions for 1996
       and  1995,  respectively;  risk-free  interest  rates of 6.1%  and  5.8%;
       dividend  yields  of zero  for  both  years;  volatility  factors  of the
       expected  market price of the Company's  common stock of 52.5% and 51.3%;
       and weighted  average  expected  lives of the options of 3 years for both
       years.

       The  Black-Scholes  option  valuation  model  was  developed  for  use in
       estimating  the fair  value  of  traded  options  which  have no  vesting
       restrictions and are fully  transferable.  In addition,  option valuation
       models require the input of highly subjective  assumptions  including the
       expected  stock price  volatility.  Because the Company's  employee stock
       options have characteristics significantly different from those of traded
       options and  because  changes in the  subjective  input  assumptions  can
       materially affect the fair value estimate,  in management's  option,  the
       existing models do not  necessarily  provide a reliable single measure of
       the fair value of its employee stock options.

       Pro forma net income  (loss)  reflects  only options  granted in 1996 and
       1995.  Therefore,  the full impact of calculating  compensation  cost for
       employee  stock  options  under SFAS No. 123 is not  reflected in the pro
       forma amounts presented below because compensation cost is reflected over
       the options'  vesting periods of generally  between 3 and 4 years and the
       compensation  cost for  options  granted  prior to January 1, 1995 is not
       considered. The Company's pro forma information follows:

<TABLE>
<CAPTION>
                                                                                1996                 1995
                                                                          ------------------   ------------------
                                                                                        Unaudited
<S>                                                  <C>                     <C>                   <C>
              Net income (loss)                      As reported             $(1,360,790)          $2,402,247
                                                     Pro forma               $(1,543,070)          $2,360,326

              Primary earnings (loss) per share      As reported                  $(.30)                $.59
                                                     Pro forma                    $(.34)                $.58

              Fully diluted earnings per share
                                                     As reported                  $(.30)                $.49
                                                     Pro forma                    $(.34)                $.49
</TABLE>
                                      F-16
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       A summary of the  Company's  employee  stock option  activity and related
       information for the years ended December 31 follows:
<TABLE>
<CAPTION>
                                        1996                            1995
                                   ---------------------------     ---------------------------
                                                     Weighted                        Weighted
                                                      Average                         Average
                                                     Exercise                        Exercise
                                       Shares          Price                           Price
                                   ---------------------------     ---------------------------
<S>                                <C>              <C>            <C>               <C>
Outstanding at beginning of year        598,333     $    6.44          562,333       $   3.52
Granted                                 160,000     $   10.86          206,000       $  10.42
Exercised                              (164,702)    $    3.43         (160,000)      $   1.30
Expired/Canceled                              0                        (10,000)      $   6.75
                                    -----------                    -----------

Outstanding at end of year              593,631     $    8.46          598,333       $   6.44
                                    ===========                    ===========

Excisable at end of year                360,233     $    6.94          347,940       $   4.68
                                    ===========                    ===========

Weighted average fair value of
   options granted                  $      4.45                    $      4.20
                                    ===========                    ===========
</TABLE>

       Exercise  prices for the  options  outstanding  as of  December  31, 1996
       ranged from $0.50 to $12.88.  The weighted average remaining  contractual
       life of those options was 7.7 years as of December 31, 1996.

(13)   Related Party Transactions

       Effective  May 1, 1991,  the Company  entered  into an  agreement  with a
       former director and officer of the Company, whereby this officer left the
       employ of the  Company  and agreed not to compete  with the Company for a
       two-year  period.  The  agreement  required the Company to pay $3,125 per
       month from May 1, 1991  through  April 30,  1993 and to  provide  certain
       other  benefits to this  individual.  This  agreement was extended for an
       additional  year,   through  April  30,  1994,  and  is  presently  on  a
       month-to-month basis.

       Two of the Company's stockholders,  who together beneficially own 460,000
       shares of the Company's  common stock,  beneficially own an approximately
       24% interest in CRPB Investors, L.L.C..

       A Vice President of the Company and Executive  Director of Cerprobe Asia,
       owns 10% of Cerprobe Asia PTE LTD.
                                      F-17
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


(14)   Commitments and Contingencies

       Leases

       The Company leases certain  equipment under capital leases.  These assets
       have been  capitalized  at the present value of the future  minimum lease
       payments and are included  with  manufacturing  tools and  equipment  and
       office  furniture at a cost of  $3,381,836  and  $1,043,082  with related
       accumulated  amortization  of $896,637  and $266,014 at December 31, 1996
       and 1995,  respectively.  In  addition,  the Company is  obligated  under
       certain  noncancelable  operating leases for the Company's  manufacturing
       and office space.  Certain operating lease agreements  provide for annual
       rent escalations and renewal options.

       The following is a schedule of the minimum  future lease payments for the
       years ending December 31:
<TABLE>
<CAPTION>
                                                                                                   Rentals
                                                                                                  receivable
                                                          Capital            Operating              under
                                                          leases               leases             subleases
                                                      ----------------    -----------------    -----------------
<S>           <C>                                       <C>               <C>                     <C>
              1997                                         $790,075          $ 1,674,262             $111,700
              1998                                          718,985            1,913,694               75,300
              1999                                          473,780            1,761,189               78,900
              2000                                          338,132            1,681,783               47,600
              2001                                          224,164            1,572,393                   --
              Thereafter                                         --           12,020,464                   --
                                                      ----------------    -----------------    -----------------

         Total minimum future lease payments
                                                          2,545,136          $20,623,785             $313,500
                                                                          =================    =================
         Less amounts representing interest
         (at rates ranging from 4.5% to 27.5%)
                                                           (447,582)
                                                      ----------------

         Present value of net minimum future
             lease payments                               2,097,554
         Less current portion                              (634,755)
                                                      ----------------

         Long-term portion                               $1,462,799
                                                      ================
</TABLE>

       Amortization expense applicable to assets under capital leases is charged
       to depreciation and amortization expense.

       Rental expense for the years ended  December 31, 1996,  1995 and 1994 was
       $1,002,856, $723,396 and $446,422, respectively.
                                      F-18
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       On  August  21,  1996,  Cerprobe  entered  into  a long  term  commercial
       operating  lease to  consolidate  its  Arizona  operations  into a single
       facility  on a twelve acre  parcel in  Gilbert,  Arizona.  The lease will
       commence upon  completion of the 83,000 square foot facility in May 1997.
       The facility will serve as the Company's  worldwide  headquarters  and is
       being  built for  Cerprobe's  use by CRPB  Investors,  L.L.C.,  a limited
       liability  company  formed for the  purpose of owning and  operating  the
       property.  Cerprobe is a 36%  shareholder in CRPB Investors,  L.L.C.  The
       initial  term of the lease is 15 years with 7 options to extend the lease
       for successive 5 year terms. The initial lease rate is dependent on final
       construction costs, but is currently expected to approximate $875,000 per
       year.

       Convertible Preferred Stock

       If the  remaining  holders of the  convertible  preferred  stock elect to
       convert  their  shares  into  shares of common  stock based on the market
       price of common stock as of December 31, 1996, Cerprobe would be required
       to issue more than 800,000 shares of common stock.  To insure  compliance
       with Nasdaq  National  Market  rules  requiring  shareholder  approval of
       issuances  of common  stock  representing  greater than 20% of all shares
       outstanding,  Cerprobe has the right to redeem any shares of  convertible
       preferred stock that, if converted,  would result in the issuance of more
       than 800,000 shares of common stock.  In such event,  Cerprobe may redeem
       those  shares  of  convertible  preferred  stock  for  cash in an  amount
       determined  by a  formula  based on the  current  market  price of common
       stock. If the holders of all outstanding shares of convertible  preferred
       stock had elected to convert their shares on December 31, 1996,  Cerprobe
       estimates  that  it  would  have  been  required  to  pay   approximately
       $3,500,000 to have  redeemed all shares of  convertible  preferred  stock
       that,  if  converted,  would have  resulted in the  issuance of more than
       800,000 shares of common stock.  Based on the formula  referred to above,
       the amount of cash required to redeem any shares of convertible preferred
       stock will  increase  if the price of common  stock  decreases,  and will
       decrease if the price of common stock increases. Automatic  conversion of
       the stock or redemption must occur by January 18, 1998.


(15)   Business Segment

       The Company is engaged in one business segment, the design,  development,
       manufacture and market of semiconductor  integrated circuit test products
       and services.  For the years ended December 31, 1996, 1995 and 1994, 20%,
       11% and 5%,  respectively,  of the  Company's  sales were  outside of the
       United States.

       One customer  accounted  for 15.5%,  18.8% and 16.0% of net sales for the
       years ended December 31, 1996, 1995 and 1994.  Another customer accounted
       for 11.6%,  9.9% and 11.4% of net sales for the years ended  December 31,
       1996, 1995 and 1994.
                                      F-19
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued



 (16)  Acquisitions

       Fresh Test Technology

       On April 3, 1995, the Company  acquired all of the  outstanding  stock of
       Fresh Test Technology  Corporation ("Fresh Test"), a manufacturer of test
       and  interface  hardware  products,  for 712,500  shares of the Company's
       common  stock.  The  acquisition  has been  accounted for by the purchase
       method  of  accounting  and,  accordingly,  the  purchase  price has been
       allocated to the assets purchased and the liabilities  assumed based upon
       the fair values at the date of  acquisition.  The excess of the  purchase
       price over the fair values of the net assets  acquired was $2,120,505 and
       has  been   recorded  as  goodwill,   which  is  being   amortized  on  a
       straight-line  basis over eight years.  The purchase  price of $2,662,969
       plus acquisition costs of $402,865 was allocated as follows:

<TABLE>
<S>                 <C>                                                              <C>
                    Purchase price:
                        Common Stock                                                 $2,662,969
                        Costs of acquisition                                            402,865
                                                                               -----------------
                                                                                     $3,065,834
                                                                               -----------------
                    Assets acquired and liabilities assumed:
                        Current assets                                               $1,252,176
                        Property, plant and equipment                                   253,684
                        Other assets                                                     83,051
                        Goodwill                                                      2,120,505
                        Current liabilities                                           (531,634)
                        Noncurrent liabilities                                        (111,948)
                                                                               -----------------
                                                                                     $3,065,834
                                                                               -----------------
</TABLE>

       The   operating   results  of  Fresh  Test  have  been  included  in  the
       consolidated  statement of operations from the date of  acquisition.  The
       following summary, prepared on a pro forma basis, presents the results of
       operations as if the acquisition had occurred January 1, 1994:

<TABLE>
<CAPTION>
                                                                                  Year ended December 31,
                                                                            -------------------------------------
                                                                                   1995              1994
                                                                            -------------------------------------
                                                                                         (unaudited)
<S>                                                                            <C>                  <C>
             Net sales                                                         $27,601,795          $18,712,171
             Net income                                                          2,543,690              998,856
             Primary net income per share                                            0.62                 0.24
             Fully diluted net income per share                                      0.52                 0.21
</TABLE>

       The pro forma results are not  necessarily  indicative of what the actual
       consolidated results of operations might have been if the acquisition had
       been  effective at the  beginning  of 1994 or as a  projection  of future
       results.
                                      F-20
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       CompuRoute, Inc.

       On December 27, 1996, the Company  acquired all of the outstanding  stock
       of CompuRoute,  Inc.  ("CompuRoute"),  a manufacturer  of printed circuit
       boards,  for  $7,037,797.  The purchase price  consisted of $4,437,797 in
       cash and  400,000  shares  of  common  stock.  The  acquisition  has been
       accounted for by the purchase method of accounting and  accordingly,  the
       purchase  price  has  been  allocated  to the  assets  purchased  and the
       liabilities   assumed   based  upon  the  fair  values  at  the  date  of
       acquisition. The excess of the purchase price over the fair values of the
       net assets acquired was $889,133 and has been recorded as goodwill, which
       is being  amortized  on a  straight-line  basis  over  eight  years.  The
       purchase  price of  $7,037,797  plus  acquisition  costs of $394,746  was
       allocated as follows.

                    Purchase price:
                        Cash                                         $4,437,797
                        Common stock                                  2,600,000
                        Costs of acquisition                            394,746
                                                                 --------------
                                                                     $7,432,543
                                                                 --------------
                    Assets acquired and liabilities assumed:
                        Current assets                               $1,870,903
                        Property, plant and equipment                 1,948,189
                        Other assets                                     18,498
                        Purchased research and development            4,584,000
                        Goodwill                                        889,133
                        Current liabilities                          (1,177,286)
                        Noncurrent liabilities                         (700,894)
                                                                 --------------
                                                                     $7,432,543
                                                                 --------------


       At acquisition,  the state of the research and  development  products was
       not yet at a technological or commercially viable stage. The Company does
       not believe that the research and  development  products  have any future
       alternative use because if these products are not finished and brought to
       ultimate  product  completion,  they  have  no  other  value.  Therefore,
       consistent with generally  accepted  accounting  principles,  the Company
       recorded a one-time charge for the full value of the purchased in-process
       research and development.
                                      F-21
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       The  consolidated  balance sheet for as of December 31, 1996 includes the
       accounts of  CompuRoute,  however,  due to the fact that the  acquisition
       occurred on December 27, 1996,  CompuRoute's  1996 results of  operations
       are not  included  in the  consolidated  statements  of  operations.  The
       following  summary,  prepared on a pro forma basis,  excluding the charge
       for  purchased   research  and  development,   presents  the  results  of
       operations as if the acquisition had occurred January 1, 1995:

                                                     Year ended December 31,
                                                  -----------------------------
                                                      1996           1995
                                                  -----------------------------
                                                           (unaudited)

             Net sales                            $47,732,502       $36,296,077
             Net income                             3,585,440         3,261,074
             Primary net income per share                0.67              0.73
             Fully diluted net income per share          0.62              0.62


       The pro forma results are not  necessarily  indicative of what the actual
       consolidated results of operations might have been if the acquisition had
       been  effective at the  beginning  of 1995 or as a  projection  of future
       results.


 (17)  401(k) Plan

       On April 1, 1993, the Company established the Cerprobe Corporation 401(k)
       Plan (the Plan).  Employees who have reached 18 years of age and who have
       completed one year of service for the Company are eligible to participate
       in the Plan.  Participants  may elect to defer up to 15% of their salary.
       Any  contribution  by the  Company  is at  its  discretion.  The  Company
       expensed  discretionary  contributions pursuant to the Plan in the amount
       of $91,000,  $90,000, and $0 for the years ended December 31, 1996, 1995,
       and  1994,  respectively.  The  participants  are  fully  vested in their
       contributions  and become  fully  vested in the  Company's  contributions
       after three years of service.


 (18)  Fair Value of Financial Instruments

       Statement of Financial Accounting  Standards No. 107,  "Disclosures about
       Fair Value of Financial  Instruments," requires that the Company disclose
       estimated  fair  values  for its  financial  instruments.  The  following
       summary presents a description of the  methodologies and assumptions used
       to determine such amounts.

       The carrying amount of cash equivalents  approximates  fair value because
       their maturity is generally less than three months.  The carrying  amount
       of receivables,  accounts payable and accrued expenses  approximates fair
       value as they are  expected  to be  collected  or paid  within 90 days of
       year-end. The fair value of notes payable,  demand note payable,  capital
       lease obligations and other long-term  obligations  approximate the terms
       in the marketplace at which they could be replaced.  Therefore,  the fair
       value approximates the carrying value of these financial instruments.
                                      F-22
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


(19)   Supplemental Financial Information

       A summary of  additions  and  deductions  related to the  allowances  for
       accounts  receivable  and  inventories  for the years ended  December 31,
       1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
                                         Balance at                                                                  Balance at
                                         beginning                                                                     end of
                                          of year           Additions         Acquistions          Deductions           year
                                      -----------------  ----------------  ----------------    ----------------   ----------------
<S>                                   <C>               <C>                <C>                <C>                 <C>
Allowance for doubtful accounts:

    Year ended December 31, 1996      $      173,000    $        12,000    $      44,000      $        (6,000)    $      223,000

    Year ended December 31, 1995      $       23,000    $        12,000    $     139,094      $        (1,094)    $      173,000

    Year ended December 31, 1994      $       10,000    $        24,000    $        -         $       (11,000)    $       23,000


Allowance for obsolescence of
    inventories:

    Year ended December 31, 1996      $       83,000    $        75,000    $        -         $       (29,000)    $      129,000

    Year ended December 31, 1995      $       52,000    $        80,000    $      30,600      $       (79,600)    $       83,000

    Year ended December 31, 1994      $       48,500    $        67,200    $        -         $       (63,700)    $       52,000
</TABLE>

(20)   Subsequent Events

       Acquisition

       On January 15, 1997 the Company acquired all of the outstanding  stock of
       SVTR. The purchase  price paid by the Company  consisted of $2,753,217 in
       cash and 300,000 shares of Cerprobe common stock.

                   Purchase price:
                        Cash                                     $2,753,217
                        Common stock                              2,864,250
                        Costs of acquisition                         97,796
                                                              ==============
                                                                 $5,715,263
                                                              ==============
                                      F-23
<PAGE>
                              CERPROBE CORPORATION

              Notes to Consolidated Financial Statements, Continued


       Under the terms of the  acquisition,  the Company has agreed to pay up to
       an  additional  $500,000  in cash and up to 50,000  additional  shares of
       common stock if certain sales and operating  profit  targets for calendar
       year 1997 are achieved by SVTR.

       The  acquisition  will  be  accounted  for  using  the  purchase  method.
       Accordingly, the purchase price has been allocated to assets acquired and
       liabilities  assumed based upon their estimated fair values.  The company
       intends  to take a one-time  charge  for the full value of the  purchased
       in-process research and development in the first quarter ending March 31,
       1997, which is currently estimated to be approximately $5,400,000.

       Note Payable


       On February 28, 1997, the Company entered into a revolving line of credit
       of  $10,000,000  for  general  corporate  purposes  and  possible  future
       acquisitions,  which matures on August 15, 1998.  The  unsecured  line of
       credit  replaced a $3,000,000  revolving line of credit.  Interest on the
       outstanding  balance is at the prime rate or 30, 60, or 90 day LIBOR plus
       1.75%. The non-use fee under the line of credit is 0.125% for outstanding
       balances  exceeding  $3,000,000 and 0.25% for  outstanding  balances less
       than  $3,000,000.   The  line  of  credit  contains  certain  restrictive
       covenants  which  include,  among  other  things,   restrictions  on  the
       declaration  or payment of  dividends,  the  incurrance  or assumption of
       other indebtedness,  and the making of loans to or investments in others.
       The line also requires the Company to maintain a specified net worth,  as
       defined,  to maintain a required  debt to equity  ratio,  and to maintain
       certain other financial ratios.
                                      F-24