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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 2000

Commission File Number 000-30637


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

Minnesota(State or other jurisdiction of
incorporation or organization)

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

55435(Zip Code)


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

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

Securities registered pursuant to Section 12(g) of the Act:

Title of each class:Common Stock, $.01 par value

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

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
the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. [ ]

The
aggregate market value of voting stock held by nonaffiliates of the Registrant was $76,142,203 as of February 28, 2001.

The
number of shares of Common Stock, $.01 par value, outstanding as of February 28, 2001 was 12,641,722.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held April 19,
2001 are incorporated by reference into Part III.

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AUGUST TECHNOLOGY CORPORATION  FORM 10-K    TABLE OF CONTENTS  FOR THE YEAR ENDED DECEMBER 31, 2000

|         |                       | Description |                                                                                       | Page
|-------- | --------------------- | ----------- | ------------------------------------------------------------------------------------- | ----
|PART I   |                       | 3          
|         | Item 1.               |             | Business                                                                              |     
|         | Item 2.               |             | Properties                                                                            |     
|         | Item 3.               |             | Legal Proceedings                                                                     |     
|         | Item 4.               |             | Submission of Matters to a Vote of Security Holders                                   |     
|PART II  |                       | 8          
|         | Item 5.               |             | Market for Registrant's Common Stock and Related Shareholder Matters                  |     
|         | Item 6.               |             | Selected Financial Data                                                               |     
|         | Item 7.               |             | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|         | Item 7A.              |             | Qualitative and Quantitative Disclosures about Market Risk                            |     
|         | Cautionary Statements |             | 14                                                                                   
|         | Item 8.               |             | Financial Statements and Supplementary Data                                           |     
|         | Item 9.               |             | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |     
|PART III |                       | 37         
|         | Item 10.              |             | Directors and Executive Officers of the Registrant                                    |     
|         | Item 11.              |             | Executive Compensation                                                                |     
|         | Item 12.              |             | Security Ownership of Certain Beneficial Owners and Management                        |     
|         | Item 13.              |             | Certain Relationships and Related Transactions                                        |     
|PART IV  |                       | 39         
|         | Item 14.              |             | Exhibits, Financial Statements, Schedules and Reports on Form 8-K                     |     
|         | Signatures            |             | 40                                                                                   
|         | Schedule II           |             | Valuation and Qualifying Accounts                                                     |     
|         | Exhibits              |             | 43                                                                                   

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PART I

Item 1. Business

Introduction

We are a worldwide leader in the research, design, development, manufacture, marketing, sales, distribution and service of automated micro defect inspection
systems used in the manufacture of semiconductor devices as well as the emerging markets for microelectronic devices including optoelectronics, photonics, micro electro-mechanical structures (MEMS) or
other micro machines, micro LCD's, printheads, data storage, disk drives and other similar devices. Our NSX series, incorporating our proprietary software, automated materials handling capabilities
and expertise in machine vision technology automates one of the few remaining manually performed tasks in semiconductor and microelectronic manufacturing. Typically, manufacturers rely on people using
microscopes to detect defects in sample lots which is an inefficient and error-prone inspection process. Our systems automate the inspection process, allowing manufacturers to inspect 100% of their
wafers or die, as well as providing powerful information that manufacturers can use to increase yield and productivity. We have sold these systems worldwide to major semiconductor manufacturers, as
well as manufacturing companies serving the microelectronic markets.

Our Market

The manufacture of semiconductor and microelectronic devices requires a number of increasingly complex steps and processes. As in-process wafers or
substrates contain increasing quantities of smaller, more complex multi-level circuitry, they have become more expensive to produce. Yield, or the percentage of good die that can be realized from a
wafer or substrate, and productivity are critical to the profitability of a production line, and often of device manufacturers as a whole. Therefore, the rapid detection of defects during multiple
stages of the production process has become critical. Defects can occur throughout the manufacturing process, as a result of process equipment performing at less than optimal levels. Ineffective
equipment can create defects due to misalignment, contamination,
residue, corrosion, or the application of the passivation layer to protect the completed circuitry. Defects such as scratches, cracks and chip-outs can also be generated by the mechanical
handling of devices as pick and place machines transfer individual die to the assembly phase of the manufacturing process. By tracing defects back to the under-performing process equipment, corrective
actions can be taken.

If
practical and cost-effective, manufacturers would inspect every wafer and die after each process step. However, historical inspection and testing methods, particularly
during the test, assembly and packaging process, have not permitted this kind of extensive, real-time inspection. Instead, manufacturers, to a large extent, have relied on people using
microscopes to manually inspect sample batches of wafers to detect defects during the test assembly and packaging process. In addition, this limited manual inspection has primarily occurred at the end
of the production process. These manual inspection limitations lead to:



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Our Solution

We deliver completely automated micro defect inspection systems for the semiconductor and microelectronic manufacturing markets. Our systems provide
manufacturers with valuable information about their products and processes, at a speed that makes it practical to inspect each device rather than a small sample lot. We accomplish this by combining
our core competencies in machine vision technology, optics, lighting and precision motion control with our proprietary software and extensive semiconductor-specific applications experience. Our
systems merge proprietary inspection algorithms with automated material handling to provide cost-effective solutions. A scalable technology platform enables us to offer systems at several
price/performance levels which satisfy our customers' diverse requirements. We design our systems to be modular, allowing our customers to upgrade and add enhancements as needs arise or capital
funding becomes available. Specifically, we enable our customers to achieve significant benefits by providing:



Products

We believe that we have been pioneers in the fields of automated wafer cassette verification and automated micro defect inspection. Our first product was an
automated inspection system designed to measure critical dimensions on wafer carriers used by semiconductor manufacturers. In 1997, we introduced our first NSX automated micro defect inspection
system. This introduction marked a shift in our focus towards the micro defect inspection market. In 2000, revenues from the NSX product line represented over 90% of our net revenues. The NSX series
is driven by advanced proprietary software

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and includes integrated yield enhancement tools including automated data collection and reporting, extensive communication options and fast, easy setup using Windows®-based menus.

Automated micro defect inspection systemsNSX Series.Our automated micro defect
inspection systems deliver high-speed, consistent, reliable defect detection to semiconductor and microelectronic manufacturers. These systems assess the quality of products at several
steps in the manufacturing process, and immediately feed critical information about process integrity to yield management or factory automation systems. This data allows for enhanced process control,
and ultimately leads to improved yields. The NSX series allows for the sharing of process knowledge and inspection results within production and test, assembly and packaging facilities.

We
first introduced the NSX-80 micro defect inspection system in 1997. Subsequently, we have continued to advance the product line, introducing the NSX-70 and
NSX-90 in 1998 to accommodate additional throughput ranges. The NSX-100, which is expected to begin shipping in 2001, will deliver greater processing speed to customers
demanding more throughput. While individual inspection speeds will vary, our NSX-100 series systems are able to inspect as many as 97 wafers-per-hour.

We
recently introduced a system, within the NSX series, designed to meet the unique and challenging needs of the automated inspection of 300 mm wafers. This system combines the proven
inspection capabilities of the NSX series and advanced automation solutions. The system is capable of running multiple wafer sizes without mechanical changeover, which is important for manufacturing
environments scaling new or existing processes from 200 mm to 300 mm, and for foundry and contract manufacturing environments where frequent wafer or substrate size changes are common.

Our
NSX systems currently range in price from approximately $150,000 to $900,000, depending upon the complexity of the configuration. Customers may tailor systems towards their
specific application, process, or budget, by choosing from a range of system capabilities including:



Other Products.We offer a series of cassette verification systems, referred to as the CV
series, designed to automatically verify critical wafer carrier dimensions. Using advanced machine vision technology and proprietary software, our CV systems identify
out-of-tolerance cassettes, allowing semiconductor device manufacturers to remove dimensionally defective cassettes and thereby decrease wafer damage and improve yield. We
recently expanded our CV product offering to include 300mm solutions in addition to our standard 200mm solutions. Systems within the CV series currently range in price from $85,000 to $150,000
depending upon the configuration of the system.

New Technology.We recently announced the development of a new three-dimensional (3D)
inspection technology. This new patent-pending technology combines high speed and high accuracy by merging the proven concepts of confocal microscopy with innovative optical design and proprietary
software in the form of the Rapid Confocal Sensor. We believe this rapid confocal technology will eliminate the industry's current 3D inspection dilemma of choosing between accuracy and
throughput. This technology has been designed with our existing semiconductor markets in mind, and is well suited for wafer bump inspection, while also being capable of meeting the 3D inspection needs
of the growing markets of optoelectronics, micro electro-mechanical systems (MEMS) and other micro structures.

Research and Development

Our success depends upon our ability to effectively develop and commercialize new technologies and products. Our research and development activities emphasize
application development and new

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product introductions in collaboration with our customers. Our engineering teams support these efforts with software development, machine vision technology, optics, lighting and precision motion
control
expertise. We work closely with our customers to define new product features and to identify emerging applications for our products. Our research and development efforts since 1998 have focused on
developing new applications solutions and automation modules for the NSX product line. We spent 21.9% of our net revenue on research and development during 2000, 19.2% during 1999 and 16.0% during
1998.

To
maintain technical leadership in the automated micro defect inspection market and continue our pace of new product development, we plan to spend aggressively in research and
development, add additional capabilities and options to our systems and pursue selective strategic acquisitions, licenses, joint ventures, collaborations, mergers or other technology partnerships or
arrangements of technologies, product lines and companies. To help identify these opportunities, we have named a Vice President of New Business Development to lead our New Business Development Team.
This team focuses exclusively on strategic business and technology opportunities that will help us to achieve our long-term growth objectives.

Customers

We have sold our NSX systems to many of the leading semiconductor manufacturers throughout the world. During 2000, Metron, our Asian distributor responsible
for distribution in all of Asia except Japan, accounted for approximately 16% of net revenues. No other customers accounted for more than 10% of our net revenues. In 2000, approximately 45% of our net
revenues were derived from sales outside of the United States, consisting of 22% from customers in Taiwan, 9% from customers in Switzerland, 8% from customers in Japan and 6% from customers in other
countries.

Sales, Marketing and Distribution

We sell directly to customers in the U.S. and intend to continue providing direct sales, service and field application support through strategically placed
offices. We currently have domestic sales and service personnel in Silicon Valley, southern California, Arizona, North Carolina, Texas, Florida, Connecticut and at our corporate headquarters in
Minnesota.

During
the first quarter of 2001 we opened an office in Taiwan providing direct sales and customer service and support. Our highly trained sales, field applications engineers and
service personnel are dedicated to the significant and growing Taiwanese semiconductor market. With the opening of this office, we are modifying our ongoing relationship with Metron Technology B.V. to
focus Metron's activities on the remaining regions in Asia, excluding Japan where Marubeni Solutions Corporation is our distributor.

Our
experienced independent distributors provide sales and service to customers in their respective geographic regions. Our primary distributors are Metron Technology B.V. in Asia,
excluding Japan, Marubeni Solutions Corporation in Japan and Quasys AG and Firfax Systems in Europe. For maximum effectiveness, we plan to complement our distributors' staffs at these offices with
highly trained field applications engineers.

Each
of our primary distributors has entered into international distributor agreements with us. Our agreements with Quasys and Firfax have been in place since September 1996.
The agreements do not require renewal and will remain in effect unless the agreements are terminated. Our agreement with Marubeni is for one year from June 14, 1999, and automatically renews
for additional one year periods unless the agreement is terminated. Our agreement with Metron, which is currently being modified to reflect the opening of our sales and service center in Taiwan, is
for two years from September 10, 1999, and automatically renews for additional one year periods unless the agreement is terminated. All of our distributor agreements grant our distributors an
exclusive territory, provide for price and payment procedures, specify the applicable warranty procedures, provide for a specified time period for acceptance of our products and contain a
confidentiality provision. In 2000, Metron accounted for 16% of our net revenues, Quasys accounted for 9% of our net revenues, Marubeni accounted for 8% of our net revenues and Firfax accounted for 5%
of our net revenues. All of the agreements can be terminated by either party upon the occurrence of certain specified events, including a breach of the agreements or upon mutual written consent.

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Backlog

Our backlog was $9.6 million as of December 31, 2000, as compared to $3.1 million as of December 31, 1999. Our backlog consists of
orders for which we have accepted purchase orders and assigned shipment dates within the next twelve months. Orders from our customers are subject to cancellation or delay by the customer without
penalty. Historically, order cancellations and order rescheduling have not been significant. However, orders presently in backlog could be cancelled or rescheduled. Since only a portion of our
revenues for any fiscal quarter represents systems in backlog, we do not believe that backlog is a meaningful or accurate indication of our future revenues and performance.

Competition

While we believe that we currently have a significant lead in the commercialization of solutions for the micro defect inspection market, several other firms
also manufacture similar products. Our primary competitors are Semiconductor Technologies & Instruments, Inc., Robotic Vision Systems, Inc., Electro-Glass Products and Toray
Industries, Inc. In addition, a number of other companies are active in the semiconductor capital equipment market, particularly in the automated inspection for sub-micron defects
in the wafer processing portion of the semiconductor manufacturing process, and could become competitors in the future. Many of our competitors and potential competitors have substantially greater
financial, engineering, manufacturing and marketing resources than we do.

Significant
competitive factors in our market include performance, ease of use, development of new technologies, established customer base, application support, customer service,
product flexibility, price and ability to deliver products on a timely basis. We believe we compete favorably with respect to these factors, but must continue to develop and design new and improved
products in order to maintain our competitive position.

Manufacturing

We manufacture our products at our headquarters in Bloomington, Minnesota. We combine proprietary software and components developed in our facilities with
components and subassemblies obtained from outside suppliers. To meet specific customer requirements, we often manufacture products that include custom system engineering and software development. Our
manufacturing operations do not require a major investment in capital equipment.

We
obtain certain components, subassemblies and services necessary for the manufacture of our systems from a sole supplier or limited group of suppliers. We do not maintain any
long-term supply agreement with any of our suppliers. We are relying increasingly on outside vendors to manufacture many components and subassemblies.

Intellectual Property

Proprietary information plays a significant role in the development of our products. We rely upon a combination of contract provisions, copyright, trademark,
patent and trade secret laws to protect our proprietary rights in products. We also have a policy of seeking U.S. and foreign patents on technology considered of particular strategic importance. As of
December 31, 2000 we have one issued U.S. patent and 18 pending U.S. patent applications. We have also applied for foreign patent rights. The technological focus of these issued and pending
applications includes general semiconductor inspection techniques as well as devices, systems and processes in the following areas: lighting, focusing, material handling, imaging, inspecting and data
manipulating.

Although
we believe that the copyrights, trademarks and U.S. patents we own are of value, we do not believe that they will determine our success, which depends principally upon our
engineering, manufacturing, marketing and service skills. However, we intend to protect our rights when, in our view, others infringe upon these rights. We license some of our
non-exclusive software programs from third party developers and incorporate them in our products.

Employees

As of December 31, 2000, we employed 180 people, including 56 in research and development, 39 in manufacturing, 34 in service, technical support and
training, 27 in sales and marketing, and 24 in

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administration. We also employ independent contractors and temporary employees. None of our employees is represented by a labor union, and we consider our employee relations to be good.

Item 2. Properties

Our headquarters is a 62,843 square foot leased facility located in Bloomington, Minnesota, where corporate administration, sales and customer support,
manufacturing and research and development are located. The lease on the facility provides for increases in the total available square feet to approximately 80,000 square feet throughout the term of
the lease to meet our anticipated growth needs. The lease expires on January 31, 2005, but may be renewed by us for an additional three-year term.

Item 3. Legal Proceedings

We are named from time to time as a party to lawsuits in the normal course of our business. Litigation, in general, and intellectual property and securities
litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.

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

There were no matters submitted to a vote of our shareholders during the quarter ended December 31, 2000.

PART II

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

Market Information

Our common stock, $.01 par value (the "Common Stock"), has traded under the symbol "AUGT" on the Nasdaq National Market since our initial public offering on
June 14, 2000. There was no market for our Common Stock prior to that date.

The
following table sets forth the reported high and low closing sale prices for shares of our Common Stock on the Nasdaq National Market during the indicated quarters.

Quarters ended

High

LowJune 30, 2000

$
17.94

$
15.19September 30, 2000

$
17.88

$
12.38December 31, 2000

$
16.38

$
10.00


Holders

As of February 21, 2001, there were approximately 171 holders of record of the Company's Common Stock. In addition, based on information obtained from
the Company's transfer agent, there are approximately 2,085 holders whose stock is held in nominee name and/or street name brokerage accounts.

Dividends

We have not declared or paid any cash dividends on our Common Stock to date and do not anticipate paying cash dividends for the foreseeable future. We
currently intend to retain earnings, if any, to support the development of our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results and current and anticipated cash needs. In addition, our current credit facility limits our ability to pay any cash
dividends without our lender's consent.

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Item 6. Selected Financial Data

The statement of operations data set forth below for each of the years ended December 31, 2000, 1999 and 1998 and the balance sheet data as of
December 31, 2000 and 1999 are derived from audited financial statements, included elsewhere in this Form 10-K. The statement of operations data set forth below for the year
ended December 31, 1997 and the balance sheet data as of December 31, 1998 and 1997 are derived from audited financial statements, which are not included in this
Form 10-K. The selected financial information as of and for the year ended December 31, 1996 is derived from unaudited financial statements, which are not included in this
Form 10-K. You should read the data set forth below in conjunction with the audited financial statements and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere in this Form 10-K.

|                               |                                                                | Years Ended December 31,           
|------------------------------ | -------------------------------------------------------------- | -----------------------------------
|
|
|Statements of Operations Data: |                                                                |                                    
|                               | Net revenues                                                   |                                    
|                               | Cost of revenues                                               |                                    
|                               |                                                                |                                    
|                               |                                                                | Gross profit                       
|                               | Selling, general and administrative expenses                   |                                    
|                               | Research and development expenses                              |                                    
|                               | Non-recurring expense                                          |                                    
|                               |                                                                |                                    
|                               |                                                                | Operating income (loss)            
|                               | Interest income (expense), net                                 |                                    
|                               |                                                                |                                    
|                               | Income (loss) before provision for (benefit from) income taxes |                                    
|                               | Provision for (benefit from) income taxes                      |                                    
|                               |                                                                |                                    
|                               | Net income (loss)                                              |                                    
|                               |                                                                |                                    
|                               | Per share amounts:                                             |                                    
|                               |                                                                | Basic net income (loss) per share  
|                               |                                                                |                                    
|                               |                                                                | Diluted net income (loss) per share
|                               |                                                                |                                    
|                               | Shares used in computing:                                      |                                    
|                               |                                                                | Basic net income (loss) per share  
|                               |                                                                | Diluted net income (loss) per share

|                    |                            | December 31,
|------------------- | -------------------------- | ------------
|
|
|Balance Sheet Data: |                            |             
|                    | Working capital            |             
|                    | Total assets               |             
|                    | Total debt                 |             
|                    | Total shareholders' equity |             

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a worldwide leader in the research, design, development, manufacture, marketing, sales, distribution and service of automated micro defect inspection
systems used in the manufacture of semiconductor and microelectronic devices. Our NSX series, which incorporates our proprietary software, automated materials handling capabilities and expertise in
machine vision technology automates one of the last remaining manually performed tasks in semiconductor manufacturing. Typically, manufacturers rely on people using microscopes to detect defects in
sample lots, which is an inefficient and error-prone inspection process. Our systems automate the inspection process, allowing manufacturers to inspect 100% of their wafers or die, as well as
providing powerful information that
manufacturers can use to increase yield and productivity. We have sold these systems worldwide to major semiconductor manufacturers, as well as manufacturing companies serving the microelectronic
markets.

The
following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes thereto and with the
"Cautionary Statements" section included elsewhere in this Form 10-K.

The
following table presents the statements of operations as a percentage of net revenues.

|                                                               |                         | Years Ended
December 31, |     
|-------------------------------------------------------------- | ----------------------- | ------------------------ | ----
|
|Net revenues                                                   |                         | 100.0                    | %   
|Cost of revenues                                               |                         | 39.8                     |     
|                                                               |                         |                          |     
|                                                               | Gross profit            |                          | 60.2
|Selling, general and administrative expenses                   |                         | 31.9                     |     
|Research and development expenses                              |                         | 21.9                     |     
|Non-recurring expense                                          |                         | 1.0                      |     
|                                                               |                         |                          |     
|                                                               | Operating income (loss) |                          | 5.4 
|Interest income (expense), net                                 |                         | 3.1                      |     
|                                                               |                         |                          |     
|Income (loss) before provision for (benefit from) income taxes |                         | 8.5                      |     
|Provision for (benefit from) income taxes                      |                         | 2.6                      |     
|                                                               |                         |                          |     
|Net income (loss)                                              |                         | 5.9                      | %   
|                                                               |                         |                          |     

Results of Operations

Year ended December 31, 2000 compared to the year ended December 31, 1999

Net Revenues.Net revenues increased $19.6 million, or 162.6%, to $31.7 million in 2000 from
$12.1 million in 1999. The increase in net revenues was due primarily to the continued growth in sales of NSX systems, which increased 177.0% over 1999. Net revenues derived from sales of NSX
systems represented 90% and 85% of net revenues in 2000 and 1999, respectively.

Gross Profit.Gross profit increased to $19.1 million, or 60.2% of net revenues, in 2000, from
$6.9 million, or 57.6% of net revenues, in 1999. The increase in gross margin percentage was primarily due to the growth in sales of NSX systems, which have a higher gross margin than our other
products, and a stronger mix of higher margin system sales within the NSX series.

Selling, General and Administrative.Selling, general and administrative expenses increased $5.4 million, or
113.2%, to $10.1 million, or 31.9% of net revenues, in 2000 from $4.7 million, or 39.3% of net revenues, in 1999. The increased expense dollars was primarily due to the hiring and
recruiting of additional sales, field service and administrative employees to support our domestic and international growth, higher international travel costs resulting from our growth in Asia and
Europe and increased occupancy costs related to a new facility. The decrease as a percentage of revenues is primarily due to revenues increasing at a faster rate than the increase in selling, general
and administrative expenses.

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Research and Development.Research and development expenses increased $4.6 million, or 199.6%, to
$6.9 million, or 21.9% of net revenues, in 2000 from $2.3 million, or 19.2% of net revenues, in 1999. The increase resulted from the hiring and recruiting of additional engineers, the
use of outside services and the development of product prototypes as we continued to advance new product initiatives.

Non-recurring expense.Non-recurring expense in 2000 consists entirely of an impairment charge
associated with our decision to discontinue the implementation of certain internal business automation software during the fourth quarter of 2000.

Interest income (expense), net.Net interest income in 2000 was $1.0 million, compared to net interest expense
of $42,000 in 1999. The net interest income earned in 2000 was the result of investing the net proceeds received from our initial public offering (the "IPO") in June 2000.

Income Taxes.The provision for income taxes in 2000 was $807,000, or an effective tax rate of 30.1%, compared to an
income tax benefit of $17,500, or an effective tax rate of 11.7%, in 1999. The low effective income tax rate in 2000, compared to the federal statutory rate of 34% plus state and local taxes, was
primarily due to the claiming of federal and state general business credits. The low effective
income tax rate in 1999 was due to a valuation allowance being recorded against a portion of our operating loss during 1999.

Year ended December 31, 1999 compared to the year ended December 31, 1998

Net Revenues.Net revenues increased $6.3 million, or 108.3%, to $12.1 million in 1999 from
$5.8 million in 1998. The increase in net revenues was primarily due to the continued growth in sales of our NSX systems, which increased 149% over 1998.

Gross Profit.Gross profit was $6.9 million, or 57.6% of net revenues, in 1999, up from $3.1 million, or
53.6% of net revenues, in 1998. The primary reason for the improvement in margin percentage is due to the increase in the number of NSX systems shipped in 1999, which have a higher gross margin than
our other product lines.

Selling, General and Administrative.Selling, general and administrative expenses increased $2.6 million, or
117.9%, to $4.7 million, or 39.3% of net revenues, in 1999 from $2.2 million, or 37.6% of net revenues, in 1998. The increased expense was primarily due to the hiring of additional sales
and field service employees to support our domestic and international growth. The increase as a percentage of revenue is primarily due to increased compensation, travel costs to support international
market opportunities in Asia and Europe and higher advertising costs related to the continued promotion of the NSX series. We also recorded a lease obligation in 1999 of $129,500 associated with lease
commitments on our previous facility.

Research and Development.Research and development expenses increased $1.4 million, or 150.9%, to
$2.3 million, or 19.2% of net revenues, in 1999 from $924,000, or 16.0% of net revenues, in 1998. The increase in expense resulted from the hiring of additional engineers and the use of outside
services as we continued to pursue new product initiatives.

Income Taxes.The provision for income taxes changed to an income tax benefit of $17,500 in 1999 from income tax
expense of $2,300 in 1998 as a result of a pre-tax loss in 1999 compared to a pre-tax income in 1998. We have recorded deferred tax assets based upon taxes paid in prior years
that are available for carryback. At December 31, 1999 we established a valuation allowance of $22,500 related to these deferred tax assets and continued to evaluate the recoverability of these
assets in 2000. See note 6 to the financial statements.

Liquidity and Capital Resources

Cash and Cash Equivalents and Working Capital

As of December 31, 2000 we had cash and cash equivalents of $3.1 million, as compared to none at December 31, 1999. The increase in cash
and cash equivalents was primarily due to the $35.9 million of net proceeds received from our IPO and maturities of $21.7 million of investments, partially offset by the purchase of
$47.8 million of investments, the re-payment of $4.2 million outstanding on our line of credit at the time of the IPO and the use of $3.4 million to fund operations.

As
of December 31, 2000 we had working capital of $36.9 million as compared to $2.5 million at December 31, 1999. The improvement in working capital was
due to the net proceeds received from

11

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the IPO and increased accounts receivable and inventories, partially offset by increased accounts payable, accrued compensation, accrued income taxes and customer deposits. We believe that existing
working capital, anticipated cash flows from operations and our line of credit will be adequate to satisfy projected operating and capital requirements through the foreseeable future. However, to the
extent we grow more rapidly than expected, we may need additional cash to finance our operating and investing activities.

Cash Flows

During 2000, net cash used in operating activities was $3.4 million, which resulted primarily from increased accounts receivable, inventories and
prepaid and other current assets, partially offset by increased accounts payable, accrued compensation, other accrued liabilities and accrued income taxes. Net cash used in investing activities was
$28.2 million, due to purchases of held to maturity securities of $47.8 million and $2.0 million of additions to property and equipment, partially offset by $21.7 million
of proceeds from the maturities of securities held to maturity. Net cash provided by financing activities was $34.7 million, including $35.9 million of net proceeds received from the
sale of 3,300,000 shares of common stock in the IPO, partially offset by the re-payment of $1.2 million of debt.

During
1999, net cash used in operating activities was $2.4 million, which resulted primarily from increased accounts receivable and inventories, partially offset by increased
accounts payable and accrued compensation. Net cash used in investing activities was $747,000 for additions to property and equipment. Net cash provided by financing activities was $3.2 million
primarily from net proceeds of $2.0 million from the sale of 824,511 shares of common stock to outside investors and from $1.0 million of short-term borrowings.

During
1998, net cash used in operating activities was $1.3 million, which resulted primarily from increased accounts receivable and inventories and a decrease in customer
deposits, partially offset by an increase in accrued compensation and other accrued liabilities. Net cash used in investing activities was $202,000 for additions to property and equipment. Net cash
provided by financing activities was $1.2 million primarily from net proceeds of $947,000 from the sale of 823,001 shares of common stock to outside investors and from $190,000 of
short-term borrowings.

Impact of Accounting Standards

Statement of Financial Accounting Standards (SFAS) No. 133;Accounting for Derivative Instruments and Hedging
Activities(as amended by SFAS No. 137 with respect to the effective date) will be effective for the us in January 2001. SFAS No. 133 requires all
derivatives to be recognized as assets or liabilities on the balance sheet and measured at fair value on a mark-to-market basis. This applies whether the derivatives are
stand-alone instruments, such as forward currency exchange contracts and interest rate swaps or collars, or embedded derivatives, such as call options contained in convertible debt investments. Along
with the derivatives, the underlying hedged items are also to be marked to market on an ongoing basis. These market value adjustments are to be included either in net income (loss) in the statement of
operations or in other comprehensive income (and accumulated in shareholders' equity), depending on the nature of the transaction. Our adoption of SFAS No. 133 did not have a significant effect
on our results of operations or financial position.

12

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Selected Quarterly Operating Results

The following table shows our unaudited quarterly results of operations for the eight quarters ended December 31, 2000. This unaudited quarterly
information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Form 10-K and, in our opinion, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented in accordance with generally accepted accounting principles. Results of operations
for any previous quarter are not necessarily indicative of the results you can expect for the entire year or any future period.

|                                                               |                                     | Three Months Ended |      
|-------------------------------------------------------------- | ----------------------------------- | ------------------ | -----
|
|
|Net revenues                                                   |                                     | $                  | 4,503
|Cost of revenues                                               |                                     |                    | 1,884
|                                                               |                                     |                    |      
|                                                               | Gross profit                        |                    |      
|Selling, general and administrative expenses                   |                                     |                    | 1,843
|Research and development expenses                              |                                     |                    | 1,186
|Non-recurring expense                                          |                                     |                    |     
|                                                               |                                     |                    |      
|                                                               | Operating income (loss)             |                    |      
|Interest income (expense), net                                 |                                     |                    | (41  
|                                                               |                                     |                    |      
|Income (loss) before provision for (benefit from) income taxes |                                     |                    | (451 
|Provision for (benefit from) income taxes                      |                                     |                    |     
|                                                               |                                     |                    |      
|Net income (loss)                                              |                                     | $                  | (451 
|                                                               |                                     |                    |      
|Per share amounts:                                             |                                     |                    |      
|                                                               | Basic net income (loss) per share   |                    | $    
|                                                               | Diluted net income (loss) per share |                    | $    
|Shares used in computing:                                      |                                     |                    |      
|                                                               | Basic net income (loss) per share   |                    |      
|                                                               | Diluted net income (loss) per share |                    |      

Our operating results have historically been subject to significant quarterly and annual fluctuations. We anticipate that factors affecting our
future operating results will include the timing of significant orders, the timing of new product announcements and releases by us or our competitors, patterns of capital spending by customers, market
acceptance of new or enhanced versions of our products and changes in the pricing of our products. In addition, the timing and level of our research and development expenditures could cause quarterly
results to fluctuate. A substantial portion of our annual revenues comes from sales to a relatively small number of customers. Our revenues and operating results for a period may be affected by the
timing of orders received during a period. See "Cautionary StatementsOur sales and operating results can fluctuate significantly from period to period."

Item 7A. Qualitative and Quantitative Disclosures about Market Risk

Market Risk

We are exposed to market risk primarily from changes in interest rates and credit risk. We are not exposed to market risk from fluctuations in foreign currency
exchange rates because all sales are made in U.S. dollars.

Interest Rate Risk

We are exposed to interest rate risk primarily from investments in cash equivalents and short-term and long-term marketable debt
securities (the "Investment Portfolio"). The entire Investment Portfolio is classified as held to maturity and, accordingly, is recorded on the balance sheet at cost, with the amortization of any
purchase discounts or premiums recorded in interest income. The entire Investment Portfolio is denominated in U.S. dollars. We do not use derivative financial instruments in the Investment Portfolio.

13

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Credit Risk

Financial instruments which potentially subject us to credit risk consist principally of securities in the Investment Portfolio and trade receivables. We limit
credit risk related to the Investment Portfolio by placing all investments with high credit quality issuers and limit the amount of investment with any one issuer. As of December 31, 2000, 91%
of the Investment Portfolio consisted of government securities and corporate commercial paper and bonds with maturities of one year or less. We limit credit risk associated with trade receivables by
performing ongoing credit evaluations and believe that there is no additional risk beyond amounts provided for collection losses to be inherent in trade receivables.

CAUTIONARY STATEMENTS

Certain statements contained in this Form 10-K and other written and oral statements made from time to time by us do not relate strictly to
historical or current facts. As such, they are considered "forward-looking statements" which provide current expectations or forecasts of future events. Such statements can be identified by the use of
terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could," "possible," "plan," "project," "should," "will," "forecast" and similar words or expressions. Our
forward-looking statements generally relate to our growth strategies, financial results, product development and sales efforts. One must carefully consider forward-looking statements and understand
that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions, including, among others, those discussed below. Consequently, no
forward-looking statement can be guaranteed and actual results may vary materially. We undertake no obligation to update any forward-looking statement, but investors are advised to consult any further
disclosures by us on this subject in our filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q, and 8-K (if any), in which we discuss
in more detail various important factors that could cause actual results to differ from expected or historic results. We note these factors as permitted by the Private Securities Litigation Reform Act
of 1995. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks, uncertainties or
potentially inaccurate assumptions.

One product line accounts for a significant portion of our sales, consequently, continued market acceptance of this product line is critical to our success.

Approximately 90% of our 2000 net revenues came from the sales of one product line, our NSX automated micro defect inspection system. We expect that this
product line will continue to account for the vast majority of our net revenues in the future. Continued market acceptance of this product line is critical to our success. Any decline in demand for or
failure to achieve continued market acceptance of this product line or any new version of this product line, would harm our business.

Our operational results could be negatively impacted if we are unable to obtain the necessary resources or put in place the appropriate controls to manage our rapid growth
effectively.

During the last three years, we have experienced rapid growth in our operations, the number of our employees, our product offerings and the geographic area
covered by our operations. Our growth places a significant strain on our management, operations and financial systems. Our future operating results will depend upon our ability to continue to
implement and improve our operating and financial controls and management information systems. To succeed, we must train and manage our employees to cope with growth and change. Failure to manage our
growth effectively could negatively impact our financial condition, results of operations and profitability.

To
manage our growth, we may also need to spend significant amounts of cash to:



14

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If
our cash, together with cash available under our credit facility, is insufficient to meet these cash requirements, we will need to seek alternative sources of financing to carry
out our growth and operating strategies. We may not be able to raise needed cash on terms acceptable to us, or at all. Financing may be on terms that are dilutive or potentially dilutive. If
alternative sources of financing are required but are insufficient or unavailable, we will be required to modify our growth and operating plans to the extent of available funding.

If we are unable to develop and introduce successful new products and technologies in a timely manner, our business will be harmed.

Semiconductor and microelectronic equipment and processes are subject to rapid technological changes. We believe that our future success will depend in part
upon our ability to continue to enhance our existing product line to meet customer needs and to develop and introduce new products in a timely manner. We cannot assure you that our product enhancement
efforts to improve and advance products such as the NSX, or our new product development efforts such as our recently introduced Rapid Confocal Sensor technology and 300mm advances, will be successful
or that we will be able to respond
effectively to technological change. If we are unsuccessful, our revenue, operating results or stock price could be negatively impacted.

Our market is highly competitive and we may lose business to larger and better-financed competitors.

The semiconductor defect inspection equipment industry is highly competitive in all areas of the world. Many other domestic and foreign companies participate
in the market for our NSX systems, and the industry is intensely competitive. Our current primary competitors in the market for semiconductor micro defect inspection equipment are Semiconductor
Technologies & Instruments, Inc., Robotic Vision Systems, Inc., and Toray Industries, Inc. In addition, companies such as KLA-Tencor Corporation and Applied
Materials, Inc., that are currently providing automated inspection products for the wafer manufacturing and processing market, may enter our market. Most of these competitors, as well as other
potential competitors, have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer support capabilities than we have. Unless we are able to
invest significant financial resources in developing products and enhancing customer support worldwide, and are able to gain customer acceptance of our products, we may not be able to compete
effectively.

Our success depends on attracting and retaining key personnel.

Our future success will depend in large part upon our ability to recruit and retain highly skilled technical, manufacturing, managerial, financial and
marketing personnel. The labor market in which we operate is highly competitive and as a result, we may not be able to retain and recruit key personnel. Our failure to hire, retain, or adequately
train key personnel could have a negative impact on our performance.

Our sole market is in the highly cyclical semiconductor industry, which could cause our financial results to vary greatly.

Our business depends heavily upon capital expenditures by semiconductor manufacturers. The semiconductor industry is highly cyclical, with periods of capacity
shortage and periods of excess capacity. In periods of excess capacity, the industry sharply cuts purchases of capital equipment, including our products. Thus, a semiconductor industry downturn or
slowdown could substantially reduce our revenues and operating results and could hurt our financial condition. Many industry experts currently believe we are in an industry downturn or slowdown.

Our future rate of growth is highly dependent on the development and growth of the market for semiconductor test and inspection equipment and the market acceptance of our
products.

We primarily target our products to address the needs of semiconductor manufacturers for micro defect inspection, although we have recently seen our sales grow
in the emerging microelectronics market
including the areas of optoelectronics, photonics, micro electro-mechanical structures (MEMS) or other micro machines, flat panel display, printheads, data storage, disk drives and other similar
devices. If for any reason the market for semiconductor and microelectronic test and inspection equipment fails to grow as we expect, we may be unable to sustain our growth. In addition, our growth

15

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depends upon the adoption of our products by semiconductor and microelectronic manufacturers. If, for any reason, these manufacturers do not find our products to be appropriate for their use, our
future growth will be adversely affected.

Our sales and operating results can fluctuate significantly from period to period which may adversely affect the market price of our stock.

Our quarterly and annual operating results are affected by a wide variety of factors that could adversely affect sales or operating results or lead to
significant variability in our operating results. In addition, because a significant portion of our revenue in any particular quarter has historically come from the sale of a relatively small number
of systems, the loss of any sale could have a significant negative impact. A variety of factors could cause this variability, including the following:



We
cannot predict the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore, should not be
considered indicative of the results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below expectations of securities
analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock.

Our business may be harmed if we fail to protect our intellectual property rights.

Our success depends in part upon our ability to obtain intellectual property rights and licenses and to preserve other intellectual property rights covering
our products and our products under development. To protect these rights, we have obtained one domestic patent and intend to continue to seek patents on our inventions when appropriate. As of
December 31, 2000, we also have 18 pending patent applications in the United States and one pending international patent application. The process of seeking intellectual property protection can
be time-consuming and expensive. We cannot ensure that:



If
we do not successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results.

We
also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees, consultants, key customers and vendors to protect our
intellectual property. Other parties may not comply with the terms of their agreements with us, and we may not be able to adequately enforce our rights against these people.

Third parties may claim that we are infringing upon their intellectual property, and we could suffer significant litigation costs, licensing expenses or be prevented from
selling our products.

Intellectual property rights are uncertain and involve complex legal and factual questions. We may be unknowingly infringing upon the intellectual property
rights of others and may be liable for that infringement, which could result in significant liability for us. If we do infringe upon the intellectual

16

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property rights of others, we could be forced to either seek a license to those intellectual property rights or to alter our products so that they no longer infringe. A license could be very expensive
to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing upon the rights of others may be costly or impractical.

We
are responsible for any patent litigation costs. If we were to become involved in a dispute regarding intellectual property, whether ours or that of another company, we may have to
participate in legal proceedings. These types of proceedings may be costly and time-consuming for us, even if we eventually prevail. If we do not prevail, we might be forced to pay
significant damages, obtain licenses, modify our products or processes, stop making products or stop using processes.

Our dependence on a few significant customers exposes us to operating risks.

Sales to our 10 largest customers accounted for 63% of net revenues in 2000, 72% of net revenues in 1999 and 60% of net revenues in 1998. Our customers are
able to cancel orders with few or no penalties. If a significant customer reduces orders for any reason, our revenues, operating results, and financial condition will be negatively affected. In
addition, our ability to increase our sales will depend in part upon our ability to obtain orders from new customers for whom there is intense competition.

Our dependence on subcontractors and sole or limited source suppliers may prevent us from delivering an acceptable product on a timely basis and could result in disruption of
our operations.

We rely on subcontractors to manufacture many of the components and subassemblies for our products, and we depend on single or limited source suppliers for
some of our components. Our reliance on subcontractors gives us little control over the manufacturing process and exposes us to significant risks such as inadequate capacity, late delivery,
substandard quality and high costs.

If
a supplier were to become unable to provide parts in the volumes needed or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative
sources of supply, or manufacture the components internally. Depending on the part, the process of qualifying subcontractors and suppliers generally takes between 60 and 180 days. We have no
written supply agreements with any of our single or limited source suppliers and purchase our custom components through individual purchase orders. If we were unable to obtain these components in a
timely fashion, we may not be able to meet demands for future shipments. We rely on sole suppliers for several of our components, including an image processing component, which is a critical component
of our NSX system. We believe that we would be able to find alternative solutions if supplies were unavailable from any of our sole source suppliers, including the supplier of our image processing
component. This may take time and the disruption would adversely affect our results of operations.

Our dependence upon international customers and suppliers may reduce our revenues or impede our ability to supply products.

International sales have accounted for a significant portion of our revenues in recent years, and we expect that the percentage of sales from international
customers will continue to increase. Sales outside of North America accounted for 45% of our net revenues in 2000, 37% of our net revenues in 1999, and 27% of our net revenues in 1998. In addition, we
rely on non-U.S. suppliers for several components of the systems we sell. As a result, a major part of our revenues and the ability to manufacture our products are subject to the risks
associated with international commerce. International sales and our relationships with suppliers may be hurt by many factors, including:



17

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If
our international sales or relationships with international suppliers are adversely affected by any of these factors, our financial condition could be adversely affected.

Our operational results could be negatively impacted by currency fluctuations.

Our foreign sales are made in U.S. dollars. A strengthening in the dollar relative to the currencies of those countries where we do business would increase the
prices of our products as stated in those currencies and hurt our sales in those countries. If we lower our prices to reflect a change in exchange
rates, our profitability in those markets will decrease. In the past, there have been significant fluctuations in the exchange rates between the dollar and the currencies in the countries where we do
business. We have not historically tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. We may not be able to do so
successfully. Accordingly, we may experience economic loss and a negative impact on earnings and equity as a result of foreign currency exchange rate fluctuations.

Failure to increase our sales in Asia will negatively impact our financial performance.

Asia is an important region for the markets we serve. We expect our dependence upon the Asian market to increase. In recent years, Asia has experienced serious
economic problems including currency devaluations, debt defaults, lack of liquidity and recessions. Our revenues depend upon the capital expenditures of semiconductor manufacturers, many of who have
operations and customers in Asia. Serious economic problems in Asia would likely result in a significant decrease in the sale of equipment to the semiconductor industry. If we are unable to increase
our sales in Asia, our future financial condition, revenues and operating results will be negatively affected.

In
addition, we have recently opened an office in Taiwan where we will directly sell and service our systems using our own employees. We believe the semiconductor industry in Taiwan
has significant sales potential thus justifying our decision; however should our predictions be incorrect, our future financial condition, revenues and operating results will be negatively affected.
Although we believe that the opening of the office will provide us with more control over our affairs and a direct sales and service force 100% dedicated to our products, the opening of the office
required leasing a facility, the hiring of employees, the formation of a limited liability entity and the opening of a Taiwan branch and other actions, all of which may increase our exposure.

We will rely upon distributors for a significant portion of our future sales, and a disruption in our relationships with these distributors could have a negative impact on our
international sales.

A substantial portion of our sales have been made through independent distributors. We expect that sales through independent distributors will represent a
material portion of our sales for the next several years. In particular, almost all of our 2000 sales in Asia, Japan, and Europe were made through independent distributors. In 2000, sales to our
exclusive distributor in Asia (excluding Japan) accounted for 16% of our net revenues, sales to our exclusive distributor in Japan accounted for 8% of our net revenues and sales to our distributors in
Europe accounted for 14% of our net revenues. The activities of these distributors are not within our control. Although we believe that we maintain good relations with our independent distributors,
the relationships may nevertheless deteriorate in the future. A reduction in the sales or service efforts or financial viability of any of our independent distributors, or a termination of our
relationships with them, could harm our sales, our financial results and our ability to support our customers.

We may have violated Section 5 of the Securities Act in connection with an e-mail sent to all of our employees and consequently any employees who purchased
shares in our IPO could have the right to rescind their purchases and recover damages from us.

On April 18, 2000, we sent an e-mail to all of our 108 employees that summarized a program under discussion with the underwriters through
which our employees would be allowed to purchase shares in our IPO. The e-mail asked employees to consider whether they wanted to participate in the program if it were made available. At
our request, the underwriters reserved up to 56,600 of the shares offered in the IPO for sale to our employees who participated in the program, and each employee had the opportunity to purchase
between 100 and 3,500 shares. A court may find that the e-mail constitutes an offer to sell or the solicitation of an offer to purchase our common stock in violation of Section 5 of

18

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the Securities Act. We urged all employees to read and base their investment decision only on the IPO prospectus.

If
we have violated the Securities Act by sending the e-mail, then any recipients of the e-mail who purchased shares in the IPO would have the right, for a
period of one year from the date of their purchase of the common stock, to bring an action against us for rescission or for damages resulting from their purchase of common stock. In addition, we may
be required to make a rescission offer to our employees that purchased shares of our common stock in the IPO. If we have violated the Securities Act by sending the e-mail, we could incur a
liability of up to approximately $679,000, assuming that the value of the shares at the time of rescission is $0.00. Our liability may be greater if employees purchased additional shares in the IPO
outside of the program. As of the date of this report, no employee has brought an action against us for rescission or for damages resulting from their purchase of common stock in the IPO.

Any acquisitions we may make could disrupt and harm our business.

Although we do not currently have any specific plans or agreements to make any material acquisitions, we plan to pursue acquisitions of related businesses. Our
identification of suitable acquisition candidates involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of
the possible acquisition on our business, diversion of our management's attention and risks associated with unanticipated problems or latent liabilities. If we are successful in pursuing acquisitions,
we may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect our results of operations and be dilutive to our shareholders. If we
spend significant funds or incur additional debt, our ability to obtain financing for working capital or other purposes could decline and we may be more vulnerable to economic downturns and
competitive pressures. We cannot guarantee that we will be able to finance acquisitions or that we will realize any anticipated benefits from acquisitions that we complete. Should we successfully
acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources
that would otherwise be available for the ongoing development or expansion of our existing business.

If a semiconductor or microelectronic manufacturer is loyal to another semiconductor or microelectronic equipment supplier, we may be unable to sell our products to that
potential customer, and our sales and market share could suffer as a result.

We believe that once a semiconductor or microelectronic device manufacturer has selected one vendor's capital equipment for a production line application, the
manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor's equipment, for the life of the application. Once a vendor's equipment
has been installed in a production line, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to
switch to another vendor's equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh a customer's expense of switching to our systems, it will be difficult for us
to achieve significant sales to that customer once it has selected another vendor's capital equipment for an application.

19

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Item 8. Financial Statements and Supplementary Data

AUGUST TECHNOLOGY CORPORATION  Index to Financial Statements

|Independent Auditors' Report                                                            |  | 21
|--------------------------------------------------------------------------------------- |  | --
|Balance Sheets as of December 31, 2000 and 1999                                         |  | 22
|Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998           |  | 23
|Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 |  | 24
|Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998           |  | 25
|Notes to Financial Statements                                                           |  | 26

20

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
August Technology Corporation:

We
have audited the accompanying balance sheets of August Technology Corporation (the Company) as of December 31, 2000 and 1999, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in all material respects, the financial position of August Technology Corporation as of December 31,
2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.



Minneapolis,
Minnesota
February 14, 2001

21

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AUGUST TECHNOLOGY CORPORATION        BALANCE SHEETS

|                                               |                                                                                                                                 | December 31,                               |        
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                         |                                                                                                                                
|Current assets:                                |                                                                                                                                 |                                            |        
|                                               | Cash and cash equivalents                                                                                                       |                                            | $      
|                                               | Short-term investments                                                                                                          |                                            |        
|                                               | Accounts receivable, net                                                                                                        |                                            |        
|                                               | Inventories                                                                                                                     |                                            |        
|                                               | Prepaid expenses and other current assets                                                                                       |                                            |        
|                                               | Deferred income taxes                                                                                                           |                                            |        
|                                               |                                                                                                                                 |                                            |        
|                                               |                                                                                                                                 | Total current assets                       |        
|                                               | Property and equipment, net                                                                                                     |                                            |        
|                                               | Long-term investments                                                                                                           |                                            |        
|                                               | Other assets                                                                                                                    |                                            |        
|                                               |                                                                                                                                 |                                            |        
|                                               |                                                                                                                                 | Total assets                               |        
|                                               |                                                                                                                                 |                                            |        
|LIABILITIES AND SHAREHOLDERS' EQUITY           |                                                                                                                                
|Current liabilities:                           |                                                                                                                                 |                                            |        
|                                               | Checks issued in excess of bank balance                                                                                         |                                            | $      
|                                               | Short-term debt                                                                                                                 |                                            |        
|                                               | Accounts payable                                                                                                                |                                            |        
|                                               | Accrued compensation                                                                                                            |                                            |        
|                                               | Accrued liabilities                                                                                                             |                                            |        
|                                               | Accrued income taxes                                                                                                            |                                            |        
|                                               | Short-term accrued lease obligations                                                                                            |                                            |        
|                                               | Customer deposits                                                                                                               |                                            |        
|                                               |                                                                                                                                 |                                            |        
|                                               |                                                                                                                                 | Total current liabilities                  |        
|Long-term accrued lease obligation             |                                                                                                                                 |                                            | 111,772
|Deferred income taxes                          |                                                                                                                                 |                                            | 48,500 
|                                               |                                                                                                                                 |                                            |        
|                                               |                                                                                                                                 | Total liabilities                          |        
|                                               |                                                                                                                                 |                                            |        
|Commitments and contingencies (notes 7 and 10) |                                                                                                                                 |                                            |        
|Shareholders' equity:                          |                                                                                                                                 |                                            |        
|                                               | Common stock, $.01 par value, 42,000,000 shares authorized 12,633,058 and 9,163,961 shares issued and outstanding, respectively |                                            |        
|                                               | Undesignated capital stock, $.01 par value, 3,000,000 shares authorized, no shares issued or outstanding                        |                                            |        
|                                               | Additional paid-in capital                                                                                                      |                                            |        
|                                               | Deferred compensation related to stock options                                                                                  |                                            |        
|                                               | Retained earnings                                                                                                               |                                            |        
|                                               |                                                                                                                                 |                                            |        
|                                               | Total shareholders' equity                                                                                                      |                                            |        
|                                               |                                                                                                                                 |                                            |        
|                                               |                                                                                                                                 | Total liabilities and shareholders' equity |        
|                                               |                                                                                                                                 |                                            |        

See
accompanying notes to financial statements.

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AUGUST TECHNOLOGY CORPORATION        STATEMENTS OF OPERATIONS

|                                                               |                                     | Years Ended December 31, |           
|-------------------------------------------------------------- | ----------------------------------- | ------------------------ | ----------
|
|Net revenues                                                   |                                     | $                        | 31,665,748
|Cost of revenues                                               |                                     |                          | 12,594,117
|                                                               |                                     |                          |           
|                                                               | Gross profit                        |                          |           
|Selling, general and administrative expenses                   |                                     |                          | 10,099,768
|Research and development expenses                              |                                     |                          | 6,945,041 
|Non-recurring expense                                          |                                     |                          | 325,808   
|                                                               |                                     |                          |           
|                                                               | Operating income (loss)             |                          |           
|Interest income                                                |                                     |                          | 1,077,979 
|Interest expense                                               |                                     |                          | (100,132  
|                                                               |                                     |                          |           
|Income (loss) before provision for (benefit from) income taxes |                                     |                          | 2,678,861 
|Provision for (benefit from) income taxes                      |                                     |                          | 806,600   
|                                                               |                                     |                          |           
|Net income (loss)                                              |                                     | $                        | 1,872,261 
|                                                               |                                     |                          |           
|Per share amounts:                                             |                                     |                          |           
|                                                               | Basic net income (loss) per share   |                          | $         
|                                                               | Diluted net income (loss) per share |                          | $         

See
accompanying notes to financial statements.

23

---



AUGUST TECHNOLOGY CORPORATION        STATEMENTS OF SHAREHOLDERS' EQUITY

|                                                                         |                                             | Common Stock |           |   |         |        |   |            |            |   |         
|------------------------------------------------------------------------ | ------------------------------------------- | ------------ | --------- | - | ------- | ------ | - | ---------- | ---------- | - | --------
|
|
|Balances at December 31, 1997                                            |                                             | 7,500,000    |           | $ | 75,000  |        | $ | 75,200     |            | $ |        
|Issuances of common stock in sales to private investors, net of expenses |                                             | 823,001      |           |   | 8,230   |        |   | 938,387    |            |   |        
|Net loss                                                                 |                                             |             |           |   |        |        |   |           |            |   |        
|                                                                         |                                             |              |           |   |         |        |   |            |            |   |         
|Balances at December 31, 1998                                            |                                             | 8,323,001    |           |   | 83,230  |        |   | 1,013,587  |            |   |        
|Issuances of common stock in conjunction with:                           |                                             |              |           |   |         |        |   |            |            |   |         
|                                                                         | Sales to private investors, net of expenses |              | 824,511   |   |         | 8,245  |   |            | 1,979,017  |   |         
|                                                                         | Exercise of employee stock options          |              | 263       |   |         | 3      |   |            | 313        |   |         
|                                                                         | Employee bonuses                            |              | 16,186    |   |         | 162    |   |            | 74,835     |   |         
|Issuances of stock options to nonemployees                               |                                             |             |           |   |        |        |   | 5,260      |            |   |        
|Deferred compensation related to stock option grants                     |                                             |             |           |   |        |        |   | 427,614    |            |   | (427,614
|Net loss                                                                 |                                             |             |           |   |        |        |   |           |            |   |        
|                                                                         |                                             |              |           |   |         |        |   |            |            |   |         
|Balances at December 31, 1999                                            |                                             | 9,163,961    |           |   | 91,640  |        |   | 3,500,626  |            |   | (427,614
|Issuances of common stock in conjunction with:                           |                                             |              |           |   |         |        |   |            |            |   |         
|                                                                         | Initial public offering, net of expenses    |              | 3,300,000 |   |         | 33,000 |   |            | 35,827,280 |   |         
|                                                                         | Exercises of employee stock options         |              | 150,592   |   |         | 1,505  |   |            | 143,304    |   |         
|                                                                         | Employee stock purchase plan                |              | 18,505    |   |         | 185    |   |            | 203,318    |   |         
|Tax benefit from stock options exercised                                 |                                             |             |           |   |        |        |   | 111,633    |            |   |        
|Issuances of stock options to nonemployees                               |                                             |             |           |   |        |        |   | 48,085     |            |   |        
|Amortization of deferred compensation related to stock options           |                                             |             |           |   |        |        |   | (25,237    | )          |   | 122,605 
|Net income                                                               |                                             |             |           |   |        |        |   |           |            |   |        
|                                                                         |                                             |              |           |   |         |        |   |            |            |   |         
|Balances at December 31, 2000                                            |                                             | 12,633,058   |           | $ | 126,330 |        | $ | 39,809,009 |            | $ | (305,009
|                                                                         |                                             |              |           |   |         |        |   |            |            |   |         

See accompanying notes to financial statements.

24

---

AUGUST TECHNOLOGY CORPORATION        STATEMENTS OF CASH FLOWS

|                                                                                     |                                                         | Years Ended December 31,                                                                                                        |                                          
|------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:                                                |                                                         |                                                                                                                                 |                                          
|Net income (loss)                                                                    |                                                         | $                                                                                                                               | 1,872,261                                
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         | Depreciation and amortization                                                                                                   |                                          
|                                                                                     |                                                         | Impairment of assets                                                                                                            |                                          
|                                                                                     |                                                         | Provision for doubtful accounts                                                                                                 |                                          
|                                                                                     |                                                         | Deferred income taxes                                                                                                           |                                          
|                                                                                     |                                                         | Accrued lease obligation                                                                                                        |                                          
|                                                                                     |                                                         | Amortization of deferred compensation related to stock options                                                                  |                                          
|                                                                                     |                                                         | Issuances of stock options to nonemployees                                                                                      |                                          
|                                                                                     |                                                         | Issuances of common stock to employees                                                                                          |                                          
|                                                                                     |                                                         | Changes in operating assets and liabilities:                                                                                    |                                          
|                                                                                     |                                                         |                                                                                                                                 | Accounts receivable                      
|                                                                                     |                                                         |                                                                                                                                 | Inventories                              
|                                                                                     |                                                         |                                                                                                                                 | Prepaid expenses and other current assets
|                                                                                     |                                                         |                                                                                                                                 | Accounts payable                         
|                                                                                     |                                                         |                                                                                                                                 | Accrued compensation                     
|                                                                                     |                                                         |                                                                                                                                 | Other accrued liabilities                
|                                                                                     |                                                         |                                                                                                                                 | Accrued income taxes                     
|                                                                                     |                                                         |                                                                                                                                 | Customer deposits                        
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|Cash flows from investing activities:                                                |                                                         |                                                                                                                                 |                                          
|                                                                                     | Purchases of securities held to maturity                |                                                                                                                                 |                                          
|                                                                                     | Proceeds from maturities of securities held to maturity |                                                                                                                                 |                                          
|                                                                                     | Purchases of property and equipment                     |                                                                                                                                 |                                          
|                                                                                     | Investment in other assets                              |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|Cash flows from financing activities:                                                |                                                         |                                                                                                                                 |                                          
|                                                                                     | Net proceeds from issuances of common stock             |                                                                                                                                 |                                          
|                                                                                     | Proceeds from (payments of) short term debt, net        |                                                                                                                                 |                                          
|                                                                                     | Checks issued in excess of bank balance                 |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         |                                                                                                                                 |                                          
|Net increase (decrease) in cash and cash equivalents                                 |                                                         |                                                                                                                                 | 3,102,678                                
|Cash and cash equivalents at beginning of year                                       |                                                         |                                                                                                                                 |                                         
|                                                                                     |                                                         |                                                                                                                                 |                                          
|Cash and cash equivalents at end of year                                             |                                                         | $                                                                                                                               | 3,102,678                                
|                                                                                     |                                                         |                                                                                                                                 |                                          
|Supplemental cash flow information:                                                  |                                                         |                                                                                                                                 |                                          
|                                                                                     | Cash paid for interest                                  |                                                                                                                                 | $                                        
|                                                                                     | Cash paid for income taxes, net of refunds              |                                                                                                                                 | $                                        
|Non-cash transactions:                                                               |                                                         |                                                                                                                                 |                                          
|                                                                                     |                                                         | During 2000, the Company recorded additional paid-in capital of $111,633 related to the tax benefit of stock options exercised. |                                          

See accompanying notes to financial statements.

25

---



AUGUST TECHNOLOGY CORPORATION        NOTES TO FINANCIAL STATEMENTS

Note 1Nature of Business and Summary of Significant Accounting Policies

Nature of Business

August Technology Corporation (the "Company") was incorporated in September of 1992 under the laws of the state of Minnesota. The Company designs, develops,
manufactures, sells, distributes and supports automated visual inspection systems used in the manufacture of semiconductor and microelectronic devices.

Use of Estimates

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the
estimates that were used.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid debt instruments with original maturities of 90 days or less when purchased.

Investments

Investments consist of marketable debt instruments, which were classified at the time of purchase as held-to-maturity due to the
Company's intent and ability to hold the investments to maturity. Held-to-maturity securities are recorded at cost with corresponding premiums or discounts amortized over the
life of the investment to interest income. Short-term investments mature in less than one year. Long-term investments have maturities of more than one year.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, investments, accounts payable and short-term debt approximate fair value as
of December 31, 2000 and 1999.

Inventories

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

Property and Equipment

Property and equipment is stated at cost and is depreciated over the estimated useful lives of the respective assets. The estimated useful lives range from two
to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of its useful life or its lease term.

Impairment of Long Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the fourth quarter of 2000, as a result of the Company's decision to discontinue the
implementation of certain internal business automation software, the Company recorded an impairment charge of $325,808, which is recorded as non-recurring expense within the statement of
operations.

26

---

Capitalized Software Development Costs

Software development costs incurred subsequent to the establishment of technological feasibility through general release of the products are capitalized.
Technological feasibility is demonstrated by the completion of a working model. Capitalized costs are amortized over the lesser of the estimated sales of the product or the straight-line
method over a period of three years. Unamortized software development costs at December 31, 2000 and 1999 were $166,969 and none, respectively.

Income Taxes

Deferred income taxes are recognized for the difference between the financial statement carrying amounts and the tax basis of existing assets and liabilities.
Deferred income taxes are recorded at the tax rates expected to be in effect when amounts are to be included in future taxable income.

Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in equity during a period from transactions and other events and circumstances excluding transactions
resulting from investment by shareholders and distribution to shareholders. For the years ended December 31, 2000, 1999 and 1998, comprehensive income (loss) did not differ from net income
(loss).

Stock-based Compensation

The Company applies Accounting Principles Board Opinion (APB) No. 25,Accounting for Stock Issued to
Employees,and related interpretations in accounting for stock-based compensation. The Company has adopted the pro forma disclosure requirements under Statement of Financial
Accounting Standard ("SFAS") No. 123,Accounting and Disclosure of Stock-based Compensation.

Revenue Recognition

The Company recognizes revenue in light of SEC Staff Accounting Bulletin No. 101. Revenues from equipment and parts shipped without an evaluation period
and related warranty costs are recognized at the time of shipment to the customer. Revenues from equipment and parts shipped with an evaluation period and related warranty costs are recognized at the
end of the evaluation period and upon customer acceptance. Revenues from installation and training services are recognized after the services are performed. Revenues from maintenance contracts are
recognized ratably over the period of the contract. Service revenues were insignificant during the years ended December 31, 2000, 1999 and 1998.

The
Company's distributors are not granted price protection. Sales to all customers and distributors are final and no right of return after shipment exists.

Unbilled
revenue represents revenue that has been earned for equipment shipped but not billed due to the terms of the customer order.

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred.

Net Income (Loss) Per Share

Basic net income (loss) per share excludes dilution and is computed by dividing income (loss) available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if

27

---

securities or other contracts to issue common stock were exercised or converted into common stock. When there is a net loss, other potentially dilutive securities are not included in the calculation
of net loss per share since their inclusion would be anti-dilutive.

New Accounting Pronouncements

SFAS No. 133;Accounting for Derivative Instruments and Hedging Activities(as amended by SFAS
No. 137 with respect to the effective date) will be effective for the Company in January 2001. SFAS No. 133 requires all derivatives to be recognized as assets or liabilities on
the balance sheet and measured at fair value on a mark-to-market basis. This applies whether the derivatives are stand-alone instruments, such as forward currency exchange
contracts and interest rate swaps or collars, or embedded derivatives, such as call options contained in convertible debt investments. Along with the derivatives, the underlying hedged items are also
to be marked to market on an ongoing basis. These market value adjustments are to be included either in net income (loss) in the statement of operations or in other comprehensive income (and
accumulated in shareholders' equity), depending on the nature of the transaction. The adoption of SFAS No. 133 did not have a significant effect on the results of operations or financial
position of the Company.

Note 2Investments

Short-term and long-term investments consisted of the following:

December 31,
2000Due within one year:Commercial paper

$
3,469,474Corporate notes


14,516,412Government notes


5,618,290Total due within one year


23,604,176Due after one year through two years:Corporate notes


2,485,938Total investments

$
26,090,114


Short-term
and long-term investments are carried at amortized cost, which approximates fair market value at December 31, 2000. There were no investments
at December 31, 1999.

Note 3Accounts Receivable

Accounts receivable consisted of the following:

December 31,2000

1999Billed receivables

$
6,268,445

$
2,707,727Unbilled revenue


865,972


455,5917,134,417


3,163,318Allowance for doubtful accounts


(255,000
)

(45,000
)Accounts receivable, net

$
6,879,417

$
3,118,318


28

---

Note 4Inventories

Inventories consisted of the following:

2000

1999Raw materials

$
3,385,580

$
988,147Work in process


1,019,913


514,786Finished goods


3,850,528


956,552Inventories

$
8,256,021

$
2,459,485


Note 5Property and Equipment

Property and equipment consisted of the following:

December 31,2000

1999Furniture and equipment

$
1,452,832

$
516,211Computer equipment


769,659


356,728Computer software


382,106


311,551Software development costs


166,969


Leasehold improvements


110,523


30,0002,882,089


1,214,490Less: accumulated depreciation and amortization


(655,598
)

(292,948
)Property and equipment, net

$
2,226,491

$
921,542


Depreciation
and amortization expense for the years ended December 31, 2000, 1999 and 1998 was $363,157, $150,949 and $69,753, respectively.

Note 6Income Taxes

The provision for (benefit from) income taxes consisted of the following:

|                             |         | Years Ended December 31,                        |         
|---------------------------- | ------- | ----------------------------------------------- | --------
|
|Current income tax expense:  |         |                                                 |         
|                             | Federal |                                                 | $       
|                             | State   |                                                 |         
|                             |         |                                                 |         
|                             |         |                                                 | 984,500 
|Deferred income tax benefit: |         |                                                 |         
|                             | Federal |                                                 |         
|                             | State   |                                                 |         
|                             |         |                                                 |         
|                             |         |                                                 | (177,900
|                             |         |                                                 |         
|                             |         | Total provision for (benefit from) income taxes |         
|                             |         |                                                 |         

29

---

A
reconciliation of the expected federal income taxes at the statutory rate of 34% to the actual income tax expense (benefit) is as follows:

|                                                       |                                     | Years Ended December 31, |         
|------------------------------------------------------ | ----------------------------------- | ------------------------ | --------
|
|Expected federal tax expense (benefit)                 |                                     | $                        | 910,800 
|State tax expense (benefit), net of federal tax effect |                                     |                          | 4,500   
|General business credits                               |                                     |                          | (146,200
|Nondeductible expenses                                 |                                     |                          | 60,000  
|Change in valuation allowance                          |                                     |                          | (22,500 
|Benefit of graduated tax rates                         |                                     |                          |        
|                                                       |                                     |                          |         
|                                                       | Actual income tax expense (benefit) |                          | $       
|                                                       |                                     |                          |         

Deferred
taxes consisted of the following:

December 31,2000

1999Current deferred tax assets:Allowance for doubtful accounts

$
93,100

$
16,300Compensation accrual


69,400


27,900Inventory reserve


54,800


15,200Warranty accrual


45,900


14,500Accrued lease obligation


19,100


32,300Total current deferred tax assets


282,300


106,200Long-term deferred tax assets:Accrued lease obligation


40,800


14,600Alternative minimum tax credits





9,000Total gross deferred tax assets


323,100


129,800Deferred tax liabilities:Property and equipment


(89,300
)

(51,400
)Net deferred tax asset before valuation allowance


233,800


78,400Valuation allowance





(22,500
)Net deferred tax asset

$
233,800

$
55,900


The
valuation allowance for deferred tax assets was none and $22,500 at December 31, 2000 and 1999, respectively. Management determined in 2000 that it was more likely than not
that the Company's deferred tax assets would be recovered and, as a result, reversed the valuation allowance recorded in 1999. In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon carry back to prior
periods and upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax
liabilities, carry back potential and projected future taxable income and tax planning strategies in making this assessment.

Note 7Contingencies

On April 18, 2000, the Company sent an e-mail to all 108 employees that summarized a program under discussion with the underwriters through
which employees of the Company would be allowed to purchase shares in the Company's initial public offering (the "IPO"). The e-mail asked employees to consider whether they wanted to
participate in the program if it were made available. At the Company's request, the underwriters reserved 56,600 of the shares offered in the IPO for employees

30

---

who participated in the program, and each employee purchased between 100 and 3,500 shares. The e-mail may have violated Section 5 of the Securities Act and consequently any
employees that purchased shares in the IPO could have the right, for a period of one year from the date of their purchase of the common stock, to bring an action against the Company to rescind their
purchases and recover damages from the Company. If the company has violated the Securities Act by sending the e-mail, the Company could incur a liability of approximately $679,000,
assuming that the shares have no value at the time of rescission. The Company's liability may be greater if employees purchased additional shares in the IPO outside of the program. As of
February 14, 2001, no employee has brought an action against the Company for rescission or for damages resulting from their purchase of common stock in the IPO.

Note 8Short-Term Debt

On August 10, 2000, the Company amended and restated the terms of its revolving credit line agreement, which was previously amended in
March 2000, to increase the allowable borrowings to $5,000,000 and extend the agreement through May 2002. The amendment removes the limitation as to availability based upon accounts
receivable and inventory balances. Interest is payable monthly at the 30-day LIBOR rate plus 2.25%. The amended agreement contains the same financial covenants as the original agreement.
There was no balance outstanding under the agreement at December 31, 2000.

On
June 30, 2000, the Company's bank released a director of the Company from the personal guaranty of the revolving credit line.

On
November 12, 1999, the Company entered into a revolving credit line agreement with its bank that expired in May 2000 and allowed borrowings of up to $2,750,000
subject to availability based on accounts receivable and inventory balances. Interest was payable monthly at the 30-day LIBOR rate plus 2.75%. The agreement contained financial covenants
with respect to the Company's tangible net worth, capital expenditures and earnings before interest, taxes, depreciation and amortization and default provisions, including provisions related to
non-payment of principal and interest, bankruptcy and default under other debt agreements. A director of the Company provided the bank with a personal guarantee of up to $500,000 plus
accrued interest in the event of default by the Company. The Company was not in compliance with one of the financial covenants at December 31, 1999. The Company obtained a waiver on such
covenant default. At December 31, 1999, the balance outstanding under the agreement was $1,223,500 at an effective interest rate of 9.22%.

Note 9Shareholders' Equity

Net Income (Loss) Per Share

The following information presents the Company's computation of basic and diluted net income (loss) per share for the periods presented in the statements of
operations:

|                                |                                               | Years Ended December 31, |          
|------------------------------- | --------------------------------------------- | ------------------------ | ---------
|
|Net income (loss)               |                                               | $                        | 1,872,261
|Weighted average common shares: |                                               |                          |          
|                                | Basic                                         |                          |          
|                                | Effect of dilutive stock options and warrants |                          |          
|                                |                                               |                          |          
|                                | Diluted                                       |                          |          
|                                |                                               |                          |          
|Net income (loss) per share:    |                                               |                          |          
|                                | Basic                                         |                          | $        
|                                | Diluted                                       |                          | $        

The
total weighted average number of stock options and warrants excluded from the calculation of potentially dilutive securities either due to the exercise price exceeding the average
market price or the

31

---

inclusion of such securities in a calculation of net loss per share would have been anti-dilutive for the years ended December 31, 2000, 1999 and 1998 were 128,801, 851,562 and
432,546, respectively.

Common Stock

On June 14, 2000, the Company sold 3,300,000 shares of common stock in the Company's IPO for cash of $39,600,000. The Company incurred expenses of
$3,739,720 that were netted with the cash proceeds received.

On
April 26, 2000, the Board of Directors authorized a 3-for-2 stock split. The financial statements give retroactive effect to the split for all
periods presented.

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

During
1999, the Company sold 824,511 shares of common stock for cash of $1,992,502 to private investors. The Company incurred expenses of $5,240 that were netted with the cash
proceeds received.

During
1998, the Company sold 823,001 shares of common stock for cash of $987,600 to private investors. The Company incurred expenses of $40,983 that were netted with the cash
proceeds received. In connection with the sales, the Company's placement agent was issued warrants to purchase 9,375 shares of common stock as partial payment for its fees. The warrants are
exercisable at $1.20 and expire in 2005.

Deferred Compensation

In connection with the grant of stock options to employees in 1999, the Company recorded deferred compensation of $427,614, representing the difference between
the estimated deemed value of the common stock for accounting purposes and the exercise price of such options at the date of grant. Such amount is presented as a reduction of shareholders' equity and
will be amortized ratably over the vesting period of the options granted, generally five years. The charge to compensation expense related to this deferred compensation during the year ended
December 31, 2000 was $97,368.

Employee Stock Purchase Plan

During 2000, the Board of Directors and stockholders adopted the 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan"). The 2000 Purchase Plan allows
employees, subject to certain restrictions, to purchase the Company's common stock through payroll deductions. Contributions are limited to 10% of an employee's compensation. The purchase price is set
at 85% of the lower of the closing market price of the Company's common stock at the commencement or termination of a participation phase. Participation phases have a duration of six months and begin
on January 1 and July 1 of each year. The Board of Directors has reserved 375,000 shares of common stock for issuance under the 2000 Purchase Plan. As of December 31, 2000, 18,505
shares of common stock had been purchased and 356,495 shares remain reserved for future issuance under the 2000 Purchase Plan.

32

---

Stock-based Compensation

The Board of Directors and stockholders have adopted the 1997 incentive stock option plan (the "1997 Option Plan"), which originally provided for 1,125,000
shares available for issuance primarily to officers, directors and key employees. On April 14, 2000, the shareholders authorized an increase in the number of shares available for issuance to
2,250,000 shares. The 1997 Option Plan permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and also
nonqualified stock options which do not meet the requirements of Section 422. The exercise price of incentive stock options may not be less than the fair market value of the stock at the date
of grant. The exercise price of nonqualified stock options may not be less than 85% of the fair market value of the stock at the date of grant. The stock options vest over periods that range from
immediate to five years and expire seven years from the date of grant. As of December 31, 2000, there were 2,099,145 shares reserved for future issuance under the 1997 Option Plan.

Information
with respect to option activity is as follows:

Shares Subject
to Options

Weighted
Average
Exercise Price
Per ShareOutstanding at December 31, 1997

303,750

$
0.63Granted

411,267


1.20Forfeited

(699
)

1.20Outstanding at December 31, 1998

714,318


0.94Granted

466,544


2.17Exercised

(263
)

1.20Forfeited

(36,877
)

1.25Outstanding at December 31, 1999

1,143,722


1.44Granted

679,653


11.62Exercised

(150,592
)

0.96Forfeited

(167,485
)

5.89Outstanding at December 31, 2000

1,505,298

$
5.64


The
following table summarizes information about stock options outstanding at December 31, 2000:

Weighted
Average
Remaining
Contractual Life (years)



ExercisableRange of Exercise Prices

Outstanding
Options

Weighted
Average
Exercise Price

Exercisable
Options

Weighted
Average
Exercise Price$ 0.50 - 0.55

179,250

3.60

$
0.50

140,250

$
0.500.56 - 1.20

414,089

4.73


1.20

212,893


1.201.21 - 6.14

290,406

5.81


2.37

64,750


2.376.15 - 11.24

175,654

6.21


8.30

8,029


9.1911.25 - 12.37

184,604

6.50


11.77

5,104


11.9912.38 - 13.74

155,945

6.81


12.79

75,891


12.9513.75 - 16.94

105,350

6.72


15.08




$ 0.50 - 16.94

1,505,298

5.55

$
5.64

506,917

$
3.15


The
Company has adopted the disclosure only provisions of SFAS No. 123 for employees and directors, and will continue to account for its stock option and stock purchase plans
in accordance with the provisions of APB No. 25.

33

---

The estimated per share weighted average fair value of all stock options granted during the years ended December 31, 2000, 1999 and 1998 was $7.25, $0.86 and $0.33,
respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

Years Ended December 31,2000

1999

1998Expected life

5.5 years

7 years

7 yearsRisk free interest rate

6.1
%
6.6
%
4.7
%Volatility

68.6
%


Dividend yield








Had
the Company recorded compensation cost based on the estimated fair value on the date of grant, as defined by SFAS 123, the Company's pro forma net income (loss) would have
been as follows:

Years ended December 31,2000

1999

1998Net income (loss):As reported

$
1,872,261

$
(131,993
)
$
(106
)Pro forma


1,309,246


(197,323
)

(37,906
)Basic net income (loss) per share:As reported

$
0.17

$
(0.02
)
$
Pro forma


0.12


(0.02
)

Diluted net income (loss) per share:As reported

$
0.16

$
(0.02
)
$
Pro forma


0.11


(0.02
)




Note 10Leases

The Company leases its office and manufacturing facilities and certain equipment under noncancelable operating leases. Future minimum lease payments as of
December 31, 2000, excluding operating costs, under these leases are as follows:

For the Years Ending December 31,

Amount2001

$
558,0002002


568,0002003


548,0002004


565,0002005


47,000Thereafter


Total minimum lease payments

$
2,286,000


Rent
expense for all operating leases for the years ended December 31, 2000, 1999 and 1998 was $484,718, $88,887 and $76,000, respectively.

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

34

---

Note 11Employee Retirement Plan

The Company maintains an employee benefit plan (the "Plan") pursuant to Section 401(k) of the Internal Revenue Code. The Plan is available to all
employees who have reached the age of 18 and provides employees with tax deferred salary deductions and alternative investment options. Employees may contribute up to 15% of their eligible
compensation, subject to certain limitations. The Company matches 50% of the deferrals up to 4% of the employee's compensation. The Company made contributions to the Plan for the years ended
December 31, 2000, 1999 and 1998 of $88,138, $41,887 and $22,497, respectively.

Note 12Concentration of Credit Risk and Significant Customer Information

Financial instruments which potentially subject the Company to credit risk consist principally of investments in cash equivalents and short-term
and long-term debt obligations (the "Investment Portfolio") and trade receivables. The Company limits credit risk related to the Investment Portfolio by placing all investments with high
credit quality issuers and limits the amount of investment with any one issuer. As of December 31, 2000, 91% of the Investment Portfolio consisted of government securities and corporate
commercial paper and bonds with maturities of one year or less. The Company limits credit risk associated with trade receivables by performing ongoing credit evaluations and believes that there is no
additional risk beyond amounts provided for collection losses to be inherent in trade receivables.

The
percentage of net revenues derived from major customers, which include distributors, and accounts receivable related to these customers were as follows:

Years Ended December 31,2000

1999

1998Net revenues:Customer A

16
%
7
%
Customer B

9
%
11
%
10
%Customer C

9
%
5
%
10
%Customer D

3
%
11
%
8
%Total

37
%
34
%
28
%


Years Ended December 31,2000

1999Accounts receivable:Customer A

29
%
14
%Customer B

8
%
20
%Customer C



7
%Customer D

7
%
11
%Total

44
%
52
%


35

---

Note 13Geographic Information

All of the Company's tangible long-lived assets are located in the United States. The Company derives revenues from shipments to customers outside
of the United States. The percentage of net revenues by country were as follows:

Years Ended December 31,2000

1999

1998Net revenues:United States

55
%
57
%
73
%Taiwan

22
%
10
%
Switzerland

9
%
11
%
10
%Japan

8
%
5
%
7
%Other

6
%
17
%
10
%100
%
100
%
100
%


Note 14Subsequent Events

On February 8, 2001 the board of directors authorized, subject to shareholder approval, an increase in the number of shares available for issuance under
the 1997 Option Plan from 2,250,000 shares to 2,650,000 shares.

36

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

PART III

Item 10. Directors and Executive Officers of the Registrant

The Company will furnish to the Securities and Exchange Commission a definitive Proxy Statement (the "Proxy Statement") not later than 120 days after
the close of the year ended December 31, 2000. Other than "Executive Officers of the Company", which is set forth at the end of this item, the information required by this item is incorporated
herein by reference to the sections labeled "Election of Directors" and "Compliance With Section 16(a) of the Exchange Act", which appear in the Proxy Statement.

Executive Officers of the Company

The following sets forth the names and ages of the current executive officers of the Company in addition to information regarding their positions with the
Company, their periods of service in such positions and their business experience for the past five years. Executive officers generally serve in office for terms of approximately one year.

|Name               |  | Age |  | Position with the Company                                   
|------------------ |  | --- |  | ------------------------------------------------------------
|Jeff L. O'Dell     |  | 40  |  | President, Chief Executive Officer and Director             
|Thomas C. Velin    |  | 39  |  | Chief Financial Officer                                     
|David L. Klenk     |  | 36  |  | Chief Operating Officer and Secretary                       
|Thomas C. Verburgt |  | 37  |  | Chief Technology Officer and Director                       
|Mark R. Harless    |  | 40  |  | Chief Engineer and Director                                 
|John M. Vasuta     |  | 32  |  | Vice President of Intellectual Property and General Counsel 
|D. Mayson Brooks   |  | 42  |  | Vice President Sales, Marketing and New Business Development
|Wayne J. Hubin     |  | 57  |  | Vice President of Manufacturing                             
|James K. Nurse     |  | 48  |  | Vice President of Customer Service                          
|Albert A. Eliasen  |  | 35  |  | Vice President of Engineering                               

Jeff L. O'Dellco-founded the Company in 1992 and has served as our President and Chief Executive Officer since 1992 and
Chairman of the Board since 1994. From August 1987 to August 1992, Mr. O'Dell was Director of Sales and Marketing for MicroVision Corporation, which develops and manufactures
robotic and inspection systems. From February 1985 to August 1987, Mr. O'Dell was a Field Applications Engineer for Cognex Corporation, which designs, develops and markets machine
vision systems that are used to automate a wide range of manufacturing processes. From March 1984 to February 1985, Mr. O'Dell served as a Systems Analyst for Control Data
Corporation.

Thomas C. Velinhas served as our Chief Financial Officer since September 1998. Prior to joining us, Mr. Velin was Chief
Financial Officer for Lloyd's Food Products, Inc., a producer of specialty food products, from May 1996 to June 1998. From November 1989 to May 1996,
Mr. Velin was Corporate Controller for Telex Communications, Inc., a provider of sophisticated audio, wireless and multimedia communications equipment. Mr. Velin is a licensed
certified public accountant.

David L. Klenkhas been with us since April 1993, most recently as Chief Operating Officer, and served on our Board of Directors
from 1994 to March 2000. Mr. Klenk oversees the engineering, manufacturing, customer service, and human resources groups. Prior to becoming our Chief Operating Officer in
April 1999, Mr. Klenk served as our Director of Operations, where he managed finance, purchasing, facilities, and human resources. Mr. Klenk is a
brother-in-law of Mark Harless, the Company's Chief Engineering Officer.

Thomas C. Verburgthas been with us since April 1993, most recently as Chief Technology Officer, and has served on our Board of
Directors since 1994. Prior to becoming the Company's Chief

37

---

Technology Officer in September 1999, Mr. Verburgt served as Director of Software Engineering since joining the Company in April 1993. From January 1992 to
April 1993, Mr. Verburgt held a senior software engineering position at MTS Systems Corporation, a technology based company providing engineering services, equipment and software for
applications in research product development, quality control and production. From June 1984 to January 1992, Mr. Verburgt was Senior Software Engineer for the Perkin Elmer
Corporation, a manufacturer of instrument systems and software for the pharmaceutical, biotechnology, agricultural and chemical industries.

Mark R. Harlessco-founded the Company in 1992 and has been a member of our Board of Directors since 1994.
Mr. Harless has held various positions with the Company, most recently serving as our Chief Engineer. From 1988 to 1992, Mr. Harless was a Systems Engineer at MicroVision Corporation,
where he developed custom robotic and inspection systems. From 1985 to 1988, Mr. Harless worked as a Development Engineer at Honeywell, Inc. Mr. Harless is a
brother-in-law of David Klenk, the Company's Chief Operating Officer.

John M. Vasutajoined us as Vice President of Intellectual Property and General Counsel in May 2000. Mr. Vasuta has also
been our Assistant Secretary since October 2000. From February 1999 to May 2000, Mr. Vasuta was Senior Patent Counsel with Bridgestone-Firestone, a manufacturer of tires,
fiber optics and automotive parts. From July 1997 to February 1999, Mr. Vasuta was Senior Patent Counsel and Research and Development Business Manager for Kennametal Inc.,
a tooling manufacturer. Mr. Vasuta was an attorney in various law firms from 1991 to 1997, most recently at Sand & Segolt, where he was a partner.

D. Mayson Brooksbecame our Vice President of Sales and Marketing in July 1999. Prior to joining us, from June 1987
through June 1999, Mr. Brooks worked in various managerial capacities for Air Products and Chemicals, Inc., most recently as Commercial Manager, European electronics division.
Mr. Brooks
served from June 1981 to May 1987 in the United States Navy and was awarded two achievement medals.

Wayne J. Hubinhas been our Vice President of Manufacturing since November 1999. Before joining us, Mr. Hubin was
Manufacturing Operations Manager for BOC Edwards, Inc. from August 1999 to November 1999. From 1984 to August 1999, Mr. Hubin worked in various managerial capacities
for FSI International, Inc., a supplier of micro-lithography, surface conditioning and chemical arrangement equipment used in the fabrication of microelectronics, most recently as Manufacturing
Operations Manager.

James K. Nursejoined us as Vice President of Customer Service in September 2000. Prior to joining us, from November 1999
to April 2000, Mr. Nurse was an International Service Manager for Electronic Visions Group, Schaerding, Austria. From May 1999 to October 1999, he was based in Switzerland
as the General Manager of Customer Support Services of Multi Media Masters and Machinery, a data storage and replication equipment company. Mr. Nurse was Director of the Asia Pacific division
of Leybold Systems Gmbh, a German vacuum coating systems company.

Albert A. Eliasenjoined us as Vice President of Engineering in November 2000. Prior to joining us, Mr. Eliasen was
employed by Axcelis Technologies, Inc., a semiconductor equipment supplier, from May 1995 to November 2000. He served in various capacities with Axcelis Technologies, most
recently as TPS Platform Manager, managing engineers for the thermal products platform including new product development and sustaining engineering.

Item 11. Executive Compensation

The information required by this item is incorporated herein by reference to the sections labeled "Executive Compensation" and "Election of Directors" in the
Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference to the section labeled "Principal Shareholders and Management Shareholdings" in the
Proxy Statement.

Item 13. Certain Relationships and Related Transactions

None

38

---

PART IV

ITEM 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K









39

---





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.

|                     |  | AUGUST TECHNOLOGY CORPORATION
|-------------------- |  | -----------------------------
|Date: March 15, 2001 |  | By:                          

In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.

Each
person whose signature appears below constitutes and appoints Jeff L. O'Dell and Thomas C. Velin as the undersigned's true and lawful attorneys-in fact and
agents, each acting alone, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any and all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granted unto said
attorney's-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

|Signature             |  | Title                                                                                      |  | Date          
|--------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------
|                      |  |                                                                                            |  |               
|/s/JEFF L. O'DELL     |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |  | March 15, 2001
|/s/THOMAS C. VELIN    |  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)     |  | March 15, 2001
|/s/THOMAS C. VERBURGT |  | Chief Technology Officer and Director                                                      |  | March 15, 2001
|/s/MARK R. HARLESS    |  | Chief Engineer and Director                                                                |  | March 15, 2001
|/s/JAMES A. BERNARDS  |  | Director                                                                                   |  | March 15, 2001
|/s/ROGER E. GOWER     |  | Director                                                                                   |  | March 15, 2001
|/s/BRAD D. SLYE       |  | Director                                                                                   |  | March 15, 2001
|/s/MICHAEL W. WRIGHT  |  | Director                                                                                   |  | March 15, 2001

40

---



INDEPENDENT AUDITORS' REPORT  ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Shareholders
August Technology Corporation:

Under
date of February 14, 2001, we reported on the balance sheets of August Technology Corporation as of December 31, 2000 and 1999, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, as included in August Technology Corporation's Annual Report
on Form 10-K for the year ended December 31, 2000. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement
schedule as listed in the accompanying index (see Item 14(a)(2)). This financial statement schedule is the responsibility of August Technology Corporation's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.

In
our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



Minneapolis,
Minnesota
February 14, 2001

41

---



Schedule II Valuation and Qualifying Accounts

VALUATION AND QUALIFYING ACCOUNTS  FOR THE THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

|Description                     |  | Date                         |  | Balance at
Beginning of
Period |        | Charged to
Costs and
Expenses |   | Charged to
Other
Accounts |  | Deductions |   | Balance at
End of
Period
|------------------------------- |  | ---------------------------- |  | ------------------------------ | ------ | ----------------------------- | - | ------------------------- |  | ---------- | - | ------------------------
|Allowance for doubtful accounts |  | Year ended December 31, 1998 |  | $                              | 5,000  |                               | $ | 10,000                    |  | $          |  |                         
|                                |  | Year ended December 31, 1999 |  |                                | 15,000 |                               |   | 30,715                    |  |            |  |                         
|                                |  | Year ended December 31, 2000 |  |                                | 45,000 |                               |   | 220,430                   |  |            |  |                         

---

42

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

EXHIBIT INDEX TO FORM 10-K

|For the fiscal year ended:
December 31, 2000 |  | Commission File No.: 000-30637
|-------------------------------------------- |  | ------------------------------

AUGUST TECHNOLOGY CORPORATION

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                                                                              
|3.2            |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                                                                                                 
|4.1            |  | Instruments defining the rights of security holders, including indentures (reference is made to Exhibits 3.1 and 3.2)                                                                                                                                                                                                                                         
|4.2            |  | Form of Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                                                                                                                  
|10.1           |  | 1997 Stock Option Plan, as amended and restated through April 26, 2000 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 2000)**                                                                                                                                                                      
|10.2           |  | International Distributor Agreement between the Company and Marubeni Solutions Corporation dated June 14, 1999 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                            
|10.3           |  | International Distributor Agreement between the Company and Metron Technology B.V. dated September 10, 1999 (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                               
|10.4           |  | International Distributor Agreement between the Company and Quasys AG dated September 23, 1996 (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                                            
|10.5           |  | International Distributor Agreement between the Company and Firfax Systems Ltd. dated September 3, 1996 (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                                                   
|10.6           |  | Executive Employment Contract between the Company and Thomas Velin, Chief Financial Officer, dated September 21, 1998 (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)**                                                                                                                   
|10.7           |  | Executive Employment Contract between the Company and Donald M. Nutzmann, Vice President, Engineering, dated August 19, 1999 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)
**                                                                                                           
|10.8           |  | Executive Employment Contract between the Company and Mayson Brooks, Vice President, Sales & Marketing, dated May 20, 1999 (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)
**                                                                                                             
|10.9           |  | Office Warehouse Lease Agreement between the Company and West 78th Street, Bloomington Associates, LLC, dated October 18, 1999 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                                                                                                            
|10.10          |  | Letter Agreement between the Company and Marquette Capital Bank, N.A., dated November 4, 1999, as amended by Amendment to Letter Agreement dated March 10, 2000, as further amended by Amendment to Letter Agreement dated March 16, 2000 (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)
|               |  |                                                                                                                                                                                                                                                                                                                                                               

43

---

|10.11  |  | Promissory Note between the Company and Marquette Capital Bank, N.A., dated November 4, 1999 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)      
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12  |  | Lease Agreement between the Company and Duke Realty Minnesota, LLC, dated August 18, 1998 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)         
|10.13  |  | Stock Purchase Warrant between the Company and III-D Capital, LLC, dated July 24, 1998 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)            
|10.14  |  | August Technology 2000 Annual Award Plan (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)**                                                        
|10.15  |  | OEM Agreement between the Company and Santok Software Solutions Inc., dated January 26, 2000 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)      
|10.16  |  | 1998 Board of Directors Compensation Plan, adopted by the Board of Directors on October 14, 1998 (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)**
|10.17  |  | August Technology 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)**                                             
|10.18  |  | Guaranty for the benefit of Marquette Capital Bank, N.A., dated November 4, 1999 (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1, Reg. No. 333-32692)                  
|10.19* |  | Executive Employment Agreement between the Company and John M. Vasuta, dated May 8, 2000**                                                                                                                             
|10.20* |  | Executive Employment Agreement between the Company and James K. Nurse, dated August 22, 2000**                                                                                                                         
|10.21* |  | Executive Employment Agreement between the Company and Albert A. Eliasen, dated October 27, 2000**                                                                                                                     
|10.22* |  | Amendments to the Lease Agreement between the Company and West 78th Street, Bloomington Associates, LLC, dated March 31, 2000 and July 25, 2000                                                                        
|10.23* |  | Amendment to Letter Agreement and Promissory Note between the Company and Marquette Capital Bank, N.A., dated August 10, 2000                                                                                          
|10.24* |  | August Technology 2001 Annual Incentive Plan**                                                                                                                                                                         
|21.1*  |  | Subsidiaries of the Company                                                                                                                                                                                            
|23.1*  |  | Independent Auditors' Consent                                                                                                                                                                                          

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44

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