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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

# FORM 10-Q

(Check One)

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

For the quarterly period ended June 30, 2005

# oTRANSITION PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT

For the transition period from ______ to ______

COMMISSION FILE NO. (0-16577)

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

|Minnesota                                                     | 41-1472057                         
|------------------------------------------------------------- | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.)
|                                                             
|5900 Golden Hills DriveMINNEAPOLIS, MINNESOTA                 | 55416                              
|(Address of principal executive offices)                      | (Zip Code)                         

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

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 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.  Yesx
Noo

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yesx
Noo

Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.

At August 5, 2005, there were 8,903,409 shares of the registrants
Common Stock, no par value, issued and outstanding.

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# PART I.   FINANCIAL INFORMATION

# ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

# CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION

|(In thousands)                                                                   |  | June 30,2005 |   | December 31,2004
|-------------------------------------------------------------------------------- |  | ------------ | - | ----------------
|
|ASSETS                                                                           |  |              |   |                 
|                                                                                
|Cash and cash equivalents                                                        |  |              | $ | 23,335          
|Marketable securities                                                            |  |              |   | 11,766          
|Accounts receivable, net                                                         |  |              |   | 5,335           
|Inventories                                                                      |  |              |   | 7,630           
|Other current assets                                                             |  |              |   | 513             
|                                                                                 |  |              |   |                 
|Total current assets                                                             |  |              |   | 48,579          
|                                                                                
|Marketable securities                                                            |  |              |   | 7,257           
|Equipment and leasehold improvements, net                                        |  |              |   | 986             
|Intangible and other assets, net                                                 |  |              |   | 2,171           
|Goodwill, net                                                                    |  |              |   | 5,840           
|                                                                                 |  |              |   |                 
|Total assets                                                                     |  |              | $ | 64,833          
|                                                                                 |  |              |   |                 
|                                                                                
|LIABILITIES AND STOCKHOLDERS EQUITY                                            
|                                                                                
|Accounts payable                                                                 |  |              | $ | 1,867           
|Advance customer payments                                                        |  |              |   | 367             
|Accrued expenses                                                                 |  |              |   | 3,407           
|                                                                                 |  |              |   |                 
|Total current liabilities                                                        |  |              |   | 5,641           
|                                                                                
|Commitments                                                                      |  |             
|                                                                                
|Stockholders equity:                                                           
|Preferred stock, no par value, 5,000 shares authorized, none outstanding         |  |              |   |                
|Common stock, no par value, 37,500 authorized, 8,855 and 8,847 shares issued and
|outstanding, respectively                                                        |  |              |   | 48,180          
|Accumulated other comprehensive loss                                             |  |              |   | (699            
|Retained earnings                                                                |  |              |   | 11,711          
|                                                                                 |  |              |   |                 
|                                                                                
|Total stockholders equity                                                       |  |              |   | 59,192          
|                                                                                 |  |              |   |                 
|                                                                                
|Total liabilities and stockholders equity                                       |  |              | $ | 64,833          
|                                                                                 |  |              |   |                 

# SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

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# CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION
(Unaudited)

|                                              | Three Months Ended June 30,
|--------------------------------------------- | ---------------------------
|
|Revenues                                      |                            
|Cost of revenues                              |                            
|                                              |                            
|                                             
|Gross profit                                  |                            
|                                             
|Research and development expenses             |                            
|Selling, general and administrative expenses  |                            
|Restructuring and severance costs             |                            
|Amortization of intangibles                   |                            
|                                              |                            
|                                             
|Income from operations                        |                            
|                                             
|Interest income and other                     |                            
|                                              |                            
|                                             
|Income before income taxes                    |                            
|                                             
|Income tax provision                          |                            
|                                              |                            
|                                             
|Net income                                    |                            
|                                              |                            
|                                             
|Net income per share  Basic                  |                            
|Net income per share  Diluted                |                            
|                                              |                            
|                                             
|Weighted average shares outstanding  Basic   |                            
|Weighted average shares outstanding  Diluted |                            
|                                              |                            
|                                             
|                                             
|
|
|Revenues                                      |                            
|Cost of revenues                              |                            
|                                              |                            
|                                             
|Gross profit                                  |                            
|                                             
|Research and development expenses             |                            
|Selling, general and administrative expenses  |                            
|Restructuring and severance costs             |                            
|Amortization of intangibles                   |                            
|                                              |                            
|                                             
|Income from operations                        |                            
|                                             
|Interest income and other                     |                            
|                                              |                            
|                                             
|Income before income taxes                    |                            
|                                             
|Income tax provision                          |                            
|                                              |                            
|                                             
|Net income                                    |                            
|                                              |                            
|                                             
|Net income per share  Basic                  |                            
|Net income per share  Diluted                |                            
|                                              |                            
|                                             
|Weighted average shares outstanding  Basic   |                            
|Weighted average shares outstanding  Diluted |                            
|                                              |                            

# SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

2

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# CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(Unaudited)

|                                                                                         | Six Months Ended June 30,
|---------------------------------------------------------------------------------------- | -------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                          
|Net income                                                                               |                          
|Adjustments to reconcile net income to net cash provided (used) by operating activities:
|Depreciation and amortization                                                            |                          
|Provision for doubtful accounts                                                          |                          
|Provision for inventory obsolescence                                                     |                          
|Deferred income taxes                                                                    |                          
|Changes in operating assets and liabilities:                                             |                          
|Accounts receivable                                                                      |                          
|Inventories                                                                              |                          
|Other current assets                                                                     |                          
|Accounts payable                                                                         |                          
|Advance customer payments                                                                |                          
|Accrued expenses                                                                         |                          
|                                                                                         |                          
|Net cash provided by operating activities                                                |                          
|                                                                                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                          
|Proceeds from sales of available for sale marketable securities                          |                          
|Purchases of available for sale marketable securities                                    |                          
|Additions to equipment and leasehold improvements                                        |                          
|Additions to patents                                                                     |                          
|                                                                                         |                          
|Net cash used by investing activities                                                    |                          
|                                                                                        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |                          
|Proceeds from exercise of stock options                                                  |                          
|Repurchase of common stock                                                               |                          
|                                                                                         |                          
|Net cash provided (used) by financing activities                                         |                          
|                                                                                        
|Net increase (decrease) in cash and cash equivalents                                     |                          
|                                                                                        
|Cash and cash equivalents  beginning of period                                          |                          
|                                                                                         |                          
|                                                                                        
|Cash and cash equivalents  end of period                                                |                          
|                                                                                         |                          

# SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

3

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

1.    INTERIM REPORTING:

The interim consolidated financial statements presented herein as of June 30,
2005, and for the six and three month periods ended June 30, 2005 and 2004, are unaudited, but in the opinion of our management,
include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented.

The results of operations for the six and three month periods ended June 30,
2005, do not necessarily indicate the results to be expected for the full year. The December 31, 2004, consolidated balance sheet
data was derived from audited consolidated financial statements, but does not include all disclosures required by generally
accepted accounting principles. These unaudited interim consolidated financial statements should be read in conjunction with our
consolidated financial statements and notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31,
2004.

2.    ACCOUNTING FOR STOCK-BASED COMPENSATION:

In December 2002, the Financial Accounting Standards Board issued SFAS No.
148 Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123". We have adopted the disclosure requirements of SFAS No. 148 in these notes to the consolidated financial statements.

As permitted by SFAS No. 123, Accounting for Stock Based
Compensation, we continue to measure compensation cost for our stock incentive and option plans using the intrinsic value
method of accounting prescribed by APB Opinion No. 25. Had we used the fair value method of accounting for our stock option and
incentive plans and charged compensation costs against income over the vesting period, net income and net income per share for the
three and six month periods ended June 30, 2005 and 2004 would have been reduced to the following pro forma amounts:

|                                           | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|------------------------------------------ | -------------------------- |  | ------------------------
|
|Net income as reported                     |                            |  | $                       
|Add: Stock-based compensation expense      |                            | 
|included in net income, net of related tax |                            | 
|effects                                    |                            |  |                         
|                                          
|Deduct: Total stock-based compensation    
|expense determined under fair value, net  
|of related tax effects                     |                            |  |                         
|                                           |                            |  |                         
|                                          
|Net income  Pro forma                     |                            |  | $                       
|                                           |                            |  |                         
|                                          
|Net income (loss) per share:              
|As reported  Basic                        |                            |  | $                       
|Pro forma  Basic                          |                            |  | $                       
|                                          
|As reported  Diluted                      |                            |  | $                       
|Pro forma  Diluted                        |                            |  | $                       

No tax benefit provision was applied to the fair value expense calculated
under SFAS No. 123 due to establishing a valuation allowance on deferred tax assets during 2002. The assumptions used to calculate
the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our experience.

4

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3.    CERTAIN BALANCE SHEET COMPONENTS:

# Inventories

Inventories consist of the following:

|(In thousands)                    |  | June 30,2005 |   | December 31,2004
|--------------------------------- |  | ------------ | - | ----------------
|Raw materials and purchased parts |  |              | $ | 4,417           
|Work in process                   |  |              |   | 1,006           
|Finished goods                    |  |              |   | 3,208           
|                                  |  |              |   |                 
|                                  |  |              |   | 8,631           
|                                 
|Allowance for obsolescence        |  |              |   | (1,001          
|                                  |  |              |   |                 
|                                 
|Total inventories                 |  |              | $ | 7,630           
|                                  |  |              |   |                 

# Warranty

We provide for the estimated cost of product warranties at the time revenue
is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating
the quality of component suppliers, warranty obligations are affected by product failure rates, material usage and service
delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery
costs differ from our estimates, revisions to the estimated warranty liability would be required. At the end of each reporting
period we revise our estimated warranty liability based on these factors. Our warranty liability is recorded in accrued expenses
on our consolidated balance sheet, and a reconciliation of the changes in our estimated warranty liability is as follows:

|                                   | Six Months Ended June 30,
|---------------------------------- | -------------------------
|
|Balance at the beginning of period |                          
|Accruals for Warranties            |                          
|Settlements made during the period |                          
|                                   |                          
|                                  
|Balance at the end of period       |                          
|                                   |                          

4.     INTANGIBLE ASSETS:

Intangible and other assets include the following:

|                       | As of June 30, 2005 |  | As of December 31, 2004
|---------------------- | ------------------- |  | -----------------------
|
|Developed technology   |                     |  | $                      
|Patents and trademarks |                     |  |                        
|Customer base          |                     |  |                        
|                       |                     |  |                        
|                      
|Total                  |                     |  | $                      
|                       |                     |  |                        

5

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Amortization expense for the three and six month periods ended June 30, 2005
and 2004 are as follows:

|                       | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|---------------------- | -------------------------- |  | ------------------------
|
|Developed technology   |                            |  | $                       
|Patents and trademarks |                            |  |                         
|Customer base          |                            |  |                         
|                       |                            |  |                         
|                      
|Total                  |                            |  | $                       
|                       |                            |  |                         

As required by SFAS 142, we
periodically reassess the carrying value, useful lives and classification of identifiable intangible assets. Estimated aggregate
amortization expense based on current intangibles for the next five years is expected to be as follows: $1.0 million in 2005, $0.7
million in 2006, $0.2 million in 2007 and, $0.2 million in 2008 and 2009.

At June 30, 2005 and December 31, 2004 we had net goodwill of $5.8 million
and $6.1 million, respectively. Goodwill decreased by $199,000 during the first six months of 2005 as the result of the
translation impact on foreign denominated goodwill balances and by $80,000 from utilization of pre-acquisition operating loss
carryforwards of CyberOptics UK, Ltd.

5.    GEOGRAPHIC REVENUE INFORMATION:

Export sales for the three months ended June 30, 2005 and the three months
ended June 30, 2004 amounted to 81% and 84% of revenues, respectively. For the six months ended June 30, 2005 and the six months
ended June 30, 2004, export sales amounted to 78% and 82% of revenues. All of our export sales are negotiated, invoiced and paid
in U.S. dollars. Export sales by geographic area are summarized as follows:

|                   | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|------------------ | -------------------------- |  | ------------------------
|
|Americas           |                            |  | $                       
|Europe             |                            |  |                         
|Asia               |                            |  |                         
|Other              |                            |  |                         
|                   |                            |  |                         
|                  
|Total export sales |                            |  | $                       
|                   |                            |  |                         

6.    NET INCOME PER SHARE:

Basic net income per share has been computed using the weighted average
number of shares outstanding during the period presented. The diluted net income per share includes the effect of common stock
equivalents, consisting of common shares issuable upon exercise of stock options, for each period. The number of shares utilized
in the denominator of the diluted net income per share computation has been increased from the number of shares used in computing
basic net income per share by 121,000 and 135,000 equivalent shares for the three and six month periods ended June 30, 2005 and by
516,000 and 477,000 for the three and six month periods ended June 30, 2004. Weighted average shares for which the option price
exceeded the average market price were 314,000 and 316,000 for the three and six month periods ended June 30, 2005. Weighted
average shares for which the option price exceeded the average market price were 175,000 and 187,000 for the three and six month
periods ended June 30, 2004.

6

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7.    COMPREHENSIVE INCOME:

Components of comprehensive income include unrealized gains and losses on our
available-for-sale marketable securities and the cumulative affect of foreign currency translation adjustments. During the three
and six month periods ended June 30, 2005, comprehensive income totaled $239,000 and $1,300,000, respectively. During the three
and six month periods ended June 30, 2004, comprehensive income amounted to $3,338,000 and $5,976,000, respectively. At December
31, 2004 and June 30, 2005, components of accumulated other comprehensive loss are as follows:

|(In thousands)            |  | ForeignCurrencyTranslation |   | UnrealizedGains(losses) onSecurities |   | AccumulatedOtherComprehensiveIncome
|------------------------- |  | -------------------------- | - | ------------------------------------ | - | -----------------------------------
|Balance December 31, 2004 |  |                            | $ | (576                                 | ) | $                                  
|Current Year Change       |  |                            |   | (24                                  | ) |                                    
|                          |  |                            |   |                                      |   |                                    
|                         
|Balance June 30, 2005     |  |                            | $ | (600                                 | ) | $                                  
|                          |  |                            |   |                                      |   |                                    

8.    INCOME TAXES:

During the third quarter of 2002 we concluded that a full valuation allowance
against our deferred tax assets was appropriate due to the cumulative U.S. losses we had incurred over the prior three years,
continued operating losses and full utilization of our loss carryback potential in 2002. A deferred tax asset generally represents
a future tax benefit to be received when certain expenses and losses previously recognized in our U.S. GAAP-based financial
statements become deductible under applicable income tax laws. Consequently, realization of a deferred tax asset is dependent on
future taxable income against which these deductions can be applied. Since the third quarter of fiscal 2002, we have continued to
provide a full valuation allowance against future tax benefits produced by our U.S. based operating results. We will continue to
assess carrying or eliminating the full valuation allowance on U.S. based deferred tax assets on a quarterly basis during 2005.
Release of the full valuation allowance would result in the recognition of a significant deferred tax benefit.

During the six month period ended June 30, 2004, U.S. based operating results
were not taxed due to the valuation allowance on deferred tax assets, and tax expense of $50,000 was recorded in the first six
months of 2004 related to income generated by foreign subsidiaries. During the six month period ended June 30, 2005 we recorded a
tax provision at an estimated annual effective rate of approximately 24% because we have now utilized tax operating loss and tax
credit carryforwards and have begun to again pay income taxes. Because we continue to maintain a valuation allowance on deferred
tax assets, estimated 2005 income tax requirements are reflected in our annual expected tax rate.

9.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

We enter into foreign currency swap agreements to hedge short term
inter-company financing transactions with our subsidiary in the United Kingdom. These currency swap agreements are structured to
mature on the last day of each quarter and are designated as cash flow hedges. At June 30, 2005, we had one open swap agreement
that was purchased on that date. As a result, there were no material unrealized gains or losses as of June 30, 2005. During the
six months ended June 30, 2005 we recognized a net gain of approximately $146,000 from the settlement of foreign currency swap
agreements which partially offset the approximately $210,000 translation loss on the underlying inter-company balance.

Our foreign currency swap agreements contain credit risk to the extent that
our bank counter-parties may be unable to meet the terms of the agreements. We minimize such risk by limiting our counter-parties
to major financial institutions. We do not expect material losses as a result of defaults by other parties.

10.    RESTRUCTURING AND SEVERANCE:

During 2003 and 2004 we implemented a series of workforce reductions, closed
our facilities in California, downsized other facilities and made other reductions in discretionary spending designed to reduce
our overall fixed cost structure. The following table reports the activity and ending balance related to accruals established for
these restructuring actions.

7

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|(In thousands)                             |  | EmployeeTerminationBenefits |   | LeaseCommitmentCosts |   | Other |      | Total
|------------------------------------------ |  | --------------------------- | - | -------------------- | - | ----- | ---- | -----
|Restructuring liability, December 31, 2003 |  |                             | $ | 180                  |   | $     | 372  |      
|Change in estimate                         |  |                             |   |                     |   |       | 169  |      
|Cash payments                              |  |                             |   | (180                 | ) |       | (236 | )    
|                                           |  |                             |   |                      |   |       |      |      
|                                          
|Restructuring liability, December 31, 2004 |  |                             |   |                     |   |       | 305  |      
|Initial expense and accrual                |  |                             |   |                     |   |       |     |      
|Cash payments                              |  |                             |   |                     |   |       | (111 | )    
|                                           |  |                             |   |                      |   |       |      |      
|                                          
|Restructuring liability, June 30, 2005     |  |                             | $ |                     |   | $     | 194  |      

Cash payments for lease termination costs are expected to be made through the
term of our lease, which expires in May 2006.

11.    RECENT ACCOUNTING DEVELOPMENTS:

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No.
123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on
the date of grant, and to be expensed over the applicable vesting period. Originally, SFAS No. 123(R) was effective for all
stock-based awards granted beginning with the first interim period after June 15, 2005. On April 14, 2005, the Securities and
Exchange Commission (SEC) approved a new rule that changed the effective date of SFAS No. 123(R) for public companies to annual,
rather than interim periods that begin after June 15, 2005. The standard may be adopted under either the modified prospective
method or alternative methods, which allow for restatement of prior interim periods or prior years. We are currently evaluating
how we will adopt the standard and the impact of adopting SFAS No. 123(R), which may be material in future periods, to our
financial position and results of operations.

In November 2004, The FASB issued Statement of Financial Accounting Standards
No. 151 (SFAS 151), Inventory Cost  and amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses,
freight, handling costs, and wasted material spoilage costs to be recognized as current-period charges. It also requires that
allocations of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities.
SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently
evaluating the impact of adopting the standard on our financial position and results of operations.

8

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# ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

# CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS:

The following managements discussion and analysis describes factors
that have affected our results and financial position during the periods included in the accompanying financial statements or that
could have an impact on future results. You should read this section with our Annual Report on Form 10-K for the year ended
December 31, 2004 and our interim consolidated financial statements and associated notes.

We make forward looking statements in this section that represent
our expectations or beliefs about future events, including statements regarding trends in the industries in which we function,
levels of orders, research and development expenses, taxation levels, the sufficiency of cash to meet operating and capital
expenses and our ability to continue to price foreign transactions in U.S. currency. Our actual results may vary from these
expectations because of a number of factors that affect our business, the most important of which include the following:

| |  | We operate in the electronics capital equipment
market which is cyclical in nature. We are unable to accurately predict the timing of periodic downturns in this market. These
downturns, as evidenced by the extreme downturn in electronics production markets from 2001 through 2003, severely and adversely
affected the profitability of our operations. We may be unable to anticipate changes in these markets before they affect our
operations in the future.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our operations and markets could be negatively
affected by world events that effect economies and commerce in countries, such as China and Japan, in which we do business.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We remain dependent on two original equipment
manufacturer customers for a large portion of our revenue (approximately 43% and 44% of revenue in the three and six months ended
June 30, 2005 and 50% of revenues in fiscal 2004). If these customers are unsuccessful selling the products into which our sensors
are incorporated, design their products to function without our sensors, purchase sensors from other suppliers, or otherwise
terminate their relationships with us, our results of operations would be significantly negatively affected.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | During 2004, approximately 26% of our total revenue
(24% in the six months ended June 30, 2005) was generated by sales of a single SMT Systems product line, the SE 300. If we
are not successful in continuing to sell and differentiate this product line relative to our competition, our results of
operations would be negatively affected.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We generate more than half of our revenue
(approximately 78% in the six months ended June 30, 2005 and approximately 81% in fiscal 2004) from export sales. Our export sales
are subject to many of the risks of international operations, including changes in economic and business climate in foreign
countries that affect the business health of our customers, changes in exchange rates that affect the willingness of customers to
purchase our products, different laws that may affect our ability to protect our intellectual property, and the expense of
long-distance commerce.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | All of our international export sales are
negotiated, invoiced and paid in U.S. dollars, and accordingly, currency fluctuations do not significantly affect our revenue and
income per unit. However, significant fluctuations in the value of the U.S. dollar relative to other currencies could have an
impact on the price competitiveness of our products relative to foreign suppliers, which could impact the willingness of customers
to purchase our products and have an impact on our results of operations.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our current products, as well as the products we
have under development, are designed to operate with the technology we believe currently exists or may exist for electronic
components and printed circuit boards. The technology for these components changes rapidly and if we incorrectly anticipate
technology developments, or have inadequate resources to develop our products to deal with changes in technology, our products
could become obsolete.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our electronic assembly sensor products compete with
products made by larger machine vision companies, other optical sensor companies, and by solutions internally developed by our
customers.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The electronics capital equipment market for surface
mount technologies is becoming more mature, resulting in increased price pressure on suppliers of equipment. Consequently, our
electronic assembly system and sensor products have become subject to increased levels of price competition and competition from
other suppliers and technologies.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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| |  | We use a different distribution network to sell our
end-user systems products, such as the SE 300, and generate lower margins from these products, than the distribution system and
margins from our electronic assembly sensor and semiconductor products. To the extent our end-user systems constitute a larger
portion of our business, our profitability may be affected.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We compete with large multinational systems
companies in sales of end-user systems products, many of which are able to take advantage of greater financial resources and
larger sales distribution networks. We also compete with new Asian based suppliers of end-user systems products, many of which
have lower overall production costs and are willing to offer their products at lower selling prices to customers.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We compete in large part based on the technology we
have developed and our success will depend in part on how successful we are in protecting that technology and enforcing our
technology rights in the United States and other countries.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We use outside contractors to manufacture the
components used in many of our products and some of the components we order require significant lead times that could effect our
ability to sell our products if not available. In addition, if these components do not meet stringent quality requirements or
become subject to obsolescence, there could be delays in product availability, and we could be required to make significant
investments in designing replacement components.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | New regulations have been enacted in various
countries requiring the reduction of hazardous substances in electronics products and capital equipment in future years. When
effective, these regulations will impact production processes of our customers and require us to incorporate lead-free components
into our products. If the production processes or our customers are interrupted, or we are not able to complete the transition to
lead-free components in our products by the effective date of these regulations, our results of operations could be negatively
affected.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We plan to continue to introduce a number of new
products during fiscal 2005 and if those introductions are delayed, our revenue and profitability could be negatively affected.
For example, we have devoted and continue to devote significant resources to complete development and commence sale of our
embedded process verification (EPV) products. The introduction of these products has been delayed because of economic conditions
affecting our customers, required adaptations for OEM requirements and other issues and these products have yet to generate
substantial commercial sales.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our ability to capture, process and report
transactions in a timely and accurate manner in compliance with accounting principles generally accepted in the United States is
dependant upon the operation of our internal controls over financial reporting. Although we believe our controls, policies,
practices and systems are adequate to ensure the integrity of our financial reporting, unanticipated and unauthorized actions of
employees (both domestic and internationally), temporary lapses in internal controls due to shortfalls in transition planning and
oversight, or resource constraints could lead to improprieties and undetected errors that could impact our financial condition or
results of operations.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The preparation of the financial information contained in this 10-Q requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate these estimates on an ongoing basis, including those related to
allowances for doubtful accounts, for warranty expense, and for obsolete inventory, the carrying value and any impairment of
intangible assets, and the valuation allowance for deferred tax assets. These critical accounting policies are discussed in more
detail in the Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Form
10-K for the year ended December 31, 2004.

10

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# RESULTS OF OPERATIONS:

# General

Our results of operations in the three and six months ended June 30, 2005
reflect the relatively weak global market conditions for electronics and semiconductor capital equipment that began during the
third and fourth quarters of 2004. Overall, our revenues decreased 43% in the quarter ended June 30, 2005 compared to the same
quarter in 2004, and were down 28% in the first six months of 2005 compared to the same period in 2004. Our earnings decreased to
$202,000 in the quarter ended June 30, 2005 from $3.5 million during the comparable quarter in 2004, and decreased to $1.3 million
in the first six months of 2005 compared to $6.2 million in the first six months of 2004. Our ability to remain profitable during
this period of declining revenues is primarily the result of our streamlined cost structure established through several workforce
reductions and restructuring over the past few years, and funded development received from one of our OEM customers for
development of a sensor for their next generation of pick-and-place machines.

Order rates and revenues in the second quarter of 2005 were negatively
impacted by lower solder paste inspection system sales, primarily due to the timing of release of the new SE 300 Ultra product.
This new product has been well-received by initial customers, but due to the introduction date being late in the second quarter,
the majority of customers were not able to evaluate the system and place orders during the second quarter ended June 30, 2005. As
of June 30, 2005, we have received orders for approximately $750,000 of Ultra revenue expected to be recognized in the third
quarter, and we anticipate increased levels of SMT systems orders and revenue during the third quarter of 2005 compared to the
second quarter of 2005 due to the SE 300 Ultra product. Second quarter 2005 revenue was also negatively impacted by an order
slowdown from one of our significant OEM sensor customers due primarily to an inventory build-up during the market slowdown late
in 2004. While this inventory at our customer has been reduced, we do not anticipate revenue levels from this customer in the
third quarter of 2005 to return to the levels achieved in the second half of 2004.

# Revenues

The following table sets forth revenues by product line for the periods
indicated (in thousands):

|                                  | Three Months EndedJune 30, |  | Six Months EndedJune 30,
|--------------------------------- | -------------------------- |  | ------------------------
|
|OEM Solutions:                    |                            |  |                         
|Electronic Assembly Sensors (EAS) |                            |  | $                       
|Semiconductor Products            |                            |  |                         
|SMT Systems                       |                            |  |                         
|                                  |                            |  |                         
|                                 
|Total                             |                            |  | $                       
|                                  |                            |  |                         

Our revenues from EAS products decreased 41% during the six months ended June
30, 2005 from the six months ended June 30, 2004 and decreased 55% during the three months ended June 30, 2005 from the three
months ended June 30, 2004. These decreased revenues reflect reduced order rates from our two largest EAS customers. During the
three and six month periods ended June 30, 2005, revenues from EAS products, primarily LaserAlign sensors, were negatively
impacted by soft market conditions in the worldwide market for SMT capital equipment and increased levels of sensor inventory at
our customers during the market slowdown that began in the second half of 2004. Our two largest EAS customers accounted for
approximately 44% of total revenues in the six months ended June 30, 2005, and approximately 53% of revenues for the comparable
period in 2004. These customers accounted for approximately 43% of revenues in the second quarter of 2005, compared to
approximately 56% of revenues in the second quarter of 2004.

Our revenues from sales of semiconductor product decreased 28% during the six
months ended June 30, 2005 from the six months ended June 30, 2004 and decreased 30% during the three months ended June 30, 2005
from the three months ended June 30, 2004. Decreased revenue during the three and six month periods of 2005 compared to the same
period in 2004 is primarily due to weakened market conditions in the semiconductor capital equipment market, which began in late
2004. This trend is consistent with the overall electronics capital equipment market and resulted in reduced sales of our wafer
mapping products, which represented approximately 47% and 51% of semiconductor product revenues during the six months ended June
30, 2005 and 2004, and approximately 49% and 50% of semiconductor revenues during the three months ended June 30, 2005 and 2004,
respectively.

11

---

Our revenues from sales of end-user systems decreased 1% during the six
months ended June 30, 2005 from the six months ended June 30, 2004 and decreased 24% during the three months ended June 30, 2005
from the three months ended June 30, 2004. Decreased revenues in 2005 are primarily the result of introducing the new SE 300 Ultra
solder paste inspection product late in the second quarter of 2005, which resulted in customers delaying orders until they could
evaluate the new product. We continue to have success in selling inspection systems to a growing number of large manufacturers of
circuit boards and memory modules, particularly in Asia. A large portion of the worldwide production capacity for printed circuit
boards is being added in China, and we have been successful in selling inspection systems to new and existing customers in that
region. Partially offsetting reduced revenue from the SE 300 product line was increased revenue from our KS Automated Optical
Inspection (AOI) systems which increased 170% during the six months ended June 30, 2005 compared to the same period in 2004.

International revenues comprised approximately 78% and 82% of total revenues
during the six month periods ended June 30, 2005 and 2004, respectively, and approximately 81% and 84% of revenues during the
three month periods ended June 30, 2005 and 2004, respectively. The international markets in Asia, Japan and Europe account for a
significant portion of the capital equipment market for the manufacture of electronics, the primary market for our EAS sensors and
End-User systems product lines. Revenues generated from products used primarily for SMT electronic assembly production (revenues
from OEM sensors and End-User systems) were approximately 86% of revenues for both the six month periods ended June 30, 2005 and
2004.

# Gross Profit

Gross profit for the six months ended June 30, 2005 decreased as a percentage
of revenues to 57%, compared to 60% during the six months ended June 30, 2004. For the three months ended June 30, 2005, gross
profit decreased to 58% of revenues compared to 61% during the three months ended June 30, 2004. The decrease in gross profit as a
percentage of revenues during the three and six month periods ended June 30, 2005 from the comparable periods in 2004 is primarily
due to a higher proportion of SMT systems revenue during 2005, which carries a lower gross margin percentage than our sensor
products, and lower production volumes due to reduced revenue levels. In addition there continues to be increased price pressure
on all on products sold into the SMT electronics assembly production market, particularly in the growing Asian markets, negatively
impacting our gross margins. We expect gross profit as a percentage of revenue to decrease somewhat in the third quarter of 2005,
as SMT systems revenues become a larger proportion of revenues, primarily due to introduction of the SE 300 Ultra product.

# Research and Development

Research and development expenses decreased 8% to $3.4 million during the six
months ended June 30, 2005 from the six months ended June 30, 2004 and decreased 13% to $1.7 million in the three months ended
June 30, 2005 from the three months ended June 30, 2004. As a percentage of revenue, research and development expenses increased
to 17% during the six months ended June 30, 2005 from 14% during the comparable period in 2004 and increased to 20% in the second
quarter of 2005 compared to 13% in the same period in 2004. Customer funded research and development is recognized as a reduction
of research and development expense. During the six months ended June 30, 2005 there was $475,000 of customer funded research and
development recognized as a reduction of research and development expense compared to $90,000 during the comparable period in
2004. During the three months ended June 30, 2005, there was $375,000 of customer funded research and development recognized
compared to $90,000 in the comparable period in 2004. We expect research and development expenses to increase by approximately 15%
to 20% in the third quarter of 2005 as compared to the levels recorded in the second quarter of 2005, due primarily to an
anticipated decrease in funded development and increased spending on contract labor to accelerate the completion of important
product development initiatives.

Research and development expenses during the three and six month periods
ended June 30, 2005 were primarily focused on development activities for completion of the SE 300 Ultra, the new Embedded Process
Verification sensor family (EPV), a fiducial camera for a new OEM customer, other development activities for the SE and KS series
inspection systems, next generation LaserAlign products and re-designing new and existing products to comply with new regulations
related to hazardous waste. In addition, we are continuing development of new products for the Semiconductor market, and are
completing development of the recently introduced WaferSense auto leveling sensor (ALS).

12

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# Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 1% to $6.1 million
during the six month period ended June 30, 2005 compared to the six months ended June 30, 2004, and decreased 9% to $3.0 million
during the three months ended June 30, 2005 from the three months ended June 30, 2004. As a percentage of revenue, selling,
general and administrative expenses increased to 31% during the six month period ended June 30, 2005 from 22% in 2004, and for the
second quarter increased to 35% in 2005 from 22% in 2004. The increase in selling, general and administrative expense in the six
months ended June 30, 2005 compared to the six months ended June 30, 2004 is primarily the result of additional investments in
sales and marketing, including increased investment in Asia and promotional costs associated with new product introductions, and
increased corporate governance costs, including costs associated with implementing an internal control framework in accordance
with section 404 of the Sarbanes Oxley Act of 2002. These increases were offset somewhat by reduced expense for variable
compensation due to declining sales and profits. Reduced selling, general and administrative expense in the second quarter of 2005
compared to the second quarter of 2004, is primarily due to reduced variable costs, including sales commissions and variable
compensation, associated with reduced levels of sales and profits. We anticipate selling, general and administrative costs in the
third quarter of 2005 to be at or slightly above the levels recorded in the three months ended June 30, 2005, primarily due to
increased variable sales costs resulting from expected increased revenue levels.

# Amortization of Intangible Assets

Amortization of acquired intangible assets was $414,000 for the six month
period ended June 30, 2005 compared to $457,000 during the six months ended June 30, 2004. During the three month period ended
June 30, 2005 amortization of intangibles was $207,000 compared to $227,000 during the three month period ended June 30, 2004. The
decrease in amortization during the three and six month periods ended June 30, 2005 compared to the same period in 2004 is
primarily due to certain acquired intangible assets becoming fully amortized in 2004. Total amortization of intangible assets is
expected to be approximately $1.0 million in 2005.

# Interest and Other

Interest income and other primarily includes interest earned on investments.
Interest income increased during the three and six month periods ended June 30, 2005 compared to the same period in 2004 primarily
as a result of increased cash and investment balances due to cash generated in 2004 and 2005 and to increased interest rates on
invested funds.

# Provision for Income Taxes and Effective Income Tax Rate

During the third quarter of 2002 we concluded that a full valuation allowance
against our deferred tax assets was appropriate due to the cumulative U.S. losses we had incurred over the prior three years,
continued operating losses and full utilization of our loss carryback potential in 2002. A deferred tax asset generally represents
future tax benefit to be received when certain expenses and losses previously recognized in our U.S. GAAP-based financial
statements become deductible under applicable income tax laws. Consequently, realization of a deferred tax asset is dependent on
future taxable income against which these deductions can be applied. Since the third quarter of fiscal 2002, we have continued to
provide a full valuation allowance against future tax benefits produced by our U.S. based operating results. We will continue to
assess carrying or eliminating the full valuation allowance on U.S. based deferred tax assets on a quarterly basis during 2005.
Release of the full valuation allowance would result in the recognition of a significant deferred tax benefit.

During the six month period ended June 30, 2004 U.S. based operating results
were not taxed due to the valuation allowance on deferred tax assets, and tax expense of $50,000 was recorded in the first six
months of 2004 related to income generated by foreign subsidiaries. During the six month period ended June 30, 2005 we recorded a
tax provision at an estimated annual effective rate of approximately 24% because we have now utilized tax operating loss and tax
credit carryforwards and have begun to again pay income taxes. Because we continue to maintain a valuation allowance on deferred
tax assets, estimated 2005 income tax requirements are reflected in our annual expected tax rate.

# Order Rate and Backlog

Our orders totaled $20.9 million during the six month period ended June 30,
2005 compared to $28.9 million during the six month period ended June 30, 2004. For the three month period ended June 30, 2005,
orders totaled $9.7 million compared to $15.2 million during the three month period ended June 30, 2004. Backlog totaled $4.8
million and $8.1 million at June 30, 2005 and 2004, respectively. The scheduled shipment (or revenue for systems recognized upon
acceptance) of the June 30, 2005 backlog is as follows (in thousands):

|(In thousands)            
|--------------------------
|3rd Quarter 2005          
|4th Quarter 2005 and after
|                          
|Total backlog             

13

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# LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents decreased by $2.1 million during the six month
period ended June 30, 2005, primarily because of purchases of $4.2 million of marketable securities, net of maturities of
marketable securities, the purchase of $414,000 of capital assets, and the repurchase of $252,000 of our common stock, offset by
approximately $2.5 million of cash generated from operating activities and $193,000 of cash generated from the exercise of stock
options. Our cash and cash equivalents fluctuate in part because of maturities of marketable securities and investment of cash
balances resulting from those maturities, or from other sources of cash, in addition to marketable securities. Accordingly, we
believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity. Our
combined balances of cash and marketable securities increased $2.1 million to $42.4 million as of June 30, 2005 from $40.3 million
as of December 31, 2004.

We generated $2.5 million of cash from operations during the six months ended
June 30, 2005. Cash generated from operations primarily included net income of $1.3 million, which included $1.1 million of net
non-cash expenses for depreciation and amortization, provision for inventory obsolescence and other non-cash items, decreased
accounts receivable and other current assets of $2.2 million and increased accounts payable of $324,000. This cash generated more
than offset increases in inventory of $657,000, reductions in accrued expenses of $1.8 million and advance customer payments of
$62,000. Decreased accounts receivable are the result of reduced revenue levels in the second quarter of 2005 and increased
accounts payable is primarily the result of increased inventory purchases and the timing of vendor payments. The reduction in
accrued expenses is primarily the result of 2004 bonus payments made during 2005, and increased inventory investments are due to
new product introductions and significantly reduced revenues and order rates during the second quarter of 2005. During the six
months ended June 30, 2004, we generated $4.4 million of cash from operations. Cash generated primarily included net income of
$6.2 million, which included $1.3 million of non-cash expenses, and increases in accrued expenses and advance customer payments of
$1.8 million. This cash generated more than offset investments in accounts receivable and other assets of $2.7 million, inventory
of $1.6 million, decreased accounts payable of $594,000.

We used $4.6 million of cash in investing activities during the six months
ended June 30, 2005 compared to $1.9 million during the same period in 2004. Changes in the level of investment in marketable
securities resulting from the purchases and maturities of those securities used $4.2 million of cash in 2005 and used $1.7 million
of cash in 2004. We used approximately $414,000 and $227,000 of cash for the purchase of fixed assets and capitalized patent costs
during the six months ended June 30, 2005 and 2004, respectively.

We used $59,000 of cash from financing activities during the six months ended
June 30, 2005, due to $252,000 of cash used to repurchase our common stock and $193,000 of cash received from stock option
exercises. During the six months ended June 30, 2004, we generated $4.3 million of cash from stock option exercises. Cash
generated from financing activities represents cash from stock option exercises offset by cash used to repurchase our common stock
during 2005.

A table of our contractual obligations was provided in Item 7 in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2004. There were no significant changes to our contractual obligations
during the six months ended June 30, 2005 and we have not entered into any material commitments for capital expenditures outside
of those normal contractual obligations. Purchase commitments for inventory can vary based on the volume of revenue and resulting
inventory requirements. Our cash and cash equivalents and investments totaled $42.4 million at June 30, 2005. With this level of
cash and cash equivalents and investments, we believe that our cash and cash equivalents and investments will be adequate to fund
cash flow needs for the foreseeable future.

At June 30, 2005, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as structured finance of special purpose entities, which
would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, we are not exposed to the financing, liquidity, market or credit risk that could arise if we had
engaged in such relationships.

# OTHER FACTORS

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

As a result of the Kestra Ltd. acquisition we have a sales and software
development office located in the UK. We also have a sales office in Singapore and China. We do not believe that currency
fluctuations will have a material impact on our consolidated financial statements.

14

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# ITEM 4  CONTROLS AND PROCEDURES

a.     Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934
(the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows
timely decisions regarding required disclosure.

b.     During the quarter ended June 30, 2005, there has
been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

# PART II.   OTHER INFORMATION

# ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)     Company Repurchase of Equity Securities

|Period                        |  | (a)Total Numberof SharesPurchased |  | (b)Average PricePaid perShare |  | (c)Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms (1) |         | (d)Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms (1)
|----------------------------- |  | --------------------------------- |  | ----------------------------- |  | ----------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------
|May 1, 2005 to May 31, 2005   |  |                                   |  | 14,600                        |  | $                                                                                   | 12.1639 |                                                                                  
|                              |  |                                   |  |                               |  |                                                                                     |         |                                                                                  
|June 1, 2005 to June 30, 2005 |  |                                   |  | 5,900                         |  | $                                                                                   | 12.4947 |                                                                                  
|                              |  |                                   |  |                               |  |                                                                                     |         |                                                                                  
|Total                         |  |                                   |  | 20,500                        |  | $                                                                                   | 12.2591 |                                                                                  

|(1) | The Company repurchased an aggregate of 20,500
shares of its common stock pursuant to the repurchase program that it publicly announced on May 7, 2005 providing for the
repurchase of 500,000 shares. On May 25, 2005, the Company also announced that it had adopted a 10b5-1 plan to facilitate the
purchase of the shares during periods it might otherwise be prevented by insider trading laws from making such repurchases. Shares
were purchased in open market transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# ITEM 4  SUBMISSION OF
MATTERS TO VOTE OF SECURITY HOLDERS

The annual meeting of shareholders
of CyberOptics Corporation was held at 3:00 p.m. on Monday, May 16, 2005.  Shareholders
holding 8,586,949 shares, or appoximately 96.8% of the outstanding shares, were
represented at the meeting by proxy or in person.  The only matters submitted at the
meeting was reelection of directors.  The following nominees were elected to serve as
members of the Board of Directors until the annual meeting of shareholders in 2006 or
until such time as a successor may be elected:

|                       | FOR |  | WITHHELD AUTHORITY
|---------------------- | --- |  | ------------------
|                       |     |  |                   
|Steven K. Case         |     |  |                   
|Alex B. Cimochowski    |     |  |                   
|Kathleen P. Iverson    |     |  |                   
|Erwin A. Kelen         |     |  |                   
|Irene M. Qualters      |     |  |                   
|Michael M. Selzer, Jr. |     |  |                   

# ITEM 6  EXHIBITS

|31.1: |  | Certification of Chief Executive Officer pursuant to Rule
15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|31.2: |  | Certification of Chief Financial Officer pursuant to Rule
15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes Oxley Act of 2002
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|32: |  | Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

15

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# SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | CYBEROPTICS CORPORATION                                                                                   
| | ----------------------------------------------------------------------------------------------------------
|
| | /s/   Kathleen P. Iverson                                                                                 
| |                                                                                                           
| | By Kathleen P. Iverson, President and CEO(Principal Executive Officer and Duly Authorized Officer)        
|
| | /s/   Jeffrey A. Bertelsen                                                                                
| |                                                                                                           
| | By Jeffrey A. Bertelsen, Chief Financial Officer(Principal Accounting Officer and Duly Authorized Officer)

Dated:   August 9, 2005

---